Whitbread plc (WTB) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Whitbread Full Year Results Call Q&A session. My name is Chach, and I'll be coordinating your call today. [Operator Instructions]. I'll now hand over to Dominic Paul, Chief Executive Officer, to begin. Dominic,please go ahead.

Thank you, Chach. Apologies, everybody, we're starting slightly late. We just wanted to give people enough time to get through the registration process. Good morning, everyone. Thank you very much for joining our call for the Full Year 2024 Preliminary Results Q&A. And I'm joined by Hemant Patel, our Group CFO. Hopefully, you've had a chance to listen to our webcast and review our materials this morning. I'll start with a brief overview, for those who haven't seen it, before opening up the call for Q&A when Hemant and I will be happy to answer your questions. We've had a fantastic year and have delivered our highest level of profits and cash flow since becoming a focused hotel group. Our U.K. business is the key driver behind this performance, with our hotels outperforming the rest of the mid-scale and economy sector and delivering strong revenue growth. Our continued focus on delivering material cost efficiencies meant that profits and margins were significantly ahead of last year, and our U.K. business achieved its highest ever level of return on capital of 15.5%. In Germany, we have continued to make really good progress. We added over 1,400 rooms this year and reduced our losses, reflecting the continued maturity of our estate and a much improved trading performance. We set out today a number of initiatives that will deliver a step change in our financial performance. In the U.K. we're taking advantage of the structural decline we've seen in hotel supply by optimizing our food and beverage offer at a number of our sites to increase our room growth through our Accelerating Growth Plan. This will grow our room's pipeline by 50% over the next 5 years and take our open U.K. estates to over 97,000 rooms. These changes are expected to result in a one-off reduction to U.K. profit in full year 2025. However, by replacing loss-making restaurants with higher-returning hotel rooms, together with our strong commercial program, we will increase our market share and deliver increased profits, margins and returns. As you would have seen, the U.K. market has been slightly softer in the first few weeks of full year 2025. However, our outperformance versus the market has continued, and our forward booked position is well ahead of last year. With our plans announced today, we have a clear pathway to extend our market-leading position even further. In Germany, with over 16,500 rooms now open and committed, we are focused on building our brand awareness and refining our trading strategies and are on track to break even on a run rate basis this year. This is an important milestone on our journey as we progress towards our target of 10% to 14% return on capital and becoming the #1 hotel brand in Germany. In support of the first two priorities, we have created a great foundation for future growth, following the successful upgrade to our reservation system, which will increase our digital agility and unlock significant future commercial and operational benefits. At the same time, we have launched Premier Inn's biggest-ever cost efficiency program, which will drive increased savings and support margin growth. Given the strength of our performance, our robust balance sheet and confidence in the outlook, we are declaring an increased final dividend and further GBP 150 million share buyback. And this will take our cash returned to shareholders since April 2023 to over GBP 1 billion. Before we move to Q&A and in the interest of time, please, could I ask you to try to keep to a maximum of two questions each. And with that summary, I'll now hand back to Chach to host the Q&A.

[Operator Instructions]. Our first question today comes from Vicki Stern from Barclays.

Yes. So first one's on RevPAR and, specifically, your performance versus the market. So I see that you're talking about outperforming the market in accommodation sales by around 1%. But it does look like, from a RevPAR perspective, you're more in line with that market RevPAR where you were obviously outperforming previously. So could you just update us on your confidence in terms of outperforming from a RevPAR perspective going forward given the various levers you've talked about there? And then perhaps why that didn't play through so much in Q4 and Q1 so far? And then the second one is just on the cash returns. I'm curious, how did you land on the GBP 150 million being the right amount? And how are we thinking about cash return potential from here? It seems like you're sort of going back to doing more sale and leasebacks. I'm curious on your appetite there to turn the estate on an ongoing basis and potentially then have more sort of share buybacks going forward?

Thanks, Vicki. So let me answer the first part of that, but I'll also ask Hemant to come in as well on it. I mean, I guess, it's important for us to reiterate the point that the plans we've announced today actually give us real confidence about driving our returns up over the next few years. I mean the accelerating growth program, we think, is really exciting. We've also announced, as you know, this efficiency program. But we've also got these commercial levers open to us, which, we all believe, we're really great opportunities for us, particularly with the new digital stack that we've now got. The brand is in really strong health in the U.K. Our value-for-money scores are actually at an all-time high. So we look at the Premier Inn business in the U.K. overall and can see that we've got levers open to us and current performance that suggest we will continue to outperform the market. And as I said in my introduction, we booked ahead -- well ahead of the same time last year. So we do think that we will be able to continue to outperform the market. But actually, kind of, as always, more importantly, we're looking through that, too, and saying we are setting this business up for a really successful next few years with increased margins and returns. In terms of the -- and then I'm sure Hemant will build on the RevPAR question. But in terms of the cash returns, I mean, I think Hemant has done a really nice job on laying out the capital allocation framework. And every time we've spoken through the results, we've talked about dividends and share buybacks within the context of that capital allocation program. And in the same way that we've done before, we've applied that capital allocation program, and that's how we've ended up with the dividend that we've announced today and a GBP 150 million share buyback. Obviously, we will have another opportunity to work through the capital allocation program at our half year results. But you're right about the fact that we've talked a bit more about recycling capital and doing some sale and leasebacks. We are seeing some positive signals in the market. We've got an amazing balance sheet. We've got a majority of our estate is freehold property. That does give us optionality as to how we make sure that balance sheet continues to be efficient and how we use our capital in the best way, both to invest in the business to drive profitable growth, but also to reward our shareholders in the right way.

Yes, just to finish off on capital allocation before I circle back on current trading. As Dominic says, yes, we are -- we use that capital allocation framework. And the way we talked about it, if I remind you, with the context of remaining investment-grade, we want to continue to invest in new room growth in selective M&A and high-returning M&A into our estate and then maintain our very transparent dividend policy and then, obviously, return excess capital to shareholders on that basis. So by guiding this year to GBP 175 million to GBP 225 million of disposals, capital disposals, that will help offset our capital program overall. It feeds into that allocation framework overall. We've set out the GBP 150 million share buybacks for the first 6 months of this year, where we'll reapply the framework at half year, depending on the situation at that time. So we've been very transparent and very consistent where we apply that. Circling back in terms of current trading, the only thing I'd add to what Dominic was saying, that clearly, as the largest player in the U.K. with the largest network and the strongest brand, we tend to do very well in periods of high demand. And we tend to outperform the market, both in absolute terms and also RevPAR, in periods of high demand despite the fact that we have got the strongest and largest network. That mitigated slightly during periods of low demand. You can see that as a pattern through the year. We have, over the full year FY '24, outperformed the market consistently in terms of year-on-year growth. and in terms of our RevPAR premium, we've been ahead of the market, as you say, the key, over this last -- first 7 weeks. We're roughly in line in terms of RevPAR, but that's because it has been slightly weaker as a demand period overall for the market. As we -- as Dominic said already, we're in a much stronger position now, and our book position has been building, improving over the last few weeks. So hence, the confidence we have going forward. We are 30% booked for the first half of this year. And as Dominic says, we have an occupancy level similar to this time last year, with higher ARRs. That's not an insignificant amount of proportion of bookings. So that's why we've got the confidence that, actually, as demand gets stronger seasonally through the next few months, we expect to continue to outperform and probably extend our outperformance to the market based on what history shows us.

The next question we have is from Jamie Rollo from Morgan Stanley.

Two questions, please. First, on the restructuring of food and beverage, you're keeping about 200 pub restaurants, I think. Just really wondering how profitable those are. What makes them different to the 240 you're selling or converting and your sort of confidence level that those 200 won't sort of continue a declining trend like the ones that are going? And then on Germany, obviously, 400 rooms this year, much, much slower than the last couple of years, particularly so in relation to the pipeline. What's driving that? Does it, in any way, relate to the impairment you took? And when do you see the expansion sort of picking up a bit?

Thanks, Jamie. So let me cover the food and beverage question first. I mean I -- and at the half year, I remember we had questions and discussions about that. Actually, I think the solution we've come up with here is really neat for the business overall. I mean what we did talk about the half year was it was really important to us that we protected the guest experience through this. The guest experience is clearly one of the factors that drives our outperformance in the market. That chart with the YouGov survey were in the top right-hand corner. It's really important that we protect that position because, at the end of the day, it drives customer loyalty and it drives higher average room rate. So it's really important. And I think the solution we've come up with here absolutely achieves that. It will mean that we'll be able to actually come out this with a better guest experience. Our integrated restaurants generally have higher guest scores. At the same time, that's adding rooms into hotels, where we know that there is effectively more demand than we can service at certain times of the year. So extensions are a lower risk, more profitable way for us to grow, and we removed the drag of the lower-performing branded restaurants. So from that perspective, it's a win-win, and it improves the guest experience overall. When we looked, and we literally looked at this on a site-by-site basis as to how do we optimize the entire estate, we then -- the numbers of restaurants that we retain are 196. They generally are larger restaurants attached to our larger hotels. So they do perform better than the ones that we will be replacing and selling. And we're actually pretty good at running restaurants, particularly the larger ones. So I think we'll be able to run those 196 restaurants well, generally larger restaurants that support the larger hotels. And then the key thing that we're focused on now is executing this change now, which is managing the extension build program really effectively. Because I think that's going to be a really significant tailwind for our business over the next few years, both in terms of the returns, but also in terms of the guest experience. And then just talking about Germany, your question on Germany. I mean, you probably picked up from our tone, we're feeling good about Germany. We've got really nice momentum building there. We've got a local leadership team now in place. Our performance versus the market, particularly in our more established hotels, is picking up really nicely. So our momentum in Germany is good. You're right, the number of room openings this year is relatively low. We do have 6,000 rooms in our pipeline in Germany. So that comes on stream over the next few years. So we will see that -- those openings accelerating. Part of the reason it's lower this year is it's a bit of a hangover from COVID, where there was kind of virtually no development going on in Germany at all. So we've seen the same thing in the U.K. And remember, our competitors don't have particularly strong pipelines of growth. So actually, we've got the biggest pipeline of growth in Germany. So you will see that number picking up. But probably, most importantly, is to say, we're not chasing growth for growth's sake. We are driving increase -- we're focused on driving increased returns in Germany, getting to that breakeven run rate and then getting to the 10% to 14% target that we've put into place, and we're feeling good about the progress we're making there.

And I'll just add on the room growth in Germany. As Dominic mentioned, we obviously had a couple of years where it was difficult to add to the pipeline. And the pipeline now is skewed to the back end over the next few years. It does mean that if we continue to add to the pipeline, as we have been, the current run rate we've been in over the last couple of years, we'll continue to grow that pipeline overall over the next couple of years. So as Dominic says, we're very returns focused, but we still see plenty of opportunity to grow.

The next question on the line is from Leo Carrington from Citigroup.

If I could ask on the U.K., specifically, the phasing of the openings. I think your guidance for 2025 is also for a bit of a slowdown. Can you elaborate on why is it the same reasons as in Germany? And then in terms of taking that 97,000 target in terms of the openings from FY '26 onwards, can you give any guidance on the phasing now? Or is it just sort of straight line or thereabouts? And then secondly, a follow-up on the RevPAR question. What do you see as the reasons for the softness or the weakness in demand year-to-date? And aside from the points about your bookings, which is well-taken, why does this start to improve, do you think?

Yes. Okay. Thanks. Leo. So let me -- from a growth perspective, so you're right, our openings this year are relatively lower than they have historically been. That's primarily for the reason that Hemant just said, really, which is, during COVID, two things happened. One, we tightened up our pipeline of future growth. We actually stepped away from some sites or optimized other sites where we could see better opportunities. But also, of course, in the middle of COVID, it was quite hard to get sites agreed and approved and developers weren't really developing sites. So our pipeline, therefore, this year is slightly lower than it has historically been. It's really important to underline two things, though. One, it is actually -- the situation is much more extreme with our competitors. We -- our pipeline, particularly this Accelerating Growth Program that we've outlined today, is greater than all of our competitors put together. So we will profitably extend our market share position over the next few years. And two, this, of course, is one of the underpinnings for the hotel market performance over the next 4 or 5 years, which is wholesale supply in the U.K. is materially down versus pre-pandemic. And we are not seeing that hotel supply coming back to pre-pandemic levels until at least 5 years, and frankly, probably longer than that. So I think that will be one of the underpinnings in the U.K. hotel market over the next 4 to 5 years. The plan that we've announced today, the Accelerating Growth Plan, enables us to profitably take advantage of that reduction in supply. So we'll increase our room's pipeline by 50%, 3,500 rooms over the next few years. We will see those rooms come on stream, most obviously, during '27 and '28. At that point, we will -- it's really manageable growth for us within the context of an estate of over 85,000 rooms. But it also does mean we will be extending our hotels at a time when our competitors can't grow. And back to the point that I've said to Jamie, extensions are our lowest -- lower risk, most high returning way of growing. So we think it's a really neat solution for growth. But most of that growth pipeline will come on '27, '28 and '29.

And then we're going to get to 97,000 rooms, is what we're saying, by FY '29. That level of growth, taking our pipeline up to 10,500 rooms or so, as Dominic says, with a lot of confidence because of the extensions -- the extension plans, which we can control. It's one of the advantages having a freehold estate as well. So we've got a lot of confidence we'll be able to continue to grow to that -- to those levels. Second question was on RevPAR.

Yes, I think the second question, Leo, was about what we're seeing in the market and the -- and are we seeing any change in patterns demand? Was that right?

Yes, exactly. Just sort of the underlying reasons of weakness year-to-date and the improvement made.

I guess, a couple of things, I'd say. One, if we kind of step back from it, this reduction in hotel supply, I think it will be a really important underpin for the hotel market over the next few years. And within the context of that, we're not expecting to see any material shifts in the demand situation overall. And we're seeing from our own numbers, for example, business demand is remaining really resilient. Actually, I think there could be an opportunity for that business demand to continue to increase. We're seeing peak leisure demand is strong. It's the off-peak leisure demand, where we've seen some changes in the pattern, but it's a very unusual time of year. So holiday dates have moved quite significantly this year versus last year. That sounds odd because, of course, Easter changes every year, but actually, it was materially earlier this year. I know some people in the industry have said the weather probably hasn't helped either in terms of some of that leisure demand, and they might be right on that. But we're not seeing any material shift in overall demand. And as Hemant said, actually, we're booked well ahead of same time last year. And that ahead position has actually strengthened over the last few weeks. Certainly, when we speak to some of our analysts, for example, they point to the fact that actually consumer confidence has got a little stronger over the last 6 months or so. So I think that will probably flow through to support the hotel industry as well as we go through the year. So kind of to answer your question, it's a bit of an unusual time of year overall. And we're not seeing any really material shifts in hotel demand. And we still believe that this reduction in supply will provide a very, very strong underpin overall to the hotel industry over the next few years.

Of course, the context here is that we are certainly trading 50% higher than we were pre-COVID. We had -- it was a very strong year last year, particularly for that off-peak leisure demand as well. So 1 or 2 points here or there year-on-year in relative terms is relatively immaterial. Clearly, the biggest focus for now is on those midweek and longer lead ledger where we see a lot of strength, and we continue to trade those really hard.

The next question is from Alex Brignall from Redburn Atlantic.

The first, on room growth, obviously very difficult when you look at consensus numbers, but visible outlook has sort of 4,000 new rooms this year for the next year and then 5,000 the year after that, just on a group level. Obviously, your room rate this year has been much lower. And I think, yes, that's going to be similar. So even if we add in the 3,500, it seems like numbers need to come down in terms of new rooms. So could you just talk about how the modeling of that drops through into numbers because that's a contribution from new rooms within profit contribution. And it feels like Germany is somewhere where profits are more of a focus on growth right now. The second one is just in terms of RevPAR. So in January, you said that your bookings were ahead. But obviously, RevPAR has been down year-on-year for kind of the last 2 months, like, a meaningful amount. So it's come in worth having -- with you being ahead. What's been amazingly consistent is just RevPAR versus 2019, which has kind of been in the high 20s, and we're coming up against very, very tough comps. So I guess, my question is, why do you think that it's going to get better year-on-year? And that sort of advanced forward booking position, do you think that might be giving you sort of a bit of false confidence given you did have that situation in January and then you were down year-on-year. So is the closer in-trading weak? Or is it to do with how you're managing your booking process to have more upfront and then you can have a bit of a challenge overall?

Yes. Thanks, Alex. I mean, I think, let's say, okay. So obviously, a few questions in that. So on the first one in terms of room growth. I mean, this is why it was important to us to put this milestone out of 97,000 rooms. So by full year 2029, we'll get to 97,000 rooms. That is ahead of what most people had in terms of their models and assumptions about our growth. The phasing might be slightly different, but overall, we feel confident looking at the numbers out there, that this is showing increased growth versus what most people were expecting. And the other benefit of the increased growth is that, that growth comes as strong margins and returns because of the way that we're getting that growth, which is by adding extensions, higher returning and moving the drag of the lower-performing branded restaurants. So net-net, overall, we get to a position where we have put in a milestone today of growth, which is greater than, we believe, most people expected. And the way we're getting that growth is in a really attractive returns and margins way. In terms of the kind of bookings and the booking position, I think the key thing is that it plays into Hemant's point, which is we, as a business and a brand, we performed particularly well versus the market in higher demand period, and we're going into the higher demand period now. So the quarter 1 period that you alluded to is generally the slightly lower demand area. So we would expect the outperformance to be relatively lower than we would do in a peak time. And ultimately, we can only see the data that we can see. And the data that we can see says we are well -- but well ahead of last year that demand through most of our segments is looking resilient and that we've got commercial levers that are at our disposal. So whether that's our new technical platform, which enables us to increase the speed and agility of some of our digital activities, or if some of our kind of brand levers that we can pull because we're the #1 in the marketplace. We do have commercial levers open to us. And our pricing engine does operate at its best relatively -- during relatively higher demand times. And those are -- that's more the market that we're entering now from a timing point of view.

The great thing, Alex, I'd say, and I understand completely where you're coming from in terms of our book position. When we talk about our Q3 results in January, was looking positive at the time. But the pace, the rate it was changing, it was, over that time period, as you know, through December, from the last of November, December into January, February, we saw the market contracts slightly -- sorry, the outperformance reduced in the market year-on-year. So it was moving downwards at the time. What we're seeing now is, for the past few weeks, we've been seeing our booking position start to accelerate. So again, you're right, we can't know for sure what's going to happen going forward in the market. But as we see it, we see that book position in good place and improving. And that's what's giving us confidence as well as the fact that, actually, we have these commercial levers that Dominic talked about will allow us to continue to outperform the market as we get into peak period.

And I guess, the other thing to say is, Alex, as you've been following this sector for a long time, you'll know this from pre-pandemic. I mean markets bounce around quarter-by-quarter. It's hard to call it. Again, if we step back, one of the questions we got at half year was, "Your returns are exceptional. Is this a high watermark for your returns?" And what we've outlined today enables us to say, no, this is not the high watermark for our returns. We are making structural changes to our business with the Accelerating Growth Plan, which will drive increased returns over time. We have also -- and this is, again, we've got questions about this at the half year, which is, "Your budget business is so efficient. How can you continue to drive efficiencies?" We've, today, announced the largest ever efficiency program as a business, and that's just by good, old-fashioned, tight running of the business, which we are committing to do. And we're making really good progress in Germany. So the market numbers might bounce around a bit over the next few months. Let's see. We're in actually a good book position, which gives us a level of confidence going through the year. But I think the bigger news today is the fact that we are clearly saying that we have got confidence in driving our returns and margins and improving our guest experience as part of that through these changes that we've announced today. And we've got increasing confidence in Germany. You've just pointed the fact that hitting kind of breakeven is a key thing rather than growth. We are still growing in Germany. We are committed to keep growing in Germany. But you're right, we are really focused on hitting -- or getting to profitability in Germany. We feel good about the trajectory that we've got in place there.

I guess, just as a follow-on, are you comfortable with the fact that U.K. Tier 3 pricing is kind of up mid- to high 20s, and now U.S. Tier 3 pricing was down 7.5%, and it's been down versus 2019, by the way. This is down naturally year-on-year for the last kind of 13, 14 months, even though the supply picture is about the same. Do you think that discrepancy in terms of over the last 5 years makes sense in a similar supply environment?

Yes. I think -- well, I think, there are some differences between the U.S. and the U.K. So there is a greater range of competition in the U.S. And actually, I think the supply situation in the U.K. is more marked.

We would consider -- yes, we think the supply reduction is actually -- it's been sharper in the U.K. than the U.S. But I don't think you can just compare what might have happened in the U.S. The reality is, we're looking at what we can see on the ground. And as we say, we've been very transparent with how we're trading, what the book position is, which is what's giving us the confidence.

The next question is from Richard Clarke from Bernstein.

A couple for me. Just the first one. I guess at the end of the year, you've got to 2.9 net debt to EBITDA. It looks like that will probably tip over 3% next year, if I add everything together. What is the current thoughts on sort of leveraged ceiling? You should still have about 3.5 net debt-to-FFO. You don't seem to report that anymore. Is this a temporary position? Or are you happy being north of 3 turns of EBITDA? And then just second question. What are you building into the disposal assumptions this year on those restaurant disposals? I guess, if these are loss-making and they're going to lose the Premier Inn breakfast business, how confident are you that you can find buyers for those restaurant sites?

Yes. Shall I just kick off? Richard, on your question on leverage, yes, I mean, yes, we've said our stated kind of ceiling on leverage is about 3.5x, which, working with our rating agency, Fitch, would allow us to remain comfortably investment-grade. We know that. And we know that's important, that will be more important over the next few years with nontrivial interest rates and as we refinance. So we've been very clear about that as a kind of stated ceiling. And are we comfortable going over 3%? Yes, I'd say, being below that 3.5% threshold is important. There's a range that we're working below that. We also want to give as well enough headroom to be able to take advantage of attractive high-returning freehold opportunities or potential bolt-on M&A as well as the capital plans that we're talking about in terms of core new room growth or refurbing estate and, indeed, the Accelerating Growth Plan that we talked about today. We have other sources of capital, obviously, in terms of the freehold estate we have that can support that as well. And we talked about sale and leasebacks. So yes, there's nothing -- there's no reason for us to not work within that kind of range below 3.5%. Clearly, for the sake of some level of prudence, not going to -- not repushing that, but I feel very comfortable with where we are at the moment. We just announced GBP 150 million share buyback. That, for the next 6 months, we'll be reapplying that framework, as I've said, at the half year. And we'll see what that might bring, depending on the situation we're in. But it does mean we've got a little bit of headroom to work in. And then just into your second point, just to kick it off, and Dominic might say something else. But just in terms of the disposal of the restaurants. We've guided to overall disposal of GBP 175 million to GBP 125 million this year. We're not giving any more detail on exactly what we're expecting to see from the restaurant disposals within that. But that's made up of sale and leasebacks, where we've got some confidence we're going to be able to transact with sale leasebacks in the first quarter of this year and into next year, up to probably something like GBP 70 million or so in Q1, something in that range. A few other development disposals, but also the disposal value of the restaurants. We've also announced, obviously, that we've already sold 21 restaurants for a consideration of GBP 28 million. Not that, that should be a guide to what we might see for the rest of the restaurants does show that there is a market there. We have got a number of assets here that I think that have got value. As we've are loss-making as a cohort. But with that group, I think there are restaurants that have got the potential. In fact, we think almost all have got potential for the right owner to have some value. And I think early indications from -- as we've started to market them, it would indicate with the other that, that we're right to think about.

So yes, just -- I guess, just closing out on that. From a balance sheet perspective, we're in a -- we've got a very strong balance sheet, and we've got some -- a lot of flexibility. And as Hemant said, it gives us the optionality about recycling some of that capital. And then in terms of the disposals, as Hemant said, we're underway now. We've got fairly conservative assumptions on the pace of disposals. We've got some great sites, as Hemant said. In terms of your comment about breakfast, actually, breakfast isn't a key driver of profitability for these restaurants. It's generally lunch in the evening meal, which drives the performance. So we're underway. It was good to be able to announce that we've already completed 2021 sites.

Okay. Maybe if I could just one quick follow-up on capital allocation. I guess your dividend this year grew pretty much in line with adjusted EPS. It feels like EPS is probably going to drop all things added together this year. What's the dividend policy in a year of declining EPS?

The dividend policy that we've stated is that we will move dividends in line with earnings. And we haven't said any more than that. And at the moment, that is part of our capital allocation framework, and there's nothing else to add, really.

The next question on the line is from Tim Barrett of Deutsche Numis.

First topic was just to understand the modeling, the pub restaurant disposals, a bit more detail. Eyeballing Slide 38, it looks like it's about a GBP 60 million uplift on the conversion on the new rooms. If I'm right, that's about GBP 17,000 a room, which is well ahead of the current estate. Is it simply the fact they're freeholds? Or can you just share a little bit about whether I've got that right? Second question, I haven't talked much about cost efficiencies, but should we be thinking about GBP 50 million a year or about a 3% offset of inflation? And I guess, could we think -- could we really be looking at pretty low net inflation in 2026 as a result?

Yes. So if I take those, Tim. So in terms of disposals, yes, we are talking about GBP 17,000 per room. That is about right. They are -- these are low return, low freeholds. Obviously, there's no extra freehold cost rooms. So they are relatively low-cost rooms for us to build. And the -- if you -- as you say, on Slide 38, you can see that the majority of our FY '29 improvement in profit of GBP 80 million to GBP 90 million, about -- yes, you're right, about kind of like GBP 50 million, GBP 60 million of that is coming from those higher-returning hotel rooms. It is simply because, as I say, we have got overconfident because we've got very strong digital data to understand exactly the loss of revenue that we're seeing by not being able to service the demand that comes into these catchments. And we can clearly compare that to catchments where we do have very similar catchments, similar characteristics with high levels of room presence. So yes, we've got a lot of confidence in our ability to convert those. And clearly, to say these are rooms with low freehold cost because, effectively, we have -- we've got the buildings already or potentially going to convert those already. I should correct myself. It's about GBP 14,000 EBITDA per room is what you should be modeling there. To your other point, which I've now forgotten, on the cost efficiency side.

Cost efficiencies.

Yes. Yes. So yes, the GBP 150 million we've announced, I mean, now slightly, as you would expect, a lower cost base because we will have disposed of some restaurants. So as a percentage, the GBP 150 million over the next 3 years is the highest ever efficiency program that we've announced. But we've got a lot of confidence in our ability to deliver that. If I just give you a little taste of that, and then I'll explain what, to your point, kind of the net impact of it. The kind of things that we can do as part of our efficiency program. Clearly, we've got a large labor base. I think I probably said it forth on these calls. It doesn't take much in terms of the housekeeping routine, a few seconds per room makes a big difference in terms of the overall labor bill. And the kind of things we're doing, we are rolling out ID5 rooms, our newest forms of rooms are much easier to clean. We're trying things like robot hoovers, we're trying to get amenity trays where, for instance, Tim, coffee, as it gets refilled in a room, we're just sliding them in a high tray that's been prefilled rather than having to do each of the individual consumable items. We are investing in energy-saving initiatives such as moving gas grills, introducing electric drills, which are better for the environment, obviously, but also reduce costs. We're reducing IT costs. We've got a strong procurement improvement program as well. So costs tend to be part of the cost base. We've got strong initiatives. And we've got a lot of confidence we have to deliver this level of gross savings. You're right, depending on what happens with inflation and, obviously, inflation is forecasted in the next year it's going to kind of come down. We would expect to see, therefore, our net levels of inflation become lower. We're not saying exactly what that would get to because it very much does depend on that inflation levels. But the GBP 50 million -- so GBP 150 million, rather, over 3 years is based on our expected cost base and how it's going to grow. And so it's an absolute number. And therefore, how do you see if inflation levels are lower than our cost savings will be -- will potentially fully offset. So it will offset those -- to reduce at a much lower level of net inflation into potential deflation. But it does very much kind of -- what those kind of gross inflation levels look like.

I think, Tim, that's why -- I mean that's why we think what we've outlined today is so powerful. I mean the accelerating growth program enables us to add capacity at a time when our competitors are really struggling to add capacity at very strong returns. Because, as Hemant says, there are extensions. We've got a very clear picture of the demand situation for extensions, but also that they're our highest returning way of adding growth. And we're removing the drag of the lower-performing restaurants. So it's a double advantage there. We've also got levers to continue to drive the top line performance of this business, but we're not being complacent about that. And that's why we've also announced our largest ever efficiency program, which, I think, will do two things. One, I think it will drive increased margins and returns over time. It also gives us that fuel for profitable growth overall. But I think that's why, today, we think what we've announced is such a powerful set of initiatives.

The next question is from Ivor Jones from Peel Hunt.

Can I just check a couple of points on returns on the Accelerated Growth Plan. And sort of following on from what Tim said, GBP 500 million for 3,500 rooms seems to be GBP 140,000 of room on space you already own, which seems high. So I feel I must have gotten something wrong. Or is that the very upper end of the cost band? And then related to that, if I knock GBP 25 million of the GBP 80 million of targeted returns, GBP 25 million coming from the pub improvement, and end up with GBP 55 million of returns on GBP 500 million, again, I'm getting to sort of 10% cash return on cash expected. Is that the bottom end of a broad range in terms of your expectations? Or have I got those numbers wrong?

Thanks, Ivor. Yes. Let me -- yes, let me just explain. Yes, so the GBP 500 million isn't just the cost of the room, it's the cost of creating integrated restaurants across all of those, what, 240-odd sites where we are either converting or reducing -- or either converting or disposing of the restaurants. So yes, you're completing two things there. The actual cost in terms of the extension, the extension part of that cost is much more efficient than new rooms. We had a new hotel because, obviously, there isn't a freehold there's the whole building to move in. So that's one thing. The other thing is, yes, the GBP 25 million is a one-off cost this year -- net cost this year made up of the disruption that's going to be caused for -- through the restaurants that we are going to sell. So we expect to see disruption and, therefore, reduced revenue from those restaurants while we are selling them. We expect to -- also, as we are converting restaurants to the integrated branded restaurants, the integrated restaurants, we are going to see a reduction in sales before we've seen a full reduction in cost. So there's a timing part there. Once we are through that and over the next couple of years, so it will be this year and into next year, next year, that GBP 20 million, GBP 25 million will have reversed. So we'll be net flat to, as an overlay, so not doing -- do nothing as it were, will be net flat because, by that time, we'll -- the loss-letting restaurants, we'll have sold them all. And we will start to see the benefit of those coming through, offset by the final transitory costs that we have in next year. The year afterwards then, we start getting to the GBP 40 million or so improvement in PBT in FY '27, which will be about GBP 30 million or so of the reversal of the loss -- from the loss-making restaurants because we sold a lot of those, and we'll start to see the benefits of the extension coming through. And then finally, at the end of this, GBP 80 million to GBP 90 million will be both at reversal of the loss, but also the benefit of the extension coming through when we get to 3,500 rooms open in FY '29. So that's the way to think about it. So I think you're netting off the loss, assuming -- the additional GBP 20 million, GBP 25 million, assuming it continues forward, it doesn't -- it's reversed. And it's net all everything [indiscernible]

[indiscernible] of the GBP 80 million, GBP 90 million uplift, GBP 25 million is coming from not having the loss-making restaurants. So GBP 55 million coming in to the GBP 500 million investment.

I would say, yes. So no, no the GBP 500 million isn't just the extension cost as part of it. So the way I'm thinking about this, we're investing GBP 500 million, we're going to make GBP 90 million more a year overall, just in terms of overall cash improvements. As part of that, the extension part of that is, say, GBP 50 million, GBP 60 million of that uplift in the end, and then part of that GBP 500 million if we were to look at it. I'm very confident that what we're doing, a, is going to be blocky accretive the business in both parts of it, in aggregate, but in each part of it as well. I'm also very confident it's really low risk. Removal of a loss-making business unit, we know exactly what that looks like. And clearly, we've gotten, as I said, very good data in terms of understanding how extensions will work because we've got the history of being -- of knowing exactly how extensions work and very strong data in terms of digital data that tells us where the demand is that we're not able to service. I hope that makes sense.

Can I just press you one more time on this. FY '29 profit would have been GBP 25 million higher if you just shut the restaurants. So you're only showing a GBP 55 million improvement relating to the GBP 500 million. I'm trying to see if you're going to say that is a low-end expectation, given what you said about the high return on extensions.

Yes. You're assuming the GBP 500 million is entirely expensed. It did not. It's also creation of integrated restaurants.

But it's tough to get your GBP 500 million to get the GBP 80 million return?

It's GBP 500 million to get GBP 80 million to GBP 90 million return, yes.

GBP 25 million, of which you would have got simply by shutting the restaurants and investing in the redundancies?

But we would have had to create integrated restaurants. So some of that capital, the capital would have been lower if we -- if we just shut the integrated restaurants, we would still have to invest capital to -- sorry, if we'd just shut the branded restaurants, we would still have to invest in integrated restaurants. We'd have to spend some capital to do it.

And I guess the point -- your point you're scratching at is a bit of inherent caution in the numbers that we put out, yes, of course, always.

Because we like beating numbers.

The next question is from Estelle Weingrod from JPMorgan.

Just two questions from me. I mean the first one on the new plan and to come back on your last point, Dominic, how conservative are you in your assumptions? I mean, does it include some potential disruptions on the existing rooms at the time of the conversion-related construction works, for instance? And the second question is on Germany. Can you just update us on the latest development? I know you've been trying a few things there, like the use of OTAs and trading engines and so on. And perhaps your views on IHG plans to expand further in Germany.

Estelle, can you just make that -- I didn't catch your final point there? Your what these 2 plans, did you say?

IHG. IHG.

Oh, the IHG.

Yes. No. So I'm telling you there were -- yes. Okay. Cool.

Yes. Okay. Got it. Got. Got it. Yes so I think, I mean -- I think as a business as Whitbread, we are -- our longer-term assumptions and milestones we put out always have an element of caution around them because I think -- we believe that, that's appropriate. All of that said, the plans that we've announced today, we've got really good data to support the assumptions and why we feel so confident about what we've put out today. So to your point about do our numbers assume some kind of disruption, for example? We are really well-run business operationally. So we have got very tight plans in place to support those restaurants that will be announced today that we'll be selling. We've got squads of teams going around to help any sites, if, for example, we have any labor shortages in any areas. We've got Squadsetup to support those sites, to ensure that we continue trading, okay? In terms of the assumptions about the extensions, we've got really good data on this. We've been doing extensions for years. We can see exactly the impact that an extension has from a guest score perspective, and then both during the building period and then coming out of that building period. Because of course, remember, at the end of this, we end up with a materially enhanced guest proposition, which will support our drive to increase revenue and bookings from our guests in the future. So we have modeled it based on data that we've got built up actually over years of history. And as Hemant said, this is one of the reasons why we can say with confidence that this plan will work because we have got a well-trodden path of adding extensions to successful hotels, and we can see the performance of those extensions. That's why it's our lowest risk, highest returning way of leveraging growth. So yes, the assumptions are data-led, and we've put that together very carefully in the model. In terms of Germany, I mean, you're right, we've discussed today about increasing confidence in Germany. That's being driven by a few things. One, let's just look at the data and our more mature hotels now are outperforming the EMS market in Germany, which is great, and it shows a really good trajectory over the last 6 months in particular. That's being driven by a few things. One, let's look we we're building scale in Germany. So we are getting better known with 59 hotels now open and 30-odd more in the pipeline. We're trialing wider distribution. The early signs are really encouraging, but we're going to go through a full customer cycle to ensure that the final decision we make is absolutely data led. But the early indications are encouraging. The element of the Booking.com trial that is really interesting is looking at the guest scores. Our guest scores of Premier Inn on Booking.com are generally higher than our competitors. That's based on quite a lot of guest data. That's really encouraging. It shows that our core customer proposition is working really well in Germany. And as we widen our distribution and pull our commercial levers, we're seeing that performance improve. And we've also, with a local leadership team now in place, we're moving forward with confidence about how we build the brand around the Edges of Sleep and the things that have made us famous in the U.K. So we'll be starting our first brand campaign, which we're doing digitally to make sure it's efficient, over the next few weeks. The IHG news you allude to is buying a business that's going to add capacity. I guess, from our perspective, it underlines why growing in the hotel industry is actually quite challenging. This is taking existing hotels. It's not adding more supply into the hotel market. It's taking existing hotels and rebranding them over a multiyear program. I guess what it does do is underline that quite a few players at the moment are looking at Germany and seeing how attractive the market could be. That's why IHG are looking to expand in there. That's why Motel One continues to perform well and look to expand. So I think actually, it reinforces our view that Germany has got good potential. It also points the fact it's still a really fragmented market. There's no clear market leader there, which is an opportunity. It's not adding more supply into that market. And I guess it adds to our overall confidence about, a, Germany being a great market; but, b, us building the right level of momentum in that market. We have only got time for just one more question, Chach.

For our final question today then, we have Jarrod Castle from UBS.

Great. Sometimes the topic is hashed. But -- just interested, when you sell the restaurants, are you selling a part of the property? Or are you doing a leaseback? And if you're selling a part of the property that the restaurant is on, how are you valuing it? Or if you're doing a leaseback, how are you calculating the value to base the rental on? And then secondly, you obviously think buybacks are better than M&A at the moment. Is that because there's no opportunities or because the prices aren't right?

Yes. Jarrod, let me take the second part of the question first, actually, on M&A. I mean we're really disciplined with M&A. We have done some M&A in Germany. We recently did the purchase of the 6 hotels, the Acom purchase, which will actually work well for us and is working well for us. So we continue to look for opportunities like that. There are some large M&A opportunities in the hotel market at the moment. The prices are really, really high that people are talking about. We wouldn't be bounced into doing M&A at the wrong price -- that's at the wrong price. So it's really important, we think, to be disciplined. We've also got great organic growth opportunities for us. I mean, we've underlined today that we think there's the growth potential to get to 125,000 rooms in the U.K. That's a growth of nearly 50% compared to where we are today. And we put the 97,000 room target milestone in there for full year 2029 to show how serious we are doing that. I think we've come up with a really innovative way to get that growth. And there's more growth opportunity in Germany. So the first thing you said, we've got organic opportunity. It's interesting M&A comes up at the right kind of price. We always have a look at it, but it's got to fit our investment criteria. And at the moment, we think investing in our core business and driving what are record returns, and we think those returns are going to continue to increase. And actually, giving returns to shareholders through dividends and share buyback is appropriate. And I think that shows a good capital allocation policy in operation. I think in terms of the question about the sites. Yes, in most instances, and let's take the 21 sites that we have sold for GBP 28 million, we're selling a part of the freehold for those sites. Again, it's very clearly defined hotel versus a restaurant. So we sell the little parcel of land at the restaurant itself is on. Again, this will be doing that deal will be highly returns accretive for us. If we're selling the site, it means that an extension doesn't work for us at that point. It doesn't work for us at that site, and that can be for various different reasons, normally planning-related and site-specific related. Therefore, the most efficient use of that freehold land is actually to sell it for a attractive market rate, and that's why we're taking the approach that we take.

Yes. And as Dominic said, Jarrod, the vast majority of our sites are freehold. There are a few leaseholds, where we would need to potentially sublet them effectively, short leaseholds, but most of them are freeholds and long leaseholds. We are quite more practiced at doing this. We've sold pub restaurants in the past. We have some co-located pub restaurants that we did own once. And so we're very, very practiced at being able to parcel off the land. The valuation methodology, we work -- we're working with a property consultant effectively who will value these sites based on fairly standard methodology based on the turnover of the site based on the site theoretical turnover, the actual EBITDA and the theoretical EBITDA and what that market rent and the market value might look like. So it's a fairly well assumption of topology in the industry. You obviously get that we understand independently. And then it becomes a question of, obviously, depending on the buyers that are out there as to whether we've got to fill that price or mention kind of -- mention that price. So I would say, we're confident we're going to be able to -- as I say, it's confident we're going to be able to sell these assets, and then we've got a few for back options anyway.

And remember, Jarrod, this is 126 sites that we are looking at selling, out of a total estate today at [ 850 ]. So actually, the vast majority of our sites are unaffected by the announcement today. And the sites that are affected are sites where we believe there will be a material improvement in returns by making the changes that we've announced today. Okay. Chach, I think we're out on time. So that was probably the last question. So I'd just like to thank everybody for their time today. You know where we are. So I'm sure some or many of you have got follow-up questions, that's our job to help answer those questions. So we're available today and over the next few days to help answer those questions. But we really appreciate your time today. Thank you very much.

Thank you, everyone. This does conclude today's call. You may now disconnect your lines, and enjoy the rest of your day. Thank you.