Whitbread plc (WTB) Earnings Call Transcript & Summary

Good morning all, and thank you for joining us for the Whitbread FY '25 Interim Results Live Q&A. My name is Carly, and I'll be your coordinator for today. [Operator Instructions] I'd now like to hand over to your host, Dominic Paul, to begin. Floor is yours.

Thank you, Carly. Good morning, everybody. Thank you for joining myself and Hemant Patel, our Group CFO, for our half year results call. Hopefully, you've had a chance to read through our release and listen to our results presentation this morning. Before we open up the call for Q&A, I thought I would pull out a few key points. Firstly, I'd just like to cover the progress we've made in the first half and what we are seeing in current trading. And secondly, how that is underpinning our confidence in the medium-term outlook as set out in our new 5-year plan. As you've all seen, the U.K. market has been a little bit softer than last year, where demand was particularly strong, and we outperformed the rest of the mid-scale and economy segment by some margin. This year, despite being up against some really challenging comparators, we stayed ahead of the market on accommodation sales. And whilst revenues were impacted by our decision to transform our food and beverage offer through our accelerating growth plan, with an improved performance in Germany, we delivered a robust performance during the first half. As we moved into quarter 3, after a softer start to September in the U.K., recent trading has been more encouraging and with an improving trend relative to the market in both London and the regions. As we look forward, I'll just note a few things. Firstly, our commercial initiatives are starting to land, evidenced by our outperformance versus the market that stepped up in the current trading period. Secondly, our forward book position is positive across the rest of October and November. And thirdly, comparatives for the remainder of the year will start to get easier. Food and beverage is performing exactly as expected, and we continue to make good progress on our accelerating growth plan. We're also really pleased with the progress we've made on efficiencies and have increased our guidance this year to deliver GBP 60 million of cost savings, a GBP 10 million uplift. We see significant opportunity in Germany. We're really pleased with the strength of our performance in the first half, which has continued into the current trading period, and we remain on track to breakeven on a run rate basis later this year. This performance on our excellent progress on the key initiatives has increased our confidence in the medium as summarized by our new 5-year plan. The 5-year plan will deliver an additional GBP 300 million more profit over the next 5 years. And by keeping net CapEx of GBP 500 million per annum of the proceeds from property-related transactions, and leverage in line with current levels. This will generate more than GBP 2 billion for dividends, share buybacks and exigible opportunities arise, additional high-returning investments. Now for illustrative purposes, our plan only assumes that U.K. like-for-like sales growth and efficiencies in our plan equals U.K. cost inflation. Obviously, we can't predict inflation and U.K. market growth, but we have controllable levers through our efficiency and commercial programs that will help us to grow margins over the life of the plan, and we feel confident in doing so driving returns and profits even higher. We're executing really well. We're confident in the outlook as reflected in our increased dividend per share and further GBP 100 million share buyback. Before we move into Q&A, in the interest of time, could I ask each of you to keep your questions to a maximum of 2, please? Thank you. And with that, I'll hand you back over to Carly to host the Q&A.

[Operator Instructions] Our first question comes from Jamie Rollo of Morgan Stanley.

First is, just on the long-term profit target. I'm sort of intrigued as to why you've announced one, you've not had one before. So why come up with one and why now? And the second question is on the GBP 2 billion of excess free cash flow. Would you encourage us to incorporate a share buyback each year in the numbers? Or do you want to keep the door open for M&A?

Thanks, Jamie. I guess, obviously, we've spoken to a number of investors over the last kind of 12 or 18 months. And one of my observations has been that whilst we've announced a number of really interesting, exciting strategic initiatives, I could see that people were struggling to put them all together and therefore, work out what it actually meant for the business moving forward. I mean, we're super excited about Whitbread. We think this business has got an unusual number of levers at our disposal to drive improvement. But we could see that people were struggling to put all of those levers together and work out what it meant for the business moving forward. The beauty of the 5-year plan that I think we've outlined is that all of the initiatives that we're talking about that drive a material step change in our returns and profit are already underway and we've got high confidence in our ability to deliver them. So we take each of them in turn, accelerating growth plan. We've already announced that, removing loss-making restaurants, replacing with high-returning hotel rooms, building integrated food and beverage operations that are best for our guests overall. We have a high level of confidence on what those extensions return because we've done many extensions in the past. The efficiency plan, I mean Hemant has stood over a super detailed piece of efficiency work, which gives us really high confidence in what we can deliver from an efficiency point of view. Germany going from a headwind to a tailwind as we move the business into profitability and add material more room growth moving forward. Again, we haven't been able to have the data to support our confidence in Germany over the last 12 or 18 months. You can see now that data is really supporting that confidence, which enables us to feel very confident about what we're building in Germany. All of this underpinned by that room growth that we've underlined today, again, which we can be really confident about what it pulls together. So putting all of that together, we can -- we felt it was actually the right time to talk about our 5-year plan targets. We've got all of those initiatives in trail. We've got really good momentum building between each one. And then with things like our new reservation system in place, we're also building the confidence about being able to pull the commercial levers to drive our RevPAR and revenue moving forward in both the U.K. and in Germany. So we felt it was the right time to pull all of that together and talk about what the next 5 years could look like because we think it's actually a super exciting story that, a, delivers strong growth enables us to take advantage of this structural undersupply in the U.K. hotel market, proves that Premier Inn can grow internationally by driving performance in Germany and generating very material shareholder returns. So GBP 2 billion is just under 40% of our current market capitalization. So we felt it was the right time to pull all of that together. In terms of the question about share buybacks, I mean, Hemant can probably build on this, if appropriate. But I think Hemant has outlined a very clear capital allocation framework. And our track record, I think, speaks a lot. Since April last year, we've returned over GBP 1 billion to shareholders. We've utilized both dividends and share buyback, and we'll continue to utilize the capital allocation framework that we have laid out. But I think we've been very clear on our focus that this business should generate at least GBP 2 billion over the next 5 years. To be clear, the plan that we've outlined today is fully funded from a CapEx point of view. So to your question about kind of future M&A, we would only do something if we felt it was a material opportunity for Whitbread overall would drive returns upwards. But we currently have no plans in that area and have outlined within our plan today, significant overall growth which is fully funded within the 5-year plan levels that we've outlined.

Are you not going to reveal the annual sale and leaseback or disposal proceeds going forwards within the GBP 2 billion, correct?

No. No, we're not going to but what we have done, which is, again, the first time we've done something like this, we've outlined a net CapEx number. So within that is obviously an assumption that there will be some recycling of capital within it. We think that overall shows a great level of -- it shows capital discipline, but also shows us smartly recycling capital within the business. And then we're really pleased to be able to, as part of the announcement today, we outlined that we'd very recently, we've just done 2 sale and leaseback transactions, a blended yield of 4.1%, which we think are a good data point for us to underline the strength of our covenant and the strength of the Whitbread business overall, which I think is very supportive to the view of recycling capital moving forward.

And what I've done, Jamie is we have disclosed this year's disposal proceeds of between GBP 175 million and GBP 225 million for the sale and leasebacks that Dominic's mentioned, the GBP 56 million of sales and leasebacks we've already transacted, the previous proceeds from the accelerated growth plan and other disposals and asset improvements as well. So we will disclose as we know, but the reality is we think it's sensible to leave a little bit of flexibility in the framework because we don't know exactly the timing of when we'll be able to do sale and leasebacks, et cetera, and some of the capital phasing, particularly to go in the outer years of the plan. But rest assured, the net GBP 500 million is the average we're committing to over that 5-year period.

Our next question comes from Vicki Stern with Barclays.

First one is on Germany. So the 5-year plan obviously gets you to GBP 70 million of PBT by 2030. Just trying to get a sense on how you're thinking about the shape of that delta from where we are today. And specifically, just thinking about the ramp-up then into next year, obviously, you're confident in breakeven on a run rate basis this year. Any sort of nervousness in terms of the macro backdrop, setting you back in any way as you sort of look into next year? Or you're confident enough in the sort of self-help pieces that you talked about and that ramp-up coming through that you definitely think it's going to be sort of incremental positives. I guess, consensus has about GBP 10 million in profit for next year for Germany. So any sense around that evolution. And then similar, really, on the U.K., thinking about the shape of that growth into next year. Obviously, there's going to be a nice boost from the AGP program. But just curious how you're thinking at this stage on cost inflation into next year? And any early thinking on the group's ability to sort of fully mitigate that with the cost savings and RevPAR growth?

Yes. So Vicki, let me -- why don't I take the first part of it. I'll talk a bit about Germany. And then I'll hand over to Hemant, who can talk a little bit about shape. I mean he obviously won't be able to go into the details year-by-year, but he can talk to you a little bit about his thinking about that. I think the key thing for us in Germany is we still got a maturing estate. But actually, those mature hotels that we've got are performing really well. They are now consistently performing ahead of the market. They're generating profits, they're performing ahead of the market. And we're overall seeing really good performance as we pull those commercial levers in Germany. The brand awareness is building, our guest satisfaction scores are at a record level. We've really sharpened up things like our digital marketing approach in Germany, our pricing on key events using online travel agents in a sensible way to generate incremental demand. Putting all of that together, it's really supporting our growth in Germany. For macroeconomic backdrop. I mean, Germany is probably a little bit more -- I think generally people are feeling a bit more confident about the U.K. now, inflation coming down, interest rates likely to come down. Germany is probably lagging a little bit. Actually, we're not too worried about that because we've got this maturing estate, and we've got so much headroom to catch up into. So -- and I also think -- I back Germany over the next few years to continue to be a growth economy. But the biggest opportunity for us in Germany is to mature the business and mature the estate and we've got a lot of headroom to grow into in Germany. So I guess that's part of the reason why we're feeling so confident and the fact that the numbers back that up. You can see that in the numbers that we've outlined today. In terms of your question about the U.K. and inflation, I mean, for illustrative purpose, as we said at the beginning, we've assumed that efficiencies and inflation net out with the like-for-likes. The reality is, if you look pre-pandemic, as you know, Vicki, the actual historical kind of RevPAR growth was over 2%. So I think we've been pretty conservative in the 5-year plan assumptions that we've made. I would back us to do better than we've talked about today, but I think it's also sensible to have conservatism built into the plan. But with the commercial levers that we've got open to us in the U.K., just things like the ancillary revenues, the room with a view, the early check-in, late checkout as well as kind of continue to optimize our pricing, Premier Plus rolling out further, there are really good opportunities to drive RevPAR over the course of this plan. So I think there's inherent conservatism within the 5-year plan. I think that's a sensible thing. But I think that's part of the reason why we say at least GBP 2 billion because we back ourselves to do better. Hemant, I turn to you.

Yes. If I start with Germany, and just in terms of the U.K. as well, so just on Germany, yes, I mean, just adding to what Dominic's talked about. Clearly, we're announcing today that in 5 years, we'll have an improvement of profitability of GBP 80 million between now and then. Now clearly, that is a mix there between -- we've got 10,500 to 11,000 rooms open now. By the time, obviously, they will be fully mature. They will be within the -- our target range of return on capital of between 10% or 14%. On average, we think for the full estate at that point will be GBP 80 million, but that includes approximately 9,000 rooms that obviously haven't opened yet, and then that will be still maturing on average at that stage. So when you think about how we might model that over the next few years, I think you'd start with that mature cohort. It's likely that the RevPAR will steadily increase over that time both the occupancy and ARR. We're not saying those sites are pretty mature by the way, at this stage. We still have got a delayed maturity because of the impact of the pandemic and a lot of these sites still have only opened really in the last 2, 3 years. So they're still maturing. But also, I'd assume cost as well with that just average kind of cost inflation assumptions on those. On the immature cohort, the [ 9,000 ]or so rooms that we're going to be opening, I think the phasing of the openings are likely to be back-ended so not this year, next year, but then more into the kind of like the 3 to 4 years after that. We'll start to see those coming through. Clearly, we've given you guidance in terms of costs that you could assume, which you then apply inflation to. But also in terms of RevPAR assumptions, clearly, the RevPAR at these sites will be lower than the mature cohorts, and we'll be building over time. On the outset as I said, the average -- we expect to get to GBP 80 million on average at that time. We think that's conservative. We think that other players in the market are trading above that now, let alone in 5 years' time, but we think this is a start point for what we would like to share with everyone. In terms of the U.K., and we're not giving specific guidance on cost inflation for next year. We -- as Dominic said, we haven't given cost inflation guidance across this 5-year plan. We just talked about the fact that our like-for-likes are likely to offset any cost inflation that we're not able to cover through the efficiency plan as Dominic just mentioned. So I'm not giving specific cost inflation guidance yet. We will obviously do so when we get to fully January and we get to our kind of final quarterly results. You do know, obviously, there's a GBP 20 million to GBP 25 million reversal from the accelerated growth program that will kind of come through next year. But beyond that, we're not giving any specific guidance on U.K. profitability at this stage.

Our next question comes from Muneeba Kayani of Bank of America.

Just on recent trading trends. If I heard correctly, you said that forward bookings are encouraging. So how do they compare with the minus 4% RevPAR that you saw in the first 6 weeks. And what do you think is driving that kind of improvement? Then secondly, just going back to the share buybacks, how did you think about the GBP 100 million new buyback as the right amount? And the question earlier around, should we be then modeling kind of recurring buybacks? Some framework around that would be helpful.

Okay. Thanks, Muneeba. So let me touch on your trading question and then I'll probably hand over to Hemant who can reiterate the capital allocation framework. I mean in the recent [Technical Difficulty] we definitely saw a softer start to September. And I think for those of you who are based in London, you probably would have seen that. The first 10 days of September in London was noticeably quieter than it had been in the year before. I think there was a little bit of normalization of business travel this summer versus last summer, which was definitely a spectacular summer of trading last year and some catch-up post COVID. So what we saw kind of kind of at the beginning of September was business travel was a little bit slower getting back to normal. Since that period, actually we've seen business travel bounce back really nicely. And the last few weeks, that's been -- we've seen that in the numbers. I know that the STR data has been rocky and has been bouncing around a bit. I mean what I would say is our outperformance versus the market over the last few weeks looks like it's extended. So I think just the last 4 weeks, for example, our outperformance versus the market was plus 1.6 percentage point versus the plus 1 percentage point for that for the entire current trading period. So you can see our performance versus the market has widened. I mean moving forward, of course, it's hard to predict travel trends overall, but we've got this underpin of U.K. supply being materially down and not likely get back to pre-pandemic levels until at least 2028 or 2029. So that, I think, is an underpin for the pricing environment within the U.K. I guess that's the first point to make. The second point to make is we can just look at the data that's in front of us and we're booked ahead for October and November. Leisure demand overall, particularly for things like half terms and summer and events is actually looking strong and resilient. I guess, from a consumer perspective, it's probably likely to get slightly better, I think, from a consumer's perspective over the next 6 to 12 months. Interest rates are likely to come down. We think inflation looks like it's on the way down. So a relatively benign consumer environment underpinned by this reduction in supply. Week by week, we're going to see ups and downs. Yes, of course, you can always see that in the data. But overall, we think we're entering a reasonably benign period. And we ourselves as a business, have got these levers open to us, which I think are -- give us a unique ability to really drive our performance. So whether that's pricing levers because of the new reservation system we've got, we're really excited about our access to data. Remember, nearly all of our customers in the U.K. book direct, we've got all of their data. We've really accelerated things like our CRM activity, our database activity kind of to drive more frequency and recency of guests. And we've got this opportunity to drive ancillary revenues as well. So from a revenue perspective, we've got levers open to us. And then as I talked about in our 5-year plan, we've got these strategic initiatives in place, which will drive a step change in our profits and returns moving forward. So overall, I think from a consumer perspective, probably we're entering a more benign place, and I think we have to back ourselves to be able to drive an overall improvement in performance with the levers open to us. I'll hand over to Hemant to talk about the share buyback. I guess what I'd reiterate is we've got a clear capital allocation framework. What I said in the beginning, which is look at our track record. Over the last 12 months, we've returned over GBP 1 billion to our shareholders. And with at least GBP 2 billion worth of shareholder returns over the next 5 years, I think that gives us good opportunity to give strong returns to our shareholders.

Yes. Thanks, Dominic. Muneeba so I mean, if I just reiterate the capital allocation framework to start off with to answer your question. Clearly, we've said we want to remain an investment-grade business. So we will maintain our leverage in line with those thresholds. Our focus is on investing capital in new rooms, whether it's the U.K. or Germany that are high returning as well as maintaining those rooms, so maintenance CapEx, et cetera. We've got a consistent dividend policy and then obviously, depending on outlook, we will return excess funds to shareholders through share buybacks. We reapply this framework regularly. So as Dominic says, we've got a good track record over this last 1.5 years of applying the framework last couple years of applying the framework, but we will do so again at the end of the year depending on circumstances, and we'll see what that spits out. And that's how we've got to the GBP 100 million for the share buyback in the second half of this year, which we'll complete by the time we get to the full year results. And if I think through the GBP 2 billion that we are saying that we'll be able to generate in terms of future cash flows at least GBP 2 billion over and above the CapEx required, net CapEx required to fund the 5-year plan that we've announced. Yes, clearly, the simplest thing to do would be to apply that. If you want to model it, I can't tell you how you should model it but you could model it as a share buyback to the part that's not dividends, if you want to. I guess, clearly, we're giving you some guidance here that there's GBP 2 billion is there for dividends, for share buybacks and potentially other high-returning investments. Those would be outside of our current plan at the moment. And really, we're saying that just to make sure there's the optionality there because actually, if an opportunity comes up such as a large piece of M&A that we think is the best investment that we can make on behalf of our shareholders, and if it turns better than the share buyback, then we should surely -- we would obviously be recommending that. But we don't know. There's nothing on the horizon that we're not saying that that's what will happen. We think that will be -- we want to make sure we build some optionality into the 5-year plan and sort of be clear about that, but you can obviously model that any way you'd like to. The simplest thing to do would be to model that excess to share buybacks at this stage because we want to get at least the return that we're making from share buybacks through any other investments we'd want to make.

[Operator Instructions] Our next question comes from Jarrod Castle of UBS.

Just coming back to Germany 2030, GBP 70 million of PBT, broadly a doubling of rooms. My understanding is you've invested about GBP 1 billion already in Germany. Are we talking another GBP 1 billion? And then what kind of ROIC are we talking by then because it doesn't seem like it's double digit, the 10% to 14%. So I know some time away, but any thoughts within that framework? And then secondly, just in terms of U.K. growth, over 40% growth in terms of kind of the 125,000 rooms. And you haven't given a time line, but at least in terms of some of our data we're seeing a bit of an increase in branded competition. Just big picture, when you look at that growth, how much of that would you say is pushing out independent market growth coming along or adding extensions where the hotels have got extremely high occupancy. So I guess the real question is, what do you think the market might be saturated if you got to 125,000 rooms in the U.K.?

Thanks, Jarrod. Let me start with the questions and then Hemant can build as appropriate. I mean I think on Germany, we've been -- what I'm enjoying about these questions is that we have clearly moved on from the, can the business get to profitability. And we're now talking about what can the business achieve over the next 5 years? Because I think, collectively, our confidence in getting the business to profitability, on kind of driving that growth successfully, I think, has really built over the last 12 to 18 months. Remember, we only had 6 hotels when we come out of the pandemic. So we've learned an awful lot over the last 18 months, and we're encouraged by what we see. We've been -- we try to be really clear in the 5-year plan to say that our estate as it stands, so circa 10,000 rooms, we would expect to hit double-digit returns by full year '30. Remember, the additional 10,000 rooms that we're talking about, they will still be hotels that are maturing. So we wouldn't expect them to hit that 10% to 14% range in that time frame. Hotels still have a number of years that it takes for the hotels to mature. So -- but within our mature hotel cohort, the hotels that we have opened to date will be mature by full year '30. We're expecting them to hit double-digit returns in full year '30. So I would say we are bang on track with what we spoke about 6 months ago in terms of our aspirations overall for the business. What we've done today is actually really lay out clearly an end point for that full year '30 in terms of profitability but also growth as well. So we've attached some numbers to our confidence. I think in terms of the U.K., I mean, the beauty about this business that we've got is, one, our brand strength is really unparalleled. The market share that we've got in the U.K. is really unique and is underpinned by the super strong guest scores and very strong brand preference, and we can see that in all of the data. That, coupled with the fact that there are really high barriers to entry to this business. Now we see this every single day. When we go to look at a site, if we sign up that site, we know that it's going to take between 3 and 5 years to open that site. We are uniquely placed because we are well funded with a super strong balance sheet and covenant and you can see that from the sale and leaseback numbers that we announced today on those 2 properties. So we are better placed than anyone in the U.K. to activate the growth. We also, of course, have the opportunity to add extensions to our existing hotels, which relatively few of our competitors have that opportunity. So we can add growth at a time where our competitors are struggling to add growth and at a time where supply is down. To your point about will -- kind of how long will it take to get 125,000 rooms. I mean we haven't put a time line on that. It takes time to find these sites. We're very, very confident there is a potential to get to 125,000 rooms, and we've done that analysis to a post-COVID level detail. What we have done today though is be very clear about the number of rooms that we're going to drive by full year '30, and there's good strong growth over the next 5 years. And we can say that with really high level of confidence. The sites have either already been transacted, the extensions are either kind of already planned or already in play and then the future sites we feel confident in being able to get. So we can say that 5-year plan growth number with a very high level of confidence. We also know that our competitors will not be growing at anything like that pace because they don't have the pipeline of growth and funding is still relatively tight in the U.K. market. To the point of view of whether the market will then be saturated by the time we get to 125,000 rooms, really hard to know, of course, the U.K. economy is still a growing economy. The population is growing. I actually think there's going to be investment going on throughout the U.K., which is going to lead to increased demand over the next few years. And remember, supply is materially down versus pre pandemic. So if I look at the data points, which is it's going to be at least 2029 until capacity is at pre pandemic, and the reality it's probably going to take longer than that. That would indicate that we will not be at capacity when we're at 125,000 rooms. The other point to note, I suppose, is as we get to build scale, we build efficiency. You can see that in our announcement today of our efficiency plan which is our biggest ever efficiency plan that we've done. What that efficiency enables us to do is actually grow further because it means our marginal cost of the new rooms comes down, and that increases our overall performance, again, increases our edge versus our competitive set. So we can feel very good about that growth to full year '30, and I think we'll have a very strong pipeline of growth beyond full year '30. We've also now got the additional engine of a growing German business, which we're excited about.

And if I'd just add a couple of things to it. I mean just starting on the U.K., clearly, the U.K. isn't just 1 big commodious market. It's lots of small market. All we are doing to get to that 125,000 room potential is replicating what we already do in lots and lots of markets in the U.K. already, it's part of our business model allows us to be very forensic about where we can put sites. So there's nothing in there that we're not able to do now. And we are still over 40% -- 40% of the market is independent. So there is -- even if you were to assume the independents, we're growing from the independents, there's still an awful lot of independents for us to kind of like compete against. And on the German point, just to say, I mean, yes, we've spent GBP 1.1 billion of capital, but that's to build our current open estate as well as the pipeline that we've committed. Now there's obviously a mix in there with freehold and leasehold, but we're not just going to be doubling the amount of capital that we'll need to get to 20,000 rooms because we actually -- we've got 17,000 rooms in our open and committed pipeline already. So we're adding another kind of 3,000, 4,000 rooms on top of that, 2,000, 3,000 is on top of the open and committed pipeline. So no, it won't be quite as simple as -- the maths won't be as simple as that. Yes. And then -- so therefore, we said that the mature part of the estate by the time we get to FY '30, will be in that kind of 10% to 14% return on capital employed range. Talking about ROIC. If you take the mature part of the estate, we should be pushing those to kind of double-digit range as well is what we'd expect to be doing. That's certainly the -- where we're trying to get to in the long term in terms of the profitability in Germany.

Our next question comes from Alex Brignall of Redburn Atlantic.

The first one, just in terms of the long-term plan. I guess the key thing that goes into that is the assumption price versus inflation. And you've -- as you outlined, you've been historically very, very good at managing your inflation. I guess the difference is that the starting point is this return on capital that's kind of quite a long way outside of the historical range, 15.5% last year versus the previous record of 13.5%. Your plan kind of suggests that the return on capital is going to grow from there. So I guess the question is why -- is that a good reason why it should grow from there rather than go back into its historic range. And of course, the historic range would come back if the gap between your RevPAR growth and cumulative inflation over the last 4 years, which has been very good for you, would close. And so that's kind of the first question. And then the second question, I guess, is somewhat linked in that hotels have very, very little visibility on pricing as we kind of all know. And in an environment where that is the case, you're doing another GBP 100 million of buyback when your leverage even on kind of your covenant adjusted way of measuring it rather than the balance sheet leverage is kind of above pre COVID levels. Obviously interest rates are a lot higher now. So is that the right place to put your balance sheet in an environment where weakening demand could see a material change in your profitability?

Thanks, Alex. I guess a couple of points about the margins. I mean, we are not dependent on price increases, on material price increase to drive a step change in margins and returns. That's one of the reasons why we wanted to talk about the 5-year plan today. Because of some of the structural changes we're making to this business, so let's take accelerating growth, for example. We're removing loss-making restaurants, and we're replacing with extension rooms at a time where occupancy is very high and supply is down. So we can be very confident about what the return is and what the revenue is from those extension rooms. That's actually a structural shift in our business model, removing a loss-making branded restaurant, replacing with a high-returning hotel room. Our efficiency plan, which is what every good value business should constantly be doing is drilling down into the end level of detail in their business see how do they find efficiencies to run the business better to further sharpen our ability to compete in the marketplace and drive increased returns. And we've been able today to announce our largest ever efficiency program. One of the benefits of this business is we're large, we're vertically integrated. That gives us control. It also gives us the ability to drive efficiencies overall in the business, which support an increase in margins. And then, of course, Germany is moving from a headwind into a tailwind as we go into profitability. So kind of all of that said, and that's why we said for illustrative purposes, our plan only assumes that U.K. like-for-like sales growth and efficiencies equal U.K. cost inflation. So we don't have to assume materially strong like-for-like growth in order to drive quite a significant increase in margins and returns because of these structural changes to the business moving forward. All of that said, there was another school of thought that would say, okay, U.K. supply is materially down versus pre-pandemic. Actually, the budget operators' price gap has widened versus the 4-star and 5-star operators and actual real pricing once you take into account inflation is at very similar levels than it was to pre-pandemic. Whereas -- whilst all of the other industries and sectors that we see have put in very material inflation through. So that, coupled with the fact that we've got commercial levers open to us, again, a slightly different way of running our business commercially with a new reservation system, we can drive ancillary revenues and additionals, we can segment our market better with things like Premier Plus. That should all support a good revenue environment. We're not assuming that moving forward. And again, I think the beauty of this 5-year plan is it's fundamentally built on structural shifts that we're making to our business that support that strong growth in margins and returns. I think in terms of your [Technical Difficulty] question about the share buyback and the balance sheet, I mean we've got a very careful capital allocation framework. We've got a very strong balance sheet. We are very comfortable with the leverage. And we're within all of our stated kind of targets within our capital allocation framework. But Hemant, you -- anything else that you can build on that?

No, I mean, that -- so for both those points, I think the reality is that just because we are outside of the historical range, we're much more focused on where we are now and the things we can control and that we will improve this business from where it is at the moment. So we're very confident, as Dominic said, that we have programs in place in our control that will lead us to improving returns on capital going forward, the first point. And then yes, in terms of just how we're managing the balance sheet. Clearly, we want to get the balance right. We are prudent in terms of how we manage the balance sheet. We want to make sure we stay within the stated leverage range. And again, just because we've been in a different range historically. It doesn't mean that we're not happy that actually -- that we've got a balance right here between managing a strong balance sheet and being prudent because we haven't got massive visibility. But because we have programs in our control such as the acceleration program, such as the efficiency program that we can then be able to manage any potential volatility in the market. Clearly, we're talking about 5-year plan numbers over 5 years, obviously. But the point is, we know there'll be ups and downs over those 5 years. But over the 5 years, we know that with historical ranges of like-for-like growth that we've seen in the U.K. market, that we'll be able to continue to improve our returns and profitability and margins going forward.