Whitbread plc (WTB) Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining the Whitbread Full Year 2025 Preliminary Results Live Q&A Conference Call. My name is Sami, and I'll be coordinating your call today. [Operator Instructions] I will now hand over to your host, Dominic Paul, Chief Executive, to begin. Please go ahead, Dominic.

Thank you, Sami. Good morning, everyone, and thank you for joining myself and Hemant Patel, our Group CFO, for our full year results call. Hopefully, you've been able to go through our release and had a chance to listen to our results presentation this morning. Before we open up the call for Q&A, I thought I'd pull out just a few key points. Starting with our full year 2025 results. As you all know from the published data, market demand has been slightly softer in the U.K. However, with the benefit of new room growth and our strong commercial program, our accommodation sales were flat year-on-year, and we outperformed the mid-scale and economy market. Food and beverage revenues declined in line with our previous guidance due to our accelerating growth plan as we optimize our offer and exit a number of branded restaurant sites, unlocking 3,500 high-returning extension rooms. Having delivered GBP 75 million of efficiency savings during the year, which was ahead of our previous guidance, together with the removal of lower returning restaurants, we were able to reduce our U.K. cost base by 1% despite the presence of ongoing inflation. And in Germany, we are making excellent progress. Our estate and brands are continuing to mature, and we delivered a strong trading performance that was well ahead of the market, and we reduced our loss before tax significantly. Turning to current trading. U.K. demand during the first 7 weeks of the year remained behind last year and the timing of Easter meant that the weekly STR data has been somewhat volatile as we always see at this time of the year. Despite this, our commercial initiatives meant that we extended our outperformance versus the market on both accommodation sales and RevPAR growth. Whilst the U.K. macroeconomic outlook remains uncertain, we're confident in our commercial plans, our forward booked revenue position is ahead of last year, and we have strong bookings into the summer months. Food and Beverage is performing as expected, and we continue to make great progress on our accelerating growth plan. And in Germany, our strong performance is continuing with double-digit RevPAR growth, and this will be another breakthrough year for us as we are set to deliver GBP 5 million to GBP 10 million profit in full year 2026. Now just briefly turning to our 5-year plan. Back in October last year, we announced our plan that will deliver a step change in our performance. Since then, we've been executing at pace, and we're really pleased with the progress we've made to date. Even with conservative assumptions for market growth and inflation, we remain on track to deliver incremental profits of GBP 300 million and more than GBP 2 billion per shareholder return through share buybacks and dividends by full year '30. Our plan is fully funded through a combination of strong operating cash flow and, as we've announced today, through the recycling of at least GBP 1 billion of our more mature property assets into high-returning projects. As a sign of our confidence on the back of our progress, we are accelerating the delivery of returns due under the plan and today have announced a further GBP 250 million share buyback that we will complete over the next 12 months. Now we've got a lot of people on the call today. And due to our meeting schedule that we've got planned for the rest of the day, we've only got 45 minutes. So before we move into Q&A, in the interest of time, please could I ask you to keep to a maximum of 2 questions each. We'd appreciate that. Thank you. Now with that summary, I'll hand back to Sami to host the Q&A. Thank you.

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

My first question, just on current trading in Germany, still very good numbers you're posting. I'm just quite surprised that the RevPAR growth in the more established hotels is stronger than the other sort of 45. And we saw that in the second half of the year as well. Is that something due just to the mix of those estates? Or is that just a confirmation that the sort of maturity curve perhaps is a bit longer than expected? And could you just remind us what 1% on RevPAR is to PBT there? I didn't see that in the guidance. And then the second question, just on room growth, looks a little bit light versus expectations this year again. You do need quite a material pickup to hit the 5-year plan. What's your sort of confidence level there, both on the U.K. and Germany, please?

Thanks, Jamie. First out of the blocks. Let me take the first part of the question just broadly about Germany, and then I'll hand over to Hemant to talk specifically about the more mature hotels in Germany and then the room growth. I mean, as I think you know, we feel increasingly confident. Our progress in Germany had a breakthrough year last year. We're set for another breakthrough year this year. We're really benefiting from a few things. The first thing is our guest satisfaction levels are very high in Germany. The product is resonating extremely well with customers. I think that the balance that we've got between quality and value is a sweet spot for the German consumer, and we're seeing that through guest satisfaction ratings. We're also seeing the brand mature really nicely. You saw that the latest brand awareness was up to 19%. So it's taken quite a step up over the last 18 months or so. That's helping us. And we're getting better at trading in Germany. We're getting better at trading on the event nights. Remember, 1 in 5 nights in Germany is an event night. We're getting better at trading at event nights. And we're getting better at trading overall in Germany and pulling the commercial levers. So we're feeling really good. We've also got a really highly motivated, highly engaged, highly focused local team running the German business, who are really helping our kind of development in that market. We're now the fastest-growing hotel business in Germany, which is really good. Just the second part of the question about room growth. I mean, the kind of net comment is we feel comfortable with the room guidance we've given. We're talking about 98,000 rooms in the U.K. by full year '30, and 20,000 rooms in Germany. You're right, that will require a step-up. There is still a little bit of a delay in the room openings due to COVID. Fewer sites were signed, but we've added a really reassuring number of sites to our pipeline. And of course, we've got our accelerating growth plan on top of that, which we're very confident will come through from a room construction point of view. We're already opening up rooms that are part of the accelerating growth program, and I'm really encouraged by the results there. And Hemant, do you want to fill in the gaps?

Yes. Jamie, just in terms of the most mature sites, we talk about being the most mature sites. They are not mature, as we've discussed. The reality is we don't know exactly how long the maturity profile is, because we've not matured any sites in Germany yet. And so it's a combination of a few different things that those most mature sites are growing more quickly than the overall estate. Yes, part of it is the mix of the sites. Part of it is how well the commercial initiatives that we've been landing have hit those particular sites versus other ones. And then some of it is that actually there is a longer maturity profile, and they are still maturing. We expect them to mature in the next couple of years. We said 18 to 24 months is our expectation based on the rate that they'll continue to grow at. We're very happy that by that time, we'll get to target returns. And then therefore, we'll start to see the rest of the estates maturing in time as well. So nothing particularly there to see. It's just part of the mix of what's going on. And I think it's a very positive thing that the most mature sites are still well into the maturity profile.

Our next question comes from Leo Carrington from Citi.

Firstly, just in terms of the development outlook, in the U.K., I've noticed there are now quite a few hotel conversions that you've been announcing. Is this just the opportunity to access sites in London, maybe reaction to construction costs? And how does this tie into the potential for hub hotels? And then secondly, if I might ask on demand, particularly in the U.K., obviously, what is your sense of what kind of change in the economic climate might drive positive RevPAR growth for you? And how does that tie into the comments about improving bookings coming through for the summer?

Okay. Thank you, Leo. So let's take obviously the first part of the question first, which is about conversions. I mean, we're really well cleared. So the first thing to say is, we are highly returns focused. So whenever we sign a new site off or a new extension, we will always very carefully go through the returns profile of that new site, and we've got tough internal hurdles that we need to meet or exceed. So every new site we look at, we take a very rigorous ruthless returns-led focus. So the new growth that we've got coming in, yes, it is helping us to be the fastest-growing hotel business in both the U.K. and Germany, but we are very returns focused on those sites. The beauty about having both the Premier Inn and hub brand is we have the potential to do greenfield sites where we build the hotel from scratch, but also conversions. You're right that hub is particularly well placed to be a conversion brand. We've got a number of the new sites in the hub pipeline that are actually conversions, for example, from office buildings. There's a really nice synergy there, because we can buy an office block at a relatively reduced price, generally that has got relatively poor ESG credentials. We do a conversion to that site. We get the correct ESG credentials, which creates value from that site. And because of the format of hub rooms, which are generally smaller rooms, quite often the window mapping of the offices works very well to the window mapping for hub. So it's a very cost-efficient way to make that conversion. So the beauty is, we've kind of got 2 different product offerings in Premier Inn and hub and that gives us flexibility, whilst obviously taking this returns focused. To the second part of your first part of the question, does that give us confidence about the potential for hub? We're really excited about the potential for hub. It's resonating very well with customers. It's a city center-focused brand with a slightly smaller room footprint, which means it's a very efficient real estate project and the returns of the hub brand are very positive. Quite a lot of the new rooms that we've got in the pipeline are, for hub, city center sites, which we are confident will return very well. And we feel actually really excited about the medium-term potential of the hub brand. The second part of your question, Leo, was about kind of demand. I mean, as everybody on this call knows, the hotel business is a cyclical business. At the moment, as we said before, trading has been slightly softer. The STR data has been slightly volatile. From our perspective, forward book position ahead of last year, we've got strong bookings into the summer months. The key thing for us is supply in the industry is still down, and we believe will remain below pre-COVID levels until at least 2027. And that provides a decent underpin to the market. And then we are very well placed, with the strongest brand, strong commercial levers, we're well placed to outperform the market, which is what you've seen today. Now at some point, the market will turn from an overall RevPAR perspective. We all know that. It's hard to call when that will happen. But actually, if we step back from the U.K., you kind of go, there are actually a number of reasons, I think, to feel reasonably positive about the consumer environment. Employment levels are still high. Household cash flow is pretty solid. And we think the inbound market into the U.K. will probably stay reasonably strong. So at some point, the market will turn from a RevPAR perspective, and we're really well placed to benefit from that when that happens. And as a reminder, we don't need super strong RevPAR growth at all to deliver this incremental GBP 300 million profitability and more than GBP 2 billion of shareholder returns. All we need effectively is like-for-like RevPAR growth and efficiencies together to offset inflation to achieve a 60% uplift in profitability, and we will aim to do better than that, clearly. Thank you, Leo.

Our next question comes from Richard Clarke from Bernstein.

I guess your language around the book position is that it's revenue that's higher. I just wonder whether you can highlight, are rates going up? Is that occupancy? And if that was indicative of what the summer was going to look like, what kind of percentage of uplift in RevPAR do you think that would lead to? And then secondly, we've seen some changes in March, government intervention again around sick pay, probation periods, I think maternity leave. Does any of this have a meaningful impact? Is this another round of cost inflation you're going to have to offset?

Yes. Thanks, Richard. Let me take the second part of the question, and then Hemant can pick up the first part of the question on RevPAR. In terms of extra costs, I mean, it's been well trailed that there have been increasing costs for most businesses in the U.K., particularly on the national insurance threshold. I think we've got a really good track record of delivering on efficiencies. We've really stepped up our focus on efficiencies. We did that before it was clear that there were going to be these increased costs going on. And I'm very glad we did it. It's categorically the right thing to do. As you've seen, we delivered GBP 75 million of efficiencies last year and have recently upped our forecast for efficiencies this year from GBP 50 million to GBP 60 million. So I think we're building a really strong track record of driving efficiencies, which is entirely appropriate, because we're a value-based business. And we're running that efficiency program through really smart very detailed plans throughout the business. So we're protecting the guest experience, but we're improving how we operate to drive those efficiencies. In terms of your specific question about sick pay and paternity leave, yes, potentially, those things can have an impact. But we're very, very good at mitigating the costs of elements like these. And I would say we are better than our competitors at mitigating the cost point of view, partly because we have scale, so we can drive those overall efficiencies, and partly because we are just getting better and better at operating in a very, very efficient way. So any changes that happen will affect everybody in the same way. We've been pretty prudent in our forecast of any increased kind of costs, but we are very well placed and I think experienced at working out how to offset cost increases.

Richard, yes, with regard to your question on the kind of the breakdown of RevPAR going forward. Well, first of all, I'd say, if you look back over this last year, you'll have seen that we did outperform the market overall in terms of revenue by 0.7 points. That was actually through taking slightly lower occupancy and pushing rates a bit year-on-year. This is a consequence, not of a top-down strategy, but actually our revenue management system, maximizing revenue, which we believe it has done based on the market outperformance, where actually we felt that actually pushing prices higher earlier on in the cycle and taking slightly lower occupancy in some sites on average gave us the best possible revenue outcome. Looking forward, I can't really give you the details exactly in terms of our booking window, what we expect to see. I can't forecast what we might see. What I would say is, obviously, these are longer lead leisure bookings generally is what we're talking about across summer periods. There will be event-driven. There'll be summer holiday-driven and tourist destination driven at this stage. What you would expect to see is us every year improving our pricing on those kind of events. So there is definitely a bias towards higher pricing within that. But actually, both pricing and occupancy look good at the moment in terms of that book pipeline at this stage. What that might turn into, it is difficult to say, obviously. We don't know. So there are relatively low level of bookings at this stage.

Our next question comes from Jarrod Castle from UBS.

Just firstly, you've undertaken a property valuation. I don't want to be flippant, but what is the commercial benefit to you rather than, let's say, the stock market fixated on this property valuation? Because the reality is, I think you stated this enough, you're not going to sell the freehold in aggregate. You're going to do the kind of deals that you've spoken about for the year ahead, GBP 250 million to GBP 300 million. So from a commercial aspect, what do you actually get out of it? Or is it kind of positioned, to some extent, for kind of all these questions you get in investor meetings? And then secondly, I was quite interested in the little video, which came from Slide 21, and you've got this construction activity next door to an existing hotel, given you've closed a restaurant. I wanted to know, is there any impact on those hotels in terms of the RevPAR or the customer experience that you're hearing when you're undertaking this construction?

Thanks, Jarrod. So let me cover the property valuation first. I mean, what you hopefully saw today in the presentation was us being very clear about what our property strategy is. We're talking about the fact that we have this valuable group of freehold property sites. It gives us an investment-grade rating. It means we've got a very strong balance sheet. And partly because of the strength of our brand and our covenant, as those hotels mature, it also gives us the ability to recycle some of the value of that freehold estate into high-returning future growth opportunities, which is a really nice model for us as a business and shows flexibility. And that's what we've announced today. So the 5-year plan of returning at least GBP 2 billion worth of shareholder returns, but also doing sale and leaseback on at least GBP 1 billion worth of property over the next 5 years and recycling that capital into higher returning growth opportunities, which I think makes us a reasonably unusual business. So we're able to drive shareholder returns and invest for high returning future growth, which I think is a really compelling model. Within that context, doing a property valuation makes sense. It shines a light on the overall value of the property that we own. I think you're right, from an investor point of view, it gives reassurance about the value of our state and indicates our kind of future ability to continue to recycle capital to drive that long-term growth. I think Hemant is going to build on...

And I think the only commercial benefits for us, they're indirect, Jarrod. But the reality is, this backs our covenant with -- so when we are talking to a lot of our stakeholders, having a significant property backing makes a big difference, whether it's pension funds, whether it's the banks, whether it's other landlords or actually other people we're dealing with in terms of property transactions, it really does help to have that behind us. And hence, this is something I think, a business like ours, which has got significant property element, is something we should do every few years just to make sure people understand the value of that asset.

And just as a point on that, we quite often find that when we identify a property site and we bid for that site, remember, taking a ruthless returns-led focus on that site, we will often be the underbidder. We will often bid for less money than our competitors are bidding. But because of the strength of our covenant, the balance sheet, the property valuation, we will often get chosen for that site over our competitors, even though we're underbidding. So it really helps drive this virtuous economic cycle that we've got. The second part of your question, Jarrod, was about the site. So firstly, I mean, I'll tell Mark that you enjoyed watching his video. He will be delighted. He was at Margate. I was at that Margate site myself a few weeks ago. It's a really interesting site. We are going to end, with that site, over 20 new hotel rooms, a number of which are Premier Plus, which will yield very well, a fantastic integrated food and beverage area. And then we're removing the drag of a loss-making restaurant that was in that site. So a material step-up in returns on that site. We are very good at doing construction on site at the same time as operating a hotel. We've been doing extensions for years. As you know, extensions are generally one of our higher returning ways of using capital. So we've got very good operating hotels that are going through an extension at the same time as construction. Margate was actually a specific example, and there's actually only a handful of sites this will affect. But if we had to close the food and beverage area for a limited period of time while we did the construction, we offered kind of free breakfast, takeout breakfast while we did that. So we saw a slight reduction in guest scores during that period. It was a limited period. Now we've opened up the new integrated restaurant. We're seeing increased guest scores, and we're very confident that will drive material revenue growth. So short answer is we are very, very experienced in running construction at the same time as keeping the hotel operating. And we generally see a little dip in guest scores, but we are surprisingly good at keeping the impact of the construction away from the guests. And we only operate at certain hours. So Margate would be an example. When I met the team, they're starting work at 10 in the morning, they're finishing at 4. So the guest impact is very, very minimized.

Our next question comes from Alex Brignall from Redburn Atlantic.

Just 2 questions, please. So the first one just on RevPAR. I think I remember asking a similar question last year when there was a kind of view that RevPAR should continue to rise. Obviously, the U.K. enjoyed prolific RevPAR growth post-COVID and still has the highest cumulative RevPAR growth versus that time period, much better than the U.S. And so my question really is, do you really have a level of confidence that, that can be built on? Because it feels, looking at the data, that we're really just kind of reverting to where we were. I mean U.S. low-end RevPAR is, even before the recent tariff stuff, below 2019 and a lot of supply has come out of the U.S. market. So what do you have that gives you confidence that we're not kind of just seeing a correction in RevPAR from sort of pent-up demand that's no longer there, which kind of feels like is happening. Then the second question is just on growth. I mean, obviously, you're using a lot of money to buy back stock, but there's a big kind of room growth opportunity. And I think in the last quarter, Travelodge's net unit growth is actually faster than your own. Obviously, Travelodge not growing has been a massive, massive [indiscernible] for the last 20 years for your expansion. So what's your sort of strategy there? It feels like there's a big opportunity to invest in rooms. I know you have a very high hurdle rate for investment, but is there really nothing that you can spend the money on that you're then going and buying back a lot of stock?

Thanks, Alex. Let me take the second part of the question first. And I guess a couple of points about the growth. Travelodge has added a number of hotels. They bought some freeholds interestingly. The independent sector continues to decline. So we continue to see a reduction in supply of the independent sector. Whether that's a hotel just being closed or being turned into alternative uses like residential, for example, we continue to see that decline. And actually, that trend was existing pre-pandemic. It accelerated during the pandemic and now has continued post pandemic. So I think we all feel that is a trend that is here to stay. From a growth perspective, as I said before, our growth this year has been relatively constrained from a room growth perspective, because we signed fewer sites during COVID. But we are very clear about our plan to grow to 98,000 rooms in the U.K. by full year '30. All but 2,000 of those rooms, of that growth, are already committed in our pipeline. So we feel very confident to be able to find the additional 2,000 rooms to open over the next 5 years. So that will make us -- that means we'll be growing faster than all of our competitors. And as you know from our business, the growth is often dictated on the deals that are done a couple of years before. And we've got line of sight to those deals in that pipeline, and that's why we feel confident about it. Similarly, on Germany, we've opened relatively few rooms, but actually, we've got a really good committed pipeline, 7,000 rooms now in the committed pipeline in Germany. So again, we'll be the fastest-growing hotel business in Germany. So I guess that reiterates our point that the flexibility of our model, the strong balance sheet we've got, the recycling of capital enables us to invest and do sale and leasebacks on properties at an attractive cap rate, invest in high returning growth opportunities, but also support a really attractive investor returns profile over the next 5 years, which we believe makes us pretty unique. In terms of your kind of first question about RevPAR, I mean, I would say that actually, if you look at it year-by-year, the average room rate, the increase has actually not been that substantial. It's been below the inflation levels generally, the average room rate there or thereabouts. Certainly not more than most other industries have seen. What we see in other industries is the price increases that have gone through in most consumer industries are sticking pretty much. Quite a lot of our RevPAR increase actually hasn't come from straight price increases. It's come from improving our overall business. Let me give you an example. We've got more Premier Plus rooms, which drive a higher yield. We've got a big focus on business guests who book later and pay more for their rooms. So it's not as straightforward as just saying, right, our RevPAR has gone up because our pricing has gone up. We're segmenting our estate better. We've also got more of our capacity opening up in London. We feel confident about London over the next 5 years. We use the Clerkenwell hub as an example. Capacity in London generally has a higher room rate. So it's not as simple as just saying prices are going up. Our mix is changing and the segmentation of our estate and of our customer base is changing, which enables us to drive RevPAR increases. I think the underpin, as I said at the beginning, supply is still down, it's still down versus pre-pandemic. It takes quite a long time to get that supply back into the U.K. market, as you know. And as I said before, the independent sector continues to climb. So some people did predict the RevPAR was going to fall off a cliff a couple of years ago. That hasn't happened. It's been down slightly. But as we all know, it's a cyclical business. And we believe, at some point, it will turn positive, because the underlying factors, which is supply, is down, and actually the consumer environment is actually not too bad. That should support a positive RevPAR situation at some point, hard to call when, which is why we really underline that our 5-year plan involves levers that we can control, and we're not dependent on a super strong market to drive very, very significant increases in profit and margins and returns over the next 5 years.

Our next question comes from Estelle Weingrod from JPMorgan.

Firstly, on Germany, I wanted to ask what was baked in at the low end versus the top end of your GBP 5 million to GBP 10 million PBT target? And on room openings, just a follow-up. I mean, more specifically, your target implies close to 2,500 new rooms a year in the U.K., more than twice the current pace. Should we model the pace to accelerate to above 2,000 as early as next year in full year '27?

Thanks, Estelle. Let me just say a few words, and then I'll hand over to Hemant. I mean you're right, we're feeling good about the progress in Germany, breakthrough year last year, on track for another breakthrough year this year of delivering profitability. I think we struggled to hear some of what you said, but I think Hemant is going have a crack at responding.

Yes. So Estelle, on Germany -- I didn't quite hear the second part of your question, but we'll come back to that. But on Germany, what have we baked in, so GBP 5 million to GBP 10 million of profit in the year, which is quite a broad range. We've got a lot of confidence, as Dominic said, in the commercial program to drive that forward. We've got a wide range of initiatives involving extending distribution, improving our pricing and our product as well, and growing awareness, all of which will drive RevPARs forward, as well as the natural maturity of the sites and the brand that we're seeing and we're enjoying at the moment with a very -- as you've seen, with the strong current trading levels. We're expecting something like a 10% increase in RevPAR across the year to get us to this GBP 5 million to GBP 10 million. So relatively modest increase in RevPAR. We've obviously been able to achieve higher than that. But clearly, there's a mix of a few sites kind of coming in, and we've had some sites, even though there aren't that many, adding to the open rooms. And clearly, we've talked earlier on to a question about the most mature sites. At some point, we would expect those most mature sites to start falling off in terms of their maturity profile. We think it will be another couple of years before they're fully mature. So that should start to happen over the next couple of years. But at this stage, actually, they are still growing quite strongly. So yes, GBP 5 million to GBP 10 million involves something like a 10% increase in RevPAR at this stage, mostly RevPAR driven and some cost actions as part of that as well.

So we're going to ask you to clarify the second part of your question because we didn't quite capture it.

I wanted to ask on U.K. room openings just because your full year '30 target implies a pickup to around 2,500 new rooms a year starting next year. And I wanted to ask if we need to expect this pace to accelerate to that above 2,000 room openings a year starting next year in '27.

Thank you. That's clear.

Thanks, Estelle. So yes, I mean look, the math tells you that -- we talked about 5-year plan getting to 98,000 rooms when we had 85,500 -- about 86,000 rooms open now. That involves something like 3,500 extension rooms, as we talked about, and about 8,500 other rooms, of which 7,000 are committed already. So we have got some to find, there's only just over 1,500 or so, which we would expect to be able to open in the normal course of events. That would get us to 98,000 rooms. That obviously means that from next year, for the next 3 years, we've got an accelerated rate of room openings. That's supported by the pipeline we've got. The pipeline has built, as we built rooms out, and we've been adding more rooms to the pipeline over the last couple of years, at a higher rate than we've been building. Because of that COVID hangover we talked about earlier on, the COVID hangover will be opened, i.e., the rooms that we're opening next year would have been added to the pipeline post COVID when we were able to fully engage in our development activities. We're very confident. We wouldn't obviously put that number out there if we didn't have some confidence and headroom of giving us the ability to deliver that. It won't be easy. But with the white space that we've still got to move into, remember, we can still get to 125,000 rooms over the long term across the U.K. and Ireland. That is based on fairly conservative assumptions and really just based on replicating what we're able to achieve in -- the market shares we're able to achieve in some markets and catchments and replicating those across particularly the London and the Southeast. And we can see exactly how well our new London openings are trading. So we've got a lot of confidence that we have the capacity to get to 125,000 rooms. 98,000 rooms is obviously a milestone on the way there by FY '30. And we will absolutely ramp up the additions from the pipeline into new openings over the next 3 years.

And Estelle, just to reiterate something that we said earlier. We feel confident about the pipeline projections that we've got. You also feel confident in the long-term growth opportunity in both the U.K. and Germany. But to be crystal clear, we're returns focused. So we don't chase growth for the sake of growth. We chase growth when we are confident that it's going to drive strong returns. And I think that's the beauty of the Whitbread model, but also the 5-year plan we've laid out.

Our next question comes from Tim Barrett from Deutsche Bank.

I just wanted to come back to the topic of -- come back to London. The U.K. has been behaving like 2 different markets really. And can you talk about whether London is starting to improve from the fourth quarter decline and whether you're as relaxed on supply in London as you are elsewhere? And then second question, if you forgive a short-term one, when you and I have spoken, Dominic, you thought Easter would be positive for Premier Inn. It feels like it's not been that way for the market. So I suppose, specifically, do you think Q1 can be as good as the first 7 weeks?

Yes. Thanks, Tim. I mean, let's take London first. I mean, London is a tale of 2 cities effectively. You've got kind of inner London and outer London. And as you know, and you've seen from the data, outer London has been a bit softer relative than inner London. Overall, we feel good about London. We under-index relatively as a brand there. Some of our recent openings that we've spoken about, they have been very strong. Clerkenwell hub will be a great example. The average room rate is higher than we get across the estate. Occupancy is high. RevPAR is very strong. And you'll have seen in the note, we talked about trialing an inbound trial, for example. We think as we penetrate a bit more of the inbound market into the U.K., that will also help us really just cream on top on those prime London sites that we've got. So when we take a kind of 5- and 10-year view, putting down high-quality real estate in prime locations in London, I think, will turn out to be a very, very returns accretive and profitable strategy, because remember, we do under-index in London overall. From a supply perspective, a little bit more supply has come into London, but it's also one of the biggest hotel markets from a city perspective in the world. So we think London can take that. And there's still -- certainly at peak times and during the week, you'll see occupancy in London very, very high from a hotel perspective. So we think we're doing absolutely the right strategy, which is put down high-quality location growth into London to just balance up our indexation a bit more sensibly. So overall, we feel good about the prognosis for London over the next 5 years or so. And to your point, we are outperforming our competitors in London. The second part of your question was about Easter. I think what I said or what I meant to say, if I didn't say this, but I think I did, was that Easter is strong for us from a leisure perspective. Easter is always weaker from a business perspective because, of course, business customers don't travel much during the Easter period. So I think we feel pleased with our performance overall in Easter. But of course, you lose some of the business traffic during Easter. And so net-net, we do better overall in those times of year when you've got both leisure and business travelers. And I mentioned it in the presentation, we feel really positive about the potential of the business customer actually. We see that there's an opportunity for us as customers and businesses trade down. All businesses are looking at the cost base at the moment. As a value brand, we are really well placed for that. We are upping our focus on the business customer. We're increasing our sales team. We're working more closely with business travel agents. So we feel confident that will enable us to increase our indexation of business customers. So Easter is always great for leisure, less good for business. As we come out of Easter and you see leisure being more balanced and business getting stronger, that's generally a better time for us. And as we lead into the summer, this is a good time of year for us. Thanks, Tim. We just got time for 2 more questions, I think.

Okay. No problem. Our next question comes from Joe Thomas from HSBC.

I just wanted to cover a little on a couple of things, please. First of all, following up on what you were just talking about on OTAs. I was just wondering how that's being managed and the extent to which you're getting any benefit from that? And then secondly, just with respect to the RevPAR performance, I mean we've talked about London region, and we see that in the data. I just wonder if there's any other way that you can segment it in your estate. I mean, I'm thinking, for example, hotels that are well invested versus those that you've got in the estate that are not, those that are business focused versus leisure, et cetera. I mean if you could just give some color around that, it would be helpful.

Yes. Thanks, Joe. I think I'll take the first question on OTAs and distribution, and then Hemant will pick up on RevPAR. So we can't say a lot more than we've already said. On the OTAs, I mean, we've learned a lot from trading in Germany. And the distribution strategy that we've got in Germany works really well for us in Germany. It's giving us access to an incremental group of customers that otherwise we wouldn't have access to, which is driving really strong guest acquisition, which then leads to loyalty, because they're having a good experience. So it's very accretive for us overall in Germany. We're not taking the same approach from a distribution strategy point of view in the U.K., but we have learned something from our approach in Germany, which is to use selected distribution like business travel agents, for example, to just top up from a revenue point of view and give us access to a cohort of customers that we wouldn't otherwise have access to. And we're taking that approach from an inbound perspective. So an inbound-only trial to effectively top up generally city and airport-type locations, which from a profit and returns point of view is very accretive for us because it's giving us access to an incremental additional group of customers that we wouldn't otherwise have access to. So this very kind of selective, smart, segmented distribution approach to give us access to incremental customers, which is returns accretive, is a good strategy for us. In the U.K., the overall direct model has been very successful for us and will be a key part of our distribution strategy moving forward. But smartly topping that up by accessing incremental guests overall is accretive for us.

Yes. Just on RevPAR, Joe, I mean, clearly, you can see the market data. You can very transparently see London and regional data, you can transparently see midweek versus weekend. So business and leisure data as well. Yes, clearly, we take account of all of that. When we're trading, we are thinking about that. We're thinking site by site, hotel by hotel, region by region, but we're also thinking about midweek and leisure as well. And our trading strategies, our pricing strategies, commercial strategies, all of that into account and how we're performing in all of those areas versus the market in particular as well that allows us to self-correct our trading strategies. Overall, we've been ahead of the market. Current trading has been positive versus the market and has been extending. That's across both business and leisure. We've been trading pretty well. So we've got an understanding of that. We also look at things like how invested the hotel is, customer scores. All of that then we will use to drive, for instance, refurbishment strategies and investment strategies in those sites, because we then understand the RevPAR impact of investing versus not investing in our estate. And obviously, what we're trying to do is maximize commercial return from less productive capital like refurbs compared to a new unit growth. So clearly, we are looking at all of those things. We don't necessarily want to disclose all those things. Some of these things are commercially sensitive, but rest assured that we are thinking about every aspect of our business and segmenting in many different ways.

I think we're just on to the last question now.

Our final question comes from Jaina Mistry from Jefferies.

Two quick ones, if I may. starting on the last question. We've discussed the U.K. inflection. You obviously look at your estate in immense detail. What's your opinion on why market RevPAR is negative? Just be really interested to hear your thoughts there. And then my second question is around the medium-term target. The GBP 1 billion property recycling, that's obviously a new number since last year. Your cost savings are coming in ahead of your old target so far, albeit I appreciate your 5-year target is still unchanged. But does that just give a bit more buffer to your incremental GBP 300 million in the scenario that RevPAR and market RevPAR remains weak. Is that the way that we should think about it?

Thanks, Jaina. Let me take the first part of the question, and I'll hand over to Hemant for the second part of the question. I mean, in terms of why has overall market RevPAR been a bit softer. I mean, I guess to the point we covered at the beginning of the call, it is still strong versus pre-pandemic. And we think there are good reasons for that, which is supply is down, which provides an underpin. And certainly, from our perspective, we're segmenting the market really well. So that's driving a natural RevPAR increase. I mean there has been some macroeconomic uncertainty. I don't need to remind anyone on this call of that. Over the last 12 months, there's been a bit of upheaval with the new government, talk about increased taxation and things like that. What impact does that have? At some level, that has an impact on consumer spending. And that's probably taken a little bit of the fizz out of the market. You can see that some of the kind of off-peak leisure trends have been a bit softer. Businesses have been trading down a little bit overall, which has probably impacted business travel. But relatively, it's at the margins. And the hotel industry in the U.K. as a whole is in a strong place. Profitability is good. Supply is down. And we, of course, are outperforming the market, and we're very focused on continuing to outperform the market. I think as that normalization process kind of settles down and sorts itself out, there will be an inflection point. RevPAR will turn positive. We've seen that before in the past. If you look back over the history, generally, if you take a 5-year period, for example, RevPAR is generally positive to 2-ish percent. So there will be an inflection point at some point, and we are extremely well placed. We're performing well in a market that's slightly softer. When that inflection point comes, we will be extremely well placed. And per my comment earlier, we are not dependent on a super strong market overall because of the fundamental improvements we're making in our business model, which is improving our core profitability, margins and returns over the 5 years.

Yes. And just building on that for the second part of your question. Yes, the GBP 1 billion of property recycling, of which we're going to do GBP 250 million to GBP 300 million this year. That is -- it's a new disclosure, but it's part of the 5-year plan that we put out. So that's part of -- a consequence of that allows us to keep net CapEx at below GBP 500 million a year despite the fact that we're investing additional investment in the 3,500 rooms of the Accelerated Growth Program over and above normal course of business. So the increase in the efficiency program is basically bringing forward an extra GBP 10 million into this year. You saw through last year, as we saw higher cost inflation, we saw a more challenged revenue market, RevPAR market and demand. We upped our cost saving targets through the year. We're a business, we have got a large cost base, and it allows us to push hard on our efficiency programs. We did it very smartly, but it does mean that we can increase the size of efficiency programs. We can extend them, bring them forward and actually adding new ideas as well. We've done a lot of work over the last kind of 18 months on efficiencies for the next few years and hence, the GBP 250 million target. So we're bringing something forward. It doesn't change the overall GBP 250 million at the moment. But clearly, I'd like to be able to keep pushing hard on efficiencies, and we'll push those as hard as we can and bring forward any more if we're able to through the year. What it means overall, the GBP 300 million of profit improvement from last year to FY '30 still stands. Clearly, we set that out -- as Dominic alluded to earlier on, we set that out in a conservative way, we feel, i.e., that our like-for-like growth, our RevPAR growth and like-for-like growth and any cost efficiencies would just offset cost inflation for us. That, by definition, means that, that would be assumed a reducing margin over time, which obviously we would expect, and we have historically been able to increase our margin over time. So we would really expect to be better than that. Hence, we think it's a very conservative articulation of what this business can do, the GBP 2 billion that we'll be able to generate in terms of shareholder returns and the GBP 300 million improvement in profitability. So for us, we think that's conservative. That's the buffer, if you like, that you mentioned. Clearly, we're going to push hard on cost savings. And if we can beat them, then great, because that will provide us with additional benefits and to invest or to return to shareholders.

We currently have no further questions. So I'd like to hand back to Dominic for some closing remarks.

Thank you, Sami. So just to wrap up, I mean, based on our progress to date, as you've heard, we are increasingly confident in our 5-year plan. We're trading ahead of the market in both the U.K. and Germany, and we're on track to deliver more than GBP 300 million profit by full year '30. By recycling at least GBP 1 billion of our more mature property assets, we can deliver the plan, whilst keeping average net CapEx at a maximum of GBP 500 million per annum, generating more than GBP 2 billion for shareholder returns over the life of the plan. Thank you for listening. We do appreciate it. If you've got any follow-up questions, please do come back to the IR team. You know where we are. And thank you for your time today.

This concludes today's call. Thank you very much for joining. You may now disconnect your lines.