Whitbread plc (WTBDY) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to today's Whitbread Full (sic) [ Half ] Year '26 Interim Results Call. My name is Seb, and I'll be the operator for your call today. [Operator Instructions] I'll now hand the floor to Dominic Paul, Chief Executive, to begin the call. Please go ahead.

Thank you, Seb. Good morning, everyone. Thank you for joining myself and Hemant Patel, our Group CFO, for our half year results call. Hopefully, you've all been through our release, and you've had a chance to listen to our results presentation this morning. But before we open up the call for Q&A, I thought I'd just pull out a few key points. Let's start with our first half results. As you probably all know from the published data, the U.K. market returned to growth in the second quarter. As a result, U.K. accommodation sales were in line with last year for the first half. And with the benefit of our commercial program, we continue to outperform the mid-scale and economy market on both accommodation sales and RevPAR. Now food and beverage performed in line with our guidance, and we continue to make great progress on our accelerating growth plan to transform our offer at around 200 of our lower returning branded restaurants and unlock 3,500 higher returning extension rooms. We've done really well with our cost savings, delivering GBP 43 million in the half, helping to partially mitigate cost inflation that ran slightly ahead of our previous expectations. As a result, U.K. EBITDA was down just 3%, and we're increasing our full year guidance to GBP 65 million to GBP 70 million of cost efficiencies for this year. In Germany, we delivered a positive revenue performance that was ahead of the market despite softer-than-expected market demand in the second quarter, and we significantly reduced our adjusted loss before tax. We continue to make great strategic progress with a recent agreement to acquire 1,500 rooms in key locations, taking us closer to becoming the #1 hotel brand. Turning to current trading. First, in the U.K., the positive trading momentum has continued during the first 6 weeks with both total accommodation sales and RevPAR up 3%, and our forward booked position remains ahead of last year. In Germany, after a softer start to September, the market has returned to growth in more recent weeks, and we remain on course to reach profitability this year. Now turning to the 5-year plan. It was this time last year that we announced a 5-year plan. As summarized in our presentation this morning, we are executing at pace, and we remain on track to deliver a step change in our performance and return GBP 2 billion to shareholders by full year '30. In the first half, we completed a number of sale and leasebacks and with a positive updated valuation of our property, we are confident in recycling at least GBP 1 billion worth of property. This will be reinvested into high-returning projects like our accelerating growth plan and further network expansion in the U.K. and Germany. With significant cash flow, we can deliver a step change in profitability and deliver GBP 2 billion to shareholders through both dividends and share buybacks. Now we do have a lot of people on the call today. So before we move into Q&A, in the interest of time, could I please ask you to keep to a maximum of 2 questions each. With that summary, I'll now hand back to Seb to host the Q&A. Thank you.

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

First question, I know you don't like talking about RevPAR or obviously guiding, but just on this positive RevPAR inflection we've seen in the U.K., do you think it's all events? Or do you think the underlying market has actually improved? And how are you thinking about RevPAR as we enter a more sort of corporate-driven period? And the second question on Germany. So a very, very confident comment in the prerecorded presentation on the 5-year plan. Obviously, there you've trimmed your guidance this year. I'm just wondering what RevPAR growth you need in the second half to get to that GBP 0 to GBP 5 million. It looks like a pretty material pickup is needed from the sort of plus 3% RevPAR in the last 6 weeks.

Thanks, Jamie. So let's talk about the current trading situation. I mean, you're right, in the summer, there were events. The market benefited a little bit from the warm weather, but the underlying market was positive. So when you strip out those impacts, the underlying market was positive. And I think the key thing is that trading momentum for the market overall has continued into the current trading period. As I've just said, we're at 3% RevPAR growth for the past 6 weeks. So the underlying market, actually -- when we had this call in, I think it was June, we talked a lot about would there be a RevPAR inflection. We felt there would be. It was obviously -- it's always really hard to say precisely when. But what we're seeing now in the underlying market is positive, and I think there are good reasons for that. So the structural underpins for the U.K. hotel market are really supportive. Supply remains constrained. There is still this meta trend of independent closing, and that gives us a great opportunity. So the structural underpins help support the market. And I think the normalization post-COVID, we're now entering a slightly different era. And I think you can see that in the underlying trading performance, which has been positive. Now of course, when there are events, we do benefit. But generally, there is an ongoing calendar of events in the U.K. Last year it was Taylor Swift. This year, it's Oasis. Next year, it's going to be Take That and some other concerts. So broadly, I think we're feeling good about the positive momentum in the U.K. market. And remember, the underpin is our kind of consistency of our brand and the guest proposition. I think in Germany, I mean, I'll pass over to Hemant for the kind of second half for Germany. But overall, again, as you heard in the presentation, we feel really good about the momentum that we're building in Germany. If you look at our turn in performance over the last 2.5 years, it's actually been substantial. We're creating a business of scale. The product is resonating extremely well with guests. Our financial performance is getting materially better. We're on track to hit profitability this year. And we're on track to hit that GBP 70 million PBT by full year '30. So we're building a business of scale. We're confident of building a business that is going to drive strong returns and strong profitability. And we think there's a really good strong value opportunity for Whitbread in Germany.

Thanks, Dominic. Jamie, yes -- so I mean, yes, clearly, the second half of the year for Germany, we need to see a strong pickup in terms of RevPAR for us to get to our targeted profitability. We feel very comfortable with that. In the first half of the year, particularly in Q2, we saw a very strong events program last year, and we've annualized against that. And the German market went negative over that quarter. We've outperformed the market. In Q1, our RevPAR growth was double digit. We can see that through the last couple of years, we've seen significant double-digit growth in RevPAR growth. So it's quite feasible for us to achieve that in the second half of the year. Most importantly, we've got a very strong forward book position. The event density going forward through October and the next few months is much stronger than it was at this time last year. So we're seeing a reverse of what we saw in Q2 this year. So we feel very comfortable with our ability to get to the right levels of RevPAR to get us to profitability this year.

Our next question is from Estelle Weingrod at JPMorgan.

The first one on cost inflation. I mean it happened to be higher than what you expected. Can you just specify what costs more specifically triggered this revised guidance? Is it F&B, utilities, I don't know. Also, how should we think about the incremental GBP 5 million to GBP 10 million of cost efficiencies? Like what are there? And just to confirm, are they incremental to your 5-year plan or brought forward? And just another one on room openings. So 94 new U.K. rooms in H1, of course, more closures because of the AGP. Is that in line with the phasing you expected? And are you still comfortable with the target for this year?

Thanks, Estelle. So let me take the first kind of part of that, and then I'll hand over to Hemant. I mean, I think I can say this more comfortably than Hemant. But Hemant and the team have done a phenomenal job of building a super strong efficiency plan for our business. That is one of the underpins of the 5-year plan. Remember, we've got accelerating growth plan, the U.K. network expansion, the very strong commercial program that we've got, which is helping drive our performance and then the improvement in performance in Germany. But an important underpin is also our efficiency plan. We're a value-based business. It's really important that we continually challenge ourselves to do things better and smarter to drive those efficiencies. And we got well ahead of this. And as we've seen in the U.K. market inflation, thank goodness, we got well ahead of it. We outlined a plan last year to get to GBP 250 million worth of efficiencies over the next 5 years. And we're really comfortable with our position where we are on that, and that's one of the reasons why we could up our efficiency guidance for this year. So I guess if I step back from it, I'd say I think this business is doing a really good job of delivering on all the elements within our control. And I think we're showing that as a business, we are very, very good at dealing with the various headwinds that come through. And the efficiency program, I think, is a really good example of that. In terms of room openings, I mean, the summary is, yes, we're on track and on course to hit our target room openings. We're on track to open between 500 and 700 of new rooms within the Accelerating Growth program. Remember, we are really confident about that these rooms are going to be high returning. They are extension rooms in hotels where we know there is strong demand. Extension rooms are often are higher returning hotel rooms because it's a really efficient way to add growth. And we've also got a really strong pipeline of new hotels that we'll be opening over the next few years, again, which we're really confident are going to be strong returning hotels. And our accelerating growth plan is bang on track with where we want it to be at this stage. So again, we feel really comfortable with the progress that we're making.

Estelle. Yes, just to build on the cost inflation and efficiency points that Dom made. Yes, I mean, clearly, we are seeing cost inflation this year. We guided to net inflation of 2% to 3%. We're still within that range, probably in the middle of that range rather than the lower end of that range once we take account of the slightly higher inflation that we've seen this year. Inflation has been driven this year by a lot of things that impact our labor base, so National Living Wage, the National Insurance change, obviously, that we had at the beginning of the year and food and beverage inflation. And it's food and beverage inflation in particular, that has been higher than I think the industry was expecting. You'll have seen all of the headlines on how food and beverage inflation has been ticking upwards over the last few months. So we can see the impact of that. In response to that, we've obviously upped our efficiency plan to partially offset it. We were guiding to GBP 60 million of efficiencies this year. We're now saying between GBP 65 million and GBP 70 million. That's part of the GBP 250 million that we're guiding to for this year and in total of 5 years, including this year going forward. We've got a good history of being able to continue to drive efficiencies. We're a big business, a multisite business with a large operation. As inflation comes into the business, it drives new ideas, new technologies, new ways of working that will allow us to take further cost out going forward. Whether it's to accelerate efficiencies, whether it's to increase the size and scope of the initiatives we have at the moment or it's come up with new ideas, I'm very confident we're going to be able to continue to innovate and drive efficiencies going forward.

Our next question is from Richard Clarke at Bernstein Societe Generale Group.

So it looks like in your messaging today that you're separating the increase in lease costs from your cost inflation guidance. Obviously, in your 5-year plan, there is no bridge line item for the, I guess, GBP 55 million to GBP 60 million of higher lease costs related to the GBP 1 billion of property recycling, nor one related to the lower cash interest costs. So just is there headroom in the other line items that means you can offset that higher lease cost across the 5-year plan? And then second question, I guess, the property valuation looks pretty healthy, but the yield at 5.5% to 6%, why is that higher than the 5.3% you've realized so far? And what would you expect to pay on that GBP 1 billion of property disposals, would you do sale and leasebacks at 6% yields? Or are you being selective and will do one that's more like at that 5% to 5.3% level?

Thanks, Richard. I think I'll hand over to Hemant to pick those 2 points up.

Yes. So thanks, Richard. Yes, so on the lease interest costs, so I'll just remind you that these are not cash items. The accounting for leases is under IFRS 16, and it basically simulates a capital purchase and depreciation and interest based on having a capital purchase is how that works. I'm sure you know that. So these are cash items. The reality is we have accelerated the level of sale and leasebacks that we're making -- that we're doing. We said we're going to do GBP 1 billion sale and leasebacks over the 5 years of the plan. This year, we're going to have between GBP 250 million and GBP 300 million of property disposals, most of which will be sale and leasebacks. So we're getting ahead of that program because we can see some good value out there, and there's pent-up demand for our assets. So in terms of how it fits in the 5-year plan, when we set the 5-year plan, we took account of the P&L impact of our leases. So I'm comfortable that it's all included within the overall cost inflation. So yes, there'll be a bit of phasing here. There's been a bit of an accounting change, which changes some of the phasing. It's relatively minor in terms of what it means over the long term. And a reminder, obviously, this doesn't impact EBITDA. It's not a cash item. And then in terms of the valuation of the property, yes, so we've done a property valuation, first time we've done one since 2018. It's increased the range of valuation by about GBP 0.5 billion versus the previous valuation between GBP 5.5 billion and GBP 6.4 billion. The net initial yield range is at 5.5% to 6.5%. This is done by an independent valuation partner, Newmark. The range has obviously gone out since the 2018 valuation. I mean, clearly, interest rates have gone up significantly over that period, something like 400 bps at that time. This is showing about 100 bps of increase in terms of the net initial yield, which shows, I think, the strength of our covenant overall. Clearly, this is a careful valuation that assumes an asset-by-asset valuation. The reality is we have been able to achieve better than this valuation in terms of our recent transactions. Those transactions aren't just high-quality London assets. There's a range of different assets within those transactions. So would I be hopeful to be able to -- site by site, as we do sale and leasebacks, would we be hopeful that we'd be able to get to better yields than this? Clearly, we're going to negotiate hard and try and get the best possible yields that we can. Your question about whether we would transact an asset at 6%, it very much depends on the asset. The range is there to illustrate the fact that actually we have a vast range of different properties from London assets, big prime located London assets to regional assets that might be at the edge of a small town in somewhere in the U.K. So the range of yields you'd expect are -- there's quite a wide range. It very much depends on the asset. It depends on demand for that particular asset in the market at that time. The most important thing is we'll make sure we do that carefully to get the best possible return for shareholders and able to recycle that capital and put it back into high-returning assets in the future.

Our next question is from Jarrod Castle at UBS.

Just given we're on the -- hello, can you hear me? Just given we're on the valuation, I was wondering, it is obviously materially higher than the previous valuation. And I would imagine some properties came out higher than you expected them to be, probably some came out a bit lower. But do you think it gives you scope to recycle even more than you've actually communicated under your -- the next 5 years? So is there more scope to sell some of these properties to recycle the capital? And have you got any numbers behind that potentially? And then just looking ahead to the budget, I know there's not much you can say, but obviously, there's proposals on the labor side, which include increasing the powers of unions, increasing the rights of employees on day 1. And then obviously, we will also get a minimum wage increase. But in particular, on what is currently proposed in the labor changes, I'd be interested to get your thoughts on what that might mean for your business.

Yes. Thanks, Jarrod. And I think on the property valuation point, I mean we said we would look to recycle at least GBP 1 billion over the life of the plan. Those words are chosen pretty carefully. I think as you say that the overall valuation is encouraging. I think it supports the strategy that we've got very well. And we laid out what that kind of recycling capital strategy looked like in the presentation. As hotels get mature, it gives us an opportunity to capture development profits, do a sale and leaseback. As Hemant just said, invest that money, for example, we'll do at a 5% cap rate and then invest it in something like an accelerating growth plan where we're confident we're going to get very strong returns. That is a really good way we think of both driving kind of shareholder value over the course of this plan, but also demonstrating the strength of our covenant and the property underpin that we've got. So this kind of concept of active recycling, we think, has been well received, but also an important part of investing in high-returning growth over the next few years. And you're right, the property valuation has been supportive and positive, I think, to that strategy. In terms of the cost increases, as you say, no one in the U.K. knows what's going to happen in the budget at the end of November. We've been very clear with the government that as a business that has a strong position in the U.K. and is growing, it's important that we're able to profitably invest in our business for growth. And obviously, the hospitality industry got hit pretty hard in the budget. I mean what I would say is I would absolutely back us as a business to continue to be agile and pivot if we get cost increases into our business. And over time, we will mitigate those cost increases. Anything that, for example, hinders our ability for labor flexibility, of course, that's not helpful in the short term. On other hand, we're a very good employer already. A lot of the cost increases the government is talking about like getting rid of 0 hours contracts, for example, we already don't have those things. We do pay above minimum wage already. So we're a good employer. But we're also very agile. It's why we're doing things like investing in robot Hoovers, for example. It's why we've just transformed our supply chain. So the efficiency plan is not a simple cost-cutting plan. It's actually a genuine kind of reengineering and replumbing of the business behind the scenes to make us more efficient. And I would always back Whitbread's ability to be able to mitigate these cost increases over time and over the course of the plan. I think that's an important part of the messages, I think, from the leadership team we've got here at Whitbread.

Our next question is from Tim Barrett at Deutsche Numis.

My 2 things. Firstly, starting on -- carrying on, on costs. Obviously, you don't know the living wage and business rates from April. But can you talk about the things you do know about for next year and how you're positioned on utilities, food and beverage, cleaning, that kind of thing? And then the second one, I may have missed this in all the text, but what you've bought in Germany, the 1,500 rooms, have you said what you've paid for that. What the assets are trading as currently and therefore, how much you might have to spend in rebrands?

Yes. Thanks, Tim. I think -- I mean, from a cost point of view, I mean, as you say, there will be some announcements in the budget and no one knows what those announcements are going to be. If I step back and look at what we're doing with the business, I think we're doing all the right things to mitigate the cost increases that are likely to be seen across the business. So for example, let's look at food and beverage. The move that we're doing on accelerating growth plan is a really strong move to mean that we are less exposed moving forward to this kind of food and beverage cost inflation because we are increasingly focusing on our own hotel guests, which means actually we have fewer people coming in for dinners, for example, but actually a much more profitable model because of that, a better guest experience overall and a much more profitable model. So I think it reinforces why that strategy was absolutely the right strategy for us to do. Similarly, with labor costs, there's been a lot of catch-up in minimum wage actually over the past few years, which we've all seen. But we're also ahead of the curve in terms of driving labor efficiency. We're making really good progress on things like labor scheduling. I've already talked about automation. We're doing things like -- we'll be rolling out check-in on the app, for example, which ends up saving labor in some of our hotels because it means that actually guests can go direct to the room. So we are working very hard behind the scenes to continue to evolve our product and proposition so that we remain at the forefront of what guests want, but also delivering it in a really efficient -- cost-efficient way. And remember, supply is going to remain constrained in the U.K. hotel market over the next 5 years, but also scale has got advantages. Our ability to invest in state-of-the-art revenue management systems, state-of-the-art labor scheduling systems, state-of-the-art automation means that we widen our advantage versus the independents and other smaller hotel chains. So ironically, a slightly difficult environment does strengthen our position further in this business over the next 5 years. It's up to us to make sure we take advantage of that, but that's exactly what our 5-year plan is doing.

What's the hedging in place on utilities and F&B?

Yes, Hemant?

Yes. So we don't guide yet. We haven't guided on cost plans next year, Tim, because obviously, the largest part of our cost base, we don't know what the inflation is going to be because it is about minimum wage, it is about other whatever changes that might come in the budget, we don't know. So for [indiscernible], yes, we've got good hedging on utilities going forward. So yes, we're well hedged for next year. You'll have read that there are other non-commodity costs and potential inflation coming in, which we haven't got the detail of things like the nuclear levy and the transmission network charges. We will guide when we get to our quarterly results in January, we'll guide to it a bit more detail in terms of what we think is going to happen going forward. But I'll refer back to Dominic's point that actually, we've got a strong efficiency plan, and we're flexible and nimble enough to be able to manage whatever comes away, obviously, it's not a complete surprise. And then to your second point, just on the German acquisition, we aren't giving any more detail at this stage. We can't do that. We can't talk about the other party of the hotels or any price paid. We will do so when we're able to do that. We're not opening these sites until next year. So there's time before [indiscernible] that's the case. And we'll let you know exactly what the implications are.

But Tim, we're really confident that this is an excellent acquisition for us. I mean, it's 8 bullseye sites for our city center locations. You saw in the presentation, we're really confident about knowing which sites will work and which sites won't work. City center locations of hotels of reasonable scale work really well for us. We've also got smarter and smarter about how we do conversions. We spend a bit less money than when we first went into Germany on doing those conversions. That means we can be confident on the financial returns that we get. And we've got a distribution platform and a brand platform now that we can plug those new hotels into. And so we can say with confidence that those hotels are going to drive strong returns for this business and are in ideal locations for us as we continue to grow the business.

Next question is from Alexander Brignall from Rothschild & Co Redburn.

[indiscernible] very formal, Alexander.

I know. Sorry, my colleagues [indiscernible]. But I might start going with that from now on. It's quite nice. My mother would be happy. A couple of questions. Firstly, just on the property valuation. Are any of the disposals, I know you use a lot of transaction values within the yield, and it seems like you've been very prudent on the yield. So a lot of this will be captured in there. But have any of the disposals that have gone into that been to actually exit the hotel rather than keeping you on as a tenant? So I guess I kind of -- that kind of comes into the lease dynamic because obviously, the exit value that you get is subject to the lease that you then commit to. So sort of if there's any way you sort of realize an outside value for the property that someone else is willing to pay for it rather than someone willing to pay for you to remain the lessee, that would be hugely helpful. And then I know that you don't really look at the sort of balance sheet, capitalized value of leases. But by the end of the year, that number, net debt to EBITDA is going to be almost 5x sort of as reported. So I just kind of wonder whether that is the right level to be for buying back stock, especially given the obvious sensitivity to pricing, which is very hard to have much confidence over?

Yes. Sorry, just to understand your question, Alex, I think what you're asking about is how the property valuation and how the methodology of it effectively. It is done on the basis that we are the tenants. So the sale and leaseback site by site individually, effectively taking the profitability of each individual site, turning that into a rental value and then applying the local yield based on the characteristics of that site, the location of that site, the size and location of that site, based on whatever historical data there might be of our transactions and other hotel transactions either locally or across that region or across that market. So it's as much detail as it can be done and with as much rigor that we can do that. It's -- your second point, so just in terms of the leasehold capitalization of our sites. I mean actually, the way -- obviously, you'll know that we use Fitch as a ratings agency, we use their calculation in terms of the lease leverage impact. That's actually based on the cash rents, which is a more sensible way if you think about doing that and applying a sensible capitalization factor on those cash rents. So that's how that works. So sorry, I'm probably not answering your question, actually. Let me just give -- I'm repeating your question to make sure I understood it.

Yes. I guess the property question is, you're obviously a spectacularly well-run hotel business and can afford to pay higher leases and probably can derive a higher property valuation than anybody else can for the properties that you have. So I guess my question is, within any of the disposals that you've made of hotels, there been ones where you have fully exited the hotel and you have ceased to operate there and you have achieved -- got a property valuation that can give you a sort of outside value of your property rather than just the capitalization of the rent that you're willing to pay because you make an awful lot of money. That's really the soul of the question.

Yes. Okay. Let me answer that a bit better. So yes, most of our disposals are sale and leasebacks. We do exit some sites. These tend to be sites though that are undertrading sites. They tend to be small sites where we can migrate to trade away from that site into other sites we might have in the catchment or we might be building extensions, for instance, with the Accelerating Growth program or building new rooms with new hotels. So it's probably -- they're not typical sites, and they're relatively low profit, still generally making EBITDA, but relatively low profit, relatively low value small undersized sites. So they're not typical, and they aren't necessarily a good indication of what might happen if we were to sell it in our better trading sites.

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

A lot of my questions have been answered. But I wanted to ask around the U.K. market and your outperformance compared to that. With the market, like you said, you think it's kind of underlying improving. How are you thinking about your outperformance into the second half of this year?

Yes. I mean, we don't -- as you know, we don't guide on how RevPAR is going to look in the future because, of course, that's something that's hard to predict. What we do talk about is what we're seeing right now. And as you've seen in the current trading, our current trading is positive and the underlying market is growing. And I think that's really helped by the structural underpins, the low capacity growth in the market overall, the reduction of the independents. And then within that, we're really well placed. And I think we're really well placed for a few key reasons. We've got a super strong brand. The customers know what they're going to get, and they really enjoy the guest proposition. You can see that through our guest scores. We've got a really, really clear and ambitious commercial plan. I think we're executing really well behind that. And that's made up of a number of things. It's made up of things that are optimizing our revenue management system, a bit like I was talking earlier, we're a scale business, and we're taking advantage of that scale by having state-of-the-art revenue management systems. We're progressing rapidly on things like our digital progress. We are quite unusual in the U.K. market in the sense that we have pretty much all of the data from our customers, and we're using that data. We're using that data to drive frequency, and we're using that data to aid retention of our customers. So our commercial plan is really strong, and it's supported by a very strong brand and a very, very strong and consistent guest proposition, which our people work very hard day in, day out to deliver. And that helps our outperformance versus the market. As I said earlier, it ebbs and flows the outperformance versus the market. The key thing, I think, is that we've got a really strong RevPAR premium versus our competitive set. And in fact, that RevPAR premium has widened. And we feel confident that we'll be able to continue having a RevPAR premium versus our competitors for all the reasons that I've just said, super clear plan, executing well and really focused on delivery of it. So we feel confident of being able to continue to drive that RevPAR premium. And as a reminder, what we're seeing in current trading is positive. We don't guide on the future, but what we're seeing in current trading is positive, and I think that's helping support our business.

That's clear. Can I ask a follow-up question on the Germany acquisition? You said you don't want to disclose the details right now. When can we expect to get more details around that?

Yes. Muneeba, it's Hemant. Yes. I mean, we'll be able to talk about it certainly as we enter next year. So the timing, we might be able to talk about it at our quarterly results, but it will very much depend on some factors I can't get into in terms of the deal. As soon as we can talk to you about it, we will do.

And again, we're really positive about that acquisition, bullseye locations for us. We've got a really clear plan of what works for us from a growth perspective in Germany. The scale is really helping us drive this performance, this move to profitability this year and then on track for hitting GBP 70 million PBT by the end of the plan by full year '30. And this acquisition overall will be really supportive of that growing strategic position in Germany, which is a good and strong hotel market, and we're building a position of real scale and strength in that market. I think we've got one more -- time for one more question.

So our last question is from Jaafar Mestari at BNP Paribas.

I'll ask two, but if you only have time for one, that's fine. Just on inflation, could you help us time the point in the year where food in particular, started to make you change your views? Because as of May, you were still thinking bottom end of the 2% to 3%. Just quite keen to understand if we're 2.5% for the year, is it bottom end for a good 6 months and then H2 is going to be top end. That would be helpful. And then just secondly, on the property valuation, let me know if I'm focusing on numbers are rounded too much, but how important is long leasehold within that portfolio because you continue to value freehold and long leasehold. If I just look at freehold, obviously, it's fair that the overall valuation increases, you've invested a lot. But per freehold room, it doesn't look like the valuation per room is down at all, could actually be up a touch. And I know it's been more London development, for example. But is that fair?

Right, Jaafar, I'll take it. I think on inflation, I mean, you'll probably -- you've seen the analysis and the headlines. Food and beverage inflation has been ticking up over the last kind of 3 to 4 months. We're obviously predicting what it might be for the full year. In some instances, we know because we have contracts, other instances, it will be commodity linked and things -- some of the prices will float. It's our best guess for the full year at this stage that everything nets off between this 2% and 3% and I talked about the midpoint of about 2.5%. Yes, the phasing generally builds in. We're making some assumptions based on commodity by commodity. So it's not easy to say exactly what that will look like. But I think -- if you really want to assume some phasing, you can assume it's fairly flat base across the year. In terms of the property valuation, yes, clearly, I mean, the long leasehold is part of it. These are effectively -- exactly as I say, these are effectively the de facto freehold sites is the way we consider them because they have got very long leases with a kind of understood leasehold components to those. The impact -- the actual valuation in terms of per freehold room. I mean, the way I think about this is there's a few moving parts to the valuation overall since the last time we did the valuation. We've sold something like GBP 400 million of freehold and long leasehold properties since then within that. Most of which obviously -- a lot of it through sale and leaseback. So it's coming into our leasehold estate. We have disposed of sites as well. We've added sites as [indiscernible] some freehold as well, particularly some good quality London freehold sites, although a lot of those are still in construction at this stage. And then we've also seen significantly higher profitability per room coming through over that time period as our margins improved pre-COVID. And then the final thing offsetting that is what has happened to property yields, obviously driven by gilt rates in particular. I think I mentioned earlier on, gilt rates have moved up something like 400 bps over that time period, the yields here, the real rent quoting has come something like 100 bps or so in that range. Taking that into account, obviously, all of that, you get to derive the actual valuation on a site-by-site careful sale and leaseback basis. Where that leaves the valuation, it's a point in time. The reality is if we think that gilt rates are going to be coming down if interest rates come down over the next few years, it is likely that valuation will go up over that time period, as you'd expect. I think the other point I'd note is that we have been achieving probably better than this range historically. So it feels like there's some upward pressure on valuations. Anyway, you can see that evidence kind of coming through. So over the last kind of year or so, we've had some very strong transactions. You've seen some in the presentation as well where we've given some examples. They aren't necessarily fully typical, but I feel confident that this is a sensible valuation, probably at the prudent end of things. And I'm happy with the valuation per room going forward.

Okay. So I think I'll -- thank you. Just a few words for me to close the call. I mean, we've got a super clear plan. We're executing well. We've got a return to market growth in the U.K. Our vertically integrated model, brand strength and market-leading guest proposition, we're delivering positive like-for-like sales momentum, and we're maintaining our position as a market leader. In Germany, our growing estate, the increasing maturity of that estate and the increasing maturity of the brand means we are on track to reach profitability this year and deliver GBP 70 million of PBT by full year '30. Whilst we are encouraged by our current trading performance, we remain focused on the things we can control where we're executing our 5-year plan at pace. That 5-year plan is focused on driving sales, increasing margins and delivering attractive financial returns, and we feel very confident in our ability to do that. Thank you for listening. And do come back to the IR team, you know where we all are, should you have any further questions. Thank you.

This concludes today's conference call. Thank you all very much for joining, and you may now disconnect.