Hello, and welcome to the Whitbread Q1 FY 2025 trading update. My name is Elliot, and I'll be coordinating your call today. If you would like to register a question during today's event, please press star followed by one on your telephone keypad. I'd like to hand over to Dominic Paul, Chief Executive Officer. Please go ahead.
Thank you, Elliot. Good morning, everyone, and thank you for joining the call for our Q1 trading update this morning. I'm joined by Hemant Patel, our Group CFO, and we look forward to answering your questions shortly. Hopefully, you've had a chance to review the Q1 release this morning. I'll start with a brief overview for those who haven't seen it, and then we'll open up the call for Q&A. Before I touch on the first quarter's performance, I want to start with a reminder of a number of key strategic initiatives that are gonna drive our business over the next few years.
We're gonna continue to extend our market-leading position in the U.K. through our strong commercial program and Accelerating Growth Plan to optimize our food and beverage offer, whilst adding over 3,500 rooms to our U.K. estate at a time when our competitors are unable to do so. Continue our journey towards becoming the number one hotel brand in Germany, and leverage our upgraded technology stack and deliver our biggest ever cost efficiency program to allow us to become more digitally agile whilst operating a lean cost base. Together, these initiatives are set to deliver a step change in our profits, margins, and returns. In the first quarter, which ran to the thirteenth of May, group total sales were 1% ahead of last year, led by a strengthening performance in the U.K. and continued encouraging progress in Germany.
As expected, trading performance improved during the quarter, and total U.K. accommodation sales were in line with what was a particularly strong trading period last year. This was still up 55% versus pre-pandemic, reflecting the favorable U.K. supply backdrop and the progress we have made over the past few years. The strength of our brand and vertically integrated operating model meant that we continue to outperform the midscale and economy sector, maintaining a healthy RevPAR premium of GBP 5.62. In Germany, we delivered another strong performance, with total accommodation sales 15% ahead of last year, led by the increasing maturity of our estate and continued room growth. We're particularly pleased with our cohort of more established hotels, which continues to outperform the market, and we are making good progress towards reaching breakeven on a run rate basis later this year.
While our normal booking patterns mean that forward visibility is limited, our forward booked position is positive, and we remain confident in the full year outlook. This reflects a more encouraging performance in the U.K. as a result of our strong commercial program and increased cost efficiencies, as well as our good progress in Germany. With the improved consumer outlook and significant growth potential in both the U.K. and Germany, supported by the structural reduction in supply and our asset-backed balance sheet, our longer term strategic plans are set to deliver a step change in our performance. I'll now hand back to Elliot to host the Q&A. As you know, we have our AGM today, and so we only have half an hour this morning, given it's only a few weeks since our last update. Could I please ask you to limit your questions to two per person? Thank you.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Jamie Rollo with Morgan Stanley. Your line is open. Please go ahead.
Thanks. Morning, everyone. The first question is just really how should we read your outlook, your positive forward book position? It's sort of slightly different language to what you used in late April, where you were ahead of last year. Do you sort of feel better or worse, Dominic? And any pointers on sort of RevPAR expectations, given Q2 is your toughest comp on a sort of FY20 basis? And then, the other question on the cost guidance. The better end of 3%-4% looks like it's more about self-help than less cost pressure. How much more is left in the can this year if things do get worse in terms of top line? Thank you.
Yeah, thanks, Jamie. I would say we feel about the same as we did, I mean, it was only, I think, 6 weeks, just over 6 weeks since our last call. We feel about the same. You know, on the call 6 weeks ago, we basically talked about the fact that we felt that the quarter would likely strengthen, we've seen that. Business demand continues to be resilient. Peak leisure demand continues to be resilient. There is a bit of softness around this soft peak leisure, but I think that's factored in. So I would say we feel about the same as we did, 6 or 7 weeks ago. You know, we're comfortable with the full year guidance that's out there.
We've got a lot of levers at our disposal. We've got this new technical stack, which is enabling us to really pull our commercial levers, part of the reason for the outperformance in the market. And, you know, generally, as we go into busier peak times, that is where our vertically integrated model performs the best. And then the other side of it, I think, is, as you say, about the efficiency program, which is that Hemant has done a fantastic piece of work over the last 12-18 months. We got well ahead of this early on. We've got a strong efficiency plan, and we've got opportunity to bring some of those efficiencies forward into this year. Hence our, hence our kind of, net inflation- [audio distortion] .
So, you know, kind of net-net, we actually feel comfortable about this year moving forward, but I suppose the bigger point for us as well is we feel really confident about the levers we've got to pull in this business over the next few years as well, because that accelerating growth program, the continued driving of the efficiency program and our progress in Germany, which I think is really encouraging. So overall, yeah, it's only six weeks since since the last call, but, you know, I think overall, we're feeling encouraged.
You wouldn't be as bold as to suggest that Q2 could inflect positive after the broadly flat RevPAR of the last six weeks?
I don't, I mean, I just don't think we want to get into that at this stage, Jamie. I mean, this is obviously, you know, there's not, no. I mean, there's just, I don't think it's worth speculating on that at this stage. I think the key thing for us is, we've got levers to pull to continue to drive that market, our performance. That the market supply is down. We can see overall, that's a really nice underpin for the hotel market in the U.K. And progress in Germany is really encouraging, and that's why we feel good about the overall guidance for the year.
Thank you very much.
We now turn to Vicki Stern with Barclays. Your line is open. Please go ahead.
Yeah, morning. Just wanted to hone in a little bit on the RevPAR outlook specifically. So I think consensus has the U.K. at around about 1% for the full year. How are you feeling about that now, based on what you see today, sort of with regard to the outlook and then following the sort of -1.6% in Q1? And then related to that, I think you touched on it there, Dominic, in terms of the levers that you can pull, but would you still be sitting here today expecting that, from a RevPAR perspective, you can start to now outperform the market again, as we go into Q2 and Q3, those stronger demand periods? I think you probably slightly underperformed, perhaps on the RevPAR the last quarter or so. Thanks.
Yeah, thanks, Vicki. I mean, as we said in, as we said in the release, of course, forward visibility of bookings is always relatively low at this stage, but we remain booked ahead of where we were same time last year. I think we, you know, overall, in terms of the guidance overall, on RevPAR from the visibility, we can only look at the data that we've got now. You know, we maintain this really strong 55% ahead of full year 2020, and that's fairly consistent, so that pattern is encouraging. We've got some tailwinds, we think. You know, that the things like the business demand, we believe will hold up. The peak leisure demand is looking good.
And I think we are getting better and better at pulling our commercial levers or pulling our commercial levers as well. So, yeah, I think, you know, I think it looks, I think it looks achievable. That's all we've said. But we also have this efficiency focus, which enables us to kind of pull the efficiency lever as well, and I think we're doing that in a really smart way. We've planned this really carefully. That's enabling us to pull some efficiency forward into the year. It all underpins the fact that we're a budget value business, having an advantage cost base. It's gonna give us a real competitive advantage moving forward.
And then, of course, on top of that, we're gonna have the accelerating growth strategy, which I think will deliver a step change in our performance over the next few years. So in terms of the trading, week by week, month by month, of course, things bob around a bit. You'd expect that in a market, but we've got structural reasons to believe why we can continue to outperform our competitors. And actually, we're really excited about the levers. Think about the new digital stack we've got, gives us an amazing opportunity, you know, over the next 12-18 months to really drive our performance in the market, and we're really excited about it.
As I've said to Jamie's question earlier, the Germany performance is encouraging, and Germany moving from effectively a kind of financial headwind into a tailwind, I think is gonna really help us over the next few years.
And I'll just add to that, Vicki, as well. I mean, this time last year, we were hugely outperforming the market. In a cumulative, you know, cumulatively from before COVID, we've significantly outperformed the market in terms of ARI and occupancy at that point in time. As you expect, as we annualize against the, you know, that outperformance is getting a bit tougher for us versus the market. Through the rest of the year, yeah, we should be in a better position, so naturally, we think that natural will help us in absolute terms, but also versus the market along with the commercial program that Dominic's outlined.
Very clear. Thanks very much.
Our next question comes from Leo Carrington with Citi. Your line is open. Please go ahead.
Good morning. Thank you. If I could follow up on the demand, the midweek demand. Is this pricing and the mix of rate types rather than occupancy growth driving the best performance or are there still extra rooms to fill with the new business travel initiatives? And then separately, on food and beverage, was that relationship versus the accommodation sales as you would have expected? I know it's lagging slightly the Coffer Peach data, but obviously, it depends on your hotel. So any thoughts on that would be interesting. Thank you.
Yeah, thanks, Leo. I mean, let me begin the answer, and then if Hemant's got any thoughts, she'll add it. Yeah, I mean, the primary opportunity in business is effectively a rate opportunity. Our occupancy midweek with business customers is really strong. However, the more business customers we get, for example, the flexible tickets, when they book later, it actually drives a higher rate. So we've got a really good program in place now to accelerate our penetration of the business market, both through a combination of smaller businesses with our in-business program, but also larger businesses working with more travel management companies. And we see a nice opportunity there, to drive increased revenue through business customers.
And effectively attracting more business customers, the net impact of that is a rate impact. So whether that's upgrading to Premium Plus or booking a bit later, or just having a bit more demand than supply, that will help support us to drive overall rate. So we think there's a really nice opportunity there. And then in terms of your F&B question, I would say it's bang in line with what we expected. We're actually, yeah, we're actually pleased with the progress and performance. So bang in line with what we expected. And then in terms of the accelerating growth program, obviously it's only six weeks since we updated, but again, we are bang on plan with our execution of the accelerating growth program as well. I would say overall, again, encouraged.
Thank you, Dominic.
Thank you.
We now turn to Jaina Mistry with Jefferies. Your line is open, please go ahead.
Hi, thank you for taking my questions. Two questions from me. Number one is on OPEX inflation, and specifically this year, how should we think about the phasing of OPEX inflation between H1 and H2, and then the phasing of any AGP costs as well? And then my second question is around Germany. Specifically, it's not a question around your expectations, but really I wanted to ask around the moving parts to becoming profitable in FY26. You know, what would you need to see? What conditions would you need to see in order to be profitable in FY26 in Germany? Thank you.
Okay. So to start with, your question on inflation, Jaina. Yeah, I mean, the phasing, I mean, it's fairly. In terms of the input inflation, we'll actually improve through the year. So gross inflation, you know, we've slightly more inflation in the first half of the year, and we expect that will, as we can see how that's going to improve through the year, as we've seen both slightly, you know, lower than expectations in terms of the increase in cost prices kind of coming through, the phasing of utilities year- on- year as well, particularly the unwinding hedges last year and how that will phase.
But similarly, you know, the cost saving as well, in terms of the net inflation, a lot of that is loaded into the second half of the year. So we're still very confident, as we said in the release, that we're gonna be at the higher end of the expectations, in terms of our efficiency program, because we've been able to get to higher numbers with the initiatives that we've got in place that we've planned and we continue to plan in detail. We've also accelerated some of that in front, you know, pulling it forward, as well. So we'd expect to see a significant improvement in the second half of the year versus the first half of the year because those two things.
AGP costs, the bulk of the, the cost, you know, the disruption part of that will hit in the kind of second part of the year, but, you know, it's, it's fairly evenly phased half one to half two overall. I'll start on it in terms of just, you know, Germany. I mean, the moving parts there, I think as you'd expect me to say, it is the RevPAR increase that's by far the most important thing. Clearly, cost is really important, and we're always refining our operating model, our support center model as well. All of these things we'll be refining at the time and growing as a business, without obviously allowing those costs to increase significantly will help our profitability.
But by far the most important thing is the RevPAR that's improving. We need our more mature sites to fully mature, so there's an element of maturing individual sites. The brand maturing as well with the brand program that we've got in place that will help the brand mature over time, which is for marketing the brand program that we have. So by far the most important thing is letting those sites mature. We would expect those to naturally mature. You know, we've obviously got a very immature set of sites at the moment. Even our most mature sites still haven't fully traded for more than, like, you know, 2-3 years post-COVID.
You know, we don't fully understand where we're going to end up in terms of maturity in Germany, because obviously we've not matured a hotel fully in Germany. We know it takes 4-5 years in the U.K., so we would expect that those, the most mature sites start maturing over the next couple of years and get to their end position, and therefore their end return targets as well over that time period. But by far, the most important thing is RevPAR.
I think Jaina, just building on a couple of points that Hemant made. I mean, we're doing a number of things in Germany now. As we've matured, we've understood the market different to what we were doing 12 months ago. So, we've trialed widening our distribution, which is actually really encouraging. We're getting better and better at optimizing our pricing and yield management for the German market and managing events. We've got our first brand campaign now live in Germany, and the results are really efficiency, really encouraging. And then our scale is also giving us efficiency as well.
You know, I suppose the reason why we sound probably more optimistic about Germany as we've progressed through the last 12 months is, we're testing and trialing different activities and different actions, and the results are encouraging. So we're feeling good about the progress we're making.
Very clear. Thank you.
We now turn to Muneeba Kiani with Bank of America. Your line is open. Please go ahead.
Good morning. Just two follow-ups, please. Firstly, on the cost guidance, so what exactly are you doing that's made you kind of more confident on the lower end of the net inflation guide for this year? And then secondly, just on the U.K., so then how are you managing your booking process for the peak summer months, given the softness in the short leisure demand, that you talked about?
Yeah, hi there. Good question. So let me just, I'm gonna give a really brief intro on the efficiency program, and then I'll hand over to Hemant, because he's modest, so he won't do this himself. Which is, Hemant has stood over a really detailed efficiency program over the last 12-18 months, where we have literally done a root and branch review of all aspects of the business. We've always been a well-run business, and we've got budget and value at our heart, but any large business, you know, with a lot of moving parts, has got opportunity to drive efficiency. We've done a lot of time and motion studies through our hotels, through our food and beverage operations, we've looked at where technology can help us.
So we've had a very, very detailed program. That's one of the key drivers of being able to, one, have confidence in going to announce our largest ever efficiency program to focus our hotel business, but also giving us confidence on bringing forward some of those efficiency programs.
Excellent. Yeah, and yeah, hi, Muneeba. Yeah, and so what's given us more confidence as we've gone through the year, clearly, I mean, two things. One, we've seen what's happening in terms of inflation. So, you know, the growth inflation numbers, as I say, are coming in at the bottom end of our guidance, and we've actually seen those numbers land with you know, really negotiated contracts, and the commodity pricing. And then on the in terms of the program, clearly, we've done a lot of planning, as we are starting to implement, and getting closer to implementing, the various different initiatives, which as Dominic said, there are lots of initiatives across every area of the business.
We get more confident, and then we can see the numbers, you know, the actual numbers once we've fully planned out and we're ready to execute, and hence, you know, our confidence grows as we go through the year. I mean, we would expect, as we said, to be at the bottom end of about 3%-4% net inflation guidance because of that, if not slightly ahead. Clearly, we'll try to do the best we can, bring forward as many of our initiatives as possible, to improve our profitability this year.
And then booking, U.K. booking.
Yeah, and then booking, I mean, it's, I mean, this is kind of our bread and butter in terms of trading. So clearly, in an ideal world, if everything were the same as last year, it's very easy for the booking engine to predict what is going to happen, because it's based on, you know, because it's based on last year's, you know, outturn. We can see where we on a particular night, in a particular site, we can see where we've either outperformed or underperformed the market, whether that's because we priced too high, priced too low, we changed prices too early. So there's the shape of the curve, where's the starting point as far as pricing, where is the end point in terms of price.
All of those things we can assess, if everything behaves exactly the same as previous year. Obviously, behavior isn't, and, you know, this year we've been, we've seen, you know, slightly more shortly weakness in terms of, you know, weekends. You know, we can, we can modify our thinking, reset our strategies, and adjust for that as we start to see that, and we can see that coming in. So, you know, these kind of things we can react to, you know, again, we can see our outperformance and underperformance in the market, so we can see where, where the opportunities lie.
Because of our fully integrated business, our fully integrated business, because we have the teams of pricing analysts available, but you know, in quite a unique way across the industry, we're able to analyze those and take advantage of all those opportunities. So hence our confidence in you know our ability to price really well and outperform the market, and you know with the risks we have in place.
Thank you.
Our next question comes from Richard Clarke with Bernstein. Your line is open. Please go ahead.
Hi, good morning. Thanks for taking my questions.
Hi, Richard.
I guess, Q2 is shaping up to be quite an event-filled quarter. You've got the Euros presumably benefiting your F&B and your German business. You've got Taylor Swift in both U.K. and Germany, and then the U.K. election. Just maybe any comments on what you're seeing, and how much of a boost those various events may have to your numbers across Q2?
Yeah, I mean, thanks, Richard. I mean, you know, you're right. For Germany, euros should be a tailwind for our performance in Germany. I think for me, the biggest impact, though, in Germany, is the double maturity impact we're beginning to see. So the hotels maturing, but also the brand maturing, and our ability to kind of execute and operate well in Germany, maturing as well. So effectively, you've got a combination of things in Germany, which is overall lifting our performance and giving us confidence. I don't think that's surprising. Obviously, as businesses get into markets, and they figure out how best to operate, you do get material benefits as the business matures, but also how you perform better.
In the short term, yes, the Euros will help, but actually, I suppose what I feel more encouraged about is, I think we're really learning how to operate optimally in that market. And you know, I maintain confidence that the German market is gonna be a really good market for us. I think in the U.K., I think there were a combination of things out there, there are overs and there are unders. You're right, there's a bit of uncertainty with the election process. On the other hand, there's some events going on. The Euros has, you know, you could argue that one way or the other.
I guess part of our observation over the last few months, is the market's got very, very focused in on kind of weekly, weekly STR data and weekly market data, and we understand why that is. But, weeks will always go up and down. Months will always go up and down to some extent. I suppose what we're reiterating today is, look, if we look overall at, at the overall year, and we look at our ability to pull levers, we feel, we feel comfortable in the position we're in. And we feel really excited about the next few years as well, 'cause we've got strategic shifts which are gonna drive, significantly increased margins and returns we believe, over the next few years.
Having said all of that, I think we're unique in the sense that we have more levers that we're able to pull to drive our outperformance versus the market. We're very focused on doing that.
Okay. Maybe just as my second question, looks like net unit growth in the first quarter, reasonably slow, maybe just one or two hotels opened. Is that full range of 750-1,250 rooms still the full range? And does a slower net unit growth impact that inflation guidance at all, or is that being factored in?
Yeah. Hi, Richard. Yeah, I mean, yeah, the range is still applies for the year, the 750-1,250. We're really happy that, you know, we will open that number of rooms in the U.K. We have opened one hotel so far this year. It's Hotel Tokyo, 120 rooms. But, you know, just to remind you, we did open just before the year end, and, you know, in the last period of last year, we opened, you know, two hotels, with 600 and 650 rooms between them. So it could have quite easily fallen into this year. So we're not worried about the phasing of that.
I think we talked about why slightly lower phasing of rooms this year, potentially to next year, because of that COVID hangover. But we're still really happy that we've got a, you know, a pipeline of 7,000+ , the 3,500 of those are the extensions that we've built into the AGP program. So there's nothing particularly there to worry about. Inflation, the inflation numbers we're giving are on the cost base for last year. You know, you know, so it still sounds, we're not changing the, we're not changing our room guidance, we're not changing, you know, anything in terms of how we apply the inflation guidance. So what Mark was saying is at the bottom end of expectation.
Okay, wonderful. Thank you.
Thanks, Richard.
As a reminder, [crosstalk] you'd like to ask a question. Sorry, go ahead.
Go ahead, yeah. Over to you.
Our next question comes from Tim Barrett, from Deutsche Numis. Your line is open, please go ahead.
Thank you. Hi, both of you. Just quickly, I wanna just double-check, I just wanna check I understand the cost guidance. You're talking about phasing, bringing more into this year. Is that with an increase in the GBP 150 million three-year target as well? So just some thoughts on that. And then on AGP, I know it's only two months since you went public on that, but it was quite high profile. So what kind of interest are you getting in the 126 sale estate, and how many have now transacted, please?
Yeah, if I start with the cost guidance, and then have Hammond go for the AGP question, then. Yeah, no, I mean, all we're saying at this stage, you know, I mean, we only talked about GBP 150 million a few weeks ago. We're still. And it's a three-year program. I'm still happy that, you know, GBP 150 million is very achievable over that time period. Yes, we'll be trying to pull forward and, you know, get to the lower end of AGP in terms of net inflation, higher end of expectation in terms of our efficiency program this year.
Clearly, if we can get to a higher number than GBP 150 million over the next 3 years, we'll be informing you of that. But at this stage, you know, we're not changing our cost guidance. You know, we think that in 3 years' time, that GBP 100 million will make big difference to our profitability, and contribute towards offsetting any inflation that we're seeing.
And then, Tim, just on the-
Sure.
kind of update. Sorry, you have follow up? Yeah.
No, no. Thank you.
Just to follow up on the question about the accelerating growth program, and as I said at the beginning, obviously, it's only 6 weeks since we last updated. As a reminder, when we made our full year announcement, we said that we had already sold 21 sites for GBP 28 million. I would describe our progress on accelerating growth as bang on, to where we would expect and want it to be at this stage. As you said, there are 126 sites that we are now actively marketing. We've actually had expressions of interest in the majority of the sites. Obviously, these things take time. We've factored that into our planning.
I would say, we are exactly where we would expect and want to be at this stage.
Okay. Thank you, both.
Our final question today comes from Joe Thomas, from HSBC. Your line is open, please go ahead.
Good morning, Dominic, good morning, Hemant.
Hey, Joe.
Thanks for squeezing me, thanks for squeezing me in. Just, just one question, with the election in mind. Thinking about labor cost inflation further out, can you just remind us where you are versus minimum wage, where you are on sort of banding of the age categories, and where you are on things like zero-hours contracts? Just trying to sort of get a sense of the risks, and how that might impact the cost saving program going forward. Thanks a lot.
Yeah, thanks, Joe. I mean, a couple of things to point out, I suppose. We are above minimum wage. All our people earn above minimum wage. We have no zero-hours contracts. All our people actually earn above a real living wage. No, no.
National Living Wage.
National Living Wage! Sorry.
National Living Wage, yeah.
So all our people earn above National Living Wage. We've actually given a strong pay increase to our people this year. Our hourly team members have got just over 9% pay increase, and we've done that to make sure that we maintain a healthy gap to national to the minimum wage. And there are a couple of things to point out from that. One, we recruit really well. Obviously, we offer a career to our people, so we don't find it challenging to recruit, get a lot of applications. Our turnover is materially lower than our key competitors. And you know, we generally have relatively low vacancies.
Actually, we have slightly higher vacancies at the moment because we're trying to ensure that the number of actual redundancies for accelerating growth are as low as possible. So I think we're in a really good place from all of those factors. You know, we're a good employer, and we take that seriously. Obviously, there is an unknown factor, which is if there's a government change, what will that mean? We've actually seen kind of big pay, big increase in the minimum wage under the conservative government. I think they've been quite material catch up to that medium point, which they're trying to get to. I know it's a standard answer, but it's true. We're 280. We've been around for 280 years.
We've seen quite a few government changes. We're very good. I think we're very good at rolling with that. I think the fact that we are generally the absolutely right size of a lot of these kind of policies and procedures, to be honest, puts us in a stronger position versus a lot of our competitors there, I think.
Ladies and gentlemen, this concludes our Q&A. I'll now hand back to Dominic Paul for closing remarks.
Okay. Thanks, Elliot. I appreciate all your time today. Thanks for the good questions. And yeah, appreciate your support. Any follow-up questions, you know, you know where we are, so always happy to happy to answer them. Thank you very much. Appreciate your time. Thank you.
Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.