Good morning or good afternoon, all. Welcome to the Whitbread FY 2023 preliminary results announcement live Q&A session. My name is Adam, and I'll be your operator for today. If you'd like to ask a question in the Q&A portion of today's call, please press star followed by one on the telephone keypad to enter the queue. I will now hand over to CEO Dominic Paul to begin. Dominic, please go ahead when you're ready.
Thank you, Adam. Good morning, everyone. Thank you very much for joining my first call as the Chief Executive of Whitbread for our preliminary results announcement alongside Hemant Patel, our Group CFO. I just wanted to begin by reiterating how excited I am to be back at Whitbread. The business is in great shape. It's trading strongly, as you can see by today's results. Having spent significant time out in our hotels and restaurants with the teams both here in the U.K. but also in Germany, I've been really struck by the passion and the dedication that underpins our ability to deliver consistent quality guest experience whilst continuing to offer great value. This is what differentiates us from our peers. These are the core of our U.K. model, a model that we are now on course to replicate in Germany.
I do hope you had a chance to read our release this morning and maybe also watch our results webcast. I'm just gonna pull out a few of the key highlights in our announcement, and then I'm gonna open the call for Q&A, where Hemant and I will be happy to answer your questions. I guess the first thing for me to say is these are a great set of results. They're the product of our differentiated operating model working in tandem with our business strategy. My predecessor, Alison, who many of you know, and our entire team executed brilliantly through the pandemic, and we've emerged strongly as a result. In the U.K., we continue to outperform the market and deliver significant revenue growth, strong cash flow, and we've increased our U.K. returns.
There's been a structural shift in the U.K. hotel market with a material reduction in U.K. supply just as demand has recovered. Whilst that certainly provided a helpful backdrop, it is actually the combination of our own initiatives and our clearly differentiated business model that has delivered such an impressive operational and financial performance. In Germany, we continue to make good progress. We've now got 51 hotels open and 7,000 rooms in the pipeline. Now, we're not yet operating at our full potential, but the performance of our 18 established hotels gives us real confidence that we're on track to reach our target rate of return of 10%-14% on our already committed capital of around GBP 1 billion. We're confident in the full-year outlook, and that confidence is underpinned by a number of important factors. Firstly, we're already delivering great results.
We're achieving record levels of occupancy and strong RevPAR growth in the U.K. In Germany, despite our brands still being relatively unknown, we're growing rapidly, led by our more established hotels that are trading in line with the market. Secondly, current trading has been very strong, with positive momentum continuing across a number of forward-leading indicators. Thirdly, we continue to see significant opportunities to invest both in the U.K. and in Germany that will drive attractive long-term returns for our shareholders. Given our positive trading performance, our strong balance sheet, and our confidence in the outlook, we're recommending an increase to the final dividend and have announced an initial GBP 300 million share buyback that will be completed over the next few months. Now, just one small point of add-on before we open up the call.
We've got a number of people on the line, so to ensure everyone gets the chance to ask their question, we are gonna ask you to please try to keep it to two questions each. With that, I'm now gonna hand back to Adam, the operator, so we can open up the call for questions. Over to you, Adam.
Thank you. As a reminder, if you'd like to ask a question today, please press star followed by one on your telephone keypad now. When preparing to ask your question, please ensure you are unmuted locally. That's star one to ask a question. Our first question today comes from Vicki Stern from Barclays. Vicki, please go ahead. Your line is open.
Yeah, morning. First one, just wanted to come back on the organic room growth targets for both U.K. and Germany. They just look a little bit lighter than we might have expected looking into next year. Just wondering why that is. Any particular reason driving that in either market? Is that your choice to go slower, or are there any sort of market factors that are worth calling out? Then secondly, Dominic, just keen to hear your perspective on F&B. Obviously, it's good to see that your F&B performance is improving slightly, but just your broader views there on the logic in retaining the full own-ownership of F&B. Is it a different approach? Is there a different approach that could be considered for you to think about now?
Okay, let me take both those questions, Vicki. Good to hear from you again. On the pipeline, I think there are probably a couple of points to reemphasize. One, actually we feel really confident about the long-term runway of growth. I think you know a lot of work was done on the network plan over the last 12 to 18 months with this. That plan kicked out that there's strong potential for 125,000 rooms in the U.K., and I think we feel really good about long-term growth potential in Germany. That said, obviously, the hotel industry was impacted by the pandemic and that did impact the short-term pipeline. What we're doing currently is we're respooling up that pipeline.
We feel good about how that pipeline is developing. The room growth next year is gonna be slightly lower than we've seen in previous years, but we have good confidence in the medium-term pipeline. Actually what we're beginning to see, and it's somewhat linked to the structural shift that we highlighted in the presentation with this reduction in supply, we're actually seeing the benefit of our covenant, and our current performance. Actually, we're in pole position for a number of the key sites that are coming up, so we're getting access to some really interesting sites moving forward. Long term, we feel really good about the runway of growth, and we're seeing that pipeline spool up, so both in U.K. and in Germany. Then the second part of your question was about food and beverage.
I think there are a couple of points worth reiterating. The first thing is that actually food and beverage is important for our customers. Remember, restaurants are either in the hotel or pretty much right next door to the hotel. Food and beverage is an important part of our offering, particularly breakfast. Now, that is an important part of our offering, and we've got a clear competitive edge when you're looking from the first of our competitors. That said, is there going to be an ongoing opportunity to optimize and improve our performance in that area? Yes. There will be and, yes, we will be focused on that.
I'm sorry, just to clarify. Yeah, thank you. Just to clarify, so when you say ongoing opportunity to improve, is that from an operational perspective or you mean sort of more strategically in terms of what's the right sort of ownership model?
I think I mean, generally, you've seen from the numbers that we sort of, that we put out today, in the first seven weeks, there's 10% like-for-like. We are getting a tailwind from the fact that actually, you know, the hotels are doing really well. I suppose that reiterates the point that food and beverage is important, is important for our guests. We're shareholder returns focused. We'll constantly look at how do we continue to improve those shareholder returns over time, both within the hotel space, but also our food and beverage space. I think you'd expect us to be doing that.
Great. Thanks so much.
Thank you.
The next question comes from Jamie Rollo from Morgan Stanley. Jamie, your line is open. Please go ahead.
Hi, Jamie.
Hi, Dominic. Morning, everyone. Thanks for taking my questions. The first one, just on the buyback, it's described as initial, in the release. There's still clearly, you know, plenty of upside to 3.7x investment grade ceiling. I'm just really wondering, could we expect another buyback at H1? Secondly, just on Germany, you've given us slightly updated numbers on costs and rent metrics. You've given us, I think I saw GBP 5 million of PBT in the year for the 18 established hotels, which is about GBP 300,000 a hotel, and that's about half the level given in the prior target.
I appreciate that was a few years ago, pre-COVID, but I'm just really wondering on sort of profit per hotel or profit per room basis, where are we now versus the sort of pre-COVID targets, please? Thank you.
Okay. Thanks, Jamie. What I'll do is I'll take the first part of the question. I'll probably touch briefly on Germany, and then I'll hand over to Hemant as well. I think in terms of.. I'm sure he's got a view on both of those subjects as well. In terms of the capital allocation and the share buyback, I mean, Hemant outlined the capital allocation framework last year. I think it's an excellent framework. There's a clear hierarchy starting from the fact that we want to remain investment grade.
We'll look at investment, organic investments, where we invest our own capital. We'll then look at inorganic investments where we feel we can drive long-term shareholder returns. Then we'll look at shareholder returns, the dividends and share buybacks. We've applied that framework in which we've announced today, that's resulted in the GBP 100 million dividend and the GBP 300 million share buyback. It is a framework, so by definition, we will continue to apply. We're not making commitments as to what that is moving forward because we've got that framework. It's very clear, and we will continue to apply it. We'll update on where we are, where we are at the interims, but we think this is a good example of our sensibly applying the capital allocation framework that we've got.
The second part of your question again about Germany. Just one thing I'll just mention on that before I hand over to Hemant, and I've spent quite a lot of time in Germany, both actually before I officially joined the business and then since I've joined. I've visited a lot of hotels, and I think you've been over there, Jamie. We've got fantastic hotels there. We believe in the structural opportunity in the German market. Germany was behind the U.K. in terms of coming out of COVID, a lot of those hotels have been closed for quite a significant period of time, and a lot of our hotels have actually, we opened them and then couldn't trade them because they opened in COVID.
It is actually quite hard to compare to pre-COVID because there's definitely a spooling up situation that we've got in Germany as it comes back out of COVID. I think what we've done today is reiterate our long-term confidence in the business. Let me hand over to Hemant, who can be a bit more specific.
Just reiterating what Dominic said. These 18 hotels that we're discussing as a cohort, they are our most mature hotels. They're the hotels that have been open the longest continually from pre-COVID. That doesn't mean that they're mature though yet. Most of these hotels, you remember, you know, as Dominic mentioned, the end of COVID restrictions were happening at this kind of time last year, over the next few months, in fact, in Germany. Most of these hotels still haven't traded a full 12 months in completely unrestricted circumstances. They're not mature. If you remember the maturity of our hotels, you know, anything between, you know, two to four years, most of these hotels, as I say, haven't actually traded that long continuously. We're still maturing.
The, the pre-COVID guidance we gave in terms of getting to the profitability targets for hotels still applies. We haven't updated it. There will be, you know, updates in terms of cost, in terms of the top line as well, but in general, they still apply. It doesn't mean that we are there now with these hotels and, as mentioned, we are still very committed to getting to those longer term 10%-14% return levels. We still believe as a business overall will get to a breakeven run rate in 2024 as a, as a milestone towards getting to that longer term level return.
Thank you. Sorry, just on the balance sheet, if it's not a silly question. Just on the difference between the upside from the 2.7x to the 3.7x, where are you happy to settle? That's quite a big gap, GBP 800 million of upside. Is there a sort of figure you could give us, so we can work out what the sort of excess cash might be?
I think, probably honestly, no, there's not a figure that we can give you in that. It's the headroom we've got against that. It's not a target, but it is a ceiling that we want to work within, over the kind of medium to long term. Yeah, clearly there's headroom against that 3.7x at the moment. The framework, capital allocation framework, you know, really, you know, gives you the indication how we'll be thinking about that.
Once we've understood the capital needs of our different priorities as Dominic highlighted, we'll look therefore at the outlook we have going forward, the level of potential cash we might want to retain for inorganic opportunities that may or may not come up, and then make a decision based on that as to whether there's excess funds kept for to return to shareholders. That's the way we'll be thinking about it. We'll work within the framework and under that kind of like as a ceiling of 3.7 x.
Thank you very much.
Thanks, Jamie. Thanks for setting the precedent of a second question.
Next question from Leo Carrington from Citi. Leo, please go ahead. Your line is open.
Thank you. Good morning. First question, if you could give more detail on the recent acquisition in Germany, just in terms of how the opportunity arose, if there's anything to say there, as it's been the first in a while. Do you get the impression that there could be a pipeline of further acquisitions opening up now given the environment in Germany? For this acquisition, just noticed the property in Austria, would you keep that? Could it be passed for new project expansion or is it, you know, just on the German border, makes sense to keep?
Second question, tying into finance statements on the presentation, I'm hoping to at least maintain U.K. profit in FY 2024. Can you just sort of tie this into your demand outlook? Does RevPAR need to progress at a similar level to how the year started to support this, to support this ambition? Any sort of additional color would be very helpful. Thank you.
Okay. Thank you. I appreciate the question. Let me take the first question and the second part of the second question, and then I'll hand over to Hemant. Just touching on the recent acquisition that we did in Germany. Six hotels, 900 hotel rooms. We think it's a really nice portfolio of hotels. We stay very close to the market in Germany. As you know, we've got a mix of organic hotels. There are open hotels that we've opened ourselves generally on greenfield sites. But we've also acquired a number of hotels as well. We're very well connected into the German market as opportunities arise. These is one of the opportunities. I think it's complementary from a location point of view.
They're good properties, and we think strengthen our position in Germany. To your question as to will more opportunities like that come up, possibly. As I said, we stay very, very close to the market. There has been a structural decline in the independent sector in Germany, not as deep as we've seen in the U.K., but there has been a decline. We think that hotels will continue to come to the market. If we look at everything that comes up, we've got very clear parameters you can imagine. We've got to feel confident that we can drive the correct long-term returns and operate from an operating model point of view. It's, you know, that property works for us.
If they tick those boxes, we're definitely interested in opportunities as they come up. Six hotels, 900 rooms. It did happen to have a freehold hotel in Vienna that came with the portfolio. Freehold property in the central district of Vienna, we think is a good long-term bet and a good addition to our balance sheet. It is actually also an interesting test and trial for us to be in a market close to Germany. We're not signaling a radical change from our strategy of focusing on Germany. The portfolio itself happened to have one in Vienna. We think we'll be able to make that work and long term, that's a nice addition to our portfolio.
Then the kind of, the second, your second question was about effectively the demand outlook and the impact on profit. Let me take the first part of that, and I'll hand over to Hemant. You know, I think you've seen in the numbers that we announced then, we actually feel good about the demand environment. We've just outlined, you know, very strong numbers for the first seven weeks building on the momentum for the previous year. I think there were a few reasons for that. One is we've got a beautifully balanced business, roughly 50/50 between leisure and business. We continue to see leisure customers prioritizing experiences. You know, therefore, leisure spend has continued to be strong, London is particularly strong. Also business travel is definitely back.
We've seen more and more business people out and about, and of course, we're getting benefit from that. We have really improved our business offering, which is helping us to over-index in that market. That, when you couple it with actually a decline in the structural decline in the hotel market, means that supply has gone down-And demand is at the same level or actually higher, then obviously it gives us confidence about the demand outlook and the impact on our business. That's why there is a positive tone in our release today. Let me then hand over to Hemant for the second part of that question.
Yeah, Leo, hi. I mean, you know, we don't give specific guidance in terms of the top line for U.K. accommodation. Clearly what we will talk to you about is how we're doing versus the market, and then obviously the, you know, the regularly published STR data will give you a good understanding of how we might be trading, and that seems to work pretty well. What we did say was that we felt that the 7%-8% cost inflation that we expected to see in the U.K., and we still expect to see in the U.K., that along with our efficiency program, along with the estate growth we have, the U.K. accommodation like-for-like sales on top of that should at least offset that level of cost inflation.
Just to make sure that, you know, just to like, make sure that people understand that some of the kind of forecasts that we've seen out there that we're assuming that we would be negative to flat to very low growth in terms of U.K. like-for-likes. Now, clearly we started the year very well. The first seven weeks of the year we started at 17% year-on-year in terms of U.K. accommodation services, about 15% like-for-likes. That won't continue in that we are annualizing against the softest, the easiest comparatives for last year, this time of the year.
Clearly, you know, as Dominic's mentioned, you know, that gives us a lot of confidence in terms of the trading outlook as it stands at the moment. All we're really saying at this stage is that we think that, you know, like-for-like growth in the U.K. will be enough to at least offset the level of inflation that we're seeing. That would mean that the U.K. business would at least maintain its profitability year-on-year. Clearly our ambition would be to improve on that and grow on that. The outlook we're seeing at the moment gives us some confidence and our ability to do so.
Okay, great. T hank you very much.
Thanks, Leo.
The next question comes from Alex Brignall from Redburn. Alex, please go ahead. Your line is open.
Morning. Thanks so much for taking the questions. Hi. Thanks. The first one is on the German acquisition. I wonder if you might give us any kind of commentary on price paid, on really any metric you choose, but expectations on the EBITDA or maybe, you know, what you think you could do to the profitability of the rooms that you've bought? The second one is a really interesting point you raised on the pipeline growth and your position in terms of new sites coming up.
I wonder if obviously your year is obviously very particularly U.K., but it seems a specific challenge in the U.S. as well that individual franchisee borrowers are struggling to get financing and therefore the franchises are seeing kind of less, which obviously is beneficial to your position. I wonder if there's any other information that you or just kind of small snippets that you might share with us on that subject? Thank you very much.
Yeah. Thanks, Alex. Let me take your second question first and then I'll hand you over to Hemant for your question about the German acquisition, which by the way, we won't be able to say very much about it, but I'll hand you over to Hemant anyway. Yeah, the pipeline question is really interesting. I mean, remember, and you know, we've reiterated this today, we're shareholder return focused. As a business, we're returns focused. When we look at new sites, we are looking at that site through the lens of customer demand and returns generated from that site. Therefore, the operation or how we set that operation up and the cost involved in the hotel are a very important part of that. All that said, there is less demand for properties at the moment.
We are definitely seeing, we've seen a structural decline in the independent sector. We do believe some of the, you know, some of the franchise operators, it's slightly more challenging for them at the moment. They have a slightly different cost structure. You know, our cost structure is really advanced by things like our direct model in the U.K. That does give us access actually to that reduces the demand as we look at sites and we've seen some of the other commercial property providers who might look at buying sites traditionally fall away a little bit with some of the uncertainty. We're very mindful that we only wanna pay the right price, and we're very clear with Neil on that.
That said, there is also clear that the amount of demand for these sites has fallen away somewhat and with great governance and our long-term prospects, we're, you know, we're a very attractive purchaser or lease-lessor of these sites. That does give us confidence moving forward that, one, we'll be able to go after this attractive runway of growth and, two, we'll get access to some really quite, you know, properties and some really quite exciting locations. Let me hand over to Hemant for the second part of the question.
Yeah. Alex, you know, I mean, what you will see as a note in the accounts in terms of accurate asset acquisitions is a bit more detail in terms of the purchase price that we paid. That's GBP 26 million plus a deferred consideration of GBP 2.5 million . There's a bit more detail there in terms of the IFRS accounting for it. I think if you want me to understand the impact of that, obviously we've updated our German guidance in terms of, you know, other ongoing costs for the room. Clearly you can model the RevPAR impact of those new rooms.
It would be no different to how you model any organic RevPAR impact of growth in Germany.
Okay. I guess we could probably add the GBP 10 million of refurbishment costs onto that GBP 28 million. I haven't got to that page of the accounts you referred to the room for tenants in there.
The GBP 10 million of refurbishment costs are a one-off P&L cost, and it's mostly about disruption as we close those hotels and we lose re-revenue while we are converting them amongst
Okay, got it.
That's just a one-off that you don't need to model for the longer term, it's just for this year.
Fab. Okay. Lost earnings from closure rather than the actual cost. Yeah. That's fantastic. Thanks so much.
Yeah.
Thanks, Alex.
The next-
The next question comes from Tim Barrett from Deutsche Numis. Tim, please go ahead. Your line is open.
Hi. Morning, both of you. I had a couple of questions. A couple of questions about the balance sheet and assets. It feels like churn is picking up a bit, GBP 60 million of disposals in the years is gone. Is it a fair observation that that could increase? Which leads me to ask, you haven't referenced the GBP 4.9 billion-GBP 5.8 billion 2019 revaluation. I know it's a long time ago. Is there scope for refreshing that? How disposal is looking versus that kind of benchmark. Thanks very much.
Thanks, Tim. I'll hand you over to Hemant actually. I guess the only kind of macro point I'd make in terms of our property strategy is it gives us a lot of flexibility. I think it's, you know, obviously one of the underpinnings of our business. It also gives us some flexibility in terms of sales and leasebacks when we think it's the right time to do it. Let me hand you over to Hemant.
Hi, Tim. Yeah, you're right. It was at the end of 2018, the beginning of 2019 when we last did a full revaluation of our property portfolio. When we did that, as you mentioned, the valuation came out in a range of between GBP 4.9 billion-GBP 5.8 billion. Effectively, it was done on a careful sale and leaseback basis for each site, with an effective yield of 4.5%-5% was assumed for the portfolio. I think since then it's a little difficult. Obviously since then we've had COVID, you know, further kind of economic disruptions particularly to, you know, with interest rates moving.
We haven't got a huge amount, a huge number of evidence points to revalue the property as it stands at the moment. What I would say is that 4.5%-5% yield in those years pre-COVID, although we haven't had a huge, you know, huge number of transactions, generally we're beating that level of 4.5%-5%. We were confident that valuation at least held based on what we've seen. Clearly, we've seen some, you know, very recent disruption over the last kind of six months with interest rates moving significantly and therefore having an impact, you know, clearly on property investments as well.
Having said that, we don't, although we don't have a load of evidence, we don't see anything that would change our view that that is still a reasonable range, for our, valuation of, our property estate, plus obviously some additions since then as well. The bits of evidence that we've seen, you know, with, you know, I think particularly probably disposals would indicate we're there or thereabout. I'd just reiterate, we obviously haven't had many since, you know, the big hike in interest rates that we saw, you know, in the autumn last year.
Okay. Is it a reasonable observation that you are churning more and based on some of your comments and not just going to keep doing that in certain markets?
I mean, one of the things that, you know, Dominic mentioned, one of the advantages of having a majority freeholder estate, that it does allow us to optimize our estate much more than other businesses that have got a different model would be able to do. Obviously, we've got this room type of 125,000 rooms, so we're continually thinking about adding rooms overall, but optimizing the number of rooms we have in a particular catchment and where they might be. There will always be a level of churn that is involved.
As we gradually add rooms, there will always be a level of churn where we are disposing of sites that we don't need in the catchment because we're able to find other rooms, in, you know, and add new hotels or extend other hotels in that catchment. I wouldn't read too much into it. I just think it will be an ongoing feature of our business and it will ebb and flow depending on our ability to optimize in a particular catchment at a particular time.
Got it. Thank you.
Thanks, Tim.
The next question comes from Jaina Mistry from Jefferies. Jaina, please go ahead. Your line is open.
Hi. Thanks very much for taking my questions, and Dominic, it's a pleasure to hear from you. My first question is on pricing. I think on the last call, you mentioned need U.K. like to likes of around 3%-4% to cover inflation. Given the STR data so far has been strong, and given actually that you took less pricing than peers last year, do you think that you can price ahead of inflation this year? My second question is around buybacks. You mentioned it's an initial buyback in H1. Should we take that to mean that there's more scope for bolt-ons or M&A in the second half of the year in the U.K. or Germany? Assuming that you're applying the ERR framework, what level of return are you happy with for an ongoing buyback?
Thanks, Jaina. I appreciate your questions. I think let me take the first question and then part of the second question, and I'll hand you over to Hemant. I think in terms of the pricing question, you're right on what you said. We've taken quite substantial market share overall, that has been driven in large part by higher occupancy levels. Actually, I think we've optimized, and I've been super impressed by the work, the pricing the yield management team have done and do. I think we've done a really good job of optimizing the inflection point between occupancy and pricing. I think, you know, what underpins our brand overall is a value perspective, and I think we've continued to offer.
While our room rates have gone up, we've continued to offer really compelling value, and I think that's one of the things that's driving our long-term growth aspirations so that we can profitably grow. I think then kind of within that, we talked about the structural decline in supply earlier, and then some of the demand signs looking really good. Leisure demand holding up and business demand picking up. All three of those things give us a level of confidence about demand and pricing moving forward. What we said is, effectively, we need to see like the 3%-4% level to cover the inflationary pressures that we're facing. We've also just said that in the first seven weeks of trading, we've seen very strong numbers.
As Hemant said, it's unlikely to see those numbers continuing for the whole year. We do have a level of optimism about the hotel demand environment, particularly how Premier Inn performs within that for the remainder of the year. I think in terms of the buyback question, I just reiterate what I said earlier to Vicki really, which is, we've got a framework, and I like the framework 'cause it's really quite clear on what our hierarchy is. We start off with saying when investment grade, we'll look at organic investments, investment in our own business when we're confident of the return, inorganic opportunities, we look at shareholder returns.
I wouldn't read too much into how we've spoken about the framework there other than to say it's a framework. We're committed to that framework, and we'll continue to apply it. We always, as a business, want to allow flexibility if opportunities come up to invest both in our business and inorganic opportunities. That's, you know, that's how we've applied the framework. That's why we've announced what we have done today, and we'll continue to apply that framework, and we will update at the interims. Do we think there'll continue to be opportunities for us to invest in our business to drive long-term returns? Yes, we do. We think that's one of the things that's underpinning the strong performance we've got in the business. We're committed to the framework moving forward.
I think your question on ERR framework in relation to buybacks. I mean, we, you know, we still see attractive returns, and we still expect to see attractive returns from buybacks, and we'll make sure we continue to use those as part of our capital allocation framework as we've discussed. Don't think there's anything else to say on that at this stage.
Okay. I mean, U.K. peers spoke about being happy with an 8% ERR. Is that in line with your thinking?
Like I said, we haven't talked about that. We haven't talked about that externally, and I'm not gonna talk about that now. What I will say is that as we apply the capital allocation framework, clearly we're going to think about our different ways of creating shareholder value, whether it's through as Dom's mentioned already, investing in rooms for long term, whether it's investing back, giving back to the shareholders via dividends or through buybacks. We'll make sure we optimize that mix for the best long-term return for shareholders.
Great. Thank you very much.
Okay. Thanks, Jaina.
The next question comes from Jarrod Castle from UBS. Jarrod, your line is open. Please go ahead.
Great. Good morning, everyone, and welcome back, Dominic.
Thanks, Jarrod.
Hi. Just coming back to food and bev. You've given a sensitivity to change in sales. In the past, you've never split out the profitability of food and bev. I don't know if it's a consideration to do that going forward. If you can say any commentary on current profitability, that would be interesting. Secondly, you know, you spoke about bigger, you know, bigger upgauging like in Peterborough of hotel rooms. You've obviously got two very small brand Hub and Zip. Are they still part of kind of expansion plans or, you know, should they even be part of the group? Thanks.
Thanks, Jarrod. Let me take both parts of those questions. Firstly, on the food and beverage, as you say, we don't split out the profitability. We do talk about the sales. We don't split out the profitability. We do think of it as a core part of the customer offer. As I said earlier, the breakfast is particularly important. It's particularly important to our guests. We're not planning on splitting out the profitability moving forward. I mean, there are a lot of our sites are joint sites. It's actually quite hard to do that and to split out the profitability because, in some of our sites, for example, labor is shared between hotels and the restaurants.
As I said earlier, we will continue to look at how we optimize and improve that performance for food and beverage moving forward. In terms of your comment about Peterborough and Hub and ZIP is one hotel in Wales, which is actually a really interesting experiment, which is hostel-focused. We don't have big expansion plans for ZIP. It's operating okay, we don't see in the short term it turning the dial material on the business. Hub actually is an exciting concept. We've had Hub for quite a few years now. It's I don't know if you've stayed in a Hub or not, it's a super clever concept.
Generally for city centers, it works where real estate prices are very high, and you can get a high number of rooms into the space, but the rooms therefore need to be smaller. It couldn't be branded as Premier Inn. We had to create a new brand, and that brand is Hub, and it's very modern. They're small rooms. They're almost like cabins, the rooms, but they're very, very comfortable. I'm staying in one tonight, for example, in Clerkenwell in the city. It's GBP 200 a night. It's got a good food and beverage offer with a very limited number of menu items. It doesn't cost us much to deliver that food and beverage offer. It's very high customer satisfaction that enables us to price very competitively in the market.
That's an interesting hotel, the Clerkenwell one. We've been open for 11 weeks in that hotel. We opened it ahead of schedule, so it had virtually no bookings when we opened it because we opened it eight weeks early. Within 10 days, that hotel was pretty much full, and that's the power of the distribution system that we've got as Premier Inn. A number of the new hotels that we're opening in London, including the Strand one, will be at Hub. The Hub brand is going to get bigger and bigger, and we're actually excited about it, and we think it's got great potential.
Great. Thanks.
Yeah. Thank you.
Thanks a lot.
Yeah.
As a reminder, if you'd like to ask a question today, that's star followed by one on your telephone keypad. The next question comes from Andre Juillard from Deutsche Bank. Andre, your line is open. Please go ahead.
Good morning. Most of my questions were already answered. I just had a remaining one on Germany. When do you expect Germany to be profitable? Do you maintain 2024 or do you postpone a little bit this objective?
Hi, Andre. Nice to hear from you. I think Hemant covered this a bit earlier. Yes, we're still committed to hitting the break-even point at 2024, but that makes it sound like it's almost the end of our milestone. Far from it. We're focused on long-term returns of 10%-14% in Germany. We think there are real structural reasons why we believe we can replicate the U.K. model in Germany, so we're excited about Germany. That said, there's still a lot more that we need to do in Germany. We've just reopened a lot of our hotels after COVID. We're spooling up the commercial engine in Germany rapidly. There's more work that we need to do. We're on a path there.
Actually what we can see is we've got the opportunity to build a scale business in Germany with strong long-term returns. One of the checkpoints of that is going to be hitting break-even, and we're focused on doing that in 2024. That is a checkpoint to a longer-term business as you know, we've invested GBP 1 billion in Germany, we've made a big commitment. We think there's a lot of shareholder value to be created in Germany, we believe we can build a really strong long-term business there, and that's what we're focused on doing.
Okay. Thank you. If I may, if you had to compare the U.K. market with the German one, have you seen the same kind of evolution of the market with some independent closing in Germany or is it not really comparable?
No, it's similar actually, Andre. There's been fewer closures in Germany of independents, but the independent hotel sector in Germany is still down about 5% versus pre-pandemic, which is quite material. The reason it's not more is there's actually more government support in Germany during COVID. That said, we believe, a number of independent hotels in Germany are gonna continue to struggle as they face inflationary cost pressures in Germany, and, if they're independent trading hotels, harder for them to drive the revenue line. We think that that independent sector will probably continue to decline, which gives us the opportunity. The other element of Germany that I find particularly interesting is the branded budget hotel market in Germany is relatively very small.
It's smaller than the U.K., and it's very fragmented, which again, we see a long-term opportunity for us. You know, we think there's an opportunity to build a scale budget, mid-scale operator in Germany.
If I may follow up on that side. Do you see any aggressive strategy from your main competitors? I'm thinking about Motel One, B&B HOTELS, Accor. Do you see them being really aggressive or do you have the feeling that you're the most aggressive one at the moment on the market?
Well, we are the ones opening the most hotel rooms, and you can see that in one of the slides on the presentation. I mean, we are, we're opening materially more rooms than the competitive set, which means that we are scaling faster than anyone else in the German market. From a commercial point of view, they're all commercially run, rational organizations. You know, their, you know, they behave in the market, they run good businesses, and they're growing, but they're not growing as fast as we are. You know, we are scaling faster than anybody else in the German market. I just reiterate, it's very fragmented.
Whilst Motel One and B&B HOTELS are the two of the larger operators, they're still a very small percentage of the total hotel market in Germany, and that fragmentation is a long-term opportunity.
Okay. Thank you very much.
Thank you, Andre.
Operator, that's star four and then one on your telephone keypad to enter the questions queue. The next question comes from Joe Thomas from HSBC. Joe, your line is open. Please go ahead.
Hi, Joe.
Morning, Dominic. Morning, Hemant. Just a couple of slightly bigger picture questions from me if that's okay. Well, first one is one of the questions I get asked the most about is elasticity of demand in this sector. Of course, prices have gone up a fair bit for customers. Customers are showing us some slowing. I just wonder how much headroom you think you might have on pricing. Of course, appreciate you've raised pricing by less than your competitors, but any thoughts on how much more headroom you've got would be helpful.
Secondly, Dominic, just closely with your first sort of formal, you know, address to the City as Chief Executive, and the business, as you've alluded, has been run very well over the last few years. I just wondered in terms of emphasis from yourself, what you think your priorities are and where differences of emphasis might be. Thank you.
Okay, thanks, Joe. Let me take the first question, which was about elasticity of demand. I mean, I think it's really interesting when you look at our room rate. The first thing to say is we are in the value space, and I think that's the right space to be in the climate that we're in now. Clearly, consumers are facing some pressure with inflation and the cost of living crisis. Therefore, I think you either wanna be at the absolute luxury end or you wanna be in the value space, and we are firmly in the value space. That is definitely, you know, that is the right space I think for us to be in. That's an important part of our proposition.
I think what is one of the items that has led us to have this successful growth. The second thing I'd point out, if you look at our room rate growth, if you look at the numbers that we've just outlined for full year 2023 versus full year 2020, our actual room rate is only up GBP 10 between 2020 and 2023, which actually underlines the fact that, A, we're great value, and B, there is opportunity for us to continue to drive that room rate and we think hold on to the strong occupancy that we've got. The other point that I'd make is back to talking about the balance that we've got as a business, which is it's beautifully balanced between leisure and business. There is a somewhat different elasticity of demand generally between leisure and business.
That said, I think we've seen that elasticity drop a little bit in leisure since the pandemic because people are focusing on experiences and people want their summer holidays. That's why I think we've seen leisure demand hold up. Then the second part of it is business travel, which is business travel is back. Business people are back out and about. We've all seen that in London, the cities and in the regions. We're well placed to take advantage of that. That gives us some level, effectively, of hedge as we go through the year. If there is a bit of a softening in leisure demand, I think we've got the opportunity to continue to go after the business demand.
I think this balance in the business and the strong market position we've got and the structural decline in the hotel market are three really important points here that effectively somewhat change the dynamics of elasticity. The second point, question that you asked me was about Whitbread. I mean, the first thing I'd do is I'd reiterate what I said at the beginning, which is it's great to be back at Whitbread. It's a wonderful company. Alison and the team have done a great job, and we've come out of the pandemic really strongly. The core strategy that we've got is the right strategy. I think you can see that in the results today. Focusing on continuing to successfully and profitably grow our U.K. business.
Really replicating that model in Germany and growing in Germany. Optimizing our food and beverage offering whilst landing the core infrastructure projects that we're focused on at the moment. They're the priority areas that I've got. It is evolution, not revolution. That said, we're focused on accelerating at pace. We're focused on really building the energy as we come out of the pandemic, and you know, our performance currently is helping to support that. You know, feels great to be back at Whitbread. We've got the right strategy. It's how do we make sure we execute that strategy at pace to continue to perform so well.
Great. Thank you very much.
Thanks, Joe. I think that sounds like that was probably the last question. I'll wrap up now. I'd like to thank you all for your time today. I know you had a lot of information to go through in a very short period of time. Thank you all for doing that. Thank you for finding the time today to be on the call. It's great to talk to you all. A great set of questions. From Hemant and myself, thank you very much.
Thank you.
Thanks, everybody.
This concludes today's call. Thank you very much for your attendance. You may now disconnect your line.