Ladies and gentlemen, welcome to the Whitbread H1 FY 2024 Interim Results Live Q&A Session conference call. I am Sandra, the conference call operator. I would like to remind you that all participants are in listen-only mode, and the conference is being recorded. The presentation will be followed by a question-and-answer session. You can register for questions at any time by pressing star and one to get into the question queue, sorry. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dominic Paul, Chief Executive Officer. Please go ahead, sir.
Thank you, Sandra. Good morning, everyone. Thank you very much for joining myself and Hemant Patel, our Group CFO, for our half year results call for financial year 2024. I'd like to apologize for the delay on starting the call this morning. It took some time for people to get onto the call, so we wanted to wait until we had the majority of attendees on the line. Thank you for your patience. I do hope you've all had the chance to read through the release that we sent out this morning. I thought I'd begin by pulling out some of the key highlights before opening up the call for Q&A, where, when Hemant and I will be happy to answer your questions. I mean, these are a fantastic set of results.
Even after a particularly strong year last year, revenues, profits, margins, and returns all grew strongly. The strength of our customer proposition that is founded on both quality and value, our unique business model, and the execution of our business strategy, are enabling us to continue to invest in our business, improve the quality and breadth of our offer to consumers, while also funding growth and returns for shareholders. Premier Inn U.K. remains the nation's favorite hotel brand and the engine driving our growth in the first half. Strong demand, coupled with a constrained supply backdrop, helped drive U.K. accommodation sales 15% ahead of last year. F&B sales were also ahead, up 10% versus last year.
Given the inherent strengths of our operating model, coupled with our focus on operational excellence and delivering meaningful cost savings, meant that despite inflation, group profit before tax increased by 44% versus last year, and U.K. margins were 27.5%. In Germany, we've continued to make good progress. We've now got 57 hotels open and have secured prime locations in all of the major cities. Our ongoing expansion and the progressive maturity of our more established hotels meant that revenues were well ahead of last year. Despite a relatively soft market over the summer months, our losses in the year halved versus last year, and we remain on track. We're continuing to evolve our commercial strategy and have already learned a huge amount, and we're applying those learnings across our estate as we progress towards our 10%-14% returns target.
The strong uplifting group profit converted into significant free cash flow that is funding our ongoing expansion in the U.K. and Germany, continued investment in our product, systems and people, as well as increasing returns to shareholders in the form of both dividends and share buybacks. Looking ahead, with a strong current trading performance and an encouraging forward book position, we've got real momentum as we enter the second half of the year, and we remain confident in the full year outlook. Further ahead, our analysis shows that the total supply of hotel rooms in the U.K. will not get back to pre-pandemic levels for at least five more years, creating a significant opportunity for us to take share and grow returns further. While there is much work still to do in Germany, we're encouraged by our performance to date, and we remain on track.
Of course, we remain vigilant regarding the macroeconomic environment. However, our strong market position, customer proposition, and balance sheet, coupled with a favorable supply backdrop, means we remain confident in our long-term prospects. We have therefore recommended an increased interim dividend and a further GBP 300 million share buyback. I'm now going to hand back to Sandra, so we can open up the call for questions.
The first question comes from Jamie Rollo, from Morgan Stanley. Please go ahead.
Thanks. Thanks, morning, everyone. Three questions, please. First, it's clear you're seeing no sign of any demand slowdown yet. If you do see that, will your strategy be to maximize occupancy by sort of reducing rate or vice versa? How do you sort of feel about that trade-off? Secondly, in terms of margins, clearly a very strong first half in the U.K. If we look to next year, it looks like your costs will probably be up at least mid-single digit and RevPAR starting to plateau. So what's your confidence level about maintaining these record margins, and do you have any additional savings that could come through? And finally, just on Germany, quite a bit of talk about commercial refinement on pricing and distribution and so on.
I mean, are you flagging bigger problems here or just sort of standard operational improvements, and what's your confidence level on breaking even next year, please?
Thanks, Jamie. Good set of questions. I'm going to handle question one and three, and then I'll hand question two to Hemant. So I'll take it a slightly different order. So let's talk about the demand picture first. So as you said, we've seen very resilient demand. It's worth noting that our business is beautifully balanced between business and leisure, and within each of those segments, we're actually very, very well balanced within the segments. So for example, we have both big corporate customers on the business side, we've also got a large number of smaller business and tradespeople as well. The reason that's important is because part of the demand resilience is our very broad customer base. We are not dependent on one particular customer segment, and that actually creates a huge amount of resilience within our model.
The second thing I'd point out is this supply point, which we talked about when we did our prelim results six months ago. But we have done a really detailed granular piece of work on the supply backdrop in the U.K. market, and it's very you know, it's very interesting work. It basically says that supply is not gonna get back to pre-pandemic for at least five more years. And what is particularly interesting is the majority of the supply that's gone out of the market is independent hotels, and we believe 70% of that supply is not coming back because those hotels have been put to alternative use, for example, for residential. So, from a demand, of course, demand is important. We feel good about the future demand outlook because of this very varied customer base that we've got.
And then the second point is, we think there's this underpin of supply going down. We also, looking forward, we think there are multiple levers for us to continue to pull. So for example, we've got more Premier Plus rooms coming in, which drive rate. We've got opportunities to load our pricing the curve slightly differently as we see that demand, all of which helps support a growing average room rate strategy. So, we feel good about the demand environment looking forward. But I think even if you're a bear on the demand environment, the reduction in supply creates a really interesting underpin.
You know, 6 months, on the call 6 months ago, we talked about the fact that we think this is a very, very interesting point in the hotel cycle for us, and I think that the numbers today that we've presented underline that. The third point, the third question you had was about Germany. Actually, we feel good about Germany. I mean, you know, we've, as you've seen, we've grown very quickly. We went into the pandemic with 6 hotels. We're now at 57 hotels. This is really the first summer that we've traded those hotels in an environment where kind of no COVID restrictions have been in place, and we've learned a lot over the summer. So I'll give you some examples.
Events are a very important part of the German trading cycle, and I think we've learned over the summer how to trade those events better. We used Booking.com at various parts of our journey to maturity in the U.K.. We don't now use Booking.com in the U.K., but we have used them at various times as we've grown in the U.K.. We haven't been using third-party distributors in Germany, and we're currently doing a trial on using Booking.com, which we believe could add incremental customers. But by overall, we feel good about the opportunity in Germany. The reasons to believe in Germany are very strong. You've seen some of our hotels in Germany. They're great quality hotels. Our guest numbers, our guest scores are really good, so customers love that.
What we've got to do now is trade the hotels and build the brand awareness and preference in Germany, which we're on the journey of doing. I think we've learned really good lessons over the summer. So, we're feeling confident, we've been confident about Germany. That's why we've said today we still believe we're on track for our long-term goals there.
Jamie, regarding your question about whether we can retain margins into next year, clearly, it's a bit early for us to give any sort of guidance on cost inflation at this stage. But, you know, making that supposition, I mean, there's three factors, obviously, that are going to impact our ability to retain the levels of margin we've attained this year. First of all, I mean, Dominic's actually covered the first two, the external environment in terms of demand and supply, and of course, we're positive about the former and very positive about the supply environment. The second factor is what we can do internally to continue to drive RevPARs, including things like Premier Plus room, our marketing strategies, the new room formats we have, et cetera.
We feel that there's an awful lot we can do to continue to drive like-for-likes and RevPARs with our internal commercial programs. And then obviously, how we combat costs. Whatever that level of inflation is, we've got a successful record of being able to combat costs. Historically, we've saved GBP 275 million between FY 2017 and FY 2021, and committed to another GBP 140 million over, you know, between FY 2022 and 2025. We still have the opportunity across labor. It doesn't take much, but taking a very small amount of time out of a housekeeping routine makes quite a big difference to our overall labor bill.
Things like our new ID5 room, which is a real RevPAR driving benefit, but also we've designed that room to be much more effective and efficient to clean, which will help our cost savings targets in the future. We're investing in technology, whether it's our management of energy on site, whether it's equipment such as toasters, for instance, that are with high efficiency, but there's some really good paybacks for some energy efficiency investments we're making. And then how we work with all our suppliers, whether they're laundry suppliers or other suppliers we work with. We have a strong procurement program, looking at renegotiating deals, reducing the number of products and SKUs that we're using and combining volumes by doing that, potentially combining suppliers as well.
We still feel that we've got a really strong, with a lot of headroom still to improve our cost, despite the fact we think we're a very efficient business. All of those things will, you know, decide on whether we're able to maintain margins. We're confident at the moment, though, we have enough in our lock to be able to do that, even if there were, you know, any pressure on demand going forward.
That's very helpful. Thank you. Sorry, just on Germany, your confidence level on next year's breakeven target, specifically?
Yeah, we said we're breakeven on a run rate basis, and again, we feel good about that. I mean, we're now the fastest growing hotel brand in Germany. We've got sites in every single major city in Germany. We've got a mix of freehold and leasehold. They're quality sites. Again, you've seen some of them. You know, we're creating value in Germany. We've got great guest scores, and actually, our momentum is building. We've recruited a new senior leadership team in Germany. We've got to the scale now where it makes sense to do that. I think the team has done an amazing job to get us to this point, but it now makes sense to have a local leadership team in Germany.
And that's one of the benefits of getting to a scale that you can, you know, you can start doing things like that. So yeah, I think we feel, you know, we feel great about the opportunity in Germany moving forward, and think it will turn out to be a great value driver for Whitbread overall.
Thank you very much.
Thanks, Jamie.
The next question comes from Jarrod Castle from UBS. Please go ahead.
Thank you. Good morning, everyone. Just on the U.K. pipeline, obviously it's down year-over-year. I realize you have delivered some 1,200 room growth net. But can you talk a little bit about replenishing the U.K. pipeline as it currently stands? You know, especially given a supply constrained environment, I would have thought, probably easier to find opportunities. Then just any updates on your strategic review of restaurants in terms of potential disposals of non-integrated restaurants? Just how you're thinking there. And then just in terms of the reservation system, it looks like you're using Oracle, you're not using one of the GDSs like Amadeus. Can you just give a little bit of color of what does this offer versus GDS? Thank you. Or what additional does it offer?
Thank you.
Yeah, thanks, Jarrod. Let me start with the U.K. pipeline question. So, I mean, what I find really I mean, we—as I talked about at the beginning, we think we're at a really interesting point of the hotel cycle. All the hotel businesses in the U.K. have got relatively smaller pipelines than has been the case historically, and that's now been the case for a number of years, which is why we feel so confident in the fact that it's gonna take a long time for supply to get back. If you look at our pipeline of rooms in the U.K., it's actually more than all of our key competitors put together. So whilst our pipeline is somewhat lower than it has been historically, it's greater than all of our competitors put together.
The second thing I'd say is that we take a really returns-led focus on our pipeline, so we want to continue to build that pipeline, but we will only do it on sites that we're confident are going to return strong returns over time. And I think that's exactly the kind of financial discipline we should have. And it feels good to have that level of discipline, and I think it gives us real confidence in where to grow very successfully over the next few years. The third thing to point out is we are able now to get access to sites that other competitors can't because of our funding model, because of our balance sheet, we're able, for example, to do freehold purchases like the Fenchurch Street prime site, where we feel confident will deliver great returns over time.
We're able to do a deal like that. So, when it makes sense from a returns perspective, we're able to move on these sites at a time that our competitors can't, either because their balance sheets aren't as strong or they actually can't afford the funding in the, in the current market. So in a very disciplined way, we believe this gives, creates a great opportunity for us. We're also looking at how we could look at extension programs, for example, to add more rooms over time. So we think we've got a few different levers to pull, to build that pipeline.
We'll do it in a very, very disciplined way, but we think that we've got a real opportunity now to continue to take quality market share in the market, which is gonna drive real value for Whitbread over time. I guess the second part of your question, Jarrod, was the F&B, F&B question. I mean, we talked about before on the call, we've got the brand restaurants, which are circa 450, and then we have a similar number of what we call Solus restaurants, which is restaurants that are in our existing estate. The first thing to say is actually food and beverage is important for our guests, particularly breakfast. We get great guest scores. They've continued to get better, the guest scores, which is really encouraging. And food and beverage is important to that.
The breakfast is a very important part of our proposition, and a lot of our guests have dinner in our hotels. So we've said that we will look, however, to optimize our food and beverage offering. We're continuing to do that. You can see some encouraging signs of that, 10% like-for-likes in the results today. We will continue to look at how we optimize that, but we'll look at it through the lens of, through two different lenses. Firstly, the lens of protecting the guest experience, because that's important. Obviously, that drives our revenue per available room. And the second lens that we'll look through is financial returns. So through those two lenses, we'll look at optimizing our food and beverage estate over time, and we'll update you as we go through that, as we go through that process.
The third part of the question was about the reservation system. You're right, we're moving to a system called OPERA Cloud. So it's a cloud-based system. It's a system that's already in place. We are actually replacing a legacy system that we have of our own. The good news about that is, the legacy system we're replacing is not time-barred, which means that we can move over to the system, in our own time, which is really important because it, it, it, it means that we can do it in a very, very measured and controlled way, which is exactly what we're doing, and we're making good progress. So now all of our German hotels are already on OPERA. We have about 100 hotels in the U.K. already on it. Early indications are really good.
What OPERA will enable us to do over time is actually it opens up opportunities to drive more commercial benefit over time. So for example, you can sell different rooms at different rates within a hotel. It speeds up some of the online journey, for example, which should improve conversion rates. So there are good, strong reasons to believe that it's gonna be one of our unlocks in the future. At the moment, we're focused on rolling that system out in a really measured and controlled way, and I'm pleased to say that, you know, that's going well so far.
Thanks very much.
Thanks, Jared.
The next question comes from Vicki Stern from Barclays. Please go ahead.
Yeah, morning. Just firstly, on the supply study, just came for a few more details on the basis of that view that supply won't get back to the 2019 levels for five years. So yeah, the breakdown between what supply you see coming on stream versus how much more you're expecting to exit. And also, does that include any assumptions for hotel supply being taken out for refugee housing? And on that last point, I think there's press articles suggesting something like 4%-5% of U.K. supply could be used for refugee rooms at the moment. Any views on whether that, that sort of number's accurate? Second one's on price. So last year, you underperformed the market on price because I think you were going with the shoot for occupancy strategy.
Obviously, in the first half, you've now grown prices faster than the market. So just curious whether you think you can continue to outperform the market from a pricing standpoint. You've always shown us that YouGov survey, where Premier Inn's somewhat off the chart in value for money scores. So just, are you strategically happy to now sort of eat into some of that gap versus peers on value for money? And then finally, on cost inflation into next year, I know you obviously don't formally guide on it until next year, but back in June, haven't you seemed fairly optimistic that inflation could return to the sort of 3%-5% level next year? How you're feeling about that now? I guess it looks like we might get a 7% increase in National Living Wage again, but potentially a quite nice tailwind from utilities.
So yeah, just your initial thinking there would be great.
Yeah, thanks, Vicky. I mean, overall, we're obviously, we're really pleased with the numbers we've presented today. The supply side, I mean, the team have done a very detailed piece of work on it. You know, I think it is, it surprised some people as to how much supply has gone out to the market. We did say on the call six months ago that we expected it would take at least three years for supply to get back. Today, we've said that actually, we think it's gonna take at least five years. And actually, if you look at the pipelines of most of our competitors at the moment, you might say it could take longer than that, but we just can't see, we just can't see that far out.
As I said, on the previous question, 70% of that supply that's come out of the independent supply isn't coming back because it's been taken out for permanent reasons. To your point about the migrant, there are a number of hotels being used to house migrants. We're not sure of the exact percentage. We don't think it's as high as you said, on 4%-5%, and it's generally in hotels that aren't in our competitive set. It's normally hotels with kitchen facilities, generally much older properties. And actually, we don't see that changing anytime soon.
So we don't think that's a material risk, and even if all of that hotel supply came back on the market, it would still be well below where we are, where we were in 2019. And I don't think it's all gonna come back on the market, and it's the most of them are the type of hotels that are not actually in our competitive set. Then I think your point also was about the pipeline. We did clean our pipeline up a bit in COVID. We were able to do that, so we got out of deals that turned out as we went through COVID, we thought, actually, they're not absolute optimum deals. So we could really clean house. We've got very high-quality pipeline moving forward.
We'll add to that pipeline, as we said before, in a really disciplined way now. I think we've got an opportunity to drive more room growth than all of our competitors put together, but we'll do that through a returns-led, which I think returns lens, which should give us real confidence about increasing our returns over time. I think the second. I'll hand the cost inflation question to Hemant. The second part of your question was about pricing and then the out- how we've outperformed the competitors. I mean, you know, it's obviously, we don't control how our competitors price, but what we can see is the strength of our brand and the strength of our distribution is definitely giving us benefits.
As we roll things like Premier Plus rooms out, for example, and as we increase our number of hotels in London, we can see benefit, we can see benefit from that. What's really interesting, you mentioned the YouGov chart. What's really interesting is actually our guest satisfaction scores have increased, and our value for money scores have increased. So although our prices have gone up, average room rates have gone up GBP 10 versus last year, they're actually still slightly down in real terms versus 2009, and only 3% higher than 2019. So we believe there's scope to continue to, to drive price, but of course, we do price for demand. But we believe that, you know, our, our business is in a really strong position. The brand is cutting through very, very strongly.
The distribution works very well. Our guest satisfaction scores are increasing, so there are all reasons to believe to be confident, and it's underpinned by this reduction in supply.
Vicky, on the cost inflation question, you're right. I'm not ready really yet to give any specific guidance. We, you know, I think over the long term, we've seen levels of inflation in that kind of 3%-5% range, and I suppose there's no reason to think that we won't re-attain that kind of level at a certain point. It just depends on when the cycle that happens. The moving parts for us, and as you mentioned, you know, living wages is a big driver of our labor bill. We pay above the minimum wage for all of our team members, but as a base point, it does drive, you know, the increase in that does drive our overall level of hourly labor inflation across our sites in particular.
Yeah, it's likely that's gonna be of that kind of like, you know, you know, 5%-7% range, based on what, you know, the kinda like, the noises we're hearing from government at the moment, and the local commission report, it could be slightly higher. Offsetting that, it's likely, as you say, the energy inflation is likely actually be likely potentially to deflate, as, as it has been. We are unwinding our hedges as well through this year from last year, where we were able to mitigate, you know, the significant increases in energy costs we saw last year, and we are 30% hedged for FY 2025. So that's likely to be a tailwind. Food and beverage inflation, I think, you know, has been improving.
It's a bit difficult to know exactly what's gonna happen in the future. All things being equal, you would expect that to mitigate down to lower levels, and no reason to think not. But of course, there are so many geopolitical kind of externalities and things at the moment that might impact that, that we can't really say. So I'll give some more solid cost guidance when we get to January, when we do our Q3 results, because I think we'll have a much better idea at that point, and I can inform you accordingly.
Thank you. That's really helpful. Can I just follow up on the first part of the question? Just on the forward-looking part of the supply study, what sort of exits pace are you assuming? I think historically, independents have come out on sort of 1% per year, you know, over the last cycle. Is that the sort of level you're assuming, or you think the independent exits will be at a higher pace in that five-year period?
That's the level we've been assuming. We've been quite prudent about that because obviously we've seen such an acceleration through COVID. But generally, we think over the long term, there's no reason to think that rate wouldn't continue, again, all things being equal. You know, after a bit of a tailoff, we still think there's, you know, based on our thinking, as we say, it's gonna be another, you know, 4-5 years before we're back to those kind of pre-2019 levels. We think there's a little bit more to come out through this year, net, before pipelines start refilling over the next 2-3 years, and we start to see that come back up.
So there will be, you know, we think at least, you know, another couple of years at this low level of hotel rooms in the market.
Great. Thanks very much.
The next question comes from Leo Carrington from Citi. Please go ahead.
Thank you. Good morning.
Hi, Leo.
Hi, good morning. Firstly, on the approach to driving better pricing, the comments in the release this morning were referring to reducing the number of rooms sold at less than GBP 80, I think. Implies the benefits are mostly towards the end of the curve. Can you sort of outline how you see that, you know, how you see that and how you see that tying into your desire to deliver value for money? And then two follow-ups on existing questions. Firstly, on the U.K. hotel growth, you've referenced the bigger developments like at Fenchurch Street or Trafalgar Square. Dominic, your reference to extensions is well taken, but beyond that, U.K. freehold growth, primarily in these larger development opportunities, or are there also reflagging opportunities that we could expect too?
Then lastly, in terms of optimization of the existing estate, seems the pace of the rollout of Premier Plus rooms is slowing now. Is that because you're reaching the right level of these rooms now, or is this just a timing feature?
Okay. Thank you, Leo. So let me take the first kind of question, comment about the pricing, and then the second question, really about the U.K. hotel growth, and then I'll hand over to Hemant for the optimization estate part of the question. So on the pricing side, I mean, our average room rate is still really attractive from a value perspective, so GBP 84, and that's gone up GBP 10 year-over-year. The beauty of our business, I said before, we're very balanced between business and leisure, and so we can take a really segmented approach to our pricing. We've also had some room growth in London, which generally drives higher rates, and of course, Premier Plus generally have a higher rate.
So we can increase our average room rate without necessarily the most value-conscious customer paying a lot more. Having said that, you're right, we have shifted our curve slightly to the right, which means that, fewer of our customers pay absolutely the lowest fare. But we can do that with confidence because we know the hotel is going to be full or very close to full. And actually, the increases that customers are paying at those lower price rates are relatively low. It's a few pounds on the room rate, for example, but of course, with the size and scale of our business, when you multiply that up, that actually has quite a material impact on revenue. So we stay very focused on the value, on the value side of the business.
As I said to Vicky, we've seen our guest scores increase, we've seen our value for money scores increase, so we know we're doing a good job. We're not complacent. We can be smart about pricing and still drive this value message. We also see a great opportunity in the business segment. We're doing a lot of work on our business proposition overall. We just won U.K.'s Best Business Hotel for the fifth year running. And the reason why I think that's really important is we see an opportunity, one, to retain our existing customers. You probably saw in the release, 86% of our customers in the first half were repeat customers. So really, that tells us all we need to know about our loyalty.
But actually, we also see an opportunity for customers trading down into Premier Inn in a value environment. Every business at the moment is looking to keep their costs low, but they also wanna get out and drive sales. So we're seeing a lot of business people out and about. We see a great opportunity for customers to trade down from the four, five-star hotels to Premier Inn. And actually, our pricing gap between where we are and the four and five-star hotels has actually widened. So although our room rate has gone up, last year, the gap to four, five-star hotels was GBP 50, this year it's GBP 60. So we're actually better value relatively than we were last year, and that creates a great opportunity for us within the business segment.
You know, we similarly, we have this ongoing opportunity within the leisure segment, and our brand strength really helps from that point of view. So we have shifted the curve slightly, right? We've done it in a really measured, controlled way. I would describe our pricing approach, our yield management approach, the system we have, what we call our Advanced Trading Engine, as absolutely best in class. We're not complacent, we continue to improve it. But, for example, we link our pricing into our digital marketing. So for hotel rates, if we're seeing that curve shift, shift slightly to the left, we open the taps a bit from a digital marketing perspective to then drive that, that room rate increase.
We're unique in being able to do that because we are vertically integrated, and believe me, we're making sure we're taking advantage of the fact that we're vertically integrated to really drive strong growth and strong market share growth. And then the second question was about the kind of future growth. Yes, you're right. We've signposted the Trafalgar Square site, we've signposted the Fenchurch Street site, but actually, we're seeing site opportunities all over the U.K.. Our regions are highly profitable for us. We will look at every single opportunity that comes up. So I said before, we take a very return-led focus, so we will walk away from sites and opportunities if we don't think the economics stack up for us.
But actually, we see opportunities around the U.K., and we feel that we'll be able to rebuild that pipeline over time, even though we'll take a disciplined approach. As you mentioned, we'll also look at opportunities within the extension space, which are generally really highly returning growth opportunities for us.
Yeah. And then just to add to that point, that we—you know, our room target of getting to 125,000 rooms, there is a significant part of that outside of London and Southeast, even though it is more, you know, preponderance is towards London and Southeast. And we're very confident that, you know, once we put rooms down into those catchments, we'll get really good returns, Dominic there. On your third point about optimizing estate and Premier Plus, in particular, yeah, I mean, look, Premier Plus is really working well for us. As a concept, it is a relatively small upgrade, you know, between kind of GBP 10, GBP 20, GBP 25, on a room. It's—the footprint of the room is the same as our standard room.
There are slightly different, slightly different offer, slightly nicer bathroom suite, slightly different furniture, nicer coffee, consumables, toiletries, et cetera. That is a relatively low investment cost for us to put in and to run for a really nice upgrade in terms of the, in terms of the room premium. That means we get a really strong return, and it's, you know, it's a, it's a very helpful way for us to make our refurbishments more profitable and better returning, which generally in the past will have been more about maintaining the estate. But actually, this is another way of actually driving returns through the estate as we go through the estate refurbishing it.
We tend to put Premier Plus in when we refurbish a hotel because it's a lot less costly doing that than doing it, you know, just ad hoc when we're not in that hotel anyway. And then we can actually make sure that for rooms we're gonna refurb anyway, we can understand what the incremental capital and therefore incremental return we're able to achieve through Premier Plus is. At the moment, we've got about 5% of our rooms as Premier Plus rooms. Generally, when we refurb a hotel, we put in 15%, on average, of Premier Plus rooms. The factors that drive that, there are physical factors that drive that in terms of segregating the rooms. You know, it might be that a particular corridor or a particular floor might work best.
But also, we're conscious of the fact that, although it works for leisure customers, it works particularly well for business customers. So we're thoughtful about the kind of hotels that we're putting it in, but it is working very well overall in virtually every hotel we've put it in. We're also making sure that roughly that level of roughly 15% of rooms in new hotels as well are going to Premier Plus. So we're gradually converting the estate. Logic would tell you, therefore, we'd probably get to something like 15% in the long, long run. You know, we've currently got three times as many rooms as we have now where we could get to, but it will very much depend as we put more and more rooms into a catchment, we might see slightly different behavior.
So we'll monitor that to make sure we're getting the returns that we want. There's nothing really to see in terms of slowing the pace. It will be based on the refurb program. That will continue apace, and we will, you know, continue to put Premier Plus rooms down, as soon as we can.
Thank you very much, Leo.
Thanks, Dominic.
Thanks, Leo.
The next question comes from Richard Clarke, from Bernstein. Please go ahead.
Hi, good morning. Thanks for taking my questions. Just, just want to start by following up on your U.K. supply survey. I guess one of the conclusions from that is a fairly negative picture for the U.K. overall. You've suggested that U.K. supply has come out to the order of about 5%. It looks like U.K. occupancy is running about a percentage point lower So U.K. demand must be down by about 6%. That looks a lot worse than almost any other country in the world. I'm just wondering why you think U.K. has been hit so hard, and why you have that confidence maybe that demand returns to growth? And then maybe the, the second question, on your slide 25, I know these are very round numbers, but it looks like you've gained about a 1% of share.
The rest of budget branded has gained about 2% of share. Just wondering who in there is gaining that share? Is it bigger brands? Is it local brands? You know, is the quality of your competition beginning to improve? And then just the third question around cash. Obviously, you're announcing another buyback increase. Should we think about that, you're just returning back to a more normalized level of cash. You used to have about GBP 500 million of cash on the balance sheet. You've got GBP 1 billion at the moment, so you're getting down to that. Or can you kind of commit to a more kind of rolling buyback program of that kind of level?
Yeah, okay, thanks, Richard. So let me take the first part of the question, which is about supply. Actually, I don't recognize the demand numbers that you said, and we're happy to take that offline, and talk you through the supply side. But a couple of points I'll pull out. I mean, if you look at our performance versus full year 2020, for example, you know, our U.K. accommodation sales are up 55% versus full year 2020. Our occupancy, and bear in mind, we're a big estate with a lot of hotels and already very high occupancy. Our occupancy is up six percentage points versus 2020. So we have taken, you know, we've taken We've got a lot more customers now in our hotels, and they are paying higher prices.
So we're not bearish on the overall demand picture in the U.K.. And I think that's supported by, you can see by the pricing increases. I think if pricing was flat, and demand had and supply had gone down, I think you could come to that conclusion. But pricing is strong, it continues to be strong, and occupancy is up very materially since full year 2020. So, you know, we are seeing strong demand signs overall, overall in the, yeah, overall in the, in the U.K., in the U.K. market.
Yeah. Yeah. So, Richard, regarding your second question on share, I mean, you're pointing out slide 25, I think, and you can see that, you know, our share of the overall number of rooms in the U.K. has gone up from 9% in 2015 to 12% in 2022. I mean, obviously, these are rounded numbers, so I think, you know, you're reading a little bit too much into what we're saying. But, I mean, you can see there that, you know, we got from 9%-12%. The rest of the branded budget market has gone from 15%-19%, so it's roughly in proportion, so in line with the rest of the branded budget market.
Clearly, we've got some strong competition, you know, with Travelodge in particular, who are trading really well as well. But I think the biggest factor here is there's still a significant chunk of supply in the independent sector here, 40, you know, in the 40s%, so 45% in 2022, and we think coming downwards as well, over that since then, and will continue to do so.
That's where I think we are still gonna continue to have the, the ability to grow, where we're competing against, the independent sector, who will have struggled with levels of inflation, cost inflation we've seen, with labor shortages, and just generally having to compete with, you know, much more efficient, larger hotels, you know, with the, with the strong branded budget sector we've got, in, in the U.K. And that's why we continue to think that there's a significant opportunity for us to continue to grow, in, in the market. And we're very confident that, you know, at the moment, we might have 12% of the rooms in the U.K. Our implied target of 125,000 rooms means that we could get to something like 17%, in the U.K.
That is very much based on our understanding of what is happening at a micro market level. You know, if you look at the high level, that's a very, very high market share. We're already at a very high market share in terms of number of rooms for a single brand. But we know that in micro markets, we are able to sustain higher market shares than that. And all we're doing is comparing what we're able to do in some markets with the ability to achieve exactly the same in other markets where we don't have as many rooms, where we might not have any rooms at all, or where we think we've got extension opportunities or the opportunity to reconfigure our hotels into a larger number of rooms. So we're still confident in that.
And then your third point on cash and the buyback situation. I'm gonna refer you back to our capital allocation framework. The point of the capital allocation framework was to actually give us the flexibility. You know, we are to allocate capital in the right kind of way. We're a business that has a significant ability to generate cash. You know, we're generating almost GBP 500 million of cash in the first half of this year, I think GBP 483 million, and we're doing this in a business that's generating 14.9% return on capital in the U.K..
That means that, you know, we are we have to be very thoughtful about the level of cash capital that that we're allocating and how we're allocating it, in order to maintain those really strong returns that our our shareholders are looking for. We talked about remaining investment grade. We know that's really important. We want to continue to invest in new rooms in the U.K., whether they are completely new hotels, whether they are extensions and also new rooms in Germany, all of which will give attractive levels of return. We want to also maintain our estate whilst putting in offers such as Premier Plus, that will continue to drive returns as well. We want to invest in systems. We've already talked about our new reservation system, the benefits that's gonna bring.
All of that, though, might mean we still have cash available to distribute to shareholders, whether it's through dividends or share buybacks. It will very much depend on points in time where we can look forward, where we understand and, you know, where we've got a good visibility of what might be happening in terms of future booking levels and the economic stability, and also, of course, bolt-on M&A opportunities, which we'll need to manage and which we're always looking for, particularly in Germany as well. So I guess the answer is, it's not. There's no hard and fast rule. There's not quite. There's not a point that we've got to a level of cash on the balance sheet that we're happy with.
We want to run an efficient balance sheet, but we also want to maintain really strong capital discipline, among that, within that capital allocation framework. And so we will, we will decide. Clearly, the priority would be to put money into new rooms if, if the cash is available to do that. If those opportunities aren't available and we have excess funds, we would be returning money to shareholders in the future. The board's committed to reapplying that capital allocation framework on a regular basis, and we'll continue to do so.
Okay, thanks very much. Maybe just quickly reverting back on the first question. So, I'm looking at the U.K. STR data that seems to imply that occupancy in the U.K. is down year-on-year versus 2019. And so if I add that to your supply, your supply mass, it would look like there's quite a big overall demand disruption. You're saying that potentially STR is getting that occupancy trend wrong, and actually there has been supply demand growth versus supply contraction. Is that your conjecture?
No, the STR doesn't have data into every single hotel site or B&B, for example, in the U.K.. So it's not a It's never gonna be a completely perfect data set. I would say from an overall demand perspective, we see demand as continuing to be strong. If demand is down slightly, for example, versus pre-pandemic levels, we haven't seen that, but I think it probably reinforces the point. We haven't seen it, and you can see that from our results, but it probably reinforces the opportunity that we see, in the sense that, you know, that should support a really interesting point of the hotel cycle for us. Because your point, you know, there could be demand headroom in that.
I think there have been some comments about the U.S. market. What's really different between the U.S. market and the U.K. market is that the percentage of independent in the U.K. market is materially higher than the U.S., so the branded competitive set is much greater in the U.S. than the U.K. Our independent hotel market in the U.K. is generally of more mixed quality, and doesn't have the brand strength, distribution, or in fact, the P&L strength, that we ourselves do. So that creates an opportunity for us moving forward.
Just to follow up on it, Richard, I mean, you've got to also take into account, obviously, the pricing that the market has taken. We can't, you know, we can't comment on what the rest of the market is doing. Clearly, what we can see is that we have both improved and increased occupancy over this last three years from pre-COVID. We've added more rooms in at the same time as well, a significant number of rooms, much more than anyone else, and we've taken price. Slightly less than the market up to last year, but more year-on-year versus the market, slightly more than this year.
All those factors, you know, when taken into account, mean that we're trading really, really well, and we're still very confident because of the strength of our brand, strength of our brand, that we'll be able to trade more strongly going forward. What we can't comment on is the market overall and how they've taken it. But clearly, the more price you take, the more you're likely to dampen demand. So your, your question is about demand as such, based on occupancy. Clearly, there's a, there's a price impact that the market is having on demand as well, which really isn't, you know, not our concern. What we're trying to do for us, obviously, is maximize the revenue that we can based on our pricing systems and the hotel rooms that we have in a particular catchment.
And Richard, the other thing, I think what you'd see in a market like this traditionally, where, you know, demand is Demand overall is strong relative to the supply, and pricing is going up, as you would see an increase in, a rapid increase in supply into a market. Any, any kind of sector that's seeing those kind of dynamics, you'd see rapid increases in supply. The opportunity for Whitbread and Premier Inn is it takes, as we said already, it takes years to build that supply, and, and the financial markets at the moment are not conducive to people opening hotel rooms. So interest rates, as we all know, are historically at a high level.
Funding for businesses, if they don't have very strong balance sheet, is challenging, and that's why our competitors' forward pipeline, why our pipeline is greater than our competitors' forward pipelines put together. What that means is, that supply isn't gonna come into the market in the short term, we think for at least five years. That's very unusual for a sector. It takes a long time to build a hotel, and obviously, if you can't get the funding, you can't access those pipelines. Which is why we think from a hotel cycle point of view, it's a really good opportunity for us as a business.
Okay. Okay, that makes sense. Okay, thanks very much.
Thanks.
The next question comes from Alex Brignall, from Redburn Atlantic. Please go ahead.
Good morning. Thank you for taking the questions. I've got three, if that's okay. So the first one is just on the sensitivity. Clearly, you had a phenomenal H1 at the top line, but the specificity of PBT is very, very good. The sensitivity to rev, do you think that will hold for the full year, or are there any kind of other factors you go into there, or perhaps timing of the first and second half? And then the second two, just to continue the trend, and obviously something you've done a lot of work on, so supply and then Germany. So on supply, you clearly have a much broader analysis of the industry than STR, which is focused on the really big hotels and doesn't kind of touch the smaller ones.
One bit that I think isn't in your assessment is the kind of smaller properties and then the alternative accommodation segment. There was a survey done of AirB&B. It was a fair few years ago, where it was effectively dismissed as not significant. But alternative accommodation makes up about 33% of the OTA bookings. So I wonder if you could talk about whether you need to broaden your supply analysis to include that stuff, which I don't think is in it, well, certainly based on the conversations I've had. And then Germany, kind of fascinating market because the cities are very branded, but the rural areas are very unbranded. So I wonder if you could just. You've obviously focused on cities so far.
I wonder if you could tell us your plans on growth and how this kind of maybe the independent opportunity, again, in Germany, in the rural areas, and, and at what stage of your growth you kind of get to those bits? Thank you so much.
Thanks, Alex. I think it makes sense for Hemant to pick up the first couple, and then I'll pick up Germany.
Yeah. So, yeah, so Alex, no, there's, there's nothing that we're flagging in terms of any change in sensitivity through the rest of the year. Sensitivity we've got in place at the moment, we think will hold. So no, is the answer to that in simple terms. On your supply question, yeah, it's interesting. I mean, the, the way we, we do this, we obviously, to summarize, we take account of AirB&B and other alternative providers. The way we do that, though, is because actually what we're trying to get to is our pipeline potential. That's our end game when we do this analysis, and we do that in two parts. We do look at the supply, and then we look at demand.
Clearly, when we're looking at supply, it's very difficult for us to say exactly how many AirB&B and AirB&B properties are available. We're doing this at a very, very granular, very detailed level. You know, we can't see. We can't do that at a catchment level, because it, you know, those properties are very transitory, they're very seasonal, they move in and out. So we have to look at it at a more of a macro level. And the way we actually do that is by looking at, by taking it out of the demand picture. So we effectively cheat.
So effectively, just to work it through, we work out supply picture, we take it out the demand picture, we add that together, to get us to therefore what demand we think is available, net demand is available for us, based on that, you know, based on that supply picture. So we do take account it. So I understand your question. It's not something we can directly do when we work through the supply numbers that we're talking about. And yeah, I think I've answered that. So over to Dom to talk about Germany.
Yeah, and I just building on Hemant's point for AirB&B, I mean, we are far from a complacent team. I mean, I would describe us as always looking for ways for us to continue to improve our business, and our proposition, and the guest goals that we've spoken about today kind of reinforce that. Some of the systems improvements we're making reinforce that. AirB&B, therefore, is not a competitor we take lightly, and we understand there's some overlap, but there's less overlap than people would expect because AirB&B is generally a bit longer stay, and they've been in the press recently talking about a strategy to actually focus even more on longer stay.
And it's generally for longer stay and quite often kind of groups of people who want to stay in a property. So the kind of Venn diagram overlap from a customer perspective with us and AirB&B is relatively small. Particularly on the business side, you know, we offer advantages that it's very, very hard to compete against with AirB&B. You know, the safety, the security you get with our site. You've got reception 24 hours a day. You've got a really simple booking process, set up and an F&B offering within the hotel. So, not complacent at all.
Right, from a competitive point of view, we take into account AirB&B, but actually, we think that there is a relatively small overlap considering the scale of our business. And then from Germany, I mean, you're right. There's a big opportunity in the cities, for sure. I mean, we've got hotels now in every major city in Germany, and we're pleased with how they're maturing and how they're performing. Hamburg would be a great example of that. Munich would be other examples, where we've got hotels in prime locations in key German cities, and they're performing really well, and I've no doubt that we're creating value. There is a big secondary and tertiary city market in Germany.
I think that is going to be a bit next step, not now, because I think as we're building the brand and our presence in Germany, actually, it's easier to build those presence in those cities. As you go out into the more rural areas, actually, a brand becomes more important, and we're relatively early in our journey in building the brand. What's fascinating about our development in the U.K., we I was going through this with a team a few weeks ago, is as we've progressed our growth in Germany, we've kept raising our milestones of what's possible. You know, if you spoke to the team in the U.K. 10 years ago, they would have thought 50,000 rooms was a hugely ambitious target.
Well, we're at 85,000 rooms in the U.K. now, and we feel confident to being able to hit 125,000. Why is that? Well, as the brand has scaled and we've grown as a business, we've generated these really material efficiencies, which means that we can compete incredibly successfully in the marketplace and become the clear number one and very profitably. And I think we'll, we've got the potential to see the same pattern in Germany, but we'll start with the big cities. We'll prove the model, we'll drive that success, and then I think it could open up the opportunity to go to secondary and tertiary cities, but that's gonna be later, not right now.
Fab, thank you very much for all the detail. I really appreciate this.
Thanks, Alex. All right.
Next question comes from Tim Barrett from Deutsche Numis. Please go ahead.
Hi, morning, both of you.
Hi, Tim.
Hi there. Just a couple of disparate things left, please. Firstly, on the pipeline, could you give us a split between London and the regions, about that 7,000 pipeline? And in terms of office conversions, we might have talked about this before, but the price per key that you're achieving on that, is that higher or lower than the norm? And then lastly, if I can sneak in a question on restaurants, can you talk a bit about price versus volume within the first half, like-for-like sales? Thanks a lot.
Yes, I think. Thanks, Tim. Hemant, I think, I suggest, picks up the pipeline and the office conversion point. I can probably build on that, and then I can talk about restaurants.
Okay, so yeah, so on the pipeline, we haven't given any detailed breakdown of that. But yeah, it's proportionally more in London and the Southeast than the regions. So we've got quite a lot, particularly large London hotel opportunities that we've talked We've mentioned a couple already today, and they tend to be larger hotels as well. So, and that's where obviously we've got most of the opportunity for us, 'cause we've got a lower share in London compared to the rest of the country. So that's where the pipeline is skewed towards that. I didn't quite hear your question on office conversions. Sorry, could you repeat it for me, Tim? Sorry.
Yeah, just where you're looking at office conversions, is the price per key typically higher or lower than the equivalent?
Yeah, I mean, actually, it very much depends. We have had some great value purchases of offices in London as well, I think, compared to historic costs. So basically, what it'll be, what's happening in London with offices, there's a bit of a, there's kind of two tracks in terms of valuation of offices at the moment. Those that are compliant with environmental standards and those that aren't. And obviously, pricing is very different for those types of those types of property. The ones that aren't are then, you know, we are looking at potentially, can we convert those to hotels? 'Cause the price of those are coming down.
That, for instance, is what we were able to take advantage of in the opportunity in Fenchurch Street that we mentioned, where we've bought that office, where effectively, we wouldn't have ever been able to afford to buy, you know, like an office in a prime location and convert it to a hotel. It just wouldn't have made financial sense. But because valuations are changing for certain buildings, you know, all of a sudden, they're much more within our ability to do that. So we're looking for further opportunities in the future, similar opportunities to that, and we hope to be able to convert some more in the future as well.
So, it really depends on the type of office, and obviously, most of these are in London, which are, you know, overall, more expensive properties for us anyway, so it's skewed by that. But it will, you know. The way we think about this is, it's very much returns-focused. Any opportunity that is above our hurdle, that we can make work, then, you know, we will pursue that opportunity, assuming, you know, we've got the capital to do so. And right now, as you know, we've got the capital to pursue virtually any opportunity we'd like to, as long as it's at that level of return. So yeah, there's nothing particularly that's beyond that. Beyond the fact that actually, you know, we're also able to recycle capital quite effectively.
It's interesting that the office that One of our disposals, for instance, is an office that we have built, is actually in Clerkenwell, where we bought a car park. We converted part of it into a hotel, part of it into an office. We've then sold that office at the right environmental standards. The actual value we're getting from that, compared to the purchase of that Fenchurch Street site, something like double per sq ft, I think it is. You know, that, you know, we're able to, you know, convert and, and, you know, recycle capital. Just an interesting point on office valuations at the moment.
I mean, it's a really interesting point Hemant's touching on. I mean, as a business, I think we've got some real superpowers. I think the brand is a superpower, I think our guest experience is a superpower, I think our pricing and yield management is a superpower, and I think our property expertise is a superpower. And we've got a property team that's out there doing actually really compelling deals, together with access to prime sites. And we're able to do that, particularly at the moment, 'cause we've got the best covenant in the industry, which means we can drive very good, very good deals, and we can take a real returns-led focus. But this is the time of the hotel cycle to have a strong covenant, and I think that creates a great opportunity for us.
I think coming to your third question about restaurants, Tim. A bit of a slightly mixed between our solus sites, so remember, about half our estate has got restaurants within the site, and half of our estate is the branded pubs and restaurants. In the branded pubs and restaurants, it's mostly been price that has driven those like-for-likes. But actually, within the solus site, actually, it's a mix of both, and more from the customer, more increased customers, actually. And that's really been driven by two things. One, our increased occupancy over time is driving more guests into our food and beverage outlets, which is great. So that's guest volume.
And the second thing is, I think the team has done a great job on streamlining the online journey to increase us, for example, our sleeper-breakfast ratios or our sleeper-dining ratios. And they've made some changes to the online journey, which has actually increased the conversion for customers booking breakfast and dinner in our establishments, which has driven guest numbers and revenue and, you know, and therefore, therefore, performance. And actually, the product is great. It's breakfast for GBP 10. It's all you can eat, and kids eat free. So it really supports that value, that value opportunity. And as we drive scale through that, it becomes, of course, more efficient. So our solus sites in particular have done, have done well from that approach.
Great. Thanks for all that.
Thanks, Tim.
The next question comes from Jaafar Mestari from BNP Paribas. Please go ahead.
Hi, good morning. Just one for me on costs and specifically what you called in the past, discretionary OpEx. So at this time last year, you were spending significant additional OpEx into marketing, into staff retention, and obviously that was adding to just your external industry-wide cost inflation. So staff retention bonus summer 2022, cost of living wage boost last winter. What's the status this year? Did you make some extra investments into staff pay beyond just National Living Wage? They were just within the guidance or have the labor market normalized enough that you have not needed to go beyond this time?
Yeah, thanks, Jaffar, good question. I mean, it's within the guidance that we've given. And we've, you know, feel confident about that. From a team point of view, I mean, our teams have done a phenomenal job. Our hotels are obviously really busy and full a lot of the time, and they've really done a phenomenal job. One of the advantages of having this vertically integrated model is we can really make an impact on the guest experience by leading our teams well, and I think our teams have done a great job. From a retention point of view, again, our teams have done an amazing job on actually improving our retention. So our retention levels are up. We pay above the national minimum wage.
We have got progression pay in place for full year 2023. Effectively, our people have had about a 10% pay increase. That's all in the numbers. And we're not seeing material shortages of team members, partly 'cause our retention has got better and partly 'cause we can really offer our people a career. So we've got a really strong employee proposition. That's obviously very important to us. We've got 39,000 employees, but actually, I think we're in a really good place in that. It was interesting, there was an article in the paper yesterday about luxury hotels in London having staffing issues, and I think we've done a really good job of staying well ahead of that. So we're in a good place there.
Thank you. And on that marketing side, do you also not need to educate customers any further? They know all the great property you have and all the great locations you're in.
Well, we did, you're right. We upped our investment in marketing, and effectively, we're continuing that. Effectively, we're continuing that level of investment. We've got a much more of what we describe as an always-on approach. We have got a really good digital spend algorithm for our marketing, which drives both awareness, but also very targeted from a conversion point of view. And of course, we can measure that. So we feel really comfortable we get a very strong return on investment on that. And then we'll continue our above the line marketing. So we'll continue with TV. Again, very selective about where we show that TV, but I think it's important, as being the number one brand, to continue to drive that consumer preference.
If you've seen our TV adverts, they're very focused on where we're differentiated. So I would describe them as, as Premier Inn adverts, not sector adverts, and we're very focused on what makes us different, and that is primarily a great night's sleep. We've just done this mattress rollout, across the estate, so we can say with confidence on the, the Good Night's Sleep Guarantee. So a great night's sleep, friendly team members, and a great breakfast, and then, of course, great value. And those four things come out very clearly in the TV adverts that we do and in our digital adverts. So I would describe it as smart investment to drive, to drive return.
Super. Thank you very much.
Thank you. Thanks, Jaffar.
The next question comes from Jaina Mistry from Jefferies. Please go ahead.
Hi, Jaina Mistry. I've got-
Hi, Jaina.
Hi, I've got three quick questions. Firstly, on your RevPAR sensitivity, can I check that I'm interpreting it right? So for FY 25, if your U.K. RevPAR grows by 2%, does that imply an additional GBP 30 million to U.K. PBT? This is for FY 25. Second question-
For the full year, that's right, Jaina. Sorry.
Okay.
For full year, that's right. It's between GBP 50 million and GBP 60 million for 1.1% of RevPAR across full year.
Perfect. That's really clear. Second question, I mean, you've obviously announced another buyback for H2, so it suggests that the scope for bolt-ons in the second half is fairly low. But how are you thinking about opportunities for select M&A in Germany next year? Do you think there's opportunity to do a bit more? Do you think the market's looking a bit more attractive? Do you think transactions might be coming back? And then last question, you know, the press thinks that you might be looking to sell Beefeater to Brewers Fayre. Now, this is purely a theoretical question, but how easy would it be to sell that portfolio, given it shares an estate with Premier Inn hotels? There might be, you know, some issues with car parks, et cetera. Is it even possible to dispose of? Thank you.
Thanks, Jaina. So let me take the Germany M&A question. I mean, we did this acquisition of six hotels last year, which has actually been really successful for us, and we're very pleased that we did it. Ironically, one of the biggest opportunities in Germany is because the market is so fragmented. I mean, there isn't a clear market leader in our segment, and we believe we're on course to get that number one spot over time. Because it's fragmented, it means that the number of groups that are available to purchase are relatively limited. I mean, we see pretty much every opportunity that comes across in Germany.
Like the U.K., we've got a really strong covenant, which gives us great access into these opportunities, and we'll look at every one that comes up. As I said about what we do in the U.K., we're taking a really returns-led focus. So we do find groups of hotels come up, but we turn them down because they're not the right type of hotel space. Part of running a really efficient, effective budget hotel chain is you want the right type of properties in the right type of locations. And if properties come up that, for example, has got big conference facilities or spas, I mean, that doesn't work for our model. So we're really disciplined about making sure that we grow in the right way in Germany.
Now, having said that, we do think opportunities will come up, and over the next few years, we think opportunities will come up in the market because financing market is just as tight in Germany as it is in the U.K. Our share buyback that we've announced today doesn't limit our ability to do quality transactions in the future. And we'll consider them as and when they come up. And we'll look at it through the lens of With a goal of scaling profitably with strong returns in Germany. And then the third part of your question was about F&B. I mean, there have been all kinds of rumors bouncing around.
We've been really open at saying that we are looking at ways to optimize our food and beverage, but we look at it through the lens of guest satisfaction and financial returns, and we continue to work through that. I mean, we're not— Apologies, just one second. Sorry, that was a fire alarm, helpfully timed at 10:30 A.M. U.K. time on a Wednesday morning when we've got an analyst call. So we've been really open at saying we're looking at ways to optimize it. We've got a number of trials going on at the moment, integrated ground floors, for example, and we'll update on our work on that, you know, when we're ready to talk about it.
Okay. But specifically, is it possible to dispose of that estate if theoretically you wanted to? Yeah, my understanding is-
I mean,
The restaurants are slightly connected to the hotel, so it might be harder to dispose of.
I mean, the majority of our sites, they are adjacent to the hotel, so our Beefeater or Brewers Fayre restaurants are adjacent to the hotel. So there is a shared site, but there's a clear perimeter around around that site. The most important thing for us is we have to protect the overall guest experience, and we have to be confident that any changes we make in the F&B space is looked at through a returns lens. So we look at it both from a customer lens and a and a returns lens. And therefore, you know, we make any changes in that area, we would make in a very, very considered, in a very considered way.
To specifically answer your question, the majority of those branded restaurants are kind of in effectively a car park next to a hotel. Some of them are what we call snack sites, so actually in just like attached to the building, but that's a minority, not the majority.
Very clear. Thank you.
Thanks, Jaina.
The next question comes from Estelle Weingrod from J.P. Morgan. Please go ahead.
Hi, Estelle. Sorry about the fire alarm.
That's okay. Hi, Dominic, hi, everyone. Only one question left from me, and hopefully the last one for you guys. I mean, on Germany, I'm just trying to understand a bit more the initiatives you're currently undertaking. I mean, you covered this quickly earlier in the call. You mentioned a trial with Booking.com. How is I mean, first, how is this progressing? And also, what other initiatives are you looking at to increase brand awareness over there, given how fragmented the market is, I mean, in terms of advertising and so on, and how it compares to the U.K.?
Yeah. So Estelle, congratulations on coming up with a good question at the end of a long call. So I would say we've learned, as I said before at the beginning, we've learned a lot about trading our hotel estate in Germany over the summer. There are differences between the German market and the U.K. market. That said, we're really confident that our, I would say, our best-in-class approach to pricing and yield management applies in Germany as it does in the U.K., but we have to tweak what we do slightly for the market, which I think is completely logical and is based on learning, which is exactly what we're doing. To give some specific examples, events are, particularly business events, are a much bigger thing in Germany than they are in the U.K., trade fairs, for example.
And their pricing curves are different. They book way more in advance than we see in the U.K., and therefore, we have to build different pricing curves, and we've learned a lot about that over the summer. You touched on Booking.com. Booking.com is the, by far and away, the largest OTA in Germany. We believe that could be an interesting way for us to work with Booking.com to drive growth for them, but also incremental customers for us. But we'll do a proper data-led trial. It's too early to comment on that now. It's very early days, but it will be interesting to see whether that is something that works for both Booking.com and for us. I touched earlier on the fact that we've rolled our new reservation system OPERA out in every single hotel in Germany.
One of the benefits of doing that is it actually enables us to add additional payment types. You probably know this, but credit card payment levels are much lower in Germany, despite COVID, than they are in the U.K. And actually, more customers use alternative payment methods like PayPal, for example. Moving to this new reservation system will allow us to add PayPal to our German booking process, which we will do in the next few weeks. And then, so the number of levers that we are learning are important to pull in the market, and I think, you know, contribute to our confidence in Germany. From a brand point of view, we're still relatively nascent in Germany.
I mean, we're 57 hotels, but, you know, 18 months ago, we were 30 hotels. So we, we've grown really, really rapidly, as you can see, by the amount of revenue and customer growth that we've had. That means that our brand awareness is, whilst building, still, still relatively low. The beautiful thing about that, is it enables us to really be clear about who we are in Germany. And we're confident that actually this approach of, focusing on sleep, which has worked so well for us in the U.K., will actually also help in Germany. Erik Friemuth, who we've recruited our new CEO in Germany, this will be one of the key things for him to work on as he joins us in January.
He's got a great background in helping businesses, build brands, both at TUI, where he was, but also, he was a CMO of Vodafone in Germany, so he's got great marketing background. And so I think we've got an open goal in terms of creating our brand and building that awareness over time. What we won't be doing in the short term is great big TV campaigns, because although we're getting to scale in Germany, the marketing return on investment of 57 hotels, it doesn't make sense to do great big TV campaigns. But we can do very targeted campaigns and communications, and particularly on the digital side, that I think can really reinforce why we're different in Germany. And I think we've got clear differentiating factors and reasons to believe. So great night's sleep. We've got fantastic acoustics in our hotels.
I think we can own sleep. Got exactly the same team member positivity, and you can see that in our guest scores in Germany are really high. And we've got a great breakfast, all underpinned by a really strong value proposition. I think we all believe that's a winning proposition for the German market.
Thank you, very clear. Thank you very much.
Thanks, Estelle. I think we've got time for one more question. I think, is that Joe from HSBC?
Yes, our last question comes from Joseph Thomas, from HSBC. Please go ahead.
Yeah, sorry to keep you there even longer. Yeah, it's Joe from HSBC.
That's all right.
I'll trim it right down. I've just got one question that's been troubling me a little bit, and that's with respect to the interest rate environment. You know, you've obviously talked about the competitors being, to an extent, being squeezed out by a higher interest rate environment. I just wonder how it's affecting your own hurdle rates when you're planning new developments, and how that's interplaying with the 125,000 room target? I'll leave it there.
Yeah. So I, I'll tell you that. Yeah, Joe, I mean, obviously, we are very aware of the external interest rate environment. What we tend to do when we think about investment appraisal, we look at it in a couple different ways. We're looking at the return on capital employed of a mature hotel, and therefore what that's gonna do to our overall business. You know, we're obviously looking for, improving, you know, enriching returns on capital, but also the NPV of any particular decision. And obviously, we are taking account of, you know, we will look at the latest, you know, our, our internal WACC, and we'll, we'll consider that based on whatever the, you know, the, the latest, number looks like. So we do think about that.
But remember, we are thinking about hotels over a 25- to 50-year cycle. We're making long-term investments over that cycle. We think about what interest rates and inflation might be over that period, but that we are necessarily using our long-term estimates because of that. So really, what we're looking at is whether a site is gonna get to a mature return on capital over our hurdle. Interest rates and therefore risk-free rates and WACC has been quite volatile. I think it's fair to say, over the last, kind of, like, over the last, kind of like, you know, year and a half, for various reasons.
If we think that we're in a new paradigm, as it were, for the long term, we'll continue to think about that in our investment appraisal approach as well, and therefore our returns targets. But right now, I've got nothing to update on that beyond saying that. Thank you, Joe.
Thank you.
Okay, so I think that brings our call to end. I'd like to thank everybody for your time this morning, and for the set of really good questions we've got. I mean, we're, we're really proud of the results. We think they're a great set of results. We're not complacent. We've always got more to do, but we feel confident about, about the future outlook, and think we're in a great place to really take advantage of where we are in the hotel cycle. So I'd like to thank everybody for their time today.