Whitbread plc

Good morning, everybody. Thank you for dialing in.

I do hope you've had the opportunity of listening to the broadcast this morning to sort of get a firm grip on the start point because we think we'll just go to Q&A for this session. I suppose I will just have one small preamble, which is to say this has been one of the most challenging years in Whitbread's 279-year history.

But we have been through turbulent times in that history before and have come through strongly, not least because we have a great operation, the advantages of a brilliant operating model, a fantastic brand and a significant amount of financial flexibility, which we have used to good effect this year to manage through what, as I said, has been a very challenging year.

So I think we have weathered the financial impact so far and got a good position for liquidity. We've managed to outperform the market throughout the year.

And now we are ready for the next stage of the recovery, which is to invest again in order to consolidate our position as the sector winner. So with no further preamble than that, I will turn over to Q&A.

Thank you very much.

Three questions, please. One is just on your Slide 6, which is a helpful breakout of the sort of different buckets of customers and when you expect RevPAR to recover.

So you're saying a RevPAR recovery by calendar 2023, I'm just wondering if you could sort of hazard a guess for what the picture might be for calendar 2022, not fiscal, but calendar. And also, I may not be reading too much into that slide, but you've got the sort of location bouts in Q3, and then you got possibly winter COVID restrictions and obviously sort of a later recovery for international and office workers.

So am I reading it right to suggest that you're expecting a sort of sequential slowdown possibly in RevPAR after the summer? The second question is on the GBP 100 million cost savings.

I pleased with the 1 question, I already thought I got 2 already. So carry on, sorry.

On the cost savings, Nick, I think you said you expect to get back to pre-COVID margins by 2024. So why is that not aligned with the RevPAR recovery a year earlier, and why are the cost savings not sort of dropping through the bottom line to increase your margins?

And then finally, if you could just talk a bit about the competitive environment. I mean, you talked a lot about it verbally, but Travelodge's data suggests they're outperforming the market by a similar degree to Premier Inn.

So are you surprised by that given the advantages you enjoy?

Thanks, Jamie, what I'll do is I'll take the first and the last, and I'll leave Nicholas with the middle because that will make for a suitable sandwich, a delicious sandwich. Let's start with your Slide 6 set of questions.

And this slide is quite difficult because we put the slide in, obviously, to try and be desperately helpful. Because we know that this is what's on a lot of people's mind, just in terms of where we see the recovery.

But, of course, it is indicative only and to sort of give you a sort of sliding scale, and I'll go through it. And it is important to note, we are still operating to quite a wide range of scenarios.

You know that one of the ways we've managed through the pandemic in the last year have been to continuously run scenarios. It's going to delight further finance and the operating teams to do that.

But that has helped us enormously I think through the range of things that are possible and preplan for how we've managed certain eventualities however obscure they might have seen.

And so we were pretty well prepared for lots of things, which did happen, which sometimes we're in our core scenario, but actually we're sometimes in an outlying scenario. And so this is just one snapshot on Slide 6 of a range of possible scenarios.

So I wouldn't want everybody to fixate on this and come back to it quarter after quarter to decide whether or not the colors have changed or the -- or we were right or wrong. We plan in a slightly different way, and you'd expect nothing less, I'm sure.

And all of the scenarios we plan to are plausible, even if some of them are worst-case and better case than the one we sort of laid out here. And so just in terms of going through it, you're particularly interested in the sort of recovery by '23 and how we sort of see this.

Well, we're already seeing the staycation bounce in terms of forward bookings and the excitement in the nation overall about people being able to get outside, go to pubs and start seeing relatives and going on holidays.

And so I think we're confident that we will see a pent-up demand for people to come out from that. And I also think people are planning ahead to future leisure recovery.

But it does -- the leisure recovery we've laid out requires rather more to happen than just a great summer because that is in the highest proportion of our estate that gets that staycation bounce. And leisure recovery consists of weddings and concerts and sporting events and people traveling to see family and having family events at home, et cetera, and staying for those sorts of things.

So we're expecting that leisure recovery take place over a longer period of time.

The business -- on the business side, the -- it's been pretty robust in terms of trade activity. So what we historically would have called blue collar.

And our 30% to 35% occupancy rate at the moment is largely people who have to travel for work or they're essential travelers by definition because otherwise they couldn't stay with us. But that's quite a good proportion of occupancy coming from that sector.

So we do expect that to recover fastest in the business sector. And on -- in the normal office worker recovery, given that we won't come out of lockdown properly until the 21st of June, and I'm not sure what restrictions, if any, I know the promise of this week was very optimistic, there wouldn't be additional restrictions post 21st of June, but that remains to be seen.

Then I would expect probably office workers not to go back to the office in earnest even in hybrid working practices probably until after the summer, say September onwards is sort of broadly how we're looking at it. And although, again, there was some excitement this week around inviting American travelers who were vaccinated to come to Europe, and I assume, therefore, the U.K., I think international recovery is actually quite a prolonged change in that.

And yes, in terms of will there be any further lockdown or restrictions, will there be a top-up vaccination program in the winter when the NHS tends to be under more pressure and a resurgence in the virus, which fares better in the winter than it does in the summer, we would be mount not to build that into our planning horizon. It would be lovely to think that it would happen, but I think we would be remiss of us not to think that we ought to plan for that eventuality, which I think you called out specifically, Jamie.

Yes. I mean, I think even the medical -- officers have all said, if you're ready for another wave later in the year, how big that is and what impact is, who knows overall.

So going to the second question. You asked about the efficiencies, which we announced efficiencies of GBP 100 million over the next 3 years.

And your question was we've said that we'd get back to kind of like-for-like RevPAR in FY 2023 and then the kind of the margin kind of come back kind of a year after that. And your question was why was the margin a year later.

And I guess there's 2 reasons for that. One is we are going to be investing as we recover and you can see today, we announced that we would be putting GBP 20 million investment into marketing and also kind of channel management and development as well, which is kind of positive.

You've all seen our advertising on television, bringing you back to. And the second reason, although we've got efficiencies of GBP 100 million, we do have inflation of around about kind of GBP 40 million to GBP 45 million, so a little bit ahead of that at the moment.

So it will be a little -- inflation will be a little bit lower this year, more like kind of around about 35 because national living wage is lower at about 2.2%.

But we do expect national living wage to go back up to around about 5%, which will push that inflation back up to GBP 40 million to GBP 45 million. So the inflation is just running a little bit ahead of our efficiency program, but a good job to offset as much of it as we possibly we can do as well.

Third question was about competitors, and particularly, Jamie, you were talking about Travelodge. I think I think Travelodge are doing pretty well alongside us.

And I think if you strip us out, then the rest of the mid-scale economy market is really doing very badly indeed. Because -- and I think there's a couple of reasons for that.

Firstly, I think that the model that we both operate to is advantaged.

So they also owner occupy and manage their business. They also deal directly with customers.

They also over index on U.K. domestic business.

And so -- and that model that is not an OTA international-led strategy, I think, is advantaged currently and will be advantaged going forward. So I think that the businesses that have that model are doing better, and that is about Travelodge.

I think we're probably doing -- I know there are some weeks where it goes either way, but I think that broadly speaking, we are doing better. And I think one of the missing items for you to understand that is refunds.

We, as you know, refunded hundreds of millions of pounds of bookings throughout the pandemic at each wave of government restrictions when terms and conditions would not normally have allowed it. And we thought that was the right thing to do.

And certainly, in the first lockdown when nobody could have seen what was happening and what was coming and ahead of us building more flexible rate classes. That was the right thing to do.

But I don't think Travelodge did, and therefore, they will be booking revenue, which is you sort of not refunded revenue if you follow my drift on that. So I do think they're doing okay, and I think it's model related.

I don't think they're doing as quite strongly as -- I don't think they're performing as strongly as of -- in a number of ways, which we analyze.

And I do think that they're likely to see constraint going forward. I think that they probably got a liquidity position, which is more constrained than ours, both because they have a very large debt level now, very highly leveraged, have a very big rental role even with rent reductions that were approved as part of the CVA.

And I suspect that given their leverage, I doubt banks will be putting more cash in. So -- and the equity providers haven't been overly keen to do that either.

I think they've also put debt in. So overall, I suspect, therefore, that investment in the business over the next 2 to 3 years, either for growth refurbishment or anything else will just be a little bit more constrained.

So I think overall that lack of constraint for us will help us in terms of the investment to win in time. Is that helpful?

Yes, so can you just quantify the events, the leisure events business, how big that is for you in your leisure segment?

It's really hard to separate it out, actually, Jamie. We don't because you don't know if people are staying for the football match or they're staying for other reasons as well.

So it's really hard to say.

Just firstly, coming back to the point around the independents. I think you referenced in the presentation, there's been step-up in the independent attrition that you saw post the global financial crisis during sort of 2010 through 2012 period.

Can you just sort of say what that looked like in terms of annual attrition compared with the sort of 1% average, I guess, you've seen over the last 10 years? Was it sort of 2%, 3%, 4% per annum during those years?

Quick answer on that, Vicki, is it sort of went from 1% to 2%.

Okay, so doubled. And with that, sort of your thinking now, obviously, there's help in the system today, but your thinking now as you look at that as a sort of example for what the next few years might look like.

Yes. I mean, a -- I mean, we're still 48% independents in the U.K., but it's 72% in Germany.

It's enormous. And percentage of budget branded is so much smaller also in Germany, but that move to budget branded is an accepted, a structural shift that is going on.

So I would expect in both markets to see some acceleration in the drop out. But we're not going to know that until we get through the next little period, there's a lot of support infrastructure in place for the sector at the minute.

When that starts to be removed and with some weaker demand still, people having used up reserves, I think we will then start to see that play out.

So 2 things, one is some of the independent sector coming out; secondly, of other players in the market, a more constrained investment horizon. Because people won't have the cash flow and liquidity, and therefore, less rooms growth.

Again, it's usually not the following year because when you've got a spade in the ground, you have to finish, really, you don't make any sense at all to sort of mothball a project that's half built. But -- so you see -- usually see some supply growth going in.

But then it dries up because people don't sign up new deals and -- across the board.

And then on top of that sort of lack of refurbishment CapEx, which just means that product gets really tied quite quickly and people's brand dips and consistency dips. And again, all 3 of those would be opportunities for Premier Inn, particularly as we don't need to stand still.

So we are targeting even this coming year, sort of 4,000 to 5,000 new rooms growth, 2,000 Premier Inn Plus rooms, a significant refurbishment program as part of that. And the commercial investment to make sure that we are driving and farming demand that is out there.

And on the sort of commercial side, just sort of coming back on the guidance. So the GBP 20 million marketing spend, should we think about that now as sort of recurring and in the base?

Or that's sort of an element of that is to relaunch now and any of that repair back in future years?

Yes, I think that's in the base now. I think that's in the base.

Okay, and then sort of similar question on the GBP 20 million COVID safe cost, is that sort of things you have to do now to be COVID safe? Or you think this is probably best practice going forward?

Yes, that's GBP 25 million for COVID safe kind of costs, and that's mainly around labor, some consumables as well. We would hope we'd be able to kind of -- well, hopefully, that goes in naturally anyway as COVID disappears, but also would love to kind of naturally kind of engineer that out.

So you'd hope that kind of goes over the next year or two.

And lastly, just coming back to Germany, just an update, please, on the sort of opportunity in terms of any M&A ability to sort of pick up more portfolios, et cetera.

It's a -- this is the same position. I mean, we were pleased in October to do the first deal.

And it was good because it sort of really showed people that there were going to be opportunities. It was a distressed portfolio of which we cherry-picked the hotels that we wanted from it rather than having to take the whole.

And it was, therefore, from us, quite a unique deal and involved as sort of moving over lease arrangements, so renegotiating with landlords for leases and therefore, sort of setting rent position the right rate for us and getting contributions for refurbishments and getting on with it. So it was not having to deal with brands rolling off or anything like that.

So I think that it was a helpful indicator of the fact that there was distress in the market. And -- but in the same way in the U.K., there's probably a bit of a lag still, I think, with government grants and support propping up businesses through the next few months.

And I suspect we are, therefore, going to see more distress when those programs come to an end. And funnily enough when demand starts to recover but has not recovered in full and during that recovery period, I suspect we'll see quite a lot more distressed assets and action being taken.

So we would anticipate that in Germany, we would see some good opportunities in the market for nonorganic growth, and we will be in a position because we're financially set up to do so to take them if and when they arise.

Three for me as well, please. Firstly, just again on the independents, I guess one of your competitors suggested that you did not expect some of the independents to open up as early as the 17th of May.

It seems like your commentary still very much that this will be a more gradual capacity reductions. So any comments potentially on that, please?

Secondly, I appreciate you don't have a crystal ball. But on the forward bookings, can you perhaps put those bookings in context of when you reached your peak occupancy in September last year and any expectations around that as we go into the reopening?

And then very finally, I appreciate it might be difficult, but any guidance for working capital for the year ahead? I appreciate this is lumpy, but thank you.

Yes, I'll just kick us off really with the question on the independents. So if we think about the U.K., 48% of the market independents, in normal times, the structural shift, which has been the case for many years, is about 1% of that market falls out every year.

That's without there being a knock in any way. So during the start of the crisis, as we said to Vicki's question a minute ago, that was higher during that period and then settled back down.

But there's a sort of gradual decline of the independents which is a structural issue, and we would expect, as in the last financial crisis, some acceleration of that for a period of time.

In terms of people reopening, we would anticipate that a lot -- the market will reopen on the 17th of May. We're expecting everybody to reopen that can reopen.

We know that there will be, at that point, some people who choose not to, but we won't know who they are until either the 17th of May or actually until the 21st of June. Some people may wait until 21st of June.

So at that stage, we'll have a view of what an initial shakeout in the sector might have looked like, and that could be not just the independents, it could be some franchise businesses which might be branded. There could be a whole raft of shakeout at that point, not expecting it to be enormous because people have had quite a lot of support.

Don't forget with a lot of independents, there'll be cash-run businesses, and they'll employ a lot of family, and they will, therefore, have managed through the pandemic.

But what we expect then is for the next 12 to 36 months to be a period where we see more of a fallout of the independent sector and not much growth in other areas. And that's the place where from a structural perspective, it leaves a gap.

That's the gap that Premier Inn can fill. I hope that was clearer on what we think we see as the independent position.

You wanted to talk about forward bookings, which is kind of hard to call.

It's hard to call it. All we can say, as Alison said earlier, it's during the July, August and early September where it's a touristy month in the hotels where we have got tourist destinations, which is about 15% of our hotels, it looks pretty full.

We were pretty full last year. We've had a bit more warning this time that we can open up.

So we're a bit earlier, which hopefully has a bit of a halo effect. But there's not a lot else we can say about it.

Yes. We probably say we'd still expect our trade people to be traveling and that to sort of run relatively consistently with occupancy levels that we've been seeing already whilst we've been open for essential travel only.

We've had a reasonable occupancy. Most of the people in that essential travel category will continue to be essential travel.

So that, along with the uplift of leisure in the summer months, should drive a higher occupancy level than we've been seeing. But we can't really predict much beyond the summer months at this stage.

And that's the U.K. In Germany, we're probably seeing Germany probably about 2 months behind the U.K.

at the moment where they are just because they're behind -- a little bit behind the curve on the kind of vaccination program overall.

And your last question was on working capital, which is difficult because it depends if you're on the up or you're on the down, which way it goes. We had a kind of a GBP 70 million outflow in working capital due to kind of deposits this year overall.

Hopefully, we're on the -- hopefully, we're growing, and therefore, the -- it's a kind of cash positive overall, but I mean, for planning purposes, I know a lot of analysts are using kind of flat working capital at the moment, just to be on the kind of cautious side.

Two questions for me, please. Firstly, just on the CapEx guidance.

Could you elaborate on your GBP 235 million U.K. CapEx plan for full year '22?

How does that look in terms of maintenance versus expansion compared to the reduced level of this year? And actually may be worth describing what counts as maintenance and what counts as expansion, things like refurbishments, the rollout of Premier Plus?

By how much are they reduced compared to your initial plans, please, or to a normal year? And then secondly, very mindful not to read too much into Slide 6, but I was curious in parallel to those buckets of demand recovering, which is pretty much exogenous to you.

What does your marketing schedule look like in terms of what you're doing to adapt and to drive that demand? For example, how do you market specifically to people who may not have taken the staycation at Premier Inn in years?

Okay, why don't I take the marketing question and you take the CapEx question, Nicholas?

Yes, so on the CapEx, right, GBP 235 million into the U.K. for CapEx guidance next year.

There's about GBP 100 million of that, which is based on kind of what we call product improvement and maintenance. You're right, it is fairly broad.

It covers anything from refurbishments, which is roughly around about GBP 45 million. We've got repairs and maintenance, which is just kind of core roofs, windows, et cetera, overall, and then it also covers IT, and those are split kind of paying 50/50 between the rest of that spend overall.

Yes, and on marketing, we've got quite a number of commercial levers that we are working on at the minute. So first of all, we've started quite a big marketing campaign, which is probably going to have quite a good share of voice.

I don't think there'll be many others out, which is TV, social media, digital platforms, radio. It's a very multidisciplinary and integrated campaign.

We -- that sort of drives demand, and that will drive demand from existing customers but new customers as well.

And we saw some very good statistics early on from that campaign, so we're very positive about how that will help us with driving demand. We then obviously farm the demand.

And we have done a lot of work on digital, on our digital and search activity to make sure that we are -- have more reach in our search activity than others, and that's much improved. We've also reinvigorated our website with better user conditions, which means that we're seeing higher conversion rates through the website.

We relaunched our business booker tool and enhanced the credit management facility, particularly for small and medium enterprise businesses, where that is a real requirement, which, again, is causing us to get a much higher cut through and conversion rate.

And then we've broadened our use of travel management companies to a very significantly broader group. That business, which is a new business for us because those business travelers would not previously been allowed to stay with us.

If you have to book through a travel management company, you can't book direct. So that reaches a set of business customers we couldn't normally reach.

It's not like a bare effort, but -- and we think that, therefore, will help us both drive new demand and farm that demand better. So it's quite a big program of commercial activity, some of which has been completed and some of which is ongoing over the next few months.

If I could maybe just follow up on the CapEx point. So am I correct in thinking GBP 100 million of U.K.

maintenance, it compares to in the last few years, it's been around GBP 150 million. And if I'm correct, your competitor, Travelodge, is saying they can spend as much as GBP 40 million of CapEx in calendar 2021.

And at peak, that was GBP 65 million. So I'm just curious what are the subcomponents within that, you think they're going to have to cut a lot more than you're doing because on the headline number, it's not fully comparable as a model, but it looks like their CapEx cut is only a tiny bit above yours?

I can't comment on them overall. I mean, there are some differences overall.

I mean, we have a regular refurbishment of our hotels, of our -- the whole of our hotels, our bedrooms in our ground floors, which hopefully you can see, and that comes through traditionally in the kind of RevPAR, the rate that we get as well. So you'd expect us to do that as well.

We also own 60% of our freehold. So we're kind of maintaining the kind of value in our freeholder state.

They're 100% leasehold, I think, nowadays as well. So there are some differences overall.

And we invest quite a lot in IT, making sure we keep that kind of digital 100% direct coming to us as well. So I don't know what they've cut and what they haven't cut overall.

Could I start with a question about food and beverage? F&B was -- it's down over 90% in Q4, obviously, for regulatory reasons.

But how do you expect it to rebuild? Do you think we should expect it to be correlated with occupancy or can you go faster this summer because of all the pent-up demand?

And then the second area to touch on please would be Germany and German distribution. A very atypical year, I guess.

It looks like you're at 99% direct, but I suppose we shouldn't read anything into that. So can you talk about the strategy for distribution in Germany this year?

Of course, to both. We'll probably both make comments on both questions.

I'll kick off, but I'm sure Nicholas will intervene. Yes.

You're quite right, yes, being completely closed tends to give you a clear problem in the F&B business, than we were and have been and are still largely closed. So we have opened the first set of sites on the 12th of April from outdoor perspective.

They can do no more than breakeven when they're outdoors only. So just to sort of manage that expectation.

But we should be reopening on the 17th of May in full. And -- but with social restrictions, which limits covers and makes it more constrained environment.

And then the 21st of June, we may or may not relieve -- be relieved of some of the social distancing requirements. But at the moment, I can't call that in terms of whether or not they will be relieved or there'll be another thing in place.

For us, it's always a combination, a combination of local business and the return of local business and the return of local guests to the restaurant and the return of the hotel guests and the sleeper-diner ratio. So it is a combination for us of both of those things.

Most of our breakfast business is the hotel, a good percentage of the dinner business is hotel, but rather more of it is local diners. So my view is it will be a combination of the two.

And then on Germany, yes, you're quite right, there's not really -- as you know, when we started in Germany, we decided we would start by being direct only. And at the time, we only had Frankfurt as a hotel.

But if we went OTA, it would be hard to come off it. Whereas we went direct, we can always go to the OTA.

That's always a default option available at any point we want to pay the commission. So -- but at the start of this financial year, when we went into this last year, we only had 3 or 4 hotels trading.

And 2 or 3 of those had only been opened for a matter of weeks. And then during this year, we've obviously grown the estate very significantly, but through acquisition of Foremost, where we've been rebranding, closed the hotels and rebranded them during the year and refurbished them, taking the opportunity of very low demand and low demand year to do that.

We then bought the Centro portfolio in October, and again, we decided that in a world where occupancy levels are running at just over double digits, the best thing to do is to close them immediately and refurb as quickly as we can rather than keeping them open during a quiet period and refurbing them when potentially demand might be coming back. So that's -- so really you can't read a lot into it.

Our preference is to build a direct distribution model, which requires us to have brand awareness to do that, as you know, so people have to know to come to you. We prefer it always to take to people the best deals that they're going to get through coming to us direct to our website.

We'd like to start the marketing campaigns. Now we have a national footprint with business customers and corporate customers who now can look at a portfolio of 30 hotels across many different towns and cities and start to have big business booking, direct relationships with us as we do in the U.K.

But we are absolutely pragmatic. We are absolutely non philosophical.

What we want is the business to be a success. And if that success requires us to have some paid for activity through commission and OTAs, then that is a route we would be perfectly willing to take.

Yes, I mean, the good thing is we can leverage off everything we've got in the U.K. So all the work we've done that Alison described on the U.K.

website, that's live in Germany as well, the work we're doing on travel management companies and GDCs is all going live in Germany at the same time as well. So you get that kind of -- that benefit as well.

And the 99% of direct, you -- I mean, it's a good number. That's a U.K.

number. Overall, I think, 100% in Germany at the moment counting as at all.

Our airport sites usually kind of fill up 1% or 2%, which are fairly quiet at the moment as well. So you just got to take that into account.

And do you give a figure on marketing in Germany? This is a topic that comes up quite a lot in terms of how you build an Anglo brand into Germany?

No, no, we don't. We've given in the guidance, we've given some kind of what the kind of central kind of cost -- support center costs, we've got some marketing in there as well.

It's going to give you an overall view.

I just have a couple of questions to try and look at the recovery expectations. The OTAs have talked about how the smaller the property, the better it's doing, and Airbnb had been massive.

And the other alternative accommodations had been then obviously massively outperforming the hotels. So I guess my question on that is what's your expectation as to recovery?

Because that's exactly a different message to what you're saying about outperforming the independents. I think the independents you're referring to have sort of slightly bigger properties.

So the smaller properties seem to be doing better.

And then the second question is on corporate travel. Clearly, your corporate travel is quite blue collar.

But overall hotel corporate exposure is quite high and some corporate travel doesn't come back, then there is an overall loss of demand to hotels. And it seems quite difficult to assume that you will avoid price deflation if there is demand loss from the hotel industry.

So I wonder if you could talk about your RevPAR recovery in the context of probably some RevPAR deflation in the rest of the market and how you would sort of avoid that? And then follow-up questions to that, and just in terms of what that might change in your outlook, your plan on adding hotels and the return on capital assumptions that you have in your hotels, how would you flex those plans in a world where -- and it's not your base case, but RevPAR simply didn't come back to where it was before, how would that affect your new-build strategy?

That's fine, that's fine. Starting with the independent sector, the independent sector is quite varied.

And of course, you can be in your mind, you might be thinking of an independent sector that's got small boutique 4 or 5-star properties that are well invested, offering a great guest experience. That's a small proportion of the independent sector.

And what's the bigger proportion of the independent sector would be the massive BNBs on real seafront or Pimlico high street, which if you see them, are incredibly underinvested, a bit random and not very safe and secure and probably don't instill people with a huge amount of confidence in terms of their health and well-being.

So actually, it's quite a sweeping statement to say either that small properties are doing better than large ones or that all the independents might do better than others. I mean, I think if I was calling out a theory at this stage, I would say in our estate, hotels that had good car parking were doing better than those with no car parking because in this environment, people haven't wanted to use public transport, and they want to be able to park their car outside the hotel.

So they would be the sort of things that were quite important to guests who are currently traveling and who might travel going forward.

I think you're quite right in your assessment of the fact that could be trickled down. You're right that white collar office conference activity is the purview of the 4 and 5-star market.

I mean the people with ballrooms and conference suites and theaters are the 4 and 5-star players. And therefore, in the event that, that demand isn't there, what will they do and how will they respond to that is something we will have to watch very carefully.

But our price points are, don't forget, incredibly different. Pre-pandemic our average room rate was about GBP 55 to GBP 57.

That is a -- compared to a 4 or 5-star player's average room rate, particularly on event nights or for conferences that is a very significant place they have to get to to compete with us like-for-like.

So we can't rule out a trickle-down effect on the whole -- the overall market demand effect. We don't think we're immune, but parts of the competitive response that we've got have been broadening our own share of the business market through things like the travel management companies.

So in order to offset any of the trickle-down effect that we might see is to have a broader base in the first place. So -- and to do all of the credit management, the improving of the business booker, a lot of the business booking activity once it's with us, given that people have discounted rates directly with us and are booking directly with us for their teams, that's very sticky business for us.

Those people are very loyal, and our systems are integrated into their systems, and they're booking for large numbers of employees to stay with us. So those are the actions we've taken to offset.

And then finally, on the pipeline, we've done a lot of scrubbing, a lot of scrubbing of the pipeline already.

So we -- as soon as this happened, we ran all of our models, sites that we approved but hadn't signed, we really gave those a good scrub. Some of those we walked away.

A lot of this we walked away from. Overall, some of those we renegotiated as well.

So we're fairly comfortable, actually, with the pipeline that we have. And I guess in the U.K., that's where we're more focused on opening those pipelines and getting those efficiencies right than necessarily signing up new and adding to that pipeline.

We think that will come again. But it might -- the focus right now is on the opening the pipeline in Germany at the moment overall.

We do expect, though, that there will be constraints in the supply -- new supply coming into the market overall. We saw this in 2009 to kind of 2014, '15, there was very little new capacity opened which did help RevPAR overall and if you get the independent decline.

So we -- there may be a squeeze on price from the kind of above us. Kind of -- what we've seen historically is the 4 and 5 stars have to hold their price discipline because they're square meter per room per rent doesn't stack up unless you do hold that as well.

So -- but we're fairly comfortable with our pipeline, being able to deliver good returns over the longer term.

And just to be clear on the pipeline, the assumptions that you put into your model, is that as you've laid out to us in terms of the RevPAR recovering to pre-pandemic levels on the time frame you talked about?

Yes, yes, and as I said at the beginning, we run a number of scenarios.

Yes.

Just wanted to ask you, on your presentation, the prerecorded presentation that you did, there was a -- there was a couple of comments that maybe stop and think. One was that you were talking about the return on capital in line with historic levels pre-COVID.

And there's another one about opening costs for new hotels that were in line with levels outlined at the Capital Market Day in 2019. I'm just sort of wondering why over the course of this pandemic, you don't think that there has been sort of an improvement in the outlook there.

So if we're thinking about market share, et cetera, why that can't get better and the opening costs perhaps why that can't drop?

And then -- so that would be my first question. The second thing that I wanted to ask about is you were alluding to the capacity again coming out of the market and sort of hotels on real seafront and Pimlico high street.

What happens to those properties as they come out? Do they tend to be convertible into something else?

I just sort of wonder what the risk is if they end up in the hands of a competitor instead? And then the final thing is, I'm just a little bit confused on the GBP 20 million of investment and the chunk of that going into corporate travel agents, et cetera.

Is there going to be a RevPAR impact as well as a cost impact? Or is that just sort of the net impact that you're expecting to see going through the business?

Can I just pick this up quickly? Just the last one is it's not just about travel management companies.

It's broader about investing in our distribution platforms, but it's also about advertising as well. And you probably saw -- hopefully, you've seen our new advert, which went live a week ago as well.

So it's broader than that overall.

Just in terms of what happens to hotels on the Pimlico Road or Shepherd, one near me, last time, a lot of them turned into residential development. Because that's probably what they're most useful, so they might do that as well.

They also tend to change hands into other hotels, but drop a star, or drop down a level. So kind of if they were to retain a hotel or just a different hotel or they go into a kind of BNB over it.

But last time, it was mainly residential development. It would be interesting to see if that's still there.

I mean it's still hot housing market overall. So I think that's probably what they'll go into.

In terms of competitors, these tend to be small hotels. They tend not to go into the big, the IHGs or the Accor brands.

They're not kind of suitable for that. And we haven't seen much -- we haven't seen any expansion in IHG or kind of Accor kind of budget brands in the recent years.

Your first question was just about kind of return on capital and why -- and kind of the opening costs, kind of why we haven't seen improvements versus kind of 2019 and why won't we being more bullish and hoping talking that up? I guess we look at our return on capital.

We've given kind of 12%, 13% return on capital over many years. We think that's a good return on capital.

We're -- it's a good premium to where our WACC has been, and we don't think driving that return up above that is necessarily a good thing for the business in the long term. Actually, it was better actually keeping that return, keeping that consistency, reinvesting in the business, reinvesting back in the customer again, to kind of build long-term sustainability overall.

So that's really what we're trying to do. And we know that no other business is -- if we can do that, no other business is in that kind of position to be able to do that, which gives you a really good competitive advantage as well.

And secondly, we talked about earlier, kind of -- we are in an inflationary sector. So we do have to do a lot of work to kind of make sure we're offsetting that.

But it's getting that right balance between using your efficiencies to offset inflation and to invest in the company overall.

I'm curious if we look at your sales recovery scenario, and we sort of frame that August to October last year, I think you've spoken about 33% is the business existing tradespeople bucket. Was that similar over that period last year, is the first part?

Second, if we look at the other buckets, obviously, over that period, international leisure events and business offices, we are today probably still pretty close to 0. So how would you have framed the construct of that occupancy improving in 2020 among the other buckets?

And in particular, what was the kind of swing between the business and leisure components over the summer months? And just as a sort of housekeeping point, it looks as if cash burn from the sort of GBP 80 million per month, you speak about when all the hotels are closed, the breakeven is fairly linear.

Is that a fair assumption to make as we go through the recovery phase?

Okay, it's quite hard to answer the question on occupancy. But I'm going to give it a go nonetheless, whether or not I'm really doing justice to the question.

So I mean last year, we were closed from the start of the year until July. And we reopened the hotel estate during July and August and had the benefit of good bounce of leisure guest travel in staycation type properties, so as we said, sort of 15% of our business.

And the return to sort of trade work and people who have to physically be present at work during that -- the summer and then into September and the start of October. And I think we saw occupancy peak at about 58%, if memory serves me right, about that period.

And then we went into tier restrictions, so in some places, quite severe tier restrictions and lack of movement around the U.K., which then culminated in second national lockdown, more tier restrictions and the third full lockdown from Christmas onwards to the end of our financial year. So really, that is quite a mess to sort of be able to sort of unpick into sort of giving you any real sense of trends.

What I can be clear about though is that under normal circumstances, in normal years, about 50% of our business is leisure and 50% is business. And of the leisure travel, there is, of course, the coastal and tourist and destination areas, which is about 15% of our estate.

But there is a very, very broad leisure market that stay with us for all sorts of reasons, not just events, but family occasions and general sort of visiting people and having weekends away and -- a huge array, which that recovery, we are expecting to see almost a better recovery over the course of the next few months because the restrictions feel like, I suspect, for people that they are coming to an end on vaccination program is complete. Last year, there wasn't a vaccination program at this point in time.

And therefore, there was much more cautiousness and people very much more circumspect.

So I would be expecting to see both the staycation bounce and the leisure recovery, particularly that leisure recovery being maintained post the first week in September, whereas last year probably, certainly the staycation dropped very dramatically when schools go back and didn't really pull forward everything else.

On the business side, just to reiterate again, half our business is usually for one of a more refined term, blue collar, and half of it is white collar. But we don't index on conferences and meetings because we don't have those facilities.

We don't have gyms and mini bars. We don't have ballrooms, conference theaters or meeting rooms.

So we index on people, cost-conscious business travel. And we have a high proportion of business that books directly to our business booker tools.

We have not historically ever played in the travel management market. That is brand-new addition that we have made this year in signing into travel management companies to grow our distribution reach.

So we're expecting the blue-collar market, which has -- we have seen a sort of relatively resilient position on during lockdown, during the close period to continue and to continue its recovery and be a relatively strong recovery. And we're expecting the white-collar office work type business to be much later to recover.

Sort of certainly not starting that recovery really until after September and to take a while to come back and to potentially have structurally altered which is why we're growing our reach in business to make up for any lost ground that may be there. Hopefully, that covers it.

How else to sort of describe this versus last year.

Just on the cash burn, Stuart, good question. So just in the first half of the year, we talked about kind of when we were close to about an GBP 80 million cash burn when we were completely closed, that actually because we were opening in the first month in March turned out to be about GBP 75 million cash burn per month across the first 6 months per month.

In the second half, we've had kind of half that, it's been about GBP 40 million cash burn per month, and that's been roughly split. So that's about GBP 25 million operating cash outflow per month and about GBP 18 million, GBP 20 million CapEx per month overall.

And will that continue to be fairly linear as we head towards sort of the mid- 50s?

Yes, we've given cash breakeven at kind of 55% occupancy rate, down 6% or 7%.

On the TMC distribution opportunity, why haven't there been a focus in the past? Is this a lower net margin business for you or some other reason?

And have you quantified how many extra guests this could reach, do you think, perhaps on a normalized basis? And then second question on the Premier Plus rooms, restarting the rollout of these.

Can you remind us on the pricing uplift that you'd expect to have from these, how that's trended over the last year with all the restrictions? And then if you could do your best to quantify the rollout in 2022 and 2023, that would be very helpful.

Yes, the -- I'll kick off, and then Nicholas will intervene. Yes, we -- for TMCs, we haven't -- we've always -- we've had historically viewed them a bit more like OTAs and you have to reach agreements with them on what commission levels, how commissions charged, how -- what rates are used or not used.

And we have historically had some relationship with TMCs but not paid any commission at all. And they -- largely TMCs have used us because their clients might have asked for us rather than because they're promoting us through the TMC into their clients.

And we haven't had to because historically, of course, Tuesdays, Wednesdays and Thursday nights, we were pretty full. And so the peak business travel nights, which would be the ones they would be looking to fill, if you took an example of a hotel on the South Bank, the hotel would be full on those 3 nights.

So why would we need to go into that sort of distribution arrangement?

Now we've -- now that we think that we ought to play in order to broaden the reach in case we have any issues with any structural decline in any part of that white-collar workforce, particularly because it's mainly white collar and TMCs, then we think that this is a good opportunity for incremental access to guests. And there are quite a lot of TMCs in the U.K., so there's quite a lot to individually negotiate and transact with.

And we have done that during the -- taking the opportunity during lockdown to do that so that we'll be ready to go once the market restarts. And we'll -- at that point, we will see then what the size of the opportunity brings, but I haven't got a prediction for that at this stage that I would want to share.

Was that the only question? Was there another question?

Yes, oh, Premier Plus -- I'm sorry, before we move on, you asked the second question about Premier Plus. And yes, historically, the returns profile has been very healthy for Premier Plus Rooms for both business and leisure.

They have had good sales rates, i.e., they tend to sell-out fast, and so they're not the last rooms to be booked because there's nothing else left. And therefore, people are having to pay a higher price because there isn't anything else.

They tend to be the first booked rooms and therefore, are very popular. And they have commanded a price premium of sort of GBP 10 to GBP 20, depending on the location and the night and the situation.

Probably the succinct answer to that.

Okay, and on the rollout in terms of this year and next, have you got any targets in mind?

Yes, we said we've definitely done 500 historically. We gave it pause this year, and then we'll do about 1,500 this year and then review.

Now that we can see that you weren't kidding about getting to #1 in Germany. When you've got to #1, you'll still be a much smaller business, obviously, than Premier Inn in the U.K.

Is that a good business? Or is it obviously a staging post of a bigger business at which you get adequate returns from scale and the benefit of the brand and distribution?

So where is Germany really heading now? Looks like it's a real target.

And second thing, carrying on, on the discussion about travel management companies, could you wind that into a discussion about how you're going to drive either price -- whether you're going to be price-led or occupancy-led during this period of recovery, what are you going to be like as a competitor? You're talking about 5% to 15% discount on travel.

You mentioned 83% of the rooms are in the regions. In a normal year pre-COVID, do you mind going back to what the revenue split would have been regions against London?

And lastly, forgive me, I forgot what you said in the past about Whitbread plans to repay government support. Is it maybe or definitely not?

Okay, there's a bunch of things in there. Let's start with Germany.

Yes, I think it is good to see the acceleration that we've been able to achieve. And the fact, as you know well, I know there isn't really a market leader that's got both the momentum of accelerated growth or the baseline largeness that means that we can't catch and be the #1 in Germany.

So it feels an achievable target and it feels even more achievable now with 30 open hotels and the 42 more in the pipeline. And certainly, from our perspective, it's the tip of the iceberg because you're right, we have 800 hotels in the U.K.

and the German market is bigger, 1/3 bigger than the U.K. market and is still in the early stages of structural independent decline in budget branded growth.

So we just think it's a great market, and it does have sort of quite enormous unlimited market potential over the next couple of decades.

But we think -- I mean, the businesses that we are competing against and Motel One being the closest competitor, similar competitor, they are good business, that's a good business with good returns and a good EBIT profile. And so we would expect to have a good solid business at this size with a good EBIT profile and a good returns profile.

And for that to get better as it gets bigger for us just to get better and better and grow within available option to grow. So we're still very positive about Germany.

We look at each transaction, organic, inorganic and each individual site on its returns merits. Again, with a revised model post-pandemic to make sure that the hurdles that we set are hurdles that we can meet.

And whilst we would have accepted lower returns certainly for our first acquisition in order to get scale, that's certainly not been the case lately. So we've kept the hurdles which give us a good returns profile.

Can you add anything to that, Nicholas?

I guess it's fine.

Can I just ask, if you had access to more capital, and investor confidence, is that a growth time in Germany that could -- there could be a step change in growth? Or are there natural constraints that limit the rate of growth you're currently talking about?

Yes, I mean, we don't feel limited in that there are -- one of the natural constraints is that there aren't any other big businesses. The growth -- the structure of the German market, which doesn't have the big REITs, et cetera, and is an owner occupier market where you sign leases or buy freeholds and build, is naturally a slower growth market.

If you're going to put a spade in the ground, you're going to be waiting 3 years for your hotel to get built. And if you're working with a developer, they can't build it any quicker.

So there are some constraints to the speed of growth. And there are an unlimited supply of acquisition opportunities.

And quite a lot of them are small acquisitions. But like -- we made an acquisition of 3 or 4 hotels last year as well as the Foremost in '19 as well as the Centro in '13.

So the -- they're not big. But we can roll up.

There are roll-up opportunities for sure, and we're not, therefore, feeling constrained.

I'm going to race through your next 3 questions if you don't mind, as I'm just kind of conscious of time. The TMCs, you asked about kind of price-led or occupancy-led, I'm going to give you a really unhelpful answer, but we're kind of occupancy-led where we've got low occupancy and price-led where we've got high occupancy, we're dynamically priced.

So it's -- so if you're looking at the tourist locations over the summer, we're price-led because we know they're going to fill, but if you're looking at Central Manchester, Central London, we're kind of occupancy-led right now overall. So -- and it changes.

You kind of quit 5% to 15% for discount. That's for kind of the corporate business rate that we are able to give.

And that's based on kind of volume businesses overall. So it's not just a straight discount overall.

It's based on kind of how much business each one of them does with us. And of course, it's often over the kind of Monday, Tuesday, Wednesday night, which are the kind of higher-priced nights overall.

The London region split, I think we kind of got 16% of our rooms in London. I think that's about 20% of our revenue in a normal year.

You got to look at it. It's quite different in terms of what's in outer London.

Outer London right now, which is about, let's say, over half of the London portfolio, is behaving much more like the regions at the moment. It's Central London that's kind of tougher at the moment.

And then your last, government -- was about repaying government support. I guess the way we look at this is we're around about the FTSE 70.

But in terms of taxpayer or tax collector for the U.K. government, we're -- I think we tended to be around 35 to 40, the 40th biggest company in terms of taxpayer and tax collector across the business.

So we believe that the government grants that have been given to us have been specific for our sector because we are the hardest hit. We won't be directly paying back the government grants, but we do think the quicker we recover, the quicker we'll be paying back through taxes overall.

And if I could just add to that, I mean, I think we are the perfect company that the government needed and wanted to support. So we've had government support about GBP 270 million, but our shareholders have put in GBP 1 billion in a rights issue.

We have raised finance and a Green Bond program, and we have a suitable appropriate debt maturity position. And we have paid our people and paid our suppliers and even paid our rent bills.

And as we recover -- the reason we are the sweet spot for the government to support, is as we recover, as Nicholas points out, we will revert to paying and collecting a large amount of tax, which will, within a year, would reap more benefit than the support we've had so far. But equally, we're a large employer.

We would anticipate hiring more people. We are probably going to be helpful in the solution to use on employment.

We have the highest number of apprenticeships in the industry. We are helping the investment-led recovery by investing GBP 350 million.

And we are helping the leveling up agenda because we are regional, not just South East based.

And so if you take the sweet spot of all of that together, I think we are absolutely the right company to have been supported. I think having been hit in a sector where you are close through the regulation and are not allowed to open and have no revenue, that level of support has been appropriate for the circumstances, and therefore, no, we don't anticipate repaying it.

I hope that's clear.

We're going to try and finish at half past, if that's okay, so we've probably got room for a couple of more questions.

Three, if I may. Just the first actually following on from what you just said, there's been a couple of press reports around sort of saying that the companies are struggling to sort of rehire their staff coming back after furlough.

I'm just wondering whether you're suffering from any issues there or whether that actually could be a competitive advantage relative to the market? Second question, we've seen some of your competitors, peer companies, talk about greater demand for room technology, mobile phone door entry, controlling the TV, mobile check-in, checkout, et cetera.

Is this something you're investing in? Is this included in the raising CapEx?

Will this be included in the Premier Plus rooms? Anything you're seeing to match demand there?

And then the last one, probably a little bit more prosaic, but the impairments you've made, are any of the projects that aren't going ahead? Are any of those in Germany?

Is that the foremost impairment related to that? And then could you quantify what the underlying positive benefit might be from reduced lease payments, depreciation, et cetera, from taking the impairments this year?

Okay, yes, the short answer on the Germany question is no, we haven't built a pipeline in Germany.

We haven't impaired any open sites.

And we haven't impaired any open sites. So that's quick, but do you want to take the other one?

Yes, yes. So just in terms of the impairment, the largest impairment we've got in our balance sheet is around about the -- is about the Foremost acquisition because of the timing of that.

So there's over GBP 200 million of asset impairment for that impairment. And the other impairment is GBP 100 million is across the rest of our estate and mainly -- all in the U.K.

overall. And there's very little kind of reduction in kind of -- kind of -- it's been over many, many years, Richard.

So in terms of the reduction in rent and depreciation, it's fairly minimal over that time overall.

In terms of your question about greater investments in technology? Yes, the answer is yes, we're continuing to look for way for automation.

We're slightly, I guess, advantaged ahead of the game in terms of most people book online, and that is their check-in, checkout already. We have kiosks in a lot of our large sites already, so we're kind of along the journey in there.

Some of the other things you talked about, key technology is quite large investments to go forward. We'll do that when the time is right, but you're right, we'll continue to move along that journey overall.

And then do you want to talk about staff ability, just hire staff?

Yes, I mean, we're a strong employer, as you know, we've got a strong employment brand. In normal times we have a really low industry level -- attrition level of people, which is very high compared to many of the industries that others operate in because hospitality itself is a very transient industry and has a lot of attrition.

And indeed, many of our competitors could have over 100% attrition a year. So it can be that high.

Where ours in normal circumstances, is more like just below 40% attrition level, which, as said, is very strongly industry leading by a significant margin. And so -- and we have less attrition, obviously, during the pandemic than in a normal situation because people have been furloughed, and so they've stayed with us.

So we've got a good, strong staffing level. We will be hiring and recruiting and even things like temporary seasonal workforce in coastal locations, which we do every year.

So we will be out in the market, we will be hiring. And at the moment, that is going well, and we are taking on apprenticeships for people and taking on new staff and hiring in a sensible way.

We're quite conscious. We've heard some of the market stories that life might be difficult, but there is quite a high unemployment rate also out there at the moment that we are able to tap into higher certainly than we ever thought when we did think we might have some constraints vis-à-vis Brexit and the European labor pool shrinking.

So at the moment, all is well, but we keep a close eye on it, and we are out in the market but successfully hiring new staff.

Two very short questions, in fact. First one is about Germany.

We know that -- I know that we've talked a lot about it this morning, but just wanted to have a rough idea of the critical size you have in mind in this country, considering that you've got close to 70 hotels between the existing one and in the pipe. What is your view on the midterm critical size?

Second question on CapEx. You are investing more than expected this year, but what is the kind of level for the recurring years to come you're expecting?

Okay, so I mean in Germany, from German size perspective, we're really pleased with having made the leap this year to get into multiple cities. The important thing in terms of the building what I'd call a platform business, which means being able to market in-country because it is German domestic business and leisure guests that we are interested in marketing to.

We're not interested in Australians or Chinese people visiting Germany. It's the German domestic business and leisure traveler, and all of the things that Premier Inn brings like its direct distribution, like its business-to-business platforms, all operating.

And for that, you need to be in multiple cities.

There's no point asking BMW to have an automatic booking system with you if you're only in 3 -- in Munich, Frankfurt and Hamburg. So the platform is really important that it is varied in terms of cities, and that's what we've started to see now that when we reopen our rebranded hotels that we've now acquired and 30 hotels reopen, that will give us a presence in a large number of German cities.

And we've got another 42 in the pipeline, but they come onstream over the next 2 to 3 years. So we would be expecting to top-up both the pipeline and if possible, any more instant opening of hotels, which would be inorganic acquisition, to grow that platform as strongly and as rapidly as we can.

And in terms of the long term, I mean, the size of the market is bigger than the U.K., more fragmented than the U.K. and we do think we ought to be able to replicate our success.

Although at the moment, we have a midterm target of 60,000 rooms in Germany as our sort of -- as our network plan in terms of how we work around that. So that's our aspiration for Germany.

And capital, you're right, spent GBP 230 million last year, GBP 250 million this year. And that's -- lot of that as we discussed is on opening space in Germany and in the U.K.

as well. Kind of historically, we've kind of spent around GBP 400 million, GBP 450 million.

It can be quite lumpy depending on the freehold/leasehold mix that you've got at the moment. It's more leasehold, just due to where the price of freehold properties is.

But we'll kind of get back towards the kind of GBP 400 million, hopefully, but we will kind of monitor that as we see how the market recovers.

I think that is finished questions. So that was a really long session.

I thank you all for all of your questions. And if you need anything else, don't hesitate to contact us.

And have a good day, everybody.

Yes, thank you, everyone.

Yes, thanks very much.