Final Results

Whitbread PLC 05 May 2004 Embargoed until 7am - 5th May, 2004 Whitbread Preliminary Results for the financial year to March 4, 2004 Continued double-digit earnings growth 2003/4 change Divisional turnover (excluding business disposals) (Â£m)* 1866 +4.8% Profit before exceptional items, goodwill amortisation and tax 249.2 +12% (Â£m)+ Profit before exceptional items and tax (Â£m) 240.8 +13% Adjusted basic earnings per share (pence) 58.22 +10% Dividend per share (pence) 22.30 +12% Net cash inflow before financing (Â£m) 137 Return on capital employed (%) 10.1 +0.7% point * Divisional turnover excludes Pelican high street restaurants business disposed of in 2002/3 (see note 2 to the accounts) + After adding back goodwill amortization of Â£8.4m (see note 2 to the accounts) Sir John Banham, chairman, said: 'This has been another strong year for Whitbread. Continuing businesses have now achieved double-digit earnings growth for six reporting periods in succession. 'Comparable divisional turnover increased by 4.8% to Â£1866m despite the disposal of Swallow hotels and a number of pub restaurants. Profit before tax and exceptional items increased by 13%, to Â£240.8 million as a result of the organic development of our brands, a 2.7% improvement in like-for-like sales and rigorous cost controls. Group margin increased from 14.0% to 14.8%. 'We achieved exceptional growth in operating profits from our restaurants, up 14%; Travel Inn, up 11%; and David Lloyd Leisure, up 12%. Marriott, however, continued to feel the effects of weak demand in the four-star hotel sector. 'Across the group, return on capital employed now exceeds 10% after a further 0.7% point rise. 'The cash position was again healthy with a net inflow of Â£137m helped by Â£112m of disposal proceeds. Net debt decreased to Â£793m and with gearing of 38% the balance sheet remains strong. 'Capital expenditure totalled Â£230m. Of this, Â£96m was expansionary capital expenditure, invested in new sites, mainly for Travel Inn, Brewers Fayre, Brewsters and David Lloyd Leisure. Current trading For the first seven weeks of the new financial year (to 22 April 2004), like-for-like sales growth was as follows: Marriott 2.3% Travel Inn 4.9% Pub restaurants 2.4% High street restaurants 4.7% David Lloyd leisure* 5.8% * 5 weeks Like-for-like sales growth for the group as a whole was 3.5%. The timing of the Easter holiday affects year-on-year analysis. We will provide a further trading update at the Annual General Meeting on 15th June. Outlook 'The popularity of Whitbread's brands has never been greater. Projections for the UK economy, consumer confidence and our major markets are positive. The board expects further progress in the current financial year in terms of trading performance, organic growth and the more efficient use of shareholders' assets. Dividend 'The board's confidence in the organic growth prospects for the group is reflected in the final dividend payment of 16.15p per share. This makes a total dividend for the year of 22.30p, which is an increase of 12%. It will be paid on 16th July 2004 to shareholders on the register at the close of business on 14th May 2004.' Copies of the report and accounts and/or the summary report will be sent to shareholders on May 14th, 2004 and will be available to the public on the Whitbread website www.whitbread.co.uk or from Simon Barratt, company secretary, Whitbread PLC, CityPoint, One Ropemaker Street, London EC2Y 9HX. For further information please contact:- David Reed - Whitbread 020 7806 5436 Dan Waugh - Whitbread 020 7806 5442 Eric Dodd - Whitbread 020 7806 5429 Julie Weldon - Whitbread 020 7806 5443 Andrew Grant - Tulchan Communications 020 7353 4200 (Pictures available to press at www.newscast.co.uk -020 7608 1000) (A presentation for analysts will be held at Deutsche Bank, Winchester House, 1 Great Winchester Street, London EC2N 2DB. Registration from 9.00am, presentation at 9.30am. A live webcast of the presentation will be available on the website at : www.whitbread.co.uk Alternatively, you can listen to the presentation by dialling: +44 (0)207 784 1004. The conference call will be available as a replay for one week. To listen dial +44 (0)207 784 1024 and use the pass code 728994#. Chief executive's review David Thomas, chief executive, said: 'As my final full year with Whitbread, the last 12 months have had special personal significance, but more importantly they mark a pivotal point in the company's evolution. 'In an environment of rising business costs (notably labour and insurance) we have had to work hard to improve margins across the group. And by focusing on growing sales on a like-for-like basis we have been able to drive our return on capital employed above 10%. 'Both Travel Inn and David Lloyd Leisure have recorded impressive growth in sales and profits and have pushed ahead on return on capital employed. 'There is a renewed optimism around Beefeater, a brand that this year celebrates its 30th birthday. We have a new format for the brand that is showing real promise, while the overall improvement in the profitability of our pub restaurants is a highlight. 'And by chalking up a 33% increase in profits, our high street restaurants business has now exceeded its targeted level of 25% return on capital employed. 'While Marriott's profit per room performance continues to improve in relative terms against the sector, we recognise the need to generate better value from the shareholder funds currently invested in the brand. 'The company I leave is very different from the one that I took on as chief executive in 1997. Whitbread is a more focused business: each of our brands has a strong claim to UK leadership; and the underlying prospects for further organic growth in each of their market segments - including four-star hotels - are strong. 'I should like to express my thanks to everyone at Whitbread for making possible these first-rate results. It is their dedication to serving our customers that separates Whitbread brands from the competition.' 2003/2004 Change Marriott Sales Â£391m (0.3)% Like-for-like sales (0.2)% Operating profit* Â£71.5m (10)% Return on capital employed* 6.2% (0.3)% point *before goodwill amortization of Â£8.0m Marriott has delivered another gritty performance in a market that remains tough. Operating profit has fallen and we have seen further erosion in return on capital employed, but we have performed better on profit per room than our peer group average. Occupancy has edged ahead to 71.5% and I take heart from a gradual return to like-for-like sales growth since the half-year. The disposal of a number of Swallow hotels in the second-half has reduced capital intensity; reviewing the capital structure within Marriott is a focus for 2004/5. We are exploring new ways of developing the Marriott brand without the use of significant amounts of shareholder funds. Our agreement with Royal Bank of Scotland to manage its Victoria & Albert Hotel in Manchester, under the Marriott name, is a good example of this approach. Travel Inn 2003/2004 Change Sales Â£230m 12% Like-for-like sales 3.6% Operating profit Â£74.0m 11% Return on capital employed 13.6% 1.0% point It has been another good year for Britain's most popular hotel brand: a year of strong sales; and a year of double-digit profit growth. Occupancy dipped in the first six months as our London properties suffered from broad market pressure; but after a steady second-half we finished the year at 80.2%. The impact of price changes and the increased proportion of rooms in Metro and Capital units pushed achieved room rate up 3.8% and helped to raise room yield from Â£32.95 to Â£33.28. The addition of more than 1,000 bedrooms on large leasehold sites led to a slight decline in operating margin; but return on capital employed has powered ahead to 13.6%. We maintain progress towards our medium-term target of 25,000 bedrooms. Having added more than 1,500 over the last 12 months we have ended the year with 18,173 bedrooms under the Travel Inn brand. Pub restaurants 2003/2004 Change Sales Â£590m 1.3% Like-for-like sales 2.2% Operating profit Â£84.1m 9.8% Return on capital employed 11.5% 1.6% points A near ten per cent rise in operating profit is a considerable achievement in a year when disposals totalled more than 50 outlets, against 13 new openings. We have made major gains in return on capital employed and we have a higher quality estate of pub restaurants than we had 12 months ago. We have a new format for our Beefeater brand in 24 outlets that are now delivering stronger sales, profits and returns; and we intend to roll this out to another 40 Beefeaters in 2004/5. Following the disposal of tail sites we are also seeing sales and margin improvement across the Beefeater estate as a whole. Brewers Fayre / Brewsters has strengthened margins and return on capital employed, but there is work to do in broadening the appeal of Brewsters to drive sales from adult diners. High street restaurants 2003/2004 Change Sales* Â£453m 8.4% Like-for-like sales 3.1% Operating profit* Â£28.5m 33% Return on capital employed 25.3% 6.1% points *excluding restaurant brands disposed of in 2002/3 (see note 2 to the accounts) Our high street restaurants continue to drive significant improvement in sales, operating profit and return on capital employed. Raising returns by more than 10% points in just two years has taken this business past its 25% target. Pizza Hut has once again performed well against key measures, and has paid to Whitbread a cash dividend for the year of Â£9.5m. Costa has had another year of strong profit growth and is making good progress through franchising overseas. T.G.I. Friday's continues to make progress in converting exceptionally strong sales per unit to bottom line growth. David Lloyd Leisure 2003/2004 Change Sales Â£202m 10% Like-for-like sales 5.2% Operating profit* Â£49.1m 12% Return on capital employed* 9.5% 0.3% point *before goodwill amortization of Â£0.4m David Lloyd Leisure continues to improve against all key performance criteria, with turnover, like-for-like sales, operating profit and return on capital employed all moving ahead. In the last three years, operating profit in the UK and Ireland has grown by 80% while the number of clubs has climbed from 44 to 56. Membership of David Lloyd Leisure clubs in the UK and Ireland now stands at 321,000. A reinvigorated approach to new club development gives us a strong platform for growth: in February we opened our 56th club, at Oxford; we have begun construction of a new club at Worthing, West Sussex; and we have local planning approval for sites in Aberdeen, Glasgow, Southend-on-Sea and Farnham, Surrey. The brand has taken its first steps into mainland Europe: acquiring five health clubs (with total membership of 20,000) and two development sites in the Netherlands from Cannons; developing a club in Barcelona, Spain; and preparing to open in Brussels, Belgium in the current financial year. Return on capital employed across the brand as a whole (including operations in mainland Europe) stands at 9.5%, while margin has edged ahead by 0.4% points to 24.1%. Member retention remains strong at 73%. We continue to drive considerable improvement out of our mature clubs. Overall performance is set to improve further as a higher proportion of our estate reaches mature levels of return. Britannia Soft Drinks Currently, Whitbread owns 23.75% of Britannia Soft Drinks Limited. In March 2004 an exclusive bottling agreement was entered into with PepsiCo. This has created an opportunity for a public listing for Britannia Soft Drinks as described in the Finance Director's Review. Britannia Soft Drinks enjoyed strong trading, increasing profits by 28%, and has paid to Whitbread a cash dividend for the year of Â£11.6m. FINANCE DIRECTOR'S REVIEW These financial statements show the benefit of the group's focus on: achieving sales, profit and margin growth from existing businesses; improving return on capital employed; and cash generation. Unlike previous years, the figures are no longer impacted by the demerger of Pubs and Bars or major business disposals. Operating profit, profit margin and return on capital employed figures referred to in this review are stated before exceptional items (see note 3 to the accounts). Like-for-like sales figures exclude sales of outlets first opened or disposed of during 2002/3 or 2003/4. Year end date The company is in the process of implementing a group-wide enterprise resource planning (ERP) system. This implementation has enabled all subsidiaries to conform to a common 'end of week' day. Our year-end is now the Thursday nearest to 1st March, a formula that gives 4th March for 2004 and 3rd March for 2005. Accounting polices As explained in note 1 to the accounts, the Urgent Issues Task Force (UITF) abstracts 17 - as amended (Employee Share Schemes) and 38 (Accounting for ESOP trusts) were adopted in the year. The comparative figures have been restated to comply with these extracts although the changes are not material. All the other accounting policies adopted in preparing these accounts are consistent with those used in the previous year. Turnover Turnover grew by 2.7% on a like-for-like basis. Comparable divisional turnover grew by 4.8%. Headline reported turnover was up by 0.6%. Last year's figure included sales of the Pelican high street business up to 31 May 2002 and sales for the full year of the residual beer production activity, which ceased in April 2003. Operating profit Operating profit grew by 6.7%. Marriott's profit was constrained by the depressed four-star hotel market. All other divisions recorded strong profit growth. Profit margin increased from 14.0% to 14.8%, while return on capital employed increased from 9.4% to 10.1%. Once again these improvements reflect the continued focus on cost control and asset management. Exceptional items Exceptional costs before interest and tax amounted to Â£25.8 million. This amount is analysed in note 3 to the accounts. The impairment charge of Â£15.5m represents the diminution in the values of four Marriott branded hotels and one site held for development. The net loss of Â£10.3 million on the disposal of fixed assets relates primarily to book losses on the sales of pub restaurants and the Swallow hotels. These amounts are all non-cash items. Interest The net interest charge before exceptional costs declined by Â£8.8 million to Â£52.2 million as a result of a lower level of net debt and lower interest rates. Net interest, before exceptional costs, was covered 5.6 times by operating profit. Â£3.3 million of the interest charge for the period relates to financing costs associated with the realisation of tax losses not previously recognised in the accounts. These costs have been treated as exceptional, in line with the treatment of the associated tax credit. Tax The charge of Â£77.1 million against profit before exceptional items represents a rate of 32.0%. The factors affecting the tax charge are explained in note 5 to the accounts. The exceptional tax credit of Â£30.2 million reflects: the realisation of tax losses not previously recognised; deferred tax relating to the charge for impairment and the sale of the Swallow hotels; and a repayment of tax to the Swallow companies relating to periods prior to their acquisition by Whitbread. Shareholder return Basic earnings per share (EPS) were 55.74 pence, while adjusted basic EPS was 58.22 pence - an increase of 10% year-on-year. Adjusted basic EPS excludes exceptional items and goodwill amortisation. The total dividend for the year of 22.30 pence per share represents an increase of 12%. The dividend payment is 40% of post-tax earnings before exceptional items (cover of 2.5 times). The final dividend of 16.15 pence per share will be paid on 16 July 2004 to all shareholders on the register at the close of business on 14 May 2004. The company's share price opened the financial year at 521 pence and closed it at 740 pence. Net asset value per share increased over the year from 668 pence to 703 pence. The last revaluation of the group's properties was carried out in 1998/9. Consequently Â£1.8 billion of tangible fixed assets are carried at cost. Capital expenditure Â£230 million was invested in property and plant, including the business acquisition of five health clubs and two development sites in the Netherlands, compared with Â£218 million last year. Of this amount, Â£96 million (2002/3 - Â£114 million) related to the acquisition and development of new sites. This is lower than we had intended, particularly in David Lloyd Leisure and Travel Inn. However, the development programmes for these brands have now been reinvigorated. Other expenditure includes Â£17 million on acquiring and implementing a group-wide enterprise resource planning (ERP) system. Capital expenditure (Â£m) 2003/4 2002/3 Hotels - Marriott 41 27 - Travel Inn 37 65 Restaurants - Pub restaurants 60 47 - High street restaurants 16 15 Sports, health and fitness 59* 54 Other 17 10 _______________________ 230* 218 * including Â£21m to acquire the Cannons health club business in the Netherlands The current forecast is for capital expenditure in the range of Â£250-275 million in 2004/5. The majority of expansionary capital expenditure will be directed at developing new Travel Inns and David Lloyd Leisure clubs. Cash flow The net cash inflow before use of liquid resources and financing was Â£137 million. This compares with a net inflow of Â£39 million for 2002/3. The underlying cash inflow (after adjusting for business acquisitions and disposals, the cost of acquiring and developing new sites and the disposal of hotels and restaurants) was Â£122 million (2002/3 - Â£101m). The decline in tax paid reflects the cash impact of the exceptional tax credits of the last two years. The increase in the proceeds from sales of property and plant, up from Â£29 million to Â£112 million, reflects the sales of the Swallow hotels and pub restaurants referred to earlier. We are considering ways to improve the return on capital employed of our Marriott business and whether the level of capital commitment is in the best interests of shareholders in the current, strained market conditions for four-star hotels. Pensions The pensions charge to the profit and loss account continues to be based on SSAP24. The charge reflects the 2002 triennial valuation of our defined benefit schemes, which resulted in deficits on the funds of Â£64 million. The schemes were closed to new members on 31 December 2001. The third stage of the FRS17 (Retirement Benefits) transitional arrangements has been adopted. At the end of 2002/3, there was an FRS17 pension fund deficit of Â£420 million. The net deficit, after tax, was Â£294 million. At the end of 2003 /4, the net deficit had fallen to Â£256 million. It should be noted that the FRS17 calculations are susceptible to changes in interest rates on the value of liabilities and to short term movements in equity values. In line with our aim to be the 'Employer of Choice', the board announced in April 2003 that the company had signed an agreement with Whitbread Pension Trustees Limited. Under that agreement, the company has undertaken to fund the pension scheme for a period of up to 15 years and has given undertakings to the trustees similar to some of the covenants provided in respect of its banking agreements. The company's liability under these undertakings is capped at Â£300m. As a consequence of this agreement, payments are being made into the fund for each of three years, starting in 2003/4, at a rate of Â£15 million above the anticipated SSAP 24 charge. There will be no change to the charge to the profit and loss account, as a consequence of this agreement, before the next triennial valuation in March 2005. Financial position Net debt at the year end amounted to Â£793 million, resulting in a balance sheet gearing ratio of 38%. Net interest was covered 5.6 times by operating profit before exceptional items. At the year end, Â£523 million of the committed credit facilities were unused. In March 2004 a Â£475 million committed credit facility, which expires in April 2005, was reduced by Â£200 million. Going concern The directors have a reasonable expectation that the company has adequate resources to continue operating for the foreseeable future. For this reason, the going concern basis continues to be adopted in preparing the accounts. Financial risks and treasury policies The main financial risks faced by the group relate to: the availability of funds to meet business needs; fluctuations in interest rates; and the risk of default by a counterparty in a financial transaction. The Treasury Committee, which is chaired by the finance director, reviews and monitors the treasury function. The undertaking of financial transactions of a speculative nature is not permitted. The group finances its operations by a combination of internally-generated cash flow, bank borrowings and long-term debt market issues. The group seeks to achieve a spread in the maturity of its debts. Interest rate swaps and interest rate caps are used to achieve the desired mix of fixed and floating rate debt. The group's policy is to fix or cap a proportion of projected net interest costs over the next five years. This policy reduces the group's exposure to the consequences of interest rate fluctuations. Interest rate risk management At the year-end, Â£422 million (57%) of group net sterling debt was fixed for a weighted average of 7.5 years, using fixed rate borrowings and interest rate swaps. The average rate of interest on this fixed rate sterling debt was 6.8%. Based on the group's net debt position at the year end, a 1% change in interest rates would affect costs by approximately Â£4 million, or around 1.5% of the 2003 /4 operating profit before exceptional items. Foreign currency risk management At the year-end, foreign currency borrowings amounted to Â£72 million. These borrowings provide a partial hedge against overseas investments. Transaction exposures resulting from purchases in foreign currencies are normally hedged by forward foreign currency transactions and currency options. International Accounting Standards Whitbread will be required to adopt International Accounting Standards (IAS) when preparing its group accounts for 2005/6. In preparation for this, all existing IAS's have been reviewed in detail so as to assess their likely impact on our reported figures and the actions required to collect the necessary data. Progress and clarity to date has been hindered because most of the key standards have only recently been finalised. Consequently, while it has been possible to reach some high level conclusions, more time is needed to complete calculations and have these reviewed by our auditors. This activity has now commenced with a view to agreeing the opening adjustments for IAS reporting before the end of 2004/5. We intend to publish these adjustments, with supporting narrative, well before we present our first IAS figures, which will be for our 2005/6 interims. We are aiming to start collecting data on a dual basis (UK GAAP and IAS) with effect from the second half of 2004/5. Adoption of IAS, with its focus on the balance sheet and the incorporation of fair value accounting, will increase the volatility of reported profits. The main causes of this increased volatility will be: â€¢ the requirement to account for the surplus or deficit on our pension fund in our balance sheet and the fact that the values of the assets and liabilities of the fund will be based on market values at the balance sheet date; and â€¢ the requirement to incorporate the market values of financial derivatives into our balance sheet. Where such derivatives can be demonstrated to have operated as an effective hedge against all or part of certain underlying financial instruments (which would normally be their intended purpose), the value of those instruments will also be adjusted in the balance sheet. The year on year movements in the market values of pension fund assets and liabilities and certain unhedged financial derivatives will be reported in the income statement (the IAS equivalent of the current profit and loss account and statement of total of recognised gains and losses). Our opening IAS balance sheet will also be impacted by the requirement to account for deferred tax on gains on sales of property rolled over into new assets and on previously reported gains on the revaluation of properties. Britannia Soft Drinks In March 2004, we announced that the existing shareholders in Britannia Soft Drinks Limited (BSD) had signed an agreement with PepsiCo that creates an opportunity to undertake an initial public offering (IPO) of BSD. In conjunction with the other shareholders we will determine the best time to realise this opportunity but it is unlikely to be before our year 2005/6. Whitbread has a 23.75% shareholding in BSD. Group profit and loss account Year Ended 4 March 2004 Notes 2003/4 Before exceptional Exceptional items items (note 3) Total Â£m Â£m Â£m Turnover Group and share of joint ventures 1,977.4 - 1,977.4 Less share of joint ventures' turnover (189.2) - (189.2) ------------------ ------------------ ------------------ Group turnover - continuing operations 2 1,788.2 - 1,788.2 ================== ================== ================== Group operating profit 252.0 (15.5) 236.5 Share of operating profit in: Joint ventures 18.6 - 18.6 Associates 22.4 - 22.4 ------------------ ------------------ ------------------ Operating profit of the group, joint ventures and associates - continuing operations 2 293.0 (15.5) 277.5 Non-operating items - continuing operations Net profit/(loss) on disposal of fixed assets Group excluding joint ventures and associates - (10.8) (10.8) Joint ventures - 0.4 0.4 Associates - 0.1 0.1 Net loss on the disposal of businesses - - - ------------------ ------------------ ------------------ Profit/(loss) before interest 293.0 (25.8) 267.2 Interest 4 (52.2) (3.3) (55.5) ------------------ ------------------ ------------------ Profit/(loss) before tax 240.8 (29.1) 211.7 Tax 5 (77.1) 30.2 (46.9) ------------------ ------------------ ------------------ Profit after tax 163.7 1.1 164.8 Equity minority interests (0.1) - (0.1) Non-equity minority interests (0.2) - (0.2) ------------------ ------------------ ------------------ Profit earned for ordinary shareholders 163.4 1.1 164.5 Ordinary dividends (65.5) - (65.5) ------------------ ------------------ ------------------ Retained profit for the year 97.9 1.1 99.0 ================== ================== ================== Earnings per share (pence) 6 Basic 55.74 Adjusted basic 58.22 Diluted 55.39 Adjusted diluted 57.85 Dividends per share (pence) Interim 6.15 Proposed final 16.15 Group profit and loss account (continued) Year ended 4 March 2004 Notes 2002/3 (restated) Before exceptional Exceptional items items (note 3) Total Â£m Â£m Â£m Turnover Group and share of joint ventures 1,965.1 - 1,965.1 Less share of joint ventures' turnover (171.0) - (171.0) ------------------ ------------------ ------------------ Group turnover - continuing operations 2 1,794.1 - 1,794.1 ================== ================== ================== Group operating profit 241.7 (5.0) 236.7 Share of operating profit in: Joint ventures 15.1 - 15.1 Associates 17.8 - 17.8 ------------------ ------------------ ------------------ Operating profit of the group, joint ventures and associates - continuing operations 2 274.6 (5.0) 269.6 Non-operating items - continuing operations Net profit/(loss) on disposal of fixed assets Group excluding joint ventures and associates - 0.8 0.8 Joint ventures - 0.5 0.5 Associates - 0.3 0.3 Net loss on the disposal of businesses - (7.8) (7.8) ------------------ ------------------ ------------------ Profit/(loss) before interest 274.6 (11.2) 263.4 Interest 4 (61.0) - (61.0) ------------------ ------------------ ------------------ Profit/(loss) before tax 213.6 (11.2) 202.4 Tax 5 (66.4) 16.4 (50.0) ------------------ ------------------ ------------------ Profit after tax 147.2 5.2 152.4 Equity minority interests (0.2) - (0.2) Non-equity minority interests (0.2) - (0.2) ------------------ ------------------ ------------------ Profit earned for ordinary shareholders 146.8 5.2 152.0 Ordinary dividends (58.7) - (58.7) ------------------ ------------------ ------------------ Retained profit for the year 88.1 5.2 93.3 ================== ================== ================== Earnings per share (pence) 6 Basic 51.64 Adjusted basic 52.72 Diluted 51.46 Adjusted diluted 52.54 Dividends per share (pence) Interim 5.57 Proposed final 14.30 Group statement of total recognised gains and losses Year ended 4 March 2004 2002/3 2003/4 (restated) Â£m Â£m Profit earned for ordinary shareholders Group excluding joint ventures and associates 137.1 139.0 Joint ventures 12.1 6.6 Associates 15.3 6.4 ----------- ----------- Group including joint ventures and associates 164.5 152.0 Currency translation differences on net foreign investment (0.7) 0.2 ----------- ----------- 163.8 152.2 Prior year adjustment arising from the adoption of UITF abstracts 17 (as amended) and 38 (note 1) (6.7) ----------- ----------- Total gains and losses recognised since previous year end 157.1 152.2 =========== =========== Group cash flow statement Year ended 4 March 2004 Notes 2003/4 2002/3 Â£m Â£m Â£m Â£m Cash flow from operating activities 9 382.9 355.2 Dividends received Joint ventures 9.5 - Associates 11.9 13.3 Returns on investments and servicing of finance Interest received 1.5 1.2 Interest paid (57.3) (64.0) Debt issue costs - (0.6) ----------- ----------- Net cash outflow from returns on investments and servicing of finance (55.8) (63.4) Tax UK Corporation Tax paid (28.0) (49.6) Capital expenditure and financial investment Property and plant purchased (209.0) (218.3) Investments purchased and loans advanced (5.3) (0.9) Property and plant sold 112.3 29.4 Investments sold and loans realised - 4.1 ----------- ----------- Net cash outflow from capital expenditure and financial investment (102.0) (185.7) Acquisitions and disposals Businesses acquired 10 (20.6) - Businesses sold - 23.1 ----------- ----------- Net cash inflow/(outflow) from acquisitions and disposals (20.6) 23.1 Equity dividends paid (60.4) (53.9) ----------- ----------- Net cash inflow before use of liquid resources and financing 137.5 39.0 Management of liquid resources Net movement on short term securities and bank deposits 11 5.3 3.9 Financing Minority dividends (0.2) (0.2) Issue of shares 6.9 1.3 Net movement on short term bank borrowings 11 7.7 (3.3) Loan capital issued 11 22.7 78.3 Loan capital repaid * 11 (174.0) (109.3) ----------- ----------- Net cash outflow from financing (136.9) (33.2) ----------- ----------- Increase in cash 11 5.9 9.7 =========== =========== * The net of receipts and payments on revolving credits is included in loan capital repaid. Group balance sheet 4 March 2004 Notes 2003 2004 (restated) Â£m Â£m Fixed assets Intangible assets 147.6 141.5 Tangible assets 2,989.7 3,045.1 Investments In joint ventures - Share of joint ventures' gross assets 90.1 78.1 - Share of joint ventures' gross liabilities (47.2) (37.7) - Loans to joint ventures 1.8 1.8 ----------- ----------- 44.7 42.2 In associates 65.3 56.7 Other investments 3.7 0.3 ----------- ----------- 3,251.0 3,285.8 ----------- ----------- Current assets and liabilities Stocks 24.4 23.9 Debtors - amounts falling due within one year 7 105.2 95.2 Debtors - amounts falling due after more than one year 7 56.5 35.9 Cash at bank and in hand 68.8 75.4 ----------- ----------- 254.9 230.4 Creditors - amounts falling due within one year 8 (420.2) (474.4) ----------- ----------- Net current liabilities (165.3) (244.0) ----------- ----------- Total assets less current liabilities 3,085.7 3,041.8 Creditors - amounts falling due after more than one year Loan capital (807.5) (879.8) Provisions for liabilities and charges (179.8) (178.1) ----------- ----------- 2,098.4 1,983.9 =========== =========== Capital and reserves Called up share capital 148.7 148.0 Share premium account 13.5 7.3 Revaluation reserve 124.5 134.5 Other reserves (1,816.2) (1,825.4) Profit and loss account 3,621.1 3,512.8 ----------- ----------- Shareholders' funds 12 2,091.6 1,977.2 Equity minority interests 3.7 3.6 Non-equity minority interests 3.1 3.1 ----------- ----------- 2,098.4 1,983.9 =========== =========== Notes to the accounts 1. Changes to accounting policies The Urgent Issues Task Force abstracts 17 - as amended (Employee share schemes) and 38 (Accounting for ESOP trusts) have been adopted in the current year. The comparatives have been restated to comply with these abstracts. Operating profit has been reduced by Â£1.2m (2002/3 - Â£0.4m) as a consequence of changes in the basis of calculating the charges to the profit and loss account and the timing of their recognition. Other investments and reserves have been reduced by Â£6.7m (2003 - Â£6.7m) as a result of these changes and the requirement to deduct the cost of the Whitbread shares held to satisfy share based payments from reserves. The company has taken advantage of the exemption in UITF 17 - as amended and has not applied the abstract to Inland Revenue approved SAYE option schemes. Although the third stage of the FRS 17 (Retirement Benefits) transitional arrangements has been adopted there have been no changes to the reported figures which continue to be prepared on the basis of SSAP 24. 2. Segmental analysis of turnover, profit and net assets Year ended 4 March 2004 Turnover EBITDA (S) Operating profit # Net assets By business segment Â£m Â£m Â£m Â£m Marriott brands 390.9 107.0 63.5 1,157.8 Travel Inn 229.8 93.0 74.0 544.8 ----------- ----------- ----------- ----------- Total hotels 620.7 200.0 137.5 1,702.6 ----------- ----------- ----------- ----------- Pub Restaurants 590.4 113.2 84.1 733.5 High St Restaurants - retained 453.3 42.7 28.5 112.8 ----------- ----------- ----------- ----------- Total restaurants 1,043.7 155.9 112.6 846.3 ----------- ----------- ----------- ----------- David Lloyd Leisure 201.8 69.5 48.7 515.0 Developing business - (1.3) (1.3) (0.3) ----------- ----------- ----------- ----------- Total sports, health and fitness 201.8 68.2 47.4 514.7 ----------- ----------- ----------- ----------- 1,866.2 424.1 297.5 3,063.6 Beer and Other Drinks 10.1 21.5 21.5 55.1 Inter-segment turnover (see note below) (2.8) Central Costs 103.9 (24.7) (26.0) (227.7) Exceptional items (note 3) - (15.5) ----------- ----------- ----------- ----------- Group including joint ventures and associates 1,977.4 420.9 277.5 2,891.0 Share of joint ventures (189.2) (18.6) (18.6) (44.7) Share of associates (22.4) (22.4) (65.3) ----------- ----------- ----------- ----------- Group excluding joint ventures and associates 1,788.2 379.9 236.5 2,781.0 =========== =========== =========== =========== By geographical segment United Kingdom 1,898.8 413.6 274.0 2,819.1 Rest of the world 78.6 7.3 3.5 71.9 ----------- ----------- ----------- ----------- Group including joint ventures and associates 1,977.4 420.9 277.5 2,891.0 =========== =========== =========== =========== 2. Segmental analysis of turnover, profit and net assets (continued) Year ended 1 March 2003 (restated) Operating Turnover EBITDA (S) profit # Net assets By business segment Â£m Â£m Â£m Â£m Marriott brands 391.9 113.1 71.6 1,225.2 Travel Inn 204.3 83.9 66.7 529.4 ----------- ----------- ----------- ----------- Total hotels 596.2 197.0 138.3 1,754.6 ----------- ----------- ----------- ----------- Pub Restaurants 582.9 106.4 76.6 771.0 High St Rests. - retained 418.0 36.8 21.4 111.9 High St Rests. - disposed of 23.3 1.4 0.7 - ----------- ----------- ----------- ----------- Total restaurants 1,024.2 144.6 98.7 882.9 ----------- ----------- ----------- ----------- David Lloyd Leisure 183.0 63.2 43.3 476.5 Developing business - - - - ----------- ----------- ----------- ----------- Total sports, health and fitness 183.0 63.2 43.3 476.5 ----------- ----------- ----------- ----------- 1,803.4 404.8 280.3 3,114.0 Beer and Other Drinks 65.9 16.6 16.6 49.0 Inter-segment turnover (see note below) (2.5) Central Costs 98.3 (20.8) (22.3) (238.5) Exceptional items (note 3) (5.0) (5.0) ----------- ----------- ----------- ----------- Group including joint ventures and associates 1,965.1 395.6 269.6 2,924.5 Share of joint ventures (171.0) (15.1) (15.1) (42.2) Share of associates (17.8) (17.8) (56.7) ----------- ----------- ----------- ----------- Group excluding joint ventures and associates 1,794.1 362.7 236.7 2,825.6 =========== =========== =========== =========== By geographical segment United Kingdom 1,894.7 388.1 265.7 2,882.2 Rest of the world 70.4 7.5 3.9 42.3 ----------- ----------- ----------- ----------- Group including joint ventures and associates 1,965.1 395.6 269.6 2,924.5 =========== =========== =========== =========== (S) EBITDA is earnings before interest, tax, depreciation and amortisation. # Operating profit is stated after charging the amortisation of goodwill as follows: 2003/4 2002/3 Â£m Â£m Marriott brands 8.0 8.0 David Lloyd Leisure 0.4 0.4 ----------- ----------- Following the sale of the Whitbread Beer Company there remained a continuing activity within the Beer segment. This ceased on 15 April 2003. Segmental turnover includes the group's share of joint venture turnover as follows: 2003/4 2002/3 Â£m Â£m Travel Inn 3.6 2.8 High Street Restaurants 185.6 168.2 ----------- ----------- 189.2 171.0 =========== =========== Inter-segment turnover was from High Street Restaurants to the other segments. Central Costs turnover comprises, primarily, food distribution services provided to a joint venture. The geographical analysis of turnover and profit is by source. The analysis of turnover by destination was not materially different. Sales between geographical segments were not material. Net assets included above are total net assets excluding net debt. The exceptional costs included in operating profit are detailed in note 3. The analysis is as follows: 2003/4 2002/3 Â£m Â£m Marriott brands 15.5 - David Lloyd Leisure - 5.0 ----------- ----------- 15.5 5.0 =========== =========== 3. Exceptional items 2003/4 2002/3 Â£m Â£m Operating items Onerous contract on non-trading leasehold property - (5.0) Impairment of property (4.4) - Impairment of goodwill (11.1) - ----------- ----------- Charged against operating profit (15.5) (5.0) Non-operating items Net profit/(loss) on disposal of fixed assets: Group excluding joint ventures and associates (10.8) 0.8 Joint ventures 0.4 0.5 Associates 0.1 0.3 Net loss on the disposal of businesses - (7.8) ----------- ----------- (25.8) (11.2) Exceptional financing costs (note 4) (3.3) - Exceptional current UK tax adjustment (note 5) 26.5 16.4 Deferred tax on exceptional items (note 5) 3.7 - ----------- ----------- 1.1 5.2 =========== =========== The impairment of goodwill and the impairment of property relates to five properties within Marriott brands. The impairment was calculated by reference to estimated net realisable value. The net loss of Â£10.8m on the disposal of fixed assets for the group excluding joint ventures and associates relates primarily to book losses on the sales of pub restaurants and the Swallow hotels. The 2002/3 Â£5.0m onerous contract provision relates to a site which is not being developed. 4. Interest 2003/4 2002/3 Â£m Â£m Interest payable and similar charges 53.1 63.0 Interest receivable (1.4) (1.2) Interest capitalised (2.2) (3.7) ----------- ----------- 49.5 58.1 Interest payable by: Joint ventures 0.5 0.7 Associates 0.6 0.6 ----------- ----------- 50.6 59.4 Interest from unwinding discounts on provisions 1.6 1.6 Exceptional financing costs* 3.3 - ----------- ----------- 55.5 61.0 =========== =========== *The exceptional financing costs are associated with the recognition of tax losses (note 5). 5. Tax 2003/4 2002/3 Â£m Â£m Current tax on profits for the year before exceptional items: UK Corporation Tax 56.1 46.5 Adjustments to UK Corporation Tax for earlier years (1.0) (11.3) ----------- ----------- 55.1 35.2 Overseas tax 0.4 0.7 Adjustments to overseas tax for earlier years - 0.1 Joint ventures 5.7 4.8 Associates 5.6 6.1 Exceptional current UK tax adjustment* (26.5) (16.4) ----------- ----------- Total current tax 40.3 30.5 ----------- ----------- Deferred tax on profit before exceptional items: Timing differences - Group 11.4 13.6 - Joint Ventures 0.7 0.6 - Associates 1.0 (1.1) Deferred tax on exceptional items - Group# (3.7) - Adjustments to deferred tax for earlier years - Group (2.8) (2.6) - Joint ventures - 2.9 - Associates - 6.1 ----------- ----------- Total deferred tax 6.6 19.5 ----------- ----------- Total tax charge 46.9 50.0 =========== =========== *During the year the group realised the value of tax losses previously unrecognised in the accounts. These have been treated as exceptional. The exceptional tax in the year to 1 March 2003 arose from the release of specific provisions from earlier years. #The tax effect of non-operating exceptional costs of Â£10.3m is a deferred tax credit of Â£3.7m. 2002/3 2003/4 (restated) Factors affecting the current tax charge for the year: Â£m Â£m Profit before tax 211.7 202.4 ----------- ----------- Tax at current UK Corporation Tax rate of 30% (2003 - 30%) 63.5 60.8 Effect of: Expenses not deductible for tax purposes: Impairments 4.7 - Other (principally goodwill amortisation and depreciation of assets not qualifying for capital allowances) 8.6 8.2 Business disposals and tax thereon - 3.4 Capital allowances in excess of depreciation (2.9) (9.7) Other timing differences (4.8) (4.8) Higher/(lower) rates on profits of joint ventures and associates (0.9) 1.4 Use of losses not previously recognised (23.9) (1.1) Adjustments to tax charge in respect of previous years (4.0) (27.7) ----------- ----------- Total current tax charge 40.3 30.5 =========== =========== Factors that may affect the future tax charge The key factors which may affect the future tax charge include the availability of capital allowances in excess of depreciation on assets qualifying for capital allowances. 6. Earnings per share Basic earnings per share is calculated by dividing earnings for ordinary shareholders of Â£164.5m (2002/3 - Â£152.0m) by the weighted average number of ordinary shares in issue during the year of 295.1m (2002/3 - 294.4m). Adjusted basic earnings per share is calculated as follows: Earnings (Â£m) Earnings per share (p) 2002/3 2002/3 2003/4 (restated) 2003/4 (restated) Earnings and basic earnings per share 164.5 152.0 55.74 51.64 Earnings and basic earnings per share attributable to: Goodwill amortisation 8.4 8.4 2.85 2.85 Exceptional costs, net of tax (1.1) (5.2) (0.37) (1.77) ----------- ----------- ----------- ----------- Adjusted earnings and basic earnings per share 171.8 155.2 58.22 52.72 =========== =========== =========== =========== The adjusted earnings per share is presented so as to show more clearly the underlying performance of the group. Diluted earnings per share is the basic and adjusted basic earnings per share after allowing for the dilutive effect of the conversion into ordinary shares of the weighted average number of options outstanding during the period. The number of shares used for the diluted and adjusted diluted calculation is 297.0m (2002/3 - 295.4m). 7. Debtors 2004 2003 Â£m Â£m Amounts falling due within one year Trade debtors 46.7 36.8 Joint ventures 8.5 8.3 Associates 1.5 3.9 Other debtors 19.1 17.8 Prepayments and accrued income 29.4 28.4 ----------- ----------- 105.2 95.2 ----------- ----------- Amounts falling due after more than one year Deferred consideration for property disposals 4.8 - Pension prepayment under SSAP 24 51.7 35.9 ----------- ----------- 56.5 35.9 =========== =========== 8. Creditors - amounts falling due within one year 2004 2003 Â£m Â£m Loan capital 5.8 90.1 Bank overdrafts 48.1 46.1 Trade creditors 101.0 116.3 Associates 0.8 - Corporation Tax 24.2 23.1 Other taxes and social security 44.7 35.4 Accruals and deferred income 100.0 65.1 Other creditors 47.8 55.7 Proposed final dividend on ordinary shares 47.8 42.6 ----------- ----------- 420.2 474.4 =========== =========== 9. Net cash inflow from operating activities 2002/3 2003/4 (restated) Â£m Â£m Group operating profit 236.5 236.7 Depreciation/amortisation 127.9 126.0 Impairment of property and goodwill 15.5 - Payments against provisions (2.4) (4.9) Other non-cash items 5.9 8.3 (Increase)/decrease in stocks (0.5) 2.3 Increase in debtors (21.9) (24.7) Increase in creditors 21.9 11.5 ----------- ----------- Cash flow from operating activities 382.9 355.2 =========== =========== 10. Acquisitions Fair value Book value adjustments 2003/4 Â£m Â£m Â£m Tangible fixed assets 20.2 0.3 20.5 Net working capital, excluding cash (1.4) - (1.4) Deferred tax - 1.7 1.7 Cash 1.0 - 1.0 ----------- ----------- ----------- Cost of business acquired 19.8 2.0 21.8 =========== =========== =========== Cash outflow in respect of business acquired: Cost of business acquired 21.8 Accrued acquisition costs (0.2) Cash of business acquired (1.0) ----------- Cash outflow 20.6 =========== The above relates to the acquisition, on 31 December 2003, of the Cannons healthclub business in The Netherlands. 11. Reconciliation of net cash flow to movement in net debt 2003/4 2002/3 Â£m Â£m Increase in cash in the period 5.9 9.7 Cash outflow from movement in loan capital 151.3 31.0 Cash inflow from movement in liquid resources (5.3) (3.9) Cash (inflow)/outflow from movement in short-term borrowings (7.7) 3.3 ----------- ----------- Changes in net debt resulting from cash flows 144.2 40.1 Foreign exchange movements 1.2 (5.4) Amortisation of premiums and discounts 2.6 0.7 ----------- ----------- Movement in net debt in the year 148.0 35.4 Opening net debt (940.6) (976.0) ----------- ----------- Closing net debt (792.6) (940.6) =========== =========== 12. Shareholders' funds 2003 2004 (restated) Â£m Â£m Movements in shareholders' funds Equity shareholders' funds at 1 March 2003 - as reported 1,983.9 1,882.0 Prior year adjustment for UITF abstracts 17 - as amended and 38 (note 1) (6.7) (6.9) ----------- ----------- Equity shareholders' funds at 1 March 2003 - as restated 1,977.2 1,875.1 Profit earned for ordinary shareholders 164.5 152.0 Dividends (65.5) (58.7) ----------- ----------- 99.0 93.3 Other recognised gains and losses relating to the year (0.7) 0.2 Accrued share based payments 5.9 0.6 Movement on associates' reserves 3.3 - Goodwill on disposal - 4.8 Share capital issued 6.9 3.2 ----------- ----------- Equity shareholders' funds at 4 March 2004 2,091.6 1,977.2 =========== =========== 13. Accounts The financial information above, which has been prepared on the same basis as set out in the 2003/4 financial statements, does not constitute statutory accounts as defined in the Companies Act 1985. The financial information for the period ended 4 March 2004 has been extracted from the statutory accounts on which an unqualified audit opinion has been issued. The Board approved the preliminary announcement on 4 May 2004. Statutory accounts for the period ended 4 March 2004, will be delivered to the Registrar of Companies in due course. The comparative financial information is based on the statutory accounts for the financial period ended 1 March 2003. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. 14. Post balance sheet event In March 2004, we announced that the existing shareholders in Britannia Soft Drinks Ltd (BSD) had signed an agreement with PepsiCo which creates an opportunity to undertake an initial public offering of BSD. Whitbread Group PLC has a 23.75% shareholding in BSD following this agreement. This information is provided by RNS The company news service from the London Stock Exchange

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