Whitbread PLC Interim Results

RNS Number : 5922U

Whitbread PLC

19 October 2010

 



Whitbread PLC

19 October 2010

EXCELLENT FIRST HALF RESULTS: STRONG PROSPECTS FOR THE FUTURE

Whitbread PLC results for the six months ended 2 September 2010

Financial Highlights

·     Total revenue up 14.5% to £805.4 million (2009/10: £703.3 million)

·     Group like for like sales up 7.8%

·     Underlying profit¹ before tax of £151.8 million up 28.4% (2009/10: £118.2 million)

·     Underlying diluted EPS up 29.5% to 61.27p (2009/10: 47.33p)

·     Half year net debt at £467.2 million (versus £513.4 million at 4 March 2010)

·     Group return on invested capital² increased to 13.1% (2009/10: 11.2%)

·     Interim dividend up 16.6% to 11.25p (2009/10: 9.65p)

 

Statutory

·     Profit after tax and exceptional items £116.0 million (2009/10: £73.1 million)

·     Total basic EPS 66.29p (2009/10: 42.32p)

Achievements

·     Premier Inn grew like for like occupancy 9.2 ppts to 79.3% with revpar up 9.4%

·     Revpar growth outperformed the budget sector by 5.7 ppts

·     Secured pipeline of c.11,000 rooms will deliver 25% growth in the UK estate

·     Restaurants, 7% more customers attracted through hotel occupancy and value strategy

·     Costa operating profits up 55.6%. 34 consecutive quarters of like for like sales growth

·     Costa opened 116 (net) new coffee shops bringing worldwide total to 1,716 

·     Group operating margin³ increased to 20.4% (2009/10: 18.6%)

Anthony Habgood, Chairman of Whitbread PLC said:

"This is an excellent set of results, demonstrating the success of our focused strategy and drive to meet the needs of our customers. The strong like for like and overall sales performances show how well we have positioned ourselves in challenging market conditions.

"This is Alan Parker's last set of Whitbread results before Andy Harrison, who joined on 1^st September, takes over as Chief Executive in November. Alan has made an invaluable contribution to the growth and development of Whitbread during his time as Chief Executive. Under his leadership Whitbread has grown to become the UK's leading hospitality company and is in good health, with strong prospects for the future."

Alan Parker, Chief Executive of Whitbread PLC said:

"These results are testimony to the success of our initiatives to increase market share through organic network expansion and attracting more customers to our hotels, restaurants and coffee shops. Our margins have improved as the benefits of both our structural and operating cost reduction programmes are realised. I am delighted that our return on invested capital has increased to 13.1%, well ahead of our cost of capital.

"Whitbread has performed strongly in both good times and during the recession and is well placed to grow in the current environment. While the economic outlook remains uncertain, we are confident in the outturn for the year.

"Whitbread has strong foundations with a proven management team, who have a disciplined approach to growth, cost control and a relentless focus on our customers."

For further information contact:
Whitbread
Christopher Rogers, Group Finance Director	+ 44 (0) 20 7806 5491
Tabitha Aldrich Smith, Director of Communications	[phone]
Tulchan
Andrew Grant/David Allchurch	+ 44 (0) 20 7353 4200

¹    Underlying profit

Underlying profit excludes exceptional items and the impact of the volatile pension finance cost as accounted for under IAS 19.

²    Return on invested capital

Underlying profit before interest and tax for the year to the balance sheet date divided by net assets excluding debt, taxation liabilities and the pension deficit at the balance sheet date.

³       Group operating margin

Operating profit before exceptional items divided by total revenue (excluding exceptional item), expressed as a percentage.

Further information

For photographs and videos, please visit the corporate media library:

www.whitbreadimages.co.uk

A presentation for analysts will be held at The London Stock Exchange,

10 Paternoster Square, London, EC4M 7LS. The presentation is at 9.30 am and a live audio webcast of the presentation will be available on the investors' section of

the website at: www.whitbread.co.uk.

Alternatively, you can listen to the presentation by dialing: [phone], entering the pass code: 877836 and quoting The Whitbread Interim Results Presentation.

This will be available as a replay for 28 days and will be available from approximately 12:00 noon on 29 April 2010.  Dial: [phone] and enter the pass code: 877836.

CHIEF EXECUTIVE'S REVIEW

In the first six months of the year, Whitbread has continued to make excellent progress with strong growth across the Group. We are focused on meeting the needs of our customers and delivering on our strategy to increase market share through organic growth coupled with strong like for like sales growth.

Group underlying profit before tax increased by 28.4% to £151.8 million (2009/10: £118.2 million), with underlying diluted earnings per share increasing by 29.5% to 61.27p.

Group revenue for the first six months of the year grew by 14.5% to £805.4 million with Group like for like sales growth of 7.8%. At Premier Inn, sales rose 14.0%, driven by a combination of increased volumes and new units. Like for like sales increased by 10.1%. Sales at our restaurants grew 4.5%, with like for like sales up 4.2%. At Costa, sales increased by 27.7%, with like for like sales up 8.5%. 

At the half year, net debt was £467.2 million (versus £513.4 million at 4 March 2010). In August, we successfully concluded a debt private placement of senior notes with an equivalent sterling value of c.£102 million. This transaction is part of the process to diversify our sources of funds and lengthen the debt maturity profile of the Group. Current facilities now stand at £1.26 billion.

By the end of this financial year we will have successfully completed the £25 million central cost reduction plan that has been ongoing since 2008. Return on invested capital increased to 13.1%, well ahead of our cost of capital.

The interim dividend has been increased by 16.6% to 11.25p (2009/10: 9.65p) and will be paid on 11 January 2011 to all shareholders on the register at the close of business on 29 October 2010. A scrip dividend alternative will again be offered.

Building market share across the business

Whitbread is the UK's largest hotel and restaurant group with brand leadership in hotels and coffee shops. We have successfully navigated the challenging economic conditions that have existed since 2008. We have become a stronger, more competitive and efficient business.

In April, we set out a clear plan to improve market share across all our businesses, with a relentless focus on our customers and disciplined organic expansion. We are delivering on these plans.

In Premier Inn, we are achieving the expected improvements in revpar through a volume-led strategy to bring occupancy back up to 80%. The plan has four key levers: increased advertising, dynamic pricing with Premier Offers, widening reservation distribution and increased sales activity.

As evidence to the success of this strategy, in the half year, like for like occupancy improved 9.2 percentage points to 79.3%. This demonstrates good recovery and is nearing our 80% occupancy target, although the last quarter of the financial year tends to be seasonally weaker and will pull the full year average down. Regional revpar recovered strongly, up by 8.5%, compared to 1.8% growth in the regional budget hotel sector and 2.6% growth across the total regional hotel market. Premier Inn's revpar in London was up 13.2%, compared to 10.8% in the total London market.

Our restaurants have shown good growth trends, consistently outperforming the market. We attribute this to robust management actions focusing on value for money. Importantly, we have also continued our restaurant refurbishment programme throughout the recession in order to maintain the high standards our customers expect.

Costa achieved another excellent performance, with pre-exceptional operating profits up 55.6%. Like for like sales increased by 8.5%. Costa has recorded 34 consecutive quarters of like for like sales growth. This has been driven by our customer loyalty programme and innovations in our product range such as Flat White and Ice Cold Costa. We have continued our investment in the UK Costa estate and the expansion of our international business.

Opportunities for growth

Hotels and Restaurants stepping up growth in UK budget hotel sector

We have continued to make good progress against our objectives for growth. Having so far weathered the current challenging economic conditions, we are now well placed, with clear and deliverable organic growth plans, to increase the rate of new openings.

In the first half, Premier Inn opened 795 rooms and in the second half of the year we plan to open at least 1,700 new rooms in up to 18 hotels, 8 of which are expected to be on joint sites with a Whitbread restaurant. As previously announced in September, 633 rooms will leave the estate following our decision to exit our 10-year Management Agreement on 14 hotels run by Roadchef plus one run by Moto. These sites are not a strong strategic fit for the Premier Inn brand. Our total UK portfolio will comprise over 43,000 rooms across more than 590 hotels by the end of the year.

Looking ahead to 2011/12, we plan to open at least 3,500 rooms and continue to deliver on our stated target of increasing the current estate by around one third to 55,000 UK rooms by the end of 2013/14. Our current secured future pipeline of c.11,000 rooms substantially achieves this target.

Costa poised for further expansion

Costa is a well differentiated coffee shop brand and has grown to become the UK sector leader and second largest coffee shop operator worldwide. It is ideally positioned for further targeted UK and international expansion.

We have opened 65 (net) new stores in the UK in the first half of the year, of which 32 are company operated and 33 are franchise stores. We are maintaining a balanced portfolio of stores across high streets, retail parks, rail, airport and other travel hubs as well as increasing stores in new locations such as hospitals and universities.

Internationally, we opened 51 (net) new stores of which 30 are company operated and 21 are franchise stores. The integration of Coffeeheaven, our acquisition in Central Europe, is progressing well, is already achieving cost synergies and has significant growth opportunities.

In the second half of the year, Costa will open over 130 new stores split approximately equally between the UK and international markets, bringing the total at the end of the year to around 1,850 Costa stores, some 1,200 in the UK and 650 internationally.  

Our target remains to increase the number of stores to 3,000 worldwide by 2014/15, maintaining leadership in the UK and building five key overseas businesses; in China, India, Russia, the Middle East and Central Europe.

Good Together corporate responsibility programme

Our corporate responsibility programme, which we call Good Together, sets out our agenda to lead our industry in the UK towards a more sustainable way of working. Our second 'green' hotel in Burgess Hill, Sussex will open later this year. The 60 bedroom Premier Inn features the best-performing green technologies and is anticipated to save 70% carbon and 60% water usage. Our first energy efficient restaurant, a 220 cover Beefeater Grill will be adjacent to the hotel. We have also recently refurbished our first energy efficient Costa store in Basingstoke to trial energy efficiency equipment and new working practices. As part of this year's capital investment programme we have announced a £7 million package of measures to reduce our carbon emissions and conserve water across the UK estate.

Good Together encompasses a range of objectives to maintain and improve our responsibility credentials. Whitbread employees have now achieved over 2,000 qualifications through the apprenticeship and skills for life programmes. As we expand our outlet numbers, we have been able to continue to offer new jobs and training opportunities and this year we will create over 1,500 new jobs for customer facing employees.

Current trading and outlook

Whitbread has performed strongly in both good times and during the recession and is well placed to grow in the current environment. While the economic outlook remains uncertain, we are confident in the outturn for the year.

Whitbread has strong foundations with a proven management team, who have a disciplined approach to growth, cost control and a relentless focus on our customers.

Hotels and Restaurants

Hotels and Restaurants	H1 2010/11 £m	H1 2009/10 £m	% Change
Premier Inn revenues	355.7	312.1	14.0
Restaurants revenues	247.3	236.7	4.5
Total revenue pre-exceptional	603.0	548.8	9.9
Exceptional revenue*	5.0	-
Total revenues post exceptional	608.0	548.8	10.8
Premier Inn like for like sales %	10.1	(7.5)
Restaurants like for like sales %	4.2	1.8
Operating profit, pre-exceptional	154.0	127.4	20.9
Operating profit, post exceptional	159.0	127.8	24.4

* £5.0 m refund in respect of VAT on gaming machine income.

Our Hotels and Restaurants have achieved strong growth in the first half. Total pre-exceptional revenues increased by 9.9% to £603.0 million with pre-exceptional operating profit up 20.9% year on year to £154.0 million. Like for like sales continued their positive momentum up 7.6%.

Premier Inn goes from strength to strength as the UK's leading budget hotel brand, underpinned by our commercial action plan to achieve 80% occupancy. The four levers of this plan were increasing and focusing advertising spend, successfully implementing dynamic pricing, widening our distribution channels and adding new corporate business accounts.

Premier Inn maintained its strong growth momentum and outperformance versus the hotel market. Total sales at Premier Inn are up 14.0% to £355.7 million (2009/10: £312.1 million) with like for like sales up by 10.1%. Regional revpar was 6.7 percentage points ahead of our budget competitors and 5.9 percentage points ahead of the total hotel market. London revpar was up 2.4 percentage points ahead of the total London market.

We have increased advertising spend, which includes a successful campaign fronted by Lenny Henry to promote our £29 room Premier Offers. This activity and other marketing initiatives have enabled Premier Inn to become the UK's favourite hotel brand, measured independently by YouGov.

Dynamic pricing and Premier Offers of rooms from £29 have significantly boosted occupancy at weekends and holiday periods. Premierinn.com continues to attract increased visits to the website; over 3 million visits per month. 58% of all bookings are now taken via the website and revenues booked through this channel are up more than 20%. While the new website is by far the largest booking channel for Premier Inn, when combined with other online channels, we now see 65% of all bookings made online.

Premier Inn is also a leading choice brand among business travellers and the sales team have been focused on growing large corporate accounts such as Fujitsu, Virgin Atlantic, Jewson, nPower and some central Government departments. This has delivered a Business Account revenue increase of 24.1% to £103 million in the first half, as companies choose our value for money proposition, consistent room quality and wide choice of locations.

Premier Inn opened 795 new rooms across 9 hotels in the first half of the year. Our total rooms at the half-year, prior to the reduction of rooms due the Roadchef exit, stands at 43,588, of which 1,079 rooms are located in our international markets of India, Dubai and Ireland.

Our restaurants continued to outperform the market throughout the first half as we attracted more customers looking for great value food and drink in a comfortable environment. They achieved further consistent positive like for like sales growth which is a commendable performance compared to the experience of previous World Cups. Increased occupancy in our hotels also had a positive impact on restaurant sales, enhanced by our well received and successful £20 meal deal offer for Premier Inn guests.

Revenues have increased by 4.5% to £247.3 million (2009/10: £236.7 million) with like for like sales growth of 4.2% driven by an increase in total covers of 7% and like for like covers of 6.4%. Cost conscious customers know that they can always find a great value meal deal made with high quality ingredients such as two meals for £10 at Brewers Fayre.

Whilst growing sales, we continued to focus on tight cost control, through both operating efficiencies across the business and improved procurement terms, for example, on items such as laundry and utilities. This has resulted in a 2% improvement in income before fixed costs margin for Hotels and Restaurants although this improvement will be less in the balance of the year as we lap agreements reached last year.

We remain committed to maintaining our hotels and restaurants to the highest standards. A key factor in this marketplace is that we did not cut our ongoing refurbishment programme during the recession. We refurbished 4,000 hotel rooms and 71 restaurants in the first half.

Costa

	H1 2010/11 £m	H1 09/10 £m	% Change
System sales	311.2	233.6*	33.2
Revenues	198.5	155.4	27.7
Like for like sales %	8.5	2.5
Operating profit, pre-exceptional	19.6	12.6	55.6
Operating profit, post exceptional	19.6	12.2	60.7

*2009/10 restated to include corporate licences

Costa entered the new financial year with a strong growth platform and has delivered another excellent performance. Pre-exceptional operating profit grew by 55.6% to £19.6 million. Like for like sales increased by 8.5% and in our international business, profits continued to build.

Total system sales, which are sales from company owned and franchise stores combined, were up 33.2%. International Costa franchise store sales were up by 22.2% to £51.2 million and total UK franchise store sales were up by 51.7% to £83.7 million.

Costa operates in 25 countries and is the number two international coffee shop operator with 1,716 stores: 1,134 in the UK and 582 overseas. We have opened 116 (net) stores in the year to date, including 62 company-operated stores (32 in the UK and 30 internationally) and 54 franchise stores (33 in the UK and 21 internationally).

The integration of the Coffeeheaven acquisition is progressing well and performance in the key Polish market is in line with our first year plan. Looking forward, Coffeeheaven may have more potential than we originally anticipated. We now operate 77 units in Poland and by the end of this year we expect to open six stores. We expect to have c.100 stores in Poland in 2012/13.

Innovation and customer focus are the watchwords for Costa in its commitment to delivering an unbeatable coffee experience. In January 2010, Costa introduced Flat White, which brought in more new customers and since then, we have sold 2.5 million Flat Whites, equating to some 5.5% of all coffee sales. Further product innovation comes from our improved range of summer drinks with hand made cold coffee based drinks, promoted with improved in-store communication. This has generated an increase of 39% on like for like handmade cold beverage sales in July and August.

We launched a trial for a new breakfast food range to boost food capture in this important morning segment. This trial has proved successful and new breakfast product changes will be rolled out more widely during the second half.

In March, we launched the Costa Coffee Club, a loyalty programme which has delivered excellent results, attracting over three million members. The card is used in over 40% of transactions.

Most recently, we have launched a new brand building campaign signalling Costa is 'For Coffee Lovers'. For the first time Costa has begun advertising on television, giving further impetus to our brand building activity and continuing to emphasise the preference consumers have for an excellent cup of coffee.

We are testing two concept stores in central London which are achieving excellent results. These stores feature new layouts and designs specifically for urban markets. A metropolitan store design with a more youthful feel was opened on Great Portland Street, London. We also refurbished a store near Farringdon Station, London to capture more effectively the 'fast service' requirements of business commuters. In the second half of the year our first energy efficient refurbished Costa re-opens in Basingstoke where we anticipate up to 30% reduction in energy use.

Note: Costa Coffee Club

On 4 March 2010 Costa launched its loyalty card in the UK which offers customers a loyalty incentive. For the purposes of showing the underlying performance in like for like sales, we have excluded the effects of IFRIC13 "Customer Loyalty Programmes," which is a non cash adjustment that requires a change in the timing of revenue recognition in respect of loyalty incentives. IFRIC13 has been applied to our statutory sales. We will continue to report like for like sales on a gross basis in our trading statements and other announcements. If IFRIC13 had been applied to the Costa sales reported then like for like sales would be 1.4% lower for H1.

FINANCE REVIEW

Revenue

Group revenue increased by 14.5% year on year to £805.4 million including exceptional revenue of £5.0m arising from a refund of VAT on gaming machine income in our restaurants.

Revenue by business segment

£m	2010/11	2009/10	% Change
Hotels and Restaurants	608.0	548.8	10.8%
Costa	198.5	155.4	27.7%
Less: inter-segment	(1.1)	(0.9)
Revenue	805.4	703.3	14.5%

The growth in revenue in Hotels and Restaurants has come from a combination of new units and improved occupancy. Premier Inn added 9 new hotels and 795 rooms whilst like for like occupancy grew year on year by 9.2 percentage points to 79.3%. Two new restaurants were opened in the half year. It was a similar story at Costa. In the first half 65 units (net) were opened in the UK and 51 (net) overseas. UK equity retail like for like sales grew by 8.5%. A full six months of turnover for Coffeeheaven, which was purchased in February 2010, of £14.2 million (2009/10: £nil), also contributed to the revenue growth.

Results

Underlying profit before tax for the first half is £151.8 million, up 28.4% on last year and underlying diluted earnings per share is 61.27p compared to 47.33p last year, up 29.5%. 

Total profit for the half year is £116.0 million which compared to £73.1 million last year, up 58.7%.

Exceptional items

Exceptional items aggregate to a credit of £12.7 million. There is an exceptional deferred tax credit of £9.3 million arising from the reduction in corporation tax rates from 28% to 27%. In addition we have received a £5 million refund of VAT on gaming machine income in the period which is included in revenue. This follows the ruling that the application of VAT to certain types of gaming machine income contravened the European Union's principle of fiscal neutrality. As HM Revenue and Customs have appealed against this ruling there is a contingent liability for the amount of the refund plus interest. Corporation tax of £1.6 million is charged against these additional profits recognised.

Interest

The underlying interest charge is £11.6 million reflecting the reduced levels of average debt in the period compared to last year which fell by 19.3% to £484.2 million. The total pre-exceptional interest cost amounted to £17.4 million. Included within this figure is an IAS 19 pension charge of £5.8 million (2009/10: £7.7 million). This charge represents the difference between the expected return on scheme assets and the interest cost of the scheme liabilities. The pension cost for the year is expected to be £11.5 million.

Tax 

An underlying tax expense of £44.3 million represents an effective tax rate of 29.2% on the underlying profits, which compares with 30.7% last year. The year on year movement has been predominantly driven by the impact of the rising share price on the tax associated with share based payments and improving results in certain of the group's overseas operations.

Earnings per share

Diluted underlying earnings per share increased by 29.5% to 61.27p. 

EPS	2010/11	2009/10
Underlying (diluted)	61.27p	47.33p
Non GAAP adjustments: Pension interest	(2.38)p	(3.16)p
Exceptional items	7.21p	(1.90)p
Total operations (diluted)	66.10p	42.27p

Further details can be found in note 6.

Dividend

An interim dividend of 11.25p, an increase on last year of 16.6%, will be paid on 11 January 2011 to all shareholders on the register at the close of business on 29 October 2010.

Net Debt and Cashflow

The principal cashflow movements are as follows:

£m	2010/11	2009/10
Cashflow from Operations	197.6	174.9
Capital Expenditure	(88.8)	(78.2)
Capital and loan injections to JV's	(1.2)	(6.3)
Interest, tax and dividends	(57.7)	(75.5)
Other	(3.7)	1.6
Net cashflow	46.2	16.5
Debt Bfwd	(513.4)	(623.1)
Debt Cfwd	(467.2)	(606.6)

The Group has generated strong cash flows from operations in the half year which are up on last year by £22.7 million.  Coupled with a small cash tax inflow of £1.8 million (2009/10: cash outflow of £21.6 million) this has generated the increased cash inflow for the half year of £46.2 million. The cash tax reduction is due to the pension arrangements and the tax consequences thereon which are set out below in more detail.

As a consequence of the above cash inflow of £46.2 million, net debt reduced in the half from £513.4 million to £467.2 million. The weighted average net debt in the period was £484.2 million compared to £599.7 million last year.

During the half year the Group undertook an issue of private placement loan notes in both US$ and £ sterling. These loan notes were issued in 3 series with maturities of 7 and 10 years and coupons from 4.55% to 5.23%. The US$ component was swapped to £ sterling with the total transaction giving a value of £101.8 million and £ sterling interest rates ranging from fixed at 5.19% to 5.23% and variable rates with a spread of between 1.715% and 1.755%. The proceeds were used to repay drawings under the shorter maturity bank debt. More details of this transaction are set out in note 7. This issue is the first step the Group has taken to diversify the tenure and sources of funding.

In addition to the loan notes set out above, the Group has committed revolving credit facilities of £1,155 million as at 2 September 2010. The revolving credit facilities reduce to £930 million in December 2010, £855 million in December 2011 and £455 million in December 2012 with the remaining facility maturing in March 2013.

The policy of the Board is to manage its financial position and capital structure in a manner that is consistent with Whitbread maintaining its investment grade status. 

Capital expenditure

Total Group cash capital expenditure on property, plant and equipment and intangible assets during the half year was £88.8 million with Hotels and Restaurants spend amounting to £71.7 million and Costa £17.1 million. Capital expenditure is split between acquisition expenditure, which includes the acquisition and development of properties (£53.5m) and maintenance expenditure (£35.3m). A further £1.2 million (2009/10: £6.3 million) was contributed in equity or loans to the Group's joint ventures.

Pensions

As at 2 September 2010, there was an IAS 19 pension deficit of £500.0 million, which compares to £434.0 million as at 4 March 2010. £61.1 million of the movement arises from actuarial losses as a result of the reduction in the discount factor from 5.6% to 5.1%.

Following on from the £102 million contribution to the Pension Scheme made by the Group in the year ended 4 March 2010, an additional contribution was made in the half year of £39 million on the same basis. The total contribution of £141 million does not meet the definition of a plan asset under IAS 19 and therefore is not reflected in the pension deficit of £500 million.

The additional contribution by the Group to the Pension Scheme of £39 million will reduce the Group's cash tax payments in this and next year by approximately £10.5 million in total. Further details of this transaction are set out in note 9 below.

Post Balance Sheet Events

There are no significant post balance sheet events.

Responsibility statement
We confirm that to the best of our knowledge:

a) The condensed set of financial statements has been prepared in accordance with IAS 34;
b) The interim management report includes a fair review of the information required by the Financial Statements Disclosure and Transparency Rules (DTR) 4.2.7R - indication of important events during the first six months and their impact on the financial statements and description of principal risks and uncertainties for the remaining six months of the year; and
c) The interim management report includes a fair review of the information required by DTR 4.2.8R - disclosure of related party transactions and changes therein.

By order of the Board

Alan Parker	Christopher Rogers
Chief Executive	Group Finance Director

Interim unaudited consolidated income statement

	Notes	6 months to 2 September 2010 £m	6 months to 27 August 2009 £m	Year to 4 March 2010 £m
Revenue	2	805.4	703.3	1,435.0
Cost of sales		(120.4)	(104.8)	(213.5)
Gross profit		685.0	598.5	1,221.5
Distribution costs		(435.9)	(405.4)	(830.3)
Administrative expenses		(79.7)	(65.2)	(138.0)
Operating profit		169.4	127.9	253.2
Share of loss from joint ventures		(1.5)	(1.3)	(3.1)
Share of profit from associate		0.5	0.4	0.7
Operating profit of the Group	2	168.4	127.0	250.8
Finance costs	4	(19.5)	(21.3)	(43.9)
Finance revenue	4	2.1	0.2	1.1
Profit before tax		151.0	105.9	208.0
Analysed as:
Underlying profit before tax		151.8	118.2	239.1
IAS 19 Income Statement charge for pension finance cost	3	(5.8)	(7.7)	(15.5)
Profit before tax and exceptional items		146.0	110.5	223.6
Exceptional revenue	3	5.0	-	-
Exceptional distribution costs	3	-	0.5	(8.1)
Exceptional administrative expenses	3	-	(4.3)	(5.9)
Exceptional finance costs	3	-	(0.8)	(1.6)
Profit before tax		151.0	105.9	208.0
Underlying tax expense		(44.3)	(36.3)	(71.1)
Exceptional tax and tax on non GAAP adjustments	3	9.3	3.5	23.1
Tax expense		(35.0)	(32.8)	(48.0)
Profit for the period		116.0	73.1	160.0
Attributable to:
Parent shareholders		116.4	73.6	161.0
Equity minority interest		(0.4)	(0.5)	(1.0)
		116.0	73.1	160.0

Earnings per share (note 6)	6 months to 2 September 2010 p	6 months to 27 August 2009 p	Year to 4 March 2010 p
Earnings per share
Basic for profit for the period	66.29	42.32	92.37
Diluted for profit for the period	66.10	42.27	92.16
Earnings per share before exceptional items
Basic for profit for the period	59.05	44.22	90.53
Diluted for profit for the period	58.89	44.17	90.33
Underlying earnings per share
Basic for profit for the period	61.45	47.38	96.95
Diluted for profit for the period	61.27	47.33	96.74

Interim unaudited consolidated statement of comprehensive income                

	6 months to 2 September 2010  £m	6 months to 27 August 2009 £m	Year to 4 March 2010 £m
Profit for the period	116.0	73.1	160.0
Net gain/(loss) on cash flow hedges	(4.7)	3.3	3.0
Deferred tax	1.3	(0.9)	(0.8)
	(3.4)	2.4	2.2
Actuarial losses on defined benefit pension schemes	(61.1)	(167.3)	(195.7)
Current tax	10.9	-	28.6
Deferred tax	6.2	46.8	26.3
	(44.0)	(120.5)	(140.8)
Deferred tax: change in rate of corporation tax	(3.9)	-	-
Exchange differences on translation of foreign operations	(0.3)	(2.9)	(0.2)
Other comprehensive loss for the period, net of tax	(51.6)	(121.0)	(138.8)
Total comprehensive profit / (loss) for the period, net of tax	64.4	(47.9)	21.2
Attributable to:
Parent shareholders	64.8	(47.4)	22.2
Equity minority interest	(0.4)	(0.5)	(1.0)
	64.4	(47.9)	21.2

Interim unaudited consolidated statement of changes in equity

6 months to 2 September 2010

	Share capital £m	Share premium £m	Capital redemption reserve £m	Retained earnings £m	Currency translation £m	Other reserves £m	Total £m	Minority interest £m	Total equity £m
At 4 March 2010	146.4	49.1	12.3	3,006.8	5.1	(2,112.7)	1,107.0	1.0	1,108.0
Profit for the period	-	-	-	116.4	-	-	116.4	(0.4)	116.0
Other comprehensive income	-	-	-	(46.6)	(0.3)	(4.7)	(51.6)	-	(51.6)
Total comprehensive income	-	-	-	69.8	(0.3)	(4.7)	64.8	(0.4)	64.4
Ordinary shares issued	0.1	0.8	-	-	-	-	0.9	-	0.9
Equity dividends	-	-	-	(49.7)	-	-	(49.7)	-	(49.7)
Scrip dividend	0.1	(0.1)	-	1.7	-	-	1.7	-	1.7
Cost of ESOT shares purchased	-	-	-	-	-	(5.1)	(5.1)	-	(5.1)
Loss on ESOT shares issued	-	-	-	(1.4)	-	1.4	-	-	-
Accrued share-based payments	-	-	-	3.2	-	-	3.2	-	3.2
Additions	-	-	-	-	-	-	-	1.2	1.2
At 2 September 2010	146.6	49.8	12.3	3,030.4	4.8	(2,121.1)	1,122.8	1.8	1,124.6

6 months to 27 August 2009

	Share capital £m	Share premium £m	Capital redemption reserve £m	Retained earnings £m	Currency translation £m	Other reserves £m	Total £m	Minority interest £m	Total equity £m
At 26 February 2009	145.3	46.1	12.3	3,038.8	5.3	(2,120.0)	1,127.8	0.7	1,128.5
Profit for the period	-	-	-	73.6	-	-	73.6	(0.5)	73.1
Other comprehensive income	-	-	-	(121.4)	(2.9)	3.3	(121.0)	-	(121.0)
Total comprehensive income	-	-	-	(47.8)	(2.9)	3.3	(47.4)	(0.5)	(47.9)
Ordinary shares issued	-	0.4	-	-	-	-	0.4	-	0.4
Equity dividends	-	-	-	(46.8)	-	-	(46.8)	-	(46.8)
Scrip dividend	0.5	(0.5)	-	6.0	-	-	6.0	-	6.0
Accrued share-based payments	-	-	-	2.9	-	-	2.9	-	2.9
Foreign currency	-	-	-	-	-	-	-	0.2	0.2
At 27 August 2009	145.8	46.0	12.3	2,953.1	2.4	(2,116.7)	1,042.9	0.4	1,043.3

Year to 4 March 2010

	Share capital £m	Share premium £m	Capital redemption reserve £m	Retained earnings £m	Currency translation £m	Other reserves £m	Total £m	Minority interest £m	Total equity £m
At 26 February 2009	145.3	46.1	12.3	3,038.8	5.3	(2,120.0)	1,127.8	0.7	1,128.5
Profit for the period	-	-	-	161.0	-	-	161.0	(1.0)	160.0
Other comprehensive income	-	-	-	(141.6)	(0.2)	3.0	(138.8)	-	(138.8)
Total comprehensive income	-	-	-	19.4	(0.2)	3.0	22.2	(1.0)	21.2
Ordinary shares issued	0.4	3.7	-	-	-	-	4.1	-	4.1
Equity dividends	-	-	-	(63.7)	-	-	(63.7)	-	(63.7)
Scrip dividends	0.7	(0.7)	-	9.8	-	-	9.8	-	9.8
Loss on ESOT shares issued	-	-	-	(4.3)	-	4.3	-	-	-
Accrued share-based payments	-	-	-	5.9	-	-	5.9	-	5.9
Deferred tax on share-based payments	-	-	-	0.9	-	-	0.9	-	0.9
Additions	-	-	-	-	-	-	-	1.3	1.3
At 4 March 2010	146.4	49.1	12.3	3,006.8	5.1	(2,112.7)	1,107.0	1.0	1,108.0

Interim unaudited consolidated balance sheet

		2 September	27 August	4 March
		2010	2009	2010
	Notes	£m	£m	£m
ASSETS
Non-current assets
Intangible assets		149.4	119.1	150.0
Property, plant and equipment		2,342.6	2,321.0	2,310.7
Investment in joint ventures		17.5	25.3	18.1
Investment in associate		1.5	1.5	1.2
Derivative financial instruments		0.7	-	-
Other financial assets		0.9	0.9	0.9
		2,512.6	2,467.8	2,480.9
Current assets
Inventories		19.2	17.1	17.0
Income tax recoverable		-	-	6.5
Trade and other receivables		98.2	85.8	93.9
Cash and cash equivalents	8	34.7	28.6	47.0
		152.1	131.5	164.4
Assets classified as held for sale		1.2	-	2.3
TOTAL ASSETS		2,665.9	2,599.3	2,647.6
LIABILITIES
Current liabilities
Financial liabilities	7	11.3	37.1	31.4
Provisions		21.4	14.9	21.4
Derivative financial instruments		18.2	17.5	18.9
Income tax liabilities		30.8	30.6	-
Trade and other payables		258.5	254.6	286.3
		340.2	354.7	358.0
Non-current liabilities
Financial liabilities	7	490.6	598.1	529.0
Provisions		28.1	21.6	32.4
Derivative financial instruments		22.7	18.5	17.2
Deferred income tax liabilities		145.5	146.8	160.8
Pension liability	9	500.0	408.0	434.0
Trade and other payables		14.2	8.3	8.2
		1,201.1	1,201.3	1,181.6
TOTAL LIABILITIES		1,541.3	1,556.0	1,539.6
NET ASSETS		1,124.6	1,043.3	1,108.0
EQUITY
Share capital		146.6	145.8	146.4
Share premium		49.8	46.0	49.1
Capital redemption reserve		12.3	12.3	12.3
Retained earnings		3,030.4	2,953.1	3,006.8
Currency translation reserve		4.8	2.4	5.1
Other reserves		(2,121.1)	(2,116.7)	(2,112.7)
Equity attributable to equity holders of the parent		1,122.8	1,042.9	1,107.0
Equity minority interest		1.8	0.4	1.0
TOTAL EQUITY		1,124.6	1,043.3	1,108.0

Interim unaudited consolidated cash flow statement

		6 months to	6 months to	Year to
		2 September 2010	27 August 2009	4 March 2010
	Notes	£m	£m	£m
Profit for the period		116.0	73.1	160.0
Adjustments for:
Taxation charged on total operations		35.0	32.8	48.0
Net finance cost	4	17.4	21.1	42.8
Total loss from joint ventures		1.5	1.3	3.1
Total income from associate		(0.5)	(0.4)	(0.7)
(Gain)/loss on disposal of property, plant and equipment, and property reversions		-	(0.5)	6.6
Depreciation and amortisation		50.0	47.5	95.9
Impairment of property		-	-	1.5
Pension curtailment		-	-	(4.0)
Reorganisation provision		-	0.8	1.3
Share-based payments		3.2	2.9	5.9
Other non-cash items		(3.4)	1.4	8.0
Cash generated from operations before working capital changes		219.2	180.0	368.4
(Increase) / decrease in inventories		(2.2)	(0.6)	0.1
(Increase) in trade and other receivables		(1.5)	(17.3)	(21.6)
Increase / (decrease) in trade and other payables		(12.3)	18.6	39.7
Payments against provisions		(4.7)	(5.8)	(10.8)
Pension payments		(0.9)	-	(6.0)
Cash generated from operations		197.6	174.9	369.8
Interest paid		(13.6)	(13.2)	(26.9)
Taxes recovered / (paid)		1.8	(21.6)	(51.6)
Net cash flows from operating activities		185.8	140.1	291.3
Cash flows from investing activities
Purchase of property, plant and equipment		(87.8)	(76.6)	(127.1)
Purchase of intangible assets		(1.0)	(1.6)	(4.6)
Proceeds from disposal of property, plant and equipment		1.3	1.5	41.8
Acquisition of subsidiary, net of cash acquired		-	-	(38.8)
Capital contributions and loans to joint ventures		(1.2)	(6.3)	(3.2)
Dividends from associate		0.4	0.1	0.7
Interest received		2.1	0.1	0.3
Net cash flows from investing activities		(86.2)	(82.8)	(130.9)
Cash flows from financing activities
Proceeds from issue of share capital		0.9	0.4	4.1
Cost of purchasing ESOT shares		(5.1)	-	-
Increase/(decrease) in short-term borrowings		(17.8)	33.7	25.5
Issue costs of long-term borrowings		(1.1)	-	-
Repayment of long-term borrowings		(38.5)	(67.6)	(137.1)
Dividends paid	5	(48.0)	(40.8)	(53.9)
Net cash flows used in financing activities		(109.6)	(74.3)	(161.4)
Net decrease in cash and cash equivalents		(10.0)	(17.0)	(1.0)
Opening cash and cash equivalents		41.5	42.7	42.7
Foreign exchange differences		(0.1)	-	(0.2)
Closing cash and cash equivalents	8	31.4	25.7	41.5
Reconciliation to cash and cash equivalents on the balance sheet:
Cash and cash equivalents shown above		31.4	25.7	41.5
Add back overdrafts		3.3	2.9	5.5
Cash and cash equivalents shown within current assets on the balance sheet		34.7	28.6	47.0

Notes to the accounts

1. Basis of accounting and preparation

The interim condensed consolidated financial statements were authorised for issue in accordance with a resolution of the Board of Directors on 18 October 2010.

The interim consolidated financial statements are prepared in accordance with UK listing rules and with  IAS 34 'Interim Financial Reporting'. The interim financial report does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

The financial information for the year ended 4 March 2010 is extracted from the statutory accounts of the Group for that year and does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. These published accounts were prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted for use in the European Union, and reported on by the auditors without qualification or statement under Sections 498(2) or (3) of the Companies Act 2006 and have been delivered to the Registrar of Companies.

The interim financial statements for the six months ended 2 September 2010 and the comparatives to 27 August 2009 are unaudited but have been reviewed by the auditors; a copy of their review report is included at the end of this report.

A combination of the strong cash flows generated by the business, and the significant available headroom on its credit facilities, support the Director's view that the Group has sufficient funds available for it to meet its foreseeable working capital requirements.  The directors have concluded therefore that the going concern basis remains appropriate.

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 4 March 2010.

Following the launch of the Costa Coffee Club loyalty card on 4 March 2010, the Group has applied the requirements of IFRIC 13  - Customer Loyalty Programmes in accounting for the earned reward points accumulated by Costa customers using the loyalty card.  Under this standard, a portion of revenue equal to the fair value of the reward points earned is deferred until those points are redeemed.  The Group has also elected to early adopt the changes made to IFRIC 13 in August 2009 as part of the Annual Improvements to IFRS.  The effect of adopting these changes has not been material.  

2. Segmental analysis

For management purposes, the Group is organised into two strategic business units (Hotels & Restaurants and Costa) based upon their different products and services:

·      Hotels & Restaurants provide services in relation to food and accommodation

·      Costa generates income from the operation of its branded, owned and franchised coffee shops.

No operating segments have been aggregated to form the above reportable operating segments.

Management monitors the operating results of its strategic business units separately for the purpose of making decisions about allocating resources and assessing performance.  Segment performance is measured based on operating profit before exceptional items.  Included within the unallocated and elimination columns in the tables are the costs of running the public company.  The unallocated assets and liabilities are cash and debt balances (held and controlled by the central treasury function), taxation, pensions, certain property, plant and equipment and central working capital balances.

Inter-segment revenue is from Costa to the Hotels & Restaurants segment and is eliminated on consolidation. Transactions were entered into on an arm's length basis in a manner similar to transactions with third parties. 

The following tables present revenue and profit information and certain asset and liability information regarding business segments for the six months to 2 September 2010 and 27 August 2009 and for the full year ended 4 March 2010.

			Unallocated
	Hotels &		and	Total
	Restaurants	Costa	elimination	operations
6 months to 2 September 2010	£m	£m	£m	£m
Revenue
Revenue from external customers	608.0	197.4	-	805.4
Inter-segment revenue	-	1.1	(1.1)	-
Total revenue	608.0	198.5	(1.1)	805.4
Operating profit before exceptional items	154.0	19.6	(10.2)	163.4
Exceptional items:
Exceptional revenue (note 3)	5.0	-	-	5.0
Operating profit of the Group	159.0	19.6	(10.2)	168.4
Net finance costs				(17.4)
Profit before tax				151.0
Tax expense				(35.0)
Profit for the period				116.0
Assets and liabilities
Segment assets	2,425.6	166.6	-	2,592.2
Unallocated assets	-	-	73.7	73.7
Total assets	2,425.6	166.6	73.7	2,665.9
Segment liabilities	(156.1)	(45.2)	-	(201.3)
Unallocated liabilities	-	-	(1,340.0)	(1,340.0)
Total liabilities	(156.1)	(45.2)	(1,340.0)	(1,541.3)
Net assets	2,269.5	121.4	(1,266.3)	1,124.6

			Unallocated
	Hotels &		and	Total
	Restaurants	Costa	elimination	operations
6 months to 27 August 2009	£m	£m	£m	£m
Revenue
Revenue from external customers	548.8	154.5	-	703.3
Inter-segment revenue	-	0.9	(0.9)	-
Total revenue	548.8	155.4	(0.9)	703.3
Operating profit before exceptional items	127.4	12.6	(9.2)	130.8
Exceptional items:
Net gain / (loss) on disposal of property, plant and equipment	0.4	(0.4)	0.5	0.5
Reorganisation	-	-	(4.3)	(4.3)
Operating profit of the Group	127.8	12.2	(13.0)	127.0
Net finance costs				(21.1)
Profit before tax				105.9
Tax expense				(32.8)
Profit for the period				73.1
Assets and liabilities
Segment assets	2,407.4	118.4	-	2,525.8
Unallocated assets	-	-	73.5	73.5
Total assets	2,407.4	118.4	73.5	2,599.3
Segment liabilities	(160.8)	(32.6)	-	(193.4)
Unallocated liabilities	-	-	(1,362.6)	(1,362.6)
Total liabilities	(160.8)	(32.6)	(1,362.6)	(1,556.0)
Net assets	2,246.6	85.8	(1,289.1)	1,043.3

			Unallocated
	Hotels &		and	Total
	Restaurants	Costa	elimination	operations
Year to 4 March 2010	£m	£m	£m	£m
Revenue
Revenue from external customers	1,096.0	339.0	-	1,435.0
Inter-segment revenue	-	1.9	(1.9)	-
Total revenue	1,096.0	340.9	(1.9)	1,435.0
Operating profit before exceptional items	247.0	36.2	(18.4)	264.8
Exceptional items:
Net gain / (loss) on disposal of property, plant and equipment and property reversions	14.5	(0.4)	(20.7)	(6.6)
Reorganisation	-	-	(9.9)	(9.9)
Pension curtailment	-	-	4.0	4.0
Impairment	(10.7)	(0.6)	-	(11.3)
Impairment reversal	9.1	0.7	-	9.8
Operating profit of the Group	259.9	35.9	(45.0)	250.8
Net finance costs				(42.8)
Profit before tax				208.0
Tax expense				(48.0)
Profit for the year				160.0
Assets and liabilities
Segment assets	2,393.9	155.3	-	2,549.2
Unallocated assets	-	-	98.4	98.4
Total assets	2,393.9	155.3	98.4	2,647.6
Segment liabilities	(127.5)	(56.7)	-	(184.2)
Unallocated liabilities	-	-	(1,355.4)	(1,355.4)
Total liabilities	(127.5)	(56.7)	(1,355.4)	(1,539.6)
Net assets	2,266.4	98.6	(1,257.0)	1,108.0

3. Exceptional items and other non GAAP adjustments

	6 months to 2 September 2010 £m	6 months to 27 August 2009 £m	Year to 4 March 2010 £m
Exceptional items before tax and interest:
Revenue
Refund of VAT charged on gaming machine income (a)	5.0	-	-
Distribution costs
Net profit/(loss) on disposal of property, plant and equipment, and property reversions	-	0.5	(6.6)
Impairment of property, plant and equipment   Impairment reversal	- -	- -	(11.3) 9.8
Administrative expenses   Pension curtailment	-	-	4.0
Reorganisation costs	-	(4.3)	(9.9)
	5.0	(3.8)	(14.0)
Exceptional interest:
Interest on VAT refunded (a)	0.9	-	-
Interest on exceptional tax (b)	(0.4)	(0.3)	(0.7)
Movement in discount on provisions	(0.5)	(0.5)	(0.9)
	-	(0.8)	(1.6)
Other non GAAP adjustments made to underlying profit before tax to arrive at reported profit before tax:
IAS 19 Income Statement charge for pension finance cost	(5.8)	(7.7)	(15.5)
Items included in reported profit before tax but excluded from underlying profit before tax	(0.8)	(12.3)	(31.1)

	6 months to 2 September 2010 £m	6 month to 27 August 2009 £m	Year to 4 March 2010 £m
Tax adjustments included in reported profit after tax, but excluded from underlying profit after tax:
Tax on continuing exceptional items	(1.6)	1.3	2.0
Exceptional tax items (c)	9.3	-	16.8
Tax on other non GAAP adjustments	1.6	2.2	4.3
	9.3	3.5	23.1

(a) The £5.0m of VAT refunded had previously been charged on income from gaming machines operated in the restaurants of the Group.  HMR&C refunded the amount paid, plus accrued interest of £0.9m, on the basis of a ruling that VAT may not be applicable to certain types of gaming machine income.  HMR&C continues to appeal the ruling, but the Group does not consider it probable that the appeal will be successful.  Accordingly, no provision for repayment has been made although a contingent liability is disclosed in note 14.  

(b)The associated interest arising on late payment of an item claimed in a previous year, which had been disputed, is included in exceptional interest charges.

(c) The Finance (No 2) Act 2010 reduced the main rate of UK Corporation Tax from 28% to 27% from 1 April 2011.  The effect of the new rate is to reduce the deferred tax provision by a net £5.4m, comprising a credit of £9.3m to the Income Statement and a charge of £3.9m to the Consolidated Statement of Comprehensive Income. 

Additional changes to the main rate of UK Corporation Tax are proposed, to reduce the rate by 1% per annum to 24% by 1 April 2014.  These changes had not been substantively enacted at the balance sheet date and consequently are not included in these financial statements.  The effect of these proposed reductions would be to reduce the net deferred tax liability by £13.0m.  Further UK tax changes, subject to enactment, are a reduction from 1 April 2012 in the rate of capital allowances applicable to plant & machinery and to integral features from 20% to 18% and from 10% to 8% respectively. 

4. Finance (costs)/revenue
	6 months to	6 months to	Year to
	2 September	27 August	4 March
	2010	2009	2010
	£m	£m	£m
Finance costs
Bank loans and overdrafts	(13.6)	(13.2)	(27.2)
Other loans	(0.2)	(0.1)	(0.1)
Interest capitalised	1.0	0.5	0.5
	(12.8)	(12.8)	(26.8)
Net pension finance cost	(5.8)	(7.7)	(15.5)
Finance costs before exceptional items	(18.6)	(20.5)	(42.3)
Exceptional finance costs (note 3)	(0.4)	(0.3)	(0.7)
Movement in discount on provisions (note 3)	(0.5)	(0.5)	(0.9)
Total finance costs	(19.5)	(21.3)	(43.9)
Finance revenue
Bank interest receivable	0.2	-	0.1
Other interest receivable	1.0	-	0.8
Income from investments	-	0.1	-
	1.2	0.1	0.9
Exceptional finance revenue (note 3)	0.9	-	-
Impact of ineffective portion of cash flow hedges	-	0.1	0.2
Total finance revenue	2.1	0.2	1.1

5. Dividends paid

	6 months to	6 months to	Year to
	2 September	27 August	4 March
	2010	2009	2010
	£m	£m	£m
Paid in the period:
Equity dividends on ordinary shares:
Final dividend for 2009/10 - 28.35 pence	49.7	-	-
Settled via scrip issue	(1.7)	-	-
Final dividend for 2008/9 - 26.90 pence	-	46.7	46.7
Settled via scrip issue	-	(6.0)	(6.0)
Interim dividend for 2009/10 - 9.65 pence	-	-	16.8
Settled via scrip issue	-	-	(3.8)
	48.0	40.7	53.7
Dividends on other shares:
B share dividend	-	0.1	0.1
C share dividend	-	-	0.1
	-	0.1	0.2
Total dividends paid	48.0	40.8	53.9

Shareholders were offered a scrip alternative to the 2009/10 cash final dividend of 28.35p. Scrip elections were received on 6.4m shares, resulting in the issue of new shares with a nominal value of £0.1m.

6. Earnings per share

The basic earnings per share figures are calculated by dividing the net profit for the year attributable to ordinary shareholders, therefore before minority interests, by the weighted average number of ordinary shares in issue during the year after deducting treasury shares and shares held by an independently managed employee share ownership trust (ESOT).

The diluted earnings per share figures allow for the dilutive effect of the conversion into ordinary shares of the weighted average number of options outstanding during the period.

The numbers of shares used for the earnings per share calculations are as follows:

	6 months to 2 September 2010 million	6 months to 27 August 2009 million	Year to 4 March 2010 million
Basic weighted average number of ordinary shares	175.6	173.9	174.3
Effect of dilution - share options	0.5	0.2	0.4
Diluted weighted average number of ordinary shares	176.1	174.1	174.7

The profits used for the earnings per share calculations are as follows:

	6 months to 2 September 2010 £m	6 months to 27 August 2009 £m	Year to 4 March 2010 £m
Profit for the period attributable to parent shareholders	116.4	73.6	161.0
Exceptional items - gross	(5.0)	4.6	15.6
Exceptional items - taxation	(7.7)	(1.3)	(18.8)
Profit for the period before exceptional items attributable to parent shareholders	103.7	76.9	157.8
Non GAAP adjustments - gross	5.8	7.7	15.5
Non GAAP adjustments - taxation	(1.6)	(2.2)	(4.3)
Underlying profit for the period attributable to parent shareholders	107.9	82.4	169.0

	6 months to 2 September 2010 p	6 months to 27 August 2009 p	Year to 4 March  2010 p
Basic for profit for the period	66.29	42.32	92.37
Exceptional items - gross	(2.85)	2.65	8.95
Exceptional items - taxation	(4.39)	(0.75)	(10.79)
Basic for profit before exceptional items for the period	59.05	44.22	90.53
Non GAAP adjustments - gross	3.31	4.43	8.89
Non GAAP adjustments - taxation	(0.91)	(1.27)	(2.47)
Basic for underlying profit for the period	61.45	47.38	96.95
Diluted for profit for the period	66.10	42.27	92.16
Diluted for profit before exceptional items for the period	58.89	44.17	90.33
Diluted for underlying profit for the period	61.27	47.33	96.74

7. Financial liabilities

		Current		Non-current
		At 2 September 2010	At 4 March 2010	At 2 September 2010	At 4 March 2010
	Maturity	£m	£m	£m	£m
Bank overdrafts	On demand	3.3	5.5	-	-
Short-term borrowings	On demand	7.7	25.5	-	-
		11.0	31.0	-	-
Unsecured
Other loans	2010 - 2014	0.3	0.4	0.4	0.6
Revolving credit facility (£700m)	2012	-	-	329.8	528.4
Revolving credit facility (£455m)	2013	-	-	58.9	-
Private placement loan notes	2017 - 2020	-	-	101.5	-
Total		11.3	31.4	490.6	529.0

Revolving credit facility (£455m)

The revolving credit facility was entered into on 20 March 2008 and runs until 20 March 2013.  Loans have variable interest rates linked to LIBOR. The facility is multi-currency.

Revolving credit facility (£700m)

The revolving credit facility was entered into on 9 December 2005 and runs until 8 December 2010. Two one-year extensions have been agreed with Whitbread PLC's banking group such that £700m is available until December 2010, £475m is available until December 2011 and £400m is available until December 2012.  Loans have variable interest rates linked to LIBOR. The facility is multi-currency.

Short-term borrowings

Short-term borrowings are typically overnight borrowings, repayable on demand. Interest rates are variable and linked to LIBOR.

Private placement loan notes

On 13 August 2010, the Group completed a financing transaction in the United States Private Placement market.  The Group issued loan notes in a combination of both Sterling and US Dollars at maturities of both seven and 10 years with a fixed coupon payable semi-annually.  Further details of the loan notes are set out below. 

Title	Principal value	Maturity	Coupon
Series A loan notes	$40m	13 August 2017	4.55%
Series B loan notes	$75m	13 August 2020	5.23%
Series C loan notes	£25m	13 August 2020	5.19%

Following the issue of the Series A loan notes, the Group entered into cross-currency swaps whereby it receives a fixed interest rate of 4.55% on a notional amount of $40.0m and pays between 4.513% and 4.548% on a notional sterling balance of £26.7m.  These swaps have been formally designated as a cash flow hedge of the Series A loan notes.

The Series B loan notes have been converted to sterling debt with a floating rate coupon by entering into cross-currency swaps whereby the Group receives a fixed interest rate of 5.23% on a notional amount of $75.0m and pays a spread of between 1.715% and 1.755% over 6m GBP LIBOR on a notional sterling balance of £50.1m.  These swaps have been formally designated as a fair value hedge of the Series B loan notes, with any fair value movements on both the derivatives and the underlying debt taken to the Income Statement.  At 2 September 2010 the carrying value of the private placement loan notes included a fair value hedge adjustment of £0.7m.

The above swaps eliminate any foreign exchange risk on the repayment of the principal amounts of the Series A and B notes. The sterling denominated Series C loan notes remain as fixed rate sterling debt with no related swap transactions.

An analysis of the interest rate profile and the maturity of Group borrowings, together with related interest rate swaps, is as follows:

Period ended 2 September 2010	Within 1 year  £m	1-2 years £m	2-5 years £m	Over 5 years £m	Total £m
Fixed rate	0.2	0.2	0.2	101.5	102.1
Fixed to floating interest rate swaps	-	-	-	(50.1)	(50.1)
Floating to fixed interest rate swaps	-	200.0	100.0	100.0	400.0
	0.2	200.2	100.2	151.4	452.0
Floating rate	11.1	-	388.7	-	399.8
Fixed to floating interest rate swaps	-	-	-	50.1	50.1
Floating to fixed interest rate swaps	-	(200.0)	(100.0)	(100.0)	(400.0)
	11.1	(200.0)	288.7	(49.9)	49.9
Total	11.3	0.2	388.9	101.5	501.9

Year ended 4 March 2010	Within 1 year  £m	1-2 years £m	2-5 years £m	Over 5 years £m	Total £m
Fixed rate	0.1	0.2	0.4	-	0.7
Floating to fixed interest rate swaps	-	200.0	100.0	100.0	400.0
	0.1	200.2	100.4	100.0	400.7
Floating rate	31.3	-	528.4	-	559.7
Floating to fixed interest rate swaps	-	(200.0)	(100.0)	(100.0)	(400.0)
	31.3	(200.0)	428.4	(100.0)	159.7
Total	31.4	0.2	528.8	-	560.4

Maturity analysis is grouped by when the debt is contracted to mature rather than by repricing dates, as allowed under IFRS.

The swaps with maturities beyond the life of the current revolving credit facilities (2013) are in place to hedge against the core level of debt the Group will hold.

The carrying amount of the Group's borrowings is denominated in sterling.

At 2 September 2010, the Group had available £766.2 m (4 March 2010: £626.6m) of undrawn committed borrowing facilities in respect of revolving credit facilities on which all conditions precedent had been met.

8. Movements in cash and net debt

					Fair value	Amortisation
	4 March	Cost of		Foreign	adjustments	of premiums	2 September
	2010	borrowings	Cash flow	exchange	to loan capital	and discounts	2010
	£m	£m	£m	£m	£m	£m	£m
Cash at bank and in hand	47.0						34.7
Overdrafts	(5.5)						(3.3)
Cash and cash equivalents	41.5	-	(10.0)	(0.1)	-	-	31.4
Short-term bank borrowings	(25.5)	-	17.8	-	-	-	(7.7)
Loan capital under one year	(0.4)						(0.3)
Loan capital over one year	(529.0)						(490.6)
Total loan capital	(529.4)	1.1	38.5	-	(0.7)	(0.4)	(490.9)
Net debt	(513.4)	1.1	46.3	(0.1)	(0.7)	(0.4)	(467.2)

9. Pension liability

The pension liability in the period has increased from £434.0m to £500.0m.  The main movements in the deficit are as follows:

		£m
Pension liability at 4 March 2010		434.0
Net actuarial losses		61.1
Employer contributions		(0.9)
Net interest cost		5.8
Pension liability at 2 September 2010		500.0

The actuarial losses on scheme liabilities are primarily due to the reduction in the discount factor from 5.6% to 5.1%, with most other assumptions unchanged.

The pension scheme receives a share of the income, profits and variable capital payment from it's investment in Moorgate Scottish Limited Partnership (SLP) which was established by the Group in the year ended 4 March 2010.  A further £39m investment was made during the year on the same basis as the £102m made in the previous financial year.

Following this additional contribution the Pension Scheme, as a partner in Moorgate SLP, is entitled to an increased proportion of the profits of the partnership over the next 15 years.  At the end of this period, and depending on the pension funding position, the capital allocation to the Pension Scheme may be increased to up to £149.95m.  At that point, the Group may be required to transfer that amount in cash to the Scheme.

Under IAS19, the investment held by the Pension Scheme in Moorgate SLP, a consolidated entity, does not represent a plan asset for the purpose of the Group's consolidated financial statements.  Accordingly, the pension deficit position does not reflect the £39m investment made.

10. Related party disclosure

The Group's principal subsidiaries, joint ventures and associate are listed in the following table:

			% equity interest
			2 September	27 August	4 March
	Principal activity	Country of incorporation	2010	2009	2010
Principal subsidiaries
Whitbread Group PLC	Hotels and restaurants	England	100.0	100.0	100.0
Premier Inn Hotels Limited	Hotels	England	100.0	100.0	100.0
Whitbread Restaurants Limited	Restaurants	England	100.0	100.0	100.0
Premier Inn Limited	Hotels	England	100.0	100.0	100.0
Costa Limited	Operator of coffee shops and roasters and wholesalers of coffee beans	England	100.0	100.0	100.0
Yueda Costa (Shanghai) Food & Beverage Management Company Limited	Operator of coffee shops	China	51.0	51.0	51.0
Coffeeheaven International plc	Operator of coffee shops in eastern Europe	England	100.0	-	100.0
Principal joint ventures
Premier Inn Hotels LLC	Hotels	United Arab Emirates	49.0	49.0	49.0
Rosworth Investments Limited	Coffee shops	Cyprus	50.0	50.0	50.0
Hualian Costa (Beijing) Food & Beverage Management Company Limited	Coffee shops	China	50.0	50.0	50.0
Principal associate
Morrison Street Hotel Limited	Hotels	Scotland	40.0	40.0	40.0

Shares in Whitbread Group PLC are held directly by Whitbread PLC.  Shares in the other subsidiaries are held by Whitbread Group PLC.  All principal subsidiary undertakings have the same year end as Whitbread PLC, with the exception of Yueda Costa (Shanghai) Food & Beverage Management Company Limited which has a year end of 31 December as required by Chinese legislation and the recently acquired Coffeeheaven International plc whose year end will be aligned with the Group.  All the above companies have been included in the Group consolidation. The companies listed above are those that materially affect the amount of profit and the assets of the Group.

Transactions and balances with related parties are shown in the table below.

	Sales to related party £m	Amounts owed by related party £m	Amounts owed to related party £m
Joint ventures
6 months to 2 September 2010	0.2	-	-
6 months to 27 August 2009	0.2	5.6	-
Year to 4 March 2010	0.7	0.5	-
Associate
6 months to 2 September 2010	1.6	0.2	2.5
6 months to 27 August 2009	-	-	-
Year to 4 March 2010	2.5	0.5	2.5

Terms and conditions of transactions with related parties

Sales to and purchases from related parties are made at normal market prices. Outstanding balances are unsecured and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables. For the six months ended 2 September 2010, the Group has not raised any provision for doubtful debts relating to amounts owed by related parties (2009: £nil).  An assessment of bad debts is undertaken each financial year through examining the financial position of the related party and the market in which it operates.

11. Capital expenditure commitments

Capital expenditure commitments for which no provision has been made are set out in the table below:

	2 September	27 August	4 March
	2010	2009	2010
	£m	£m	£m
Property, plant and equipment	64.6	40.1	41.9
Intangible assets	-	-	-

12. Events after the balance sheet date

An interim dividend of 11.25p per share (2009: 9.65p) amounting to a dividend of £19.7m (2009: £16.8m) was declared by the Directors. A scrip alternative will be offered. These financial statements do not reflect this dividend payable.

13. Risks and uncertainties

The principal risks and uncertainties affecting the business activities of the Group are detailed on pages 34 and 35 of the Directors' Report and Accounts for the year ended 4 March 2010.  The risks are categorised into the following areas: Health, safety and security, Strategic business risks, Financial loss, Funding, Market expectations, Business continuity, Counterparty and third party contracts, Customers / key relationships, Pensions, International and Reputational risk.  Certain financial risks are also detailed in note 25 to the financial statements dated 4 March 2010, for example: interest rate risk, credit risk and foreign currency risk.  The Directors consider that these key risks and uncertainties continue to be relevant to the Group for the remainder of the financial year. 

A copy of the Directors' Report and Accounts is available on the Company's website at www.whitbread.co.uk.  Set out above within the Chief Executive's Review is a commentary on the outlook for the Group for the remaining six months of the financial year.

14. Contingent liability

As disclosed in note 3, during the period the Group received a £5.0m refund of VAT charged on gaming machine income, together with associated interest of £0.9m.  The refund was made following a ruling that the application of VAT to certain types of gaming machine income contravened the European Union's principle of fiscal neutrality.  HMR&C have appealed against the ruling, and if HMR&C's appeal is upheld the refund and associated interest of £5.9m would be repayable.

Independent review report to Whitbread PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 2 September 2010 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity and the consolidated cash flow statement. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 2 September 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

Ernst & Young LLP

London

 18 October 2010

 

END

 

 

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