16th Oct 2007 07:00
Whitbread PLC16 October 2007 Whitbread PLC - interim results for the six months from 2 March - 30 August 2007 Financial • Total revenue from Continuing Whitbread(1) up 10.8% to £590.2m (2006/07: £532.8m) • Group like for like sales up 6.3% • Profit before tax and exceptional items from Continuing operations(2) up 13.3% to £99.4m (2006/07: £87.7m) • Basic pre-exceptional EPS for Continuing operations up 44.9% to 34.57p • Interim dividend up by 12.3% to 9.10p (2006/07: 8.10p) • Half year net debt £29.7m(3) Statutory • Total Group sales £605.8m (2006/07: £623.6m) • Profit for the period £499.4m (2006/07: £136.0m) • Total basic EPS 254.43p (2006/07: 56.15p) Key Highlights • Sale of David Lloyd Leisure for £925m • Announced an acquisition of 2000 rooms for Premier Inn • Fourth consecutive quarter of like for like sales growth in Restaurants • Costa expansion accelerating with over 800 sites worldwide • £174m returned to shareholders through share buybacks(3) Anthony Habgood, Chairman Whitbread PLC, said: "These are good results stemmingfrom a combination of focused investment in growing markets where we have strongcompetitive positions and judicious divestments. We are now seeing the resultsof this strategy". Alan Parker, Chief Executive Whitbread PLC, said: "We have had strong first halfgrowth in all our businesses. The disposal of David Lloyd Leisure has nowcompleted. We have announced the acquisition of the Tulip Inn UK business addinganother 2000 rooms to Premier Inn which continues to outperform the market. We expect the budget hotel sector to continue growing and within that we planfor Premier Inn to increase its share. Costa is now the leading coffee shopbrand in the UK, with strong growth potential at home and internationally. Thesuccessful Beefeater remodelling is now complete and our focus continues to beon achieving similar improvements in the rest of the restaurant estate. We are returning cash to shareholders through share buybacks and remaincommitted to increasing the leverage of the business further. The second half has started well. We are confident about the outcome for thefull year." For further information contact: Whitbread Investor RelationsChristopher Rogers 01582 844439 Tulchan CommunicationsDavid Allchurch / Wendy Watherston 0207 353 4200 A presentation for analysts will be held at London Stock Exchange, 10Paternoster Square, London, EC4M 7LS. Registration is from 9:00am; presentationis at 9:30am. A live audio webcast of the presentation will be available on theinvestors' section of the website at: www.whitbread.co.uk. Alternatively, youcan listen live to the presentation by dialling: +44 (0)20 7162 0025(participants must quote the "Whitbread Interim Results" to connect). Theconference call will be available as a reply for 30 days. To listen dial innumber: 020 7031 4064 and enter passcode: 768373. Revenue by business segment £m 2007/08 2006/07 ChangePremier Inn 264.1 230.8(4) 14.4%Restaurants (retained) 229.5 222.5(4) 3.1%Costa 98.1 81.0 21.1%Less inter-segment (1.5) (1.5)Sales from Continuing Whitbread 590.2 532.8 10.8%Restaurants (disposed) - 82.5Other 15.6 8.3 88.0%Revenue from Continuing operations 605.8 623.6 (2.9%) Notes (1) Continuing Whitbread Continuing Whitbread comprises Premier Inn, the retained restaurant estate andCosta but excludes the disposed restaurant sites. (2) Continuing operations Continuing operations comprises Continuing Whitbread plus the disposedrestaurant sites during the period of Whitbread ownership and supply chain salesto third parties. (3) Net DebtExcludes a non-cash accrual of £270.3m for share buybacks, as required by IAS32.The Company entered into a contingent agreement with the Company's brokers topurchase shares during the close period. It is this commitment of £270.3m, beingthe amount authorised by shareholders at that time, which is recognised as afinancial liability in the balance sheet. During the close period, the periodbetween the period end and the half year announcement, the Company is preventedfrom purchasing its own shares by the UK Listing Rules and therefore enteredinto the arrangement described above. (4) After restatement for breakfast sales amounting to £8.4m. CHIEF EXECUTIVE'S REVIEW Total sales for Continuing Whitbread for the first six months of the year wereup 10.8% to £590.2m. This growth has been driven by increased revenue in allthree of our businesses, led by Premier Inn and Costa. Like for like sales forContinuing Whitbread have grown by 6.3%, the highest level in recent years. Profit before tax and exceptional items for the half year from Continuingoperations was up 13.3% to £99.4m. Premier Inn, the largest hotel chain in the UK, has once again delivered anindustry leading performance. Like for like occupancy for the half was 82.1%, up1.3% points and ahead of the industry average. On 26 September 2007 we announcedthe acquisition of the Tulip Inn UK business with some 770 rooms currentlytrading and an additional pipeline of 1,300 rooms. We are well on our way toopening over 3,500 rooms by the full year and beating our 3,000 room target. Weare progressing well with our plans for bolt-ons, extensions and new siteopenings. We have maintained the roll out of the co-located model which continues to showstrong returns. Five new sites were opened in the first six months. Restaurants have reported their fourth consecutive quarter of like for likesales growth. Overall sales for the retained estate increased by 3.1%. We havemade solid progress on remodelling Beefeater. Going forward the main focus willbe on achieving similar improvements in the rest of the restaurant estate and wehave remodelled 41 sites in the first half. On average profit per house of theretained estate was up 23%. Costa is now the fastest growing and largest coffee shop chain in the UK. Bothnational and international growth have been impressive and worldwide we have acurrent total of 825 Costa sites. As with Premier Inn we see significantpotential for growth within the UK market in areas where we are not representedor under represented. This is a brand with room to grow. At the half-year date net debt stood at £29.7m(3) and as previously announced weremain committed to increasing the leverage of the Group. This process has begunwith our on market buyback programme which, as of yesterday, had reached £174m. In September we repaid £300.5m of debentures reducing our facilities to £980m.This was an important precursor to our plan to increase leverage through theissue of asset-backed bonds, work on which is largely complete. Given thecurrent state of the debt market the timing and appropriateness of any suchissue remains unclear. In the meantime, we are continuing to increase ourleverage through our on market buyback. We anticipate needing to renew ourshareholder authority to purchase Whitbread shares later this year. The pension deficit has reduced from £196.0m at the end of the previousfinancial year to £25.0m, benefiting from the increase in bond rates, a further£50m cash injection and a beneficial change as a result of the adoption of the Aday legislation. The next triennial valuation of the Fund will take place in2008. As previously announced we also completed the disposal of David Lloyd Leisure inthe first half of the financial year for £925m. Outlook The second half-year has started well. Premier Inn and Costa are maintainingtheir strong performance and the benefits from the Restaurants' remodelling arenow evident in a sector which is showing some signs of softening. We remainconfident about the outcome for the full year. Premier Inn 2007/08 Change Sales £264.1m 14.4%Like-for-like sales 10.9%Operating Profit £94.7m 20.5% Our newly re-branded Premier Inn business has delivered another industry leadingperformance. Sales for the six months increased by 14.4% to £264.1m andoperating profit was up by 20.5% to £94.7m. Operating margins also improved, up1.8% points to 35.9% and like for like sales grew year on year by 10.9%. At 86.7% Premier Inn achieved 2% points higher occupancy in London than its peergroup and the total market sample. Outside London at 81.1% it had 7.7% pointshigher occupancy than the total market sample and 7.1% points higher than thepeer group. (Comparisons are to benchmark data compiled by hotel consultantsTRI). Our expansion plans are on target with 842 rooms opened in the first half viabolt-ons, extensions and new openings. Nearly half of the rooms opened were onWhitbread owned land, again confirming the benefits from retaining our own landand property. In late September we announced the acquisition, for £44m, of six hotels with atotal of 770 rooms trading under the Tulip Inn and Golden Tulip brands in the UKand a secured pipeline of nine further sites with a total of 1,300 rooms. As aresult of this acquisition we are well on our way to opening over 3,500 rooms inthe full year, beating our expansion target of 3,000 additional rooms. The rebranding process is underway with 25 sites re-signed to date. The roll outwill be completed by the end of the current financial year supported by anational advertising campaign which is to be launched next year. As previouslyannounced the total revenue cost will be £13m of which £10m will be incurred inthe second half of this financial year. International expansion is also progressing. In Dubai we are looking forward toour first hotel opening in the Spring of 2008. During the half year we werepleased to announce a joint venture in India to open 80 hotels with some 12,000rooms over the next 10 years. Restaurants 2007/08 Change Revenue(1) £229.5m (24.8%)Like for like sales 1.5%Operating profit £28.7m (19.6%) Our Restaurants business has reported its fourth consecutive quarter of like forlike sales growth at 1.5% with sales from the retained estate up 3.1%. On ahouse by house level, profits this year have increased some 23%. Half year profit at £28.7m is 19.6% lower than last year, however last yearbenefited from the additional 235 sites for five months to 28 July 2006, andfour months without depreciation on these sites. Guest discounting has been significantly reduced across the estate along withimprovements in cost controls which have helped contribute to the increase inthe overall margin of 1.7%(2) for the first six months of the financial year. We have introduced new menus to our Beefeater estate. As a result of workingclosely with customer tasting panels, we are introducing a total of 16 newdishes alongside the familiar favourites. Our daytime set menu deal has alsoreally helped build off-peak business with over 60% of guests dining at thistime enjoying this option. The Beefeater remodelling is now complete with the estate enjoying marketleading awareness and strong like for like sales. Average profit per Beefeatersite was up 47%, whilst like for like covers were up 10.2%. The focus is now onthe remodelling of the rest of the estate with 41 sites now completed duringthis half, 25 completed in the prior year and a target of 100 by year end. Weanticipate a sustained improvement in performance through the remodellingprogramme and the application of many of the operational disciplines implementedat Beefeater. As previously announced, the co-located restaurant and Premier Inn modelcontinues to produce revenue and cost benefits for both businesses and we havesuccessfully opened a further five restaurants co-located with a Premier Innwhich are performing ahead of our expectations. (1) Revenue and profit decline due to disposal of 235 restaurants in 2006/07 for £497m on 28/07/2006 (2) After adjusting for non depreciation of assets sold to Mitchells and Butlers PLC in 2006/7. Costa 2007/08 ChangeRevenue £98.1m 21.1%Like for like sales (UK equity) 6.8%Operating profit £6.6m 15.8% Costa is now both the fastest growing and largest coffee shop chain in the UK.At the half year there were 825 Costa stores worldwide, an increase of 118 unitson the year-end. Operating profit is 15.8% ahead of the prior year, althoughinternational opening costs have impacted overseas profitability. Costa's sales for the period have increased by 21.1% driven by a combination ofnew store openings and a strong like for like sales performance. In the UK 84 Stores have been added (71 net of closures) including our 600thstore which opened in Wimbledon in August; overseas 61 new stores were added (47net of closures) bringing the total in the UK and overseas of 603 and 222respectively. Of these, franchises account for 144 stores in the UK and almostall of the overseas units. Like for like sales growth for the period has been 6.8%. This has been achievedthrough a combination of increased volumes and a growth in transaction values.An important driver of transaction value has been food capture (the number oftransactions including a food item), which has continued to improve, and nowstands at over 40% in the UK. All our food is GM and hydrogenated fat free. Differentiation of the brand is an important part of Costa's strategy. As wellas roasting our own coffee we are continuing to develop the stored value cardand the Costa Foundation. During the period, the first school built by theFoundation was opened in Colombia. The opportunity to grow Costa remains strong. In the UK there are still manytowns where Costa is not represented or where it is under represented. Inaddition there are significant growth opportunities in evolving markets such asretail parks, at travel gateways and supermarkets. We have signed an agreementwith Tesco to open around 50 Costa in-store coffee shops this financial year,with 15 opened to date. Internationally, the opportunities for further growthare considerable. FINANCE REVIEW Changes in Group In the first half of the financial year there have been further changes to thestructure of the Group: David Lloyd Leisure On 2 August 2007 Whitbread completed the sale of David Lloyd Leisure toVersailles Bidco Limited, a company owned by London and Regional HoldingsLimited and Bank of Scotland Corporate. Profit generated by the business up to the point of sale has been includedwithin discontinued operations, with prior year comparatives restatedaccordingly. The 2007/8 results include a benefit of £3.7m, in accordance withIFRS 5, as no depreciation was charged on David Lloyd Leisure assets from thetime the Group decided to sell the business to completion of the sale. TGI Friday's On 2 March 2007 Whitbread completed the sale of the TGI Friday's property andbusiness to British Land, Carlson Restaurants Worldwide Inc. and ABN AmroCapital. Profit generated by the business in 2006/7 has been included withindiscontinued operations. Stand-alone restaurants On 28 July 2006 Whitbread announced the sale of 235 trading restaurants,together with four sites not yet trading, to Mitchells & Butlers PLC. Thetrading results for the 235 sites up to the date of sale are included within the2006/07 comparatives for the Restaurant business. Revenue Group revenue from Continuing operations fell by 2.9% year on year to £605.8m,driven by the impact of the restaurant disposals. Excluding the disposedrestaurants, revenue from Continuing Whitbread grew by 10.8%. Revenue by business segment £m 2007/8 2006/7 ChangePremier Inn 264.1 230.8(1) 14.4%Restaurants (retained) 229.5 222.5(1) 3.1%Costa 98.1 81.0 21.1%Less inter-segment (1.5) (1.5)Sales from Continuing Whitbread 590.2 532.8 10.8%Restaurants (disposed) - 82.5Other 15.6 8.3 88.0%Revenue from continuing operations 605.8 623.6 (2.9)% (1) After restatement for breakfast sales amounting to £8.4m. This was a direct transfer between Premier Inn and Restaurants with a corresponding profit adjustment of £5.7m. Like for like sales grew by 6.3% with the remainder of the turnover growthcoming from the net increase in outlets, notably in Premier Inn and Costa. Results Total profit for the year is £499.4m, up 267.2% on last year. Profit before taxand exceptionals is £99.4m, up 13.3% on last year. Exceptional items Net exceptional profit after tax amounted to £412.8m. This amount is analysed inmore detail in note 4 to the financial statements. The major items includedwithin this category are noted below. Business disposals The two principal businesses disposed of during the year generated pre-taxprofits of £396.7m; £384.1m on David Lloyd Leisure and £12.6m for TGI Friday's. Pensions credit During the half year it was agreed with the Trustee of the Group pension schemeto reflect new arrangements for commutation of pension rights on retirement intocash following a change in the government limits, "The A Day Changes". Theactuarial impact of this decision, coupled with a change in commutation factors,gave rise to £10.0m of income which is treated as exceptional. Interest on debenture redemption At the 2006/7 year end Whitbread's capital structure included redeemabledebenture stock with a nominal value of £300.5m. These debentures were due forrepayment in 2011 and 2021. During the first half of the year, as part of ourrestructuring of the balance sheet, we sought early redemption. This was agreedon 30 August 2007 with the debentures being repaid on 6 September 2007. Thedebentures and the amount repayable under the early redemption, are included inthe Group's balance sheet at the half year-end and this has given rise to anexceptional interest charge of £12.5m. Finance Act 2007 The Finance Act 2007 reduced the rate of UK corporation tax to 28% with effectfrom April 2008. The effect of the reduced rate is a deferred tax credit of£21.0m, included in the tax credit of £22.0m in continuing exceptional items.Further UK tax changes, subject to consultation and future enactment are areduction in the rate of capital allowances applicable to plant and machinery to25% to 20% on a reducing balance; a new category of fixtures qualifying forcapital allowances at 10% on a reducing balance basis and the phased abolitionof allowances for hotel buildings. The Group is currently calculating the effectthat these proposed changes may have. Interest Underlying net interest costs have fallen year-on-year by 15.3% to £17.7m. Thisis a result of an increase in interest received, including interest earned onthe David Lloyd Leisure sale proceeds and, following a reduction in the pensiondeficit, a movement in the pension finance "charge" which generated £2.7m ofincome this half year compared to a cost in the first half of last year of£1.0m. Taxation The UK tax expense of £31.8m represents an effective tax rate of 32.0% on thecontinuing businesses before exceptional items. This compares with 34.1% lastyear. Earnings per share Basic earnings per share pre exceptional increased by 44.0% to 44.25p. Detailscan be found in note 7 to the accounts. Dividend An interim dividend of 9.10p, an increase of 12.3% over last year, will be paidon 8th January 2008 to all shareholders on the register at the close of businesson 2 November 2007. Capital expenditure Total Group capital expenditure on property, plant and equipment in the half was£133.6m. This included £119.3m on Continuing operations, split betweenacquisition expenditure, which includes the acquisition and development ofproperties (£84.1m), and maintenance expenditure (£35.2m). Financing Net debt at the half year, before making a non-cash accrual of £270.3m for sharebuy backs in the close period as required by IAS32, was £29.7m, compared to£898.6m as at 1 March 2007. As at 30 August 2007 the Group has committed revolving credit facilitiestotaling £980m of which £280m expires in March 2008. As previously announced we remain committed to increasing the leverage of theGroup. This process has begun with our on market buyback programme which, as of15 October has reached £174m. In September we repaid £300.5m of debentures reducing our facilities to £980m.This was an important precursor to our plan to increase leverage through theissue of asset-backed bonds, work on which is largely complete. Given thecurrent state of the debt market the timing and appropriateness of any suchissue remains unclear, so in the meantime we will continue to increase ourleverage through our on market buyback. We anticipate needing to renewshareholder authority later this year to allow the Company to repurchase its ownshares. Pensions As at 30 August 2007 there was a gross pension deficit of £25.0m this comparesto £196.0m as at 1 March 2007. This fall is due to three factors: an actuarialgain as a result of the increase in bond rates, the change in policy withrespect to lump sum payments (see above) and the payment of a further £50m intothe fund. Under the agreement signed with Whitbread Pension Trustees Limited in April2003, and updated in October 2005, the Group expects to make furthercontributions of £50m in 2008/9 and £20m in each of 2009/10 and 2010/11. Other Post Balance Sheet Event On 26 September 2007 we announced the purchase of six hotels (770 rooms)currently trading in the UK under the Tulip Inn and Golden Tulip brands and asecured pipeline of nine further sites (1300 rooms) for £44m. The pipelinehotels are planned to open in the next two years. The 15 leasehold hotels will be converted to the Premier Inn brand at a cost of£9m. The current franchise arrangements with Golden Tulip Worldwide have beenterminated and the six open hotels will be rebranded by the year end. Taking account of the costs of integration it is anticipated that the transaction willbe marginally dilutive in the current financial year. The hotels have been purchased through the acquisition of Golden Tulip (UK)Limited and Pilot Hotels Limited from funds managed by Graphite Capital andmanagement shareholders. The consideration, which included the discharge ofexisting debt, was paid in cash on completion. Consolidated income statement Six months to 31 August 2006 Six months to 30 August 2007 (restated) Year to ---------------------------------------------------------------------- 1 March Before Before 2007 exceptional Exceptional exceptional Exceptional (restated) items items Total items items Total Total Notes £m £m £m £m £m £m £m---------------------------------------------------------------------------------------------------------- Revenue 2 605.8 - 605.8 623.6 - 623.6 1,173.5Cost of sales (92.5) - (92.5) (103.8) - (103.8) (188.5) --------------------------------------------------------------------------------Gross profit 513.3 - 513.3 519.8 - 519.8 985.0 Distributioncosts (342.8) (3.9) (346.7) (362.0) (0.3) (362.3) (702.6) Administrativeexpenses (53.6) 10.0 (43.6) (49.7) (10.3) (60.0) (103.4) --------------------------------------------------------------------------------Operating profit 2 116.9 6.1 123.0 108.1 (10.6) 97.5 179.0 Share of (loss)/profit from jointventures (0.3) - (0.3) 0.1 - 0.1 - Share ofprofit fromassociates 0.5 - 0.5 0.4 - 0.4 0.6 --------------------------------------------------------------------------------Operating profitof the Group,joint venturesand associates 117.1 6.1 123.2 108.6 (10.6) 98.0 179.6 Non-operatingitems:Net profit ondisposal ofrestaurants - - - - 188.1 188.1 196.6 --------------------------------------------------------------------------------Profit beforefinancing andtax 117.1 6.1 123.2 108.6 177.5 286.1 376.2 Finance costs 5 (24.1) (12.5) (36.6) (21.5) - (21.5) (40.1)Finance revenue 5 6.4 - 6.4 0.6 - 0.6 1.9 --------------------------------------------------------------------------------Profit/(loss)before tax 99.4 (6.4) 93.0 87.7 177.5 265.2 338.0 Tax (expense)/credit (31.8) 22.0 (9.8) (29.9) (79.7) (109.6) (133.7) --------------------------------------------------------------------------------Net profitfrom continuingoperations 67.6 15.6 83.2 57.8 97.8 155.6 204.3 Discontinuedoperations: Net profit/(loss)on disposal ofbusinesses - 397.2 397.2 - (32.5) (32.5) 48.5 Profit/(loss) forthe period fromdiscontinuedoperations 19.0 - 19.0 16.6 (3.7) 12.9 28.7 -------------------------------------------------------------------------------- 3 19.0 397.2 416.2 16.6 (36.2) (19.6) 77.2 --------------------------------------------------------------------------------Profit for theperiod 86.6 412.8 499.4 74.4 61.6 136.0 281.5 ================================================================================ Attributable to: Parent shareholders 86.9 412.8 499.7 74.4 61.6 136.0 281.8 Equity minority interest (0.3) - (0.3) - - - (0.3) -------------------------------------------------------------------------------- 86.6 412.8 499.4 74.4 61.6 136.0 281.5 ================================================================================ Dividends proposed per share in respect of the period (pence):B share dividend - 155.00 155.00C share dividend - - 159.00Interim 9.10 8.10 8.10Final - - 22.15 ======= ======= ======= Six months to Six months to 30 August 2007 31 August 2006 Year to (restated) 1 March ------------------------------------------------ 2007 Continuing Continuing (restated)Earnings per share (note 7) operations Total operations Total Total--------------------------------------------------------------------------------------------------------Profit for the period*(£m) 83.5 499.7 155.6 136.0 281.8Profit for the period before exceptional items*(£m) 67.9 86.9 57.8 74.4 151.4Earnings per share (pence): basic for profit for the period 42.52 254.43 64.24 56.15 123.43 basic for profit before exceptional items 34.57 44.25 23.86 30.72 66.32 diluted for profit for the period 42.21 252.63 63.84 55.81 122.47 diluted for profit before exceptional items 34.33 43.93 23.71 30.53 65.81 * Earnings used for earnings per share calculations are those attributable to parent shareholders Consolidated statement of recognised income and expense 6 months to 6 months to Year to 30 August 31 August 1 March 2007 2006 2007 £m £m £m--------------------------------------------------------------------------------------------------Cash flow and net investment hedges: Profit/(loss) taken to equity 8.2 0.8 (1.1)Exchange differences on translation of foreign operations (0.7) (0.3) (0.9)Actuarial gains/(losses) on defined benefit pension schemes 107.8 (3.8) 38.0Tax on items taken directly to or from equity (21.7) 15.6 (11.9) --------------------------------------- Net gain recognised directly in equity 93.6 12.3 24.1 Profit for the period 499.4 136.0 281.5 ---------------------------------------Total recognised income and expense for the period 593.0 148.3 305.6 =======================================Attributable to: Parent shareholders 593.3 148.3 305.9 Equity minority interest (0.3) - (0.3) --------------------------------------- 593.0 148.3 305.6 ======================================= Consolidated balance sheet 30 August 31 August 1 March 2007 2006 2007 Notes £m £m £m--------------------------------------------------------------------------------------------------ASSETSNon-current assetsIntangible assets 75.6 75.7 78.5Property, plant and equipment 1,998.0 2,486.4 2,487.6Investment in joint ventures 2.3 - 1.1Investment in associates 1.0 0.9 0.9Other financial assets 0.9 0.2 1.1Derivative financial instruments 2.7 66.6 56.8 --------------------------------------- 2,080.5 2,629.8 2,626.0 =======================================Current assetsInventories 12.6 14.4 12.8Trade and other receivables 92.5 64.6 67.5Income tax prepayment - - 7.1Derivative financial instruments 53.1 9.9 8.3Cash and cash equivalents 8 544.9 70.8 70.5 --------------------------------------- 703.1 159.7 166.2 --------------------------------------- Assets classified as held for sale - 79.9 59.1 ---------------------------------------TOTAL ASSETS 2,783.6 2,869.4 2,851.3 ======================================= LIABILITIESCurrent liabilitiesFinancial liabilities 8 734.6 183.8 86.3Provisions 4.7 5.3 6.2Derivative financial instruments - 1.0 -Trade and other payables 279.6 291.4 287.1Income tax payable 13.3 14.8 - --------------------------------------- 1,032.2 496.3 379.6 --------------------------------------- Non-current liabilitiesFinancial liabilities 8 110.3 547.9 882.8Preference shares 3.1 3.1 3.2Provisions 16.2 26.0 15.2Derivative financial instruments - 0.7 5.9Deferred income tax liabilities 280.4 247.3 309.5Pension liability 9 25.0 288.0 196.0 -------------------------------------- 435.0 1,113.0 1,412.6 --------------------------------------- TOTAL LIABILITIES 1,467.2 1,609.3 1,792.2 ---------------------------------------NET ASSETS 1,316.4 1,260.1 1,059.1 ======================================= EQUITYShare capital 152.3 151.5 151.9Share premium 41.1 37.0 38.1Capital redemption reserve 4.7 2.6 4.7Retained earnings 3,276.5 2,896.0 2,738.9Currency translation 0.2 2.0 0.8Other reserves (2,158.8) (1,831.8) (1,875.6) ---------------------------------------Equity attributable to equity holdersof the parent 10 1,316.0 1,257.3 1,058.8 Equity minority interest 0.4 2.8 0.3 ---------------------------------------TOTAL EQUITY 1,316.4 1,260.1 1,059.1 ======================================= Consolidated cash flow statement 6 months to Year to 6 months to 31 August 1 March 30 August 2006 2007 2007 (restated) (restated) Notes £m £m £m------------------------------------------------------------------------------------------------Profit for the period 499.4 136.0 281.5Adjustments for: Taxation charged on total operations 20.8 124.7 153.3 Net finance cost 30.0 20.5 37.4 Total income from joint ventures 0.5 (0.1) - Total income from associates (0.5) (0.4) (0.6) Loss/(profit) on disposal of property, plant and equipment 3.9 (188.4) (195.7) Net(profit)/loss on disposal of businesses and investments (399.4) 23.9 (48.5) Depreciation and amortisation 45.0 52.4 102.8 Impairment of property and goodwill - - 12.6 Reorganisation costs - 1.4 - Net profit arising on change of pension scheme rules (10.0) - - Other non-cash items (7.4) 3.7 (8.2) ------------------------------------Operating profit before working capital changes 182.3 173.7 334.6(Increase)/decrease in inventories (0.4) 3.1 4.1(Increase)/decrease in trade and other receivables (51.2) 57.7 74.7Increase/(decrease) in trade and other payables 36.6 8.1 (4.0)Payments against provisions (0.4) (0.6) (8.7)Special contributions to pension fund (50.0) (56.0) (102.3) ------------------------------------Cash generated from operations 116.9 186.0 298.4Interest paid (27.6) (18.2) (39.3)Taxes paid (11.1) (2.4) (12.8) ------------------------------------Net cash flows from operations 78.2 165.4 246.3 ------------------------------------ Cash flows from investing activitiesDisposal of investments and subsidiaries - discontinued* 983.6 251.5 361.5Purchase of property, plant and equipment (133.6) (125.3) (241.2)Purchase of investments and loans advanced (1.5) - -Purchase of intangible assets (0.5) - (2.1)(Costs)/proceeds from disposal of property, plant and equipment (1.6) 454.9 487.6Acquisition of subsidiary, net of cash acquired - (2.7) (2.7)Dividends from associates 0.4 0.2 -Interest received 4.0 0.9 3.2 ------------------------------------Net cash flows from investing activities 850.8 579.5 606.3 ------------------------------------Cash flows from financing activitiesProceeds from issue of share capital 3.4 3.8 7.6Cost of purchasing own shares (21.9) (127.2) (275.8)(Decrease)/increase in short-term borrowings (51.9) 21.3 26.1Proceeds from long-term borrowings - - 49.1Repayment of long-term borrowings (360.7) (323.1) (123.4)Equity dividends paid 6 (43.5) (315.7) (529.0) ------------------------------------Net cash flows used in financing activities (474.6) (740.9) (845.4) ------------------------------------ Net increase in cash and cash equivalents 454.4 4.0 7.2Net foreign exchange difference (0.2) (0.1) (1.2)Opening cash and cash equivalents 36.1 30.1 30.1 ------------------------------------Closing cash and cash equivalents 8 490.3 34.0 36.1 ==================================== Reconciliation to cash and cash equivalents on the balance sheet:Cash and cash equivalents shown above 490.3 34.0 36.1Add back overdrafts 54.6 36.8 34.4 ------------------------------------Cash and cash equivalents shown within current assets on the balance sheet 544.9 70.8 70.5 ==================================== * including disposed of net overdraft Notes to the accounts 1. Basis of accounting and preparation The interim results announcement is prepared in accordance with the IFRS accounting policies expected to apply at 28 February 2008 and which were applied at 1 March 2007. It has been prepared in accordance with UK listing rules and with IAS 34 'Interim Financial Reporting'. It was approved by the Board of directors on 15 October 2007. Comparative periods have been restated to reflect the following changes inaccounting treatment: - where operations have subsequently been classified as discontinued, prior periods have been restated to present the income statements of those operations within discontinued operations (see note 3). - the segmental note for the comparative period has been restated to reflect the segmental analysis implemented during 2006/07. The segments have been changed to reflect the resultant size and shape of the Group's activities. This has resulted in the renaming of the Pub Restaurants segment to Restaurants and Costa being reported in its own segment. Breakfast sales amounting to £8.4m have also been adjusted for in the comparative half year. This was a direct transfer between Premier Inn and Restaurants with a corresponding profit adjustment of £5.7m. In addition comparative numbers have been restated to include TGI Friday's and David Lloyd Leisure as discontinued operations. The financial information for the year ended 1 March 2007 is extracted from thestatutory accounts of the Group for that year and does not constitute statutoryaccounts as defined in Section 240 of the Companies Act 1985. These publishedaccounts were reported on by the auditors without qualification or statementunder Sections 237(2) or (3) of the Companies Act 1985 and have been deliveredto the Registrar of Companies. The interim accounts for the six months ended 30 August 2007 and thecomparatives to 31 August 2006 are unaudited but have been reviewed by theauditors; a copy of their review report is included at the end of this report. 2. Segmental analysis The Group's primary reporting format is business segments and its secondaryformat is geographical segments. The operating businesses are organised andmanaged separately according to the nature of the products and servicesprovided, with each segment representing a strategic business unit that offers different products and serves different markets. The Group has three core areas of operation: Operation Nature of operation Premier Inn Operation of budget hotelsRestaurants Operation of full and limited service pub restaurantsCosta Operation of coffee shops Inter-segment revenue is from Costa to the other segments. Transactions were entered into on an arm's length basis in a manner similar to transactions with third parties. Included within unallocated operations are those that are managed by a central division. The Group's geographical segments are determined by the location of the Group's assets and operations. The Group's material operations are in the UK and, for this reason, the secondary format of geographical segments is not presented. Unallocated Total Dis- Premier and continuing continued Total Inn Restaurants Costa elimination operations operations operations £m £m £m £m £m £m £m---------------------------------------------------------------------------------------------------------------------Half year ended 30 August 2007RevenueRevenue from external customers 264.1 229.5 96.6 15.6 605.8 103.4 709.2Inter-segment revenue - - 1.5 (1.5) - - - -----------------------------------------------------------------------------Total revenue 264.1 229.5 98.1 14.1 605.8 103.4 709.2 ============================================================================= EBIT (a) 94.7 28.7 6.6 (12.9) 117.1 27.6 144.7 Add back loss made by minority interest - - 0.3 - 0.3 - 0.3 -----------------------------------------------------------------------------EBIT attributable to shareholders 94.7 28.7 6.9 (12.9) 117.4 27.6 145.0 ============================================================================= EBIT attributable to shareholders 94.7 28.7 6.9 (12.9) 117.4 27.6 145.0Segment exceptional items: Net loss on disposal of property, plant and equipment - (2.6) (0.8) (0.5) (3.9) - (3.9) Net surplus arising on change of pension scheme rules - - - 10.0 10.0 - 10.0Share of loss from joint ventures 0.3 - - - 0.3 0.2 0.5Share of profit from associates (0.5) - - - (0.5) - (0.5)Loss attributable to minority interests - - (0.3) - (0.3) - (0.3) -----------------------------------------------------------------------------Segment result 94.5 26.1 5.8 (3.4) 123.0 27.8 150.8 ----------------------------------------------------------------------------- Operating profit 123.0 27.8 150.8 Share of loss from joint ventures (0.3) (0.2) (0.5)Share of profit from associates 0.5 - 0.5 ------------------------------Operating profit of the Group, joint ventures and associates Non-operating exceptionals: 123.2 27.6 150.8 Net profit on disposals of businesses - 399.4 399.4 Profit before financing and tax 123.2 427.0 550.2 Net finance costs (30.2) 0.2 (30.0) ------------------------------Profit before income tax 93.0 427.2 520.2 Income tax expense (9.8) (11.0) (20.8) -------------------------------Net profit for the period 83.2 416.2 499.4 =============================== -----------------------------------------------------------------------------Net assets/(liabilities) 1,262.2 595.6 70.6 (367.8) 1,560.6 - 1,560.6 ----------------------------------------------------------------------------- Reconciliation of assets and liabilities reported above to those reported on the balance sheet Net assets reported above 1,560.6 - 1,560.6Non-current derivative assets 2.7 - 2.7Current derivative assets 53.1 - 53.1Cash 544.9 - 544.9Current financial liabilities (734.6) - (734.6)Non-current financial liabilities (110.3) - (110.3) -------------------------------Net assets per balance sheet 1,316.4 - 1,316.4 =============================== (a) EBIT shows the segment profit/(loss) before exceptional items Unallocated Total Dis- Premier and continuing continued Total Inn Restaurants Costa elimination operations operations operations £m £m £m £m £m £m £m Half year ended 31 August 2006 (restated)RevenueRevenue from external customers 230.8 305.0 79.5 8.3 623.6 177.6 801.2Inter-segment revenue - - 1.5 (1.5) - - - -----------------------------------------------------------------------------Total revenue 230.8 305.0 81.0 6.8 623.6 177.6 801.2 =============================================================================EBIT attributable to shareholders (a) 78.6 35.7 5.7 (11.4) 108.6 22.7 131.3 ============================================================================= EBIT attributable to shareholders 78.6 35.7 5.7 (11.4) 108.6 22.7 131.3Segment exceptional items: Net profit/(loss) on disposal of property, plant and equipment - 0.3 (0.3) (0.3) (0.3) 1.5 1.2 Provision for loan write down - - - - - (5.2) (5.2) Reorganisation - - - (10.3) (10.3) - (10.3)Share of profit from joint ventures (0.1) - - - (0.1) - (0.1)Share of profit from associates (0.4) - - - (0.4) - (0.4) -----------------------------------------------------------------------------Segment result 78.1 36.0 5.4 (22.0) 97.5 19.0 116.5 -----------------------------------------------------------------------------Operating profit 97.5 19.0 116.5 Share of profit from joint ventures 0.1 - 0.1Share of profit from associates 0.4 - 0.4 ---------------------------------Operating profit of the Group, joint ventures and associates 98.0 19.0 117.0 Non-operating exceptionals: Net loss on disposals of businesses - (23.9) (23.9) Net profit on disposal of restaurants 188.1 - 188.1 ---------------------------------Profit before financing and tax 286.1 (4.9) 281.2 Net finance costs (20.9) 0.4 (20.5) ---------------------------------Profit before income tax 265.2 (4.5) 260.7 Income tax expense (109.6) (15.1) (124.7) ---------------------------------Net profit/(loss) for the period 155.6 (19.6) 136.0 ================================= -----------------------------------------------------------------------------Net assets/(liabilities) 1,179.7 559.8 57.3 (607.1) 1,189.7 656.5 1,846.2 ----------------------------------------------------------------------------- Reconciliation of assets and liabilities reported above to those reported on the balance sheet Net assets reported above 1,189.7 656.5 1,846.2Non-current derivative assets 66.6 - 66.6Current derivative assets 9.9 - 9.9Cash 70.8 - 70.8Current financial liabilities (183.8) - (183.8)Current derivative liabilities (1.0) - (1.0)Non-current financial liabilities (547.9) - (547.9)Non-current derivative liabilities (0.7) - (0.7) ---------------------------------Net assets per balance sheet 603.6 656.5 1,260.1 ================================= (a) EBIT shows the segment profit/(loss) before exceptional items Unallocated Total Dis- Premier and continuing continued Total Inn Restaurants Costa elimination operations operations operations----------------------------------------------------------------------------------------------------------------------- Year ended 1 March 2007 (restated)RevenueRevenue from external customers 458.5 518.9 172.3 23.8 1,173.5 350.8 1,524.3Inter-segment revenue - - 2.8 (2.8) - - - -----------------------------------------------------------------------------Total revenue 458.5 518.9 175.1 21.0 1,173.5 350.8 1,524.3 ============================================================================= EBIT (a) 156.2 52.3 17.8 (21.6) 204.7 54.4 259.1Add back loss made by minority interest - - 0.3 - 0.3 - 0.3 ----------------------------------------------------------------------------EBIT attributable to shareholders 156.2 52.3 18.1 (21.6) 205.0 54.4 259.4 ============================================================================= EBIT attributable to shareholders 156.2 52.3 18.1 (21.6) 205.0 54.4 259.4Segment exceptional items: Net profit/(loss) on disposal of property, plant and equipment (0.2) 0.7 (0.5) 0.7 0.7 (1.6) (0.9) Net release of provision - - - - - 8.2 8.2 Impairment of property and other assets - (1.8) (1.2) (1.4) (4.4) (8.2) (12.6) Provision for loan write down - - - - - (5.3) (5.3) Reorganisation - - - (21.4) (21.4) - (21.4)Share of profit from associates (0.6) - - - (0.6) - (0.6)Profit attributable to minority interests - - (0.3) - (0.3) - (0.3) -----------------------------------------------------------------------------Segment result 155.4 51.2 16.1 (43.7) 179.0 47.5 226.5 ----------------------------------------------------------------------------- Operating profit 179.0 47.5 226.5 Share of profit from associates 0.6 - 0.6 ---------------------------------Operating profit of the Group and associates 179.6 47.5 227.1Non-operating exceptionals: Net profit on disposals of businesses - 48.5 48.5 Net profit on disposal of restaurants 196.6 - 196.6 ---------------------------------Profit before financing and tax 376.2 96.0 472.2 Net finance costs (38.2) 0.8 (37.4) ---------------------------------Profit before income tax 338.0 96.8 434.8 Income tax expense (133.7) (19.6) (153.3) ---------------------------------Net profit for the year 204.3 77.2 281.5 ================================= ------------------------------------------------------------------------------Net assets/(liabilities) 1,219.0 560.6 56.9 (514.9) 1,321.6 576.9 1,898.5 ------------------------------------------------------------------------------ Reconciliation of assets and liabilities reported above to those reported on the balance sheet Net assets reported above 1,321.6 576.9 1,898.5Non-current derivative assets 56.8 - 56.8Current derivative assets 8.3 - 8.3Cash 70.5 - 70.5Current financial liabilities (86.3) - (86.3)Non-current financial liabilities (882.8) - (882.8)Non-current derivative liabilities (5.9) - (5.9) ---------------------------------Net assets per balance sheet 482.2 576.9 1,059.1 ================================= (a) EBIT shows the segment profit/(loss) before exceptional items 3. Discontinued operations On 2 March 2007 the Group sold its interest in TGI Friday's for consideration of £70.4m. On 2 August 2007 the Group soldits interest in David Lloyd Leisure for £925.0m. All the properties and investments described above have been reported within discontinued operations for the periods presented. David TGI Lloyd Friday's Leisure Other Total £m £m £m £m-----------------------------------------------------------------------------------------------------------------The effect of the disposals during the period is as follows: Sale proceeds 70.4 925.0 2.1 997.5 Working capital adjustment (0.6) 4.7 - 4.1 -------------------------------------------------- Total proceeds 69.8 929.7 2.1 1,001.6 Total net assets sold (55.3) (528.9) - (584.2) Costs of disposal/(release of accrual) (1.9) (16.7) 0.6 (18.0) -------------------------------------------------- 12.6 384.1 2.7 399.4Tax effect of disposal - (2.2) - (2.2) ==================================================Profit on disposal 12.6 381.9 2.7 397.2 ================================================== Sale proceeds are made up as follows: Cash 69.8 675.5 2.1 747.4 Repayment of inter-company debt - 252.6 - 252.6 Received in cash since period-end - 1.6 - 1.6 ================================================== 69.8 929.7 2.1 1,001.6 ================================================== Total net assets sold comprise the following assets: Intangible assets 2.0 Property, plant and equipment 562.5 Investment in joint ventures 0.2 Inventories 0.6 Trade and other receivables 27.6 Cash 2.7 Assets classified as held for sale 55.3 Trade and other payables (29.1) Loan capital (1.5) Provisions (36.1) --------- Total net assets sold 584.2 ========= 6 months to Year to 6 months to 31 August 1 March 30 August 2006 2007 2007 (restated) (restated) £m £m £m------------------------------------------------------------------------------------------------------------Reported profit/(loss) from discontinued operations:Revenue 103.4 177.6 350.8Cost of sales (4.4) (24.7) (47.4) ------------------------------------Gross profit 99.0 152.9 303.4 Distribution costs (63.0) (114.5) (220.3)Administrative expenses (8.2) (15.7) (28.7)Non-recurring items: ------------------------------------ Provision for loan write down (note 4) - (5.2) (5.3) Warranty and onerous contract provisions - 0.9 8.2 Impairment of property, plant and equipment - - (8.2) Profit/(loss) on disposal of property, plant and equipment - 0.6 (1.6) ------------------------------------ - (3.7) (6.9) ------------------------------------Operating profit 27.8 19.0 47.5 Share of loss from joint ventures (0.2) - - Non-recurring items: Net profit/(loss) on disposal of businesses 399.4 (23.9) 48.5 ------------------------------------Profit/(loss) before financing and tax 427.0 (4.9) 96.0 Finance costs (0.1) - -Finance income 0.3 0.4 0.8 ------------------------------------Profit/(loss) before tax 427.2 (4.5) 96.8 Income tax expense: Related to pre-tax profit (8.8) (6.5) (13.9) Related to pre-tax profit exceptional - - 1.4 Related to profit/(loss) on disposal (2.2) (8.6) - Related to prior year disposals - - (7.1) ------------------------------------Net profit/(loss) from discontinued operations 416.2 (19.6) 77.2 ==================================== The major classes of assets classified as held for sale and measured at lower of carrying amount and fairvalue less cost to sell are: 30 August 31 August 1 March 2007 2006 2007 £m £m £m------------------------------------------------------------------------------------------------------------Property, plant and equipment - 47.6 56.8Investment in joint venture - 29.8 -Investment in associate - 2.5 -Inventories - - 0.6Trade and other receivables - - 1.7Total - 79.9 59.1 ==================================== 4. Exceptional items 6 months to Year to 6 months to 31 August 1 March 30 August 2006 2007 2007 (restated) (restated) £m £m £m------------------------------------------------------------------------------------------------------------Continuing operations:Reorganisation costs (a) - (10.3) (21.4)Impairment of property, plant and equipment - - (4.4)Net (loss)/profit on disposal of property, plant and equipment (3.9) (0.3) 0.7Net surplus arising on change of pension scheme rules (b) 10.0 - - ------------------------------------Operating exceptionals 6.1 (10.6) (25.1) Net profit on disposal of pub restaurants (c) - 188.1 196.6Interest cost on early redemption of debentures (d) (12.5) - - ------------------------------------ (6.4) 177.5 171.5 Tax on continuing exceptional items 1.0 (79.7) (77.0)Deferred tax relating to UK tax rate change (e) 21.0 - - ------------------------------------ 15.6 97.8 94.5 ------------------------------------Discontinued operations:Net profit/(loss)on disposal of property, plant and equipment - 0.6 (1.6)Warranty and onerous contract provisions - 0.9 8.2Impairment of property, plant and equipment - - (8.2)Provision for loan write down (f) - (5.2) (5.3) ------------------------------------Operating exceptionals - (3.7) (6.9) Net profit/(loss) on disposal of businesses (note 3) 399.4 (23.9) 48.5 ------------------------------------ 399.4 (27.6) 41.6 Tax on discontinued exceptional items (2.2) (8.6) (5.7) ------------------------------------ 397.2 (36.2) 35.9 ------------------------------------ ------------------------------------Total exceptional items 412.8 61.6 130.4 ==================================== (a) During 2005/06 the Board instigated a fundamental reorganisation of all central support functions and the financial impact of the decision taken then continued into 2006/07. In addition the announced disposal of 235 pubs led to a further restructuring during the period to reflect the resultant shape of the Group. The costs of this reorganisation have been reported in administrative expenses. The costs relate principally to redundancy, closure costs and a pension curtailment credit. (b) The Board agreed with the Trustees of the Group pension scheme to reflect new arrangements for commutation of pension rights on retirement into cash following a change in the government limits. The actuarial impact of this decision is reflected in exceptional items. (c) During 2005/06 235 trading pubs, together with four sites not yet trading, were disposed of to Mitchells & Butlers resulting in a profit on disposal after costs of £196.6m. Contingent deferred consideration of up to £7.5m may be due to Whitbread in future periods. This has not been accounted for due to the uncertainty regarding whether it will be received. (d) The exceptional interest charge of £12.5m is made up of a combination of a premium paid to debenture holders arising on early redemption and the cost from closing out the associated interest rate swaps. The debenture holders agreed to accept early redemption on 30 August 2007 and were repaid on 6 September 2007. (e) The Finance Act 2007 reduced the rate of UK Corporation Tax to 28% with effect from 1 April 2008. The effect of the reduced rate is a deferred tax credit of £21.0m, included in the tax credit of £22.0m in continuing exceptional items. Further UK tax changes, subject to consultation and future enactment, are a reduction in the rate of capital allowances applicable to plant and machinery from 25% to 20% on a reducing balance basis, a new category of fixtures qualifying for capital allowances at 10% on a reducing balance basis and the phased abolition of allowances for hotel buildings. The Group is currently calculating the effect that these proposed changes may have. (f) As a result of Swallow Hotels Limited going into administration, in 2006/07 a provision was made for the deferred consideration on the sale of Swallow branded hotels during 2003/04. The deferred consideration remains unpaid and efforts continue to pursue this payment. 5. Finance (costs)/revenue 6 months to Year to 6 months to 31 August 1 March 30 August 2006 2007 2007 (restated) (restated) £m £m £m------------------------------------------------------------------------------------------------------Finance costs Bank loans and overdrafts (14.6) (9.1) (16.4)Other loans (9.8) (11.9) (24.5)Interest capitalised 0.3 0.5 1.3 ------------------------------------ (24.1) (20.5) (39.6)Net pension finance charge - (1.0) (0.5) ------------------------------------Finance costs before exceptional items (24.1) (21.5) (40.1)Exceptional finance costs (12.5) - - ------------------------------------Total finance costs (36.6) (21.5) (40.1) ==================================== Finance revenue Bank interest receivable 2.6 0.5 1.1Income from investments 0.1 0.1 0.2 ------------------------------------ 2.7 0.6 1.3Net pension finance credit 2.7 - - ------------------------------------ 5.4 0.6 1.3Impact of hedging arrangements 1.0 - 0.6 ------------------------------------Total finance revenue 6.4 0.6 1.9 ==================================== 6. Dividends paid 6 months to 6 months to Year to 30 August 31 August 1 March 2007 2006 2007 £m £m £m-------------------------------------------------------------------------------------------------------Declared and paid in the period: Equity dividends on ordinary shares: Final dividend for 2006/07 - 22.15 pence (2005/06 - 19.95 pence) 43.5 51.3 51.3 Interim dividend for 2006/07 - 8.10 pence (2005/06 - 7.35 pence) - - 17.8 ------------------------------------ 43.5 51.3 69.1 ------------------------------------Dividends on other shares B share dividend - 155.0 pence - 264.4 264.4 C share dividend - 159.0 pence - - 195.5 ------------------------------------ - 264.4 459.9 ------------------------------------ ------------------------------------ 43.5 315.7 529.0 ==================================== 7. Earnings per share Basic earnings per share are calculated by dividing net profit for the period attributable to ordinary shareholders of £499.7m (2006 - £136.0m) by the weighted average number of ordinary shares in issue during the period, 196.4m (2006 - 242.2m). Adjusted earnings per share are calculated as follows: Earnings (£m) Earnings per share (p) -------------------------------------------------------------------------- 6 months to Year to 6 months to Year to 6 months to 31 August 1 March 6 months to 31 August 1 March 30 August 2006 2007 30 August 2006 2007 2007 (restated) (restated) 2007 (restated) (restated)----------------------------------------------------------------------------------------------------------------------Total operationsEarnings and basic earnings per share 499.7 136.0 281.8 254.43 56.15 123.43Earnings and basic earnings per share attributable to: Exceptional items (393.0) (149.9) (213.1) (200.10) (61.89) (93.33) Tax on exceptional items (19.8) 88.3 82.7 (10.08) 36.46 36.22 ---------------------------------------------------------------------------Profit and basic earnings per share beforeexceptional items 86.9 74.4 151.4 44.25 30.72 66.32 ===========================================================================Continuing operationsEarnings and basic earnings per share 83.5 155.6 204.6 42.52 64.24 89.62Earnings and basic earnings per share attributable to: Exceptional items 6.4 (177.5) (171.5) 3.25 (73.29) (75.12) Tax on exceptional items (22.0) 79.7 77.0 (11.20) 32.91 33.73 --------------------------------------------------------------------------- Profit and basic earnings per share before exceptional items 67.9 57.8 110.1 34.57 23.86 48.23 ===========================================================================Discontinued operationsEarnings and basic earnings per share 416.2 (19.6) 77.2 211.91 (8.09) 33.81Earnings and basic earnings per share attributable to: Exceptional items (399.4) 27.6 (41.6) (203.35) 11.40 (18.21) Tax on exceptional items 2.2 8.6 5.7 1.12 3.55 2.49 --------------------------------------------------------------------------- Profit and basic earnings per sharebefore exceptional items 19.0 16.6 41.3 9.68 6.86 18.09 =========================================================================== Diluted earnings per share and diluted adjusted basic earnings per share are after allowing for the dilutive effect of the conversion into ordinary shares of the weighted average number of options outstanding during the period. The numberof shares used for the diluted and adjusted diluted calculation is as follows: Weighted number of shares (m) -------------------------------------- 6 months to 6 months to Year to 30 August 31 August 1 March 2007 2006 2007-----------------------------------------------------------------------------------------------------------------------Weighted average number of ordinary shares for the purposes of earnings per share 196.4 242.2 228.3Effect of dilutive potential ordinary shares: Share options - number of shares to be issued for nil consideration 1.4 1.5 1.8 ---------------------------------------Weighted average number of ordinary shares for the purposes of diluted earnings per share 197.8 243.7 230.1 ======================================= 8. Movements in cash and debt Provision Amortisation 1 March for share of premiums 30 August 2007 Disposals Cash flow buy-back and discounts 2007 £m £m £m £m £m £m-----------------------------------------------------------------------------------------------------------------Cash at bank and in hand 70.5 544.9Overdrafts (86.3) (54.6) ------- ------- (15.8) (2.7) 508.8 - - 490.3Less short term bank borrowings 51.9 - (51.9) - - - ------------------------------------------------------------------Cash and cash equivalents 36.1 (2.7) 456.9 - - 490.3 Short term bank borrowings (51.9) - 51.9 - - -Provision for share buy-backs in close period - - - (270.3) - (270.3) Loan capital under one year - (409.7)Loan capital over one year (882.8) (110.3) ------- -------Total loan capital (882.8) 1.5 360.7 - 0.6 (520.0) ------------------------------------------------------------------Net debt (898.6) (1.2) 869.5 (270.3) 0.6 (300.0) ================================================================== Net Debt includes a non-cash accrual of £270.3m for share buy backs, as requiredby IAS 32. The Company entered into a contingent agreement with the Company'sbrokers to purchase shares during the close period. It is this commitment of£270.3m being the amount authorised by shareholders at that time which isrecognised as a financial liability in the balance sheet. During the "closeperiod", the period between the period end and the half year announcement, theCompany is prevented from purchasing its own shares by the UK listing rules andtherefore entered into the arrangement described above. 9. Pension liability The pension liability in the period has fallen from £196.0m to £25.0m. The main reasons for this reduction are actuarial gains of £108.0m reflected in the statement of recognised income and expense, a special cash contribution from the Company of £50.0m and an exceptional profit reflected in the income statement of £10.0m relating to new arrangements for commutation of pension rights on retirement into a cash lump sum. 10. Shareholders' funds 6 months to 6 months to Year to 30 August 31 August 1 March 2007 2006 2007 £m £m £m------------------------------------------------------------------------------------------------------------------ Total equity attributable to parent shareholders at beginning of period 1,058.8 1,543.7 1,543.7 Total recognised income and expense for the period 593.3 148.3 305.9 Accrued share based payments 2.3 2.8 5.2Reimbursement of cost of ESOT shares purchased - 1.2 1.2Cost of ESOT shares purchased (6.1) - -Ordinary shares issued 3.4 3.8 7.6Bonus issue of preference shares - - (4.8)Preference shares cancelled (7.0) (127.1) (271.0)Movement in associates reserves - 0.3 -Equity dividends paid (see note 6) (43.5) (315.7) (529.0)Treasury shares purchased (14.9) - -Change in provision for share buy-backs (270.3) - - -------------------------------------Total equity attributable to parent shareholders at end of period 1,316.0 1,257.3 1,058.8 ===================================== 11. Related party transactions The Group's principal subsidiaries are listed in the following table: % equity interest -------------------------- 30 August 31 August 1 March Principal activity Country of incorporation 2007 2006 2007----------------------------------------------------------------------------------------------------------------------- Principal subsidiaries Whitbread Group PLC Restaurants and hotels England 100 100 100 Premier Inn Hotels Limited Hotels England 100 100 100Whitbread Hotel Company Limited Hotels England 100 100 100Costa Limited Roasters, wholesalers and retailers of coffee England 100 100 100 David Lloyd Leisure Limited Leisure England - 100 100 Principal joint ventures PTI Gulf Hotels LLC Hotels United Arab Emirates 49 49 49Pizza Hut (UK) Limited Restaurants England - 50 - Principal associate Morrison Street Hotel Limited Hotels Scotland 40 40 40 Shares in Whitbread Group PLC are held directly by Whitbread PLC. All principal subsidiary undertakings have the same year-end as Whitbread PLC. All the above companies have been included in the Group consolidation. The companies listedabove are those that materially affect the amount of profit and the assets of the Group. The following table provides the total amount of transactions which have been entered into with related parties. Amounts Sales to owed by related related parties parties £m £m------------------------------------------------------------------------------Joint ventures 30 August 2007 - - 31 August 2006 0.7 - 1 March 2007 0.7 - Associates 30 August 2007 - - 31 August 2006 - - 1 March 2007 - - Terms and conditions of transactions with related parties Sales to and purchases from related parties are made at normal market prices. Outstanding balances at year-end are unsecured and settlement occurs in cash. There have been no guarantees provided or received for any related partyreceivables. For the six months ended 30 August 2007, the Group has not raisedany provision for doubtful debts relating to amounts owed by related parties (2006: £ nil). An assessment of bad debts is undertaken each financial yearthrough examining the financial position of the related party and the market in which it operates. 12. Capital expenditure commitments 30 August 31 August 1 March 2007 2006 2007 £m £m £m------------------------------------------------------------------------------------------------------------------------The Group had the following capital commitments for which no provision has been made: Property, plant and equipment 47.8 32.5 43.1Intangible assets - - 0.5 13. Post balance sheet events An interim dividend of 9.10p per share (2006: 8.10p) amounting to a dividend of£16.8m (2006: £17.8m) was declared by the Directors at their meeting on 15October 2007. These financial statements do not reflect this dividend payable. The holders of the Company's redeemable debenture stocks agreed to accept earlyredemption on 30 August 2007 and the debentures were repaid on 6 September 2007.The debentures were included in the balance sheet at the amount repayable of £366.1m. In the Company's trading statement issued on 29 August 2007 a share buybackprogramme was announced. Included in net debt (note 6) is the financial liability recorded under IAS 32 in recognition of the contingent agreement with a third party for the purchase of the Company's shares during a close period. As at 15 October 2007 the Company had purchased 9.8m shares at a cost of £159.4m since the period end. On 26 September 2007, the Company announced the acquisition of six hotels currently trading in the UK under the Tulip Inn and Golden Tulip brands for £44.0m. The hotels have been purchased through the acquisition of 100% of the share capital of Golden Tulip (UK) Limited and Pilot Hotels Limited. The consideration, which included the discharge of existing debt, was paid in cash on completion. 14. Risks and Uncertainties The principal risks and uncertainties affecting the business activities of the Group, which now exclude those relating to David Lloyd Leisure, are detailed on pages 3 and 4 of the Directors' Report and Accounts for the year ended 1 March 2007. 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. 15. Responsibility Statement We confirm that to the best of our knowledge: a) The condensed set of financial statements has been prepared in accordancewith 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 Independent review report to Whitbread PLC Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 August 2007 which comprises the Consolidated incomestatement, Consolidated statement of recognised income and expense, Consolidatedbalance sheet, Consolidated cash flow statement and the related notes 1 to 15.We have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company in accordance with guidance containedin Bulletin 1999/4 'Review of interim financial information' issued by theAuditing Practices Board. To the fullest extent permitted by law, we do notaccept 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 interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financialdata, and, based thereon, assessing whether the accounting policies andpresentation have been consistently applied, unless otherwise disclosed. Areview excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit performed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 August 2007. Ernst & Young LLPLondon 15 October 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Whitbread