Preliminary Results

24th Apr 2007 07:02

Whitbread PLC24 April 2007 24th April, 2007 Whitbread PLC Preliminary results for the financial year to 1st March 2007 STRONG OPERATING PERFORMANCE CREATING VALUE FOR SHAREHOLDERS Highlights Financial •Total revenue for Continuing Whitbread (1) up 10.3% to £1,304.5m (2005/6: £1,182.3m) •Group like for like sales up 4.3% for the 52 weeks •Profit before tax and exceptional items from Continuing operations (2) up 24.5% to £213.0m (2005/6: £171.1m) •Basic EPS for Continuing operations 63.3p: total pre-exceptional EPS 66.3p up 17% on prior year •Final dividend up 11% to 22.15p; full-year dividend up 10.8% to 30.25p (2005/6: 27.3p) Statutory •Total profit for the year up 6.5% at £281.5m (2005/6: £264.4m) •Total EPS up 23.6% at 123.4p (2005/6 99.85p) •Year end net debt £898.6m Operational •Strong performance at Premier Travel Inn and Costa •Improved results from Restaurants •Turnaround at David Lloyd Leisure underpinning value for shareholders Financial Structure •Further increase in leverage planned following balance sheet review •Restaurant and hotel properties valued on a portfolio basis at £3.6bn •Successful disposal of stand alone pub restaurants, Pizza Hut and TGI Friday's £€750m has been returned to shareholders and an additional £100m paid into the pension fund Alan Parker, chief executive Whitbread PLC, said: "We have delivered improved operational performance across all our businesses.Premier Travel Inn and Costa have shown strong growth and our plans forinternational expansion are progressing well. Early results for the revamped Restaurants business are very encouraging and the joint site Premier TravelInn/Restaurant model is delivering excellent returns. We are consideringapproaches for David Lloyd Leisure but in the meantime, the turnaround and performance of the business is underpinning value. The current year has started well. The momentum achieved in the final quarter oflast year is continuing. We have a clear strategy to concentrate our managementand capital on growing those businesses in which we have market leading positions and strong growth prospects. We will continue to manage our businessesaggressively and our balance sheet efficiently to create value forshareholders." For further information contact: Whitbread investor relationsChristopher Rogers, Group Finance Director 01582 889418 Tulchan CommunicationsAndrew Grant/Celia Gordon Shute 0207 353 4200 A presentation for analysts will be held at London Stock Exchange, 10Paternoster Square, London. EC4M 7LS. Registration is from 9.00am; thepresentation is at 9.30am. A live audio webcast of the presentation will beavailable on the investors section of the website at: www.whitbread.co.uk.Alternatively, you can listen to the presentation by dialling: +44 (0) 207 1620025 and enter the passcode: 745581 and quote Whitbread Preliminary Results.This will be available as a replay for 30 days. To listen dial in number 0207031 4064 and enter the passcode: 745581 (1) Continuing Whitbread Continuing Whitbread comprises Premier Travel Inn, the retained Restaurantestate, David Lloyd Leisure and Costa but excludes the disposed pub restaurantsites, the Pizza Hut joint venture, TGI Friday's and any supply chain sales to third parties. (2) Continuing operations Continuing operations comprises Continuing Whitbread plus the disposed pubrestaurant sites during the period of Whitbread ownership and supply chainsales to third parties. Revenue by business segment 2006/07 2005/06 change £m £mPremier Travel Inn 458.5 392.9* 16.7%David Lloyd Leisure 237.3 224.6 5.7%Restaurants: retained 436.4 424.5* 2.8%Costa 175.1 143.0 22.4%Less: inter-segment (2.8) (2.7) (3.7)% Sales from Continuing Whitbread 1,304.5 1,182.3 10.3%Restaurants: disposed** 82.5 195.4 (57.8)%Other 23.8 114.2 (79.2)% Revenue from continuing operations 1,410.8 1,491.9 (5.4)% * After restatement for breakfast sales amounting to £14.9m ** Part year impact in 2006/07 Chief Executive's Review Financial Results Group revenue from Continuing Whitbread grew year-on-year by 10.3% to £1.3bn andlike for like sales were up 4.3%. Profit before tax and exceptional items fromContinuing operations for the year was up almost a quarter at 24.5% to £213.0m.Total pre-exceptional EPS was 66.3p, up 17% on the prior year. The Board hasproposed a final dividend of 22.15p, an increase of 11%, bringing the totaldividend for the year to 30.25p (2005/6 27.3p) Operating review This past year has seen us work hard at the continuing transformation ofWhitbread into a more focused hospitality company delivering strong underlying growth. We set ourselves a number of strategic objectives at the beginning of the year and I am pleased to report that we have made good progress towards meeting them. A key priority was to improve the operating performance of our wholly owned branded businesses. Premier Travel Inn has continued its strong growth trajectory where we havecombined expansion of the estate with a range of measures to improve the customerexperience, including an extensive refurbishment programme. Our Restaurants business saw the greatest change, both operationally andstructurally. During the year we took the decision to dispose of 239 of our pub restaurant sites in order to concentrate on those restaurants that were or had potential to be co-located with our Premier Travel Inns. The new Restaurants management team has achieved a substantial improvement inperformance especially in the second half. This included an extensiveremodelling programme, new menus and improved levels of service. The year saw these successfully introduced across the whole of the Beefeater estate and extensively rolled out across selected Brewers Fayre outlets. The initial results have been very encouraging. The disposal of the pub restaurant sites raised £497m and the disposal of ourinterest in Pizza Hut UK realised net proceeds of £99m. The sale of TGI Friday's for £70 million completed after the year end. We have been working hard to improve the performance of David Lloyd Leisure. Iam pleased to report that, at the end of the first full year of the newmanagement's actions, membership numbers, sales and profits had all improved.They have introduced a range of initiatives to improve the services for our members and improve the efficiency of the business. At the end of March we announced that we had received some unsolicited approaches for the business. Whilst no decision has been taken to dispose of the business we are currently examining these proposals. Costa has had another very strong year. The expansion of the brand in the UK hasbeen complemented by international openings with new franchise and partnershipagreements. Both sales and profits have grown strongly and we are convinced thatCosta has the potential to be built into a global coffee brand. Property and Balance Sheet Review During the year we returned £750 million to our shareholders and a further £100million was contributed to the pension fund. Further, in the second half of the year we have reviewed the balance sheet toascertain the appropriate medium term financing structure for the Group.Following this review we have decided to increase the level of leverage in thebusiness (on a pension and lease adjusted basis) from under four times adjustednet debt to EBITDAR to under five times, an increase of around £400m. To effect this change it is our intention during the first half of the financialyear to finance the Group through issuing bonds secured on the hotel andrestaurant assets. In the absence of any further value creating opportunitiesand based on our current investment plans, we would look to return theadditional monies raised through this financing to shareholders net of anyfurther payments made into the pension fund. As part of this review and to support the financing we have also undertaken anindependent review of our restaurant and hotel assets. The reported market valueof this portfolio of assets for existing use as a single entity is £3.6bn. Outlook The current year has started well. The momentum achieved in the final quarter oflast year is continuing. We have a clear strategy to concentrate our managementand capital on growing those businesses in which we have market leadingpositions and strong growth prospects, whilst continuing to deliver improvedoperational performance. Premier Travel Inn 2006/7 ChangeRevenue £458.5m 16.7%Like for like sales growth 8.2%Operating profit (pre exceptionals) £156.2m 20.3%Operating profit (post exceptionals) £156.0m 19.9% Premier Travel Inn has delivered another strong performance in 2006/7. Totalrevenue for the year increased by 16.7% to £458.5m with operating profit up by20.3% to £156.2m, driven by an accelerated expansion programme and a 4.8%increase in revenue per available room to £37.68. Profit per room now exceeds£5,000 for the first time. Like for like sales increased by 8.2%. Premier Travel Inn continues to have one of the highest occupancy levels of anynational branded hotel chain in the UK with like for like occupancy at 79.5% forthe year. During 2006/7 we opened 2,500 new guest bedrooms and 19 new sites in the UK,including the acquisition and conversion of 7 Holiday Inn sites. We continued toinvest in our existing estate to improve the guest experience and spent £26m onimproving the quality of our guest bedrooms and the ongoing rollout of our newbedroom design. We have increased focus on customer satisfaction and recently launched a newGuest Satisfaction Survey, receiving 400,000 responses to date. The results wereencouraging and over 90% said they were likely to return and stay again. Our"good night guarantee" is still unrivalled - we promise that guests who have notbeen entirely satisfied with their stay get their money back. We are driving efficiency throughout the business, and our leading edgereservation system has continued to make excellent progress in developing routesto market. In the last quarter we reached a record high of 50% of allreservations being taken online. Business account card revenues were up 49%generating £75.1m of revenue. Over the course of the year we have seen PBITmargins improve by 1.1% points, due largely to efficiencies made in the overheadcost base. Premier Travel Inn is investing for growth and has a UK room target of 45,000rooms opened by 2010/11, an average rate of 3,000 rooms per annum. This yearapproximately half of the rooms opened will be on Whitbread owned land andalongside a Whitbread restaurant. Internationally, work has commenced on building our first hotel in Dubai,through our joint venture with Emirates and a pipeline of further sites has beenidentified in the Gulf region. We are also in the early stages of assessingfurther opportunities outside of the UK. Restaurants 2006/7 ChangeRevenue £518.9 -16.3%Like for like sales 0.9%Operating profit (pre-exceptionals) £52.3m -30.2%Operating profit (post-exceptionals) £247.8m 256.0% There has been a significant shift in the shape of our Restaurants business. InJuly we disposed of 239 pub restaurant sites for £497m in order to concentrateon those restaurants that were co-located with our Premier Travel Inns, or wherethere was potential to build a Premier Travel Inn alongside. This business isnow more focused and performing well. Like for like sales growth has clearlyimproved, growing by 2.7% in the second half. This growth was as a result of the initiatives that have been put in place bythe new management team since June 2006. The performance has been driven by theinvestment in the estate, the newly remodelled and repositioned Beefeater sites,with an improved guest proposition and enhanced food platform and environment.There has also been an improved performance in the underlying business. The remodelling of the Beefeater estate is now complete, with a clear, refreshedproposition around great grilled food. Despite the substantial reduction ofdiscounting, volumes are continuing to grow with weekly covers up by 6.6%. Weexpect to see further improvement in the coming year as the most recentlyremodelled restaurants come on stream and we re-direct marketing spend intoadvertising the new, improved Beefeater offering. The Beefeater model isperforming well and we are planning to open the first new Beefeater for sixyears later this year. We have fully trialled the new concept within Brewers Fayre of "informalcontemporary food in a stylish environment" and this was rolled out across 20units last year with more conversions to be completed this year. This re-imageis delivering strong results and we will undertake a further 100 conversions in2007/8. The investment in our restaurant estate and redevelopment of the guestproposition is already translating into sales growth, with an average salesuplift of circa 25% flowing through from the converted restaurants. There is a strong customer focus and we have worked hard to improve the guestexperience. The new and improved menus offer a broader range of choice and weare sourcing higher specification ingredients. Processes have been made more efficient. Tighter cash controls are in place withan emphasis on the reduction of product wastage and better management of stock.Labour scheduling has also been improved and we have seen greater levels ofproductivity. The co-located restaurant and Premier Travel Inn model is continuing to producerevenue and cost benefits for both businesses and is moving towards our targetof delivering the best returns in the business. Profits at joint siterestaurants were over 50% higher than stand-alone restaurants. Over the comingyear we will continue to add Premier Travel Inns to the stand-alone restaurantswe retained, as well as opening over ten new joint sites this coming year. David Lloyd Leisure 2006/7 ChangeRevenue £237.3m 5.7%Like for like sales 2.7%Operating profit (pre exceptionals) £46.4m 12.3%Operating profit (post exceptionals) £37.1m 92.2% David Lloyd Leisure has made significant progress through the year. Totalrevenue increased by 5.7% to £237.3m, driven by a more consistent approach topricing and improved revenues from ancillary sales across all the clubs. Likefor like sales were up by 2.7% driving profit growth in the like for likeestate. Membership has remained stable through the year in the like for like clubs,whilst overall we increased our membership with the opening of a new club inAberdeen and continued growth from other recently opened clubs. David LloydLeisure has been reinvesting in the business and in the fabric of the estate.There have been innovations made in product development, technology andmembership systems, member communications and team member training. A new management structure has been put in place at all 69 sites and brandstandards have been established across the clubs with the focus on expertise,service and engagement skills. We have improved efficiencies and a pricing re-evaluation in October addressed anumber of anomalies. A consistent pricing structure and standard set of termsand conditions were introduced in January. Utility cost cutting initiativeshave been rolled out across the estate improving productivity, and work hourshave been benchmarked as a way of controlling labour costs, whilst improving themember experience. There is now a stronger focus on the food and beverage offering and revenueshave been driven by the launch in September of a completely new menu and theintroduction of Costa Coffee estate-wide. All front of house staff have beenre-trained with a focus on better service and up-selling. The performance in Europe has also been pleasing. All 10 clubs have beenaligned and now have the same brand standards as the clubs in the UK. DavidLloyd Leisure is committed to Europe and expects to see further growth from itsEuropean clubs. Going forward, David Lloyd Leisure will improve revenue per member by furtheryield management and pricing strategies which reflect further investment in thequality of the member experience. Key customer groups have now been clearlyidentified to help drive membership and we have agreed a number of partnershipswith the aim of maximising revenue opportunities in the off-peak periods. The new Swindon club is expected to be completed this summer and a further threeUK sites have been secured. Costa 2006/7 ChangeRevenue £175.1m 22.4%Like for like sales (UK equity) 6.6%Operating profit (pre exceptionals) £18.1m 36.1%Operating profit (post exceptionals) £16.4m 82.2% Costa has had another exceptional year. Total revenue for the year grew 22.4%to £175.1m, driven in part by an acceleration in the number of new outletsopened in the UK and internationally. There were also openings in new marketssuch as Poland, Romania, Bulgaria and China. Total like for like sales in UKequity stores were up 6.6%, largely due to an increase in the number oftransactions and improved sales at our re-imaged stores. Pricing was broadlystable, although more premium products such as speciality coffee were introducedduring the second half of the year. Operating profit (pre exceptionals) for theyear was up 36.1% to £18.1m, with higher productivity reflected in improvedmargins. The re-imaging programme announced last year has proven highly successful and weare seeing a solid return on our investment, achieving significant like for likesales growth at the re-imaged stores. The refurbishment programme is nowlargely complete. The customer experience has been enhanced with the developmentof stronger interiors, further innovation within food and the introduction ofmore premium products. Underpinning the customer offer is the fact that we roastall our own coffee beans and that every cup of coffee served in a Costa store ishand made by a Barista and is of the highest quality. In October 2006 the Costa stored value card was launched and has been wellreceived with fast growing use. Promotional support will be increased over thecoming year to drive customer loyalty and further sales growth. The Costa Book Awards (formerly the Whitbread Book Prize) have also proved asuccess for Costa and have been a great brand building opportunity. In a recentsurvey conducted by Costa, 66% of customers said they would strongly recommendthe brand to friends and family, up from 60% at the beginning of the year. Costa has also increased the rate at which it opens new stores with 127 newstores opened in the UK and 72 overseas, making a total of 199 for the yearcompared to 146 in the previous year. Since the year end our total number of UKstores has grown to 545, on a par with Starbucks. Costa has aggressive expansion plans and is on track to achieve its target of2000 stores by 2010/11, with growth in both the UK and internationally. FINANCE REVIEW Changes in Group operations There have been four major changes in the Group's operating entities compared tothe prior period. Marriott The disposal of Whitbread's Marriott business was completed on 21 April 2006. On 5 May 2005 Whitbread sold its Marriott business into a joint venture company,owned 50% each by Whitbread and a subsidiary of Marriott International, with amanagement contract held by Marriott International. On 21 April 2006 this joint venture company was sold to the Royal Bank ofScotland with proceeds being returned to both Whitbread and MarriottInternational. Profit generated from the joint venture has been excluded from the consolidatedincome statement, in accordance with IFRS 5, as the investment in the jointventure was held for sale at the 2005/6 year end. Seven properties were retainedby Whitbread outside of the joint venture and all have been sold during theperiod. Trading results for these seven properties are 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. The saleof 222 of these assets was completed that day with the remaining 17 sites beingsold by early September. The trading results for the 235 sites up to the date ofsale are aggregated within continuing operations and the 2005/6 comparativesinclude a full 52 weeks of trade from all of these sites. As a result of this sale Whitbread has reviewed the accounting arrangements offood and beverage sales between the Restaurants and the Premier Travel Innbusinesses. Historically in joint sites profits arising from breakfast sales in a restaurantnext to a Premier Travel Inn were accounted for within PTI, together with ashare of the profit generated from PTI guests eating in the adjacent restaurantin the evening (an "adjacency fee"). These arrangements allowed the Restaurantsbusiness to compare the economic performance of its stand-alone sites againstthose with an adjacent hotel. With the focus now on joint sites, the rationale for continuing with thisallocation mechanism has gone and breakfast income is now reported withinRestaurants with no adjacency fee being taken. The prior year has been restatedand the impact in 2005/6 is to move £10.0 million of profit from Premier TravelInn to the Restaurants business. Pizza Hut On 31 July 2006 Whitbread announced an agreement to sell its 50% shareholding inPizza Hut UK to Yum! Restaurants Holdings. This sale was completed on 12September 2006. In line with IFRS 5, profit generated by the joint venture has been excludedfrom the consolidated income statement in 2006/7 and prior year income has beenmoved into discontinued operations. TGI Friday's On 2 March 2007 Whitbread completed the sale of the TGIF business to CarlsonRestaurants Worldwide Inc. Profit generated by the business in 2006/7 has been included within discontinuedoperations, with prior year comparatives restated accordingly. The net assets ofthe business have been classified as held for sale at the year-end. Details of the financial performance of the discontinued businesses and theeffects of the disposals can be found in note 10 to the accounts. Revenue Group Revenue from continuing operations fell 5.4% year-on-year to £1,410.8million. This reduction was driven by the part-year impact of the restaurantdisposals. Revenue from continuing Whitbread grew by 10.3%. Like for like saleswere up by 4.3% with the remainder of the turnover growth coming from the netincrease in outlets, notably in Premier Travel Inn and Costa. Results Total profit for the year is £281.5 million up 6.5% on last year. Profit beforetax and exceptional items from the continuing operations was £213.0 million, up24.5% on last year. Exceptional Items Net exceptional profits after tax amounted to £130.4 million. This amount isanalysed in more detail in note 6 to the accounts. The major items included within this category are noted below. Business disposals The three principal businesses disposed of during the year generated pre-tax profits of £245.1 million; £20.3 million loss on the Marriott Hotels transactions offset by £196.6 million profit for stand-alone restaurants and £68.8 million profit for Pizza Hut UK. Impairment provisions Following the annual assessment of trading of all of the Group's individual cash generating units we have made £12.6 million of provisions against the carrying value of assets of which £8.2m related to David Lloyd Leisure and the remainder to a small number of restaurants and Costa outlets. Reorganisation costs Following the sale of the pub restaurants we announced a further review of head office costs and the savings arising from this reorganisation will amount to £15 million in 2007/8. Total reorganisation costs incurred during the year were £21.4m which include the final cost of the restructuring announced in October 2005 plus the cost of the reorganisation following the sale of the 239 pub restaurant sites. Interest Underlying net interest costs have fallen by 39.3% year-on-year to £38.1million. This is a result of lower average net debt during the year followingreceipt of the business disposal proceeds, and, with a reduction in the pensiondeficit, an improvement in the pension finance charge. Taxation The UK tax expense of £68.8 million represents an effective rate of 32.3% on thecontinuing businesses before exceptional items, which compares with 33.3% forthe full year in 2005/6. The charge includes deferred tax. Earnings per share Underlying basic earnings per share increased by 17.0% to 66.3p. Details can befound in note 11 to the accounts. Dividend A final dividend of 22.15p per share, an increase of 11% over last year, will,subject to approval at the AGM, be paid on 6 July 2007 to all shareholders onthe register at the close of business on 4 May 2007. This gives a total dividendfor the year of 30.25p, an increase of 10.8% on last year. Capital expenditure Total Group capital expenditure on property, plant and equipment and intangibleassets was £243.3 million. This included £233 million relating to continuingoperations, split between acquisition expenditure, which includes theacquisition and development of properties, (£146.3million) and maintenanceexpenditure (£86.7 million). Financing Net debt at the year-end amounted to £898.6 million, compared to £970.3 millionas at 2 March 2006. The principal non-trading movements leading to the reductionwere £849.1 million of business and asset disposals and a £24.4 millionfavourable fair value movement, partially offset by a £732.9 million capitalreturn to shareholders and two additional pension fund payments of £50 millioneach. Pensions An additional £100 million was injected into the fund during the year and at 1March 2007 there was a gross pension fund deficit of £196.0 million (net deficitafter deferred tax of £137.2 million). This compares to a gross deficit £338million as at 2nd March 2006 (net deficit after deferred tax of £236.4 million).Under the agreement signed with Whitbread Pension Trustees Limited in April 2003and updated in October 2005 the Group expects to make further contributionstotalling £140m over the next four years including £50m per annum in 2007/8 and2008/9. Balance Sheet Structure During the second half of the year we have reviewed the balance sheet toascertain the appropriate medium term financing structure for the Group. Thisreview has led us to conclude that it would be appropriate to increase the levelof leverage in the business (on a pension and lease adjusted basis) from underfour times adjusted net debt to EBITDAR to under five times, an increase ofaround £400m. To effect this change it is our intention, during the first half of thefinancial year to finance the Group through issuing bonds secured on the hoteland restaurant assets. In the absence of any further value creatingopportunities and based on our current investment plans we would look to returnthe additional monies raised through this financing to shareholders net of anyfurther payments to the pension fund. These decisions on the most appropriate level of leverage and the method offinancing have been taken in the light of the ambitious organic growth andinvestment plans we have for our businesses and the benefits from retainingcontrol over our assets as we drive shareholder value through extending andreconfiguring large parts of the restaurant and hotel estate. Today's resultscontinue to demonstrate that there is still much value to be added to ourproperties by further improving our operations. Property As an integral part of the review of the appropriate medium term financingstructure for the Group, we have, as a one off exercise, commissioned a reviewby Gerald Eve of the value of our restaurants and hotels assets on a portfoliobasis as at 1 March 2007. The reported market value of this portfolio of assetsfor existing use as a single entity is £3.6bn. Post Balance Sheet Event Review On 2 March 2007 the Group sold its interest in TGI Friday's for a considerationof £70.4m. Consolidated income statement Restated Year to 1 March 2007 Year to 2 March 2006 ----------------- ---------------- Before Exceptional Total Before Exceptional Total exceptional items exceptional items items (note 4) items (note 4) ------- ------- ------ ------- ------- ------ Notes £m £m £m £m £m £mContinuingoperations Revenue 3 1,410.8 - 1,410.8 1,491.9 - 1,491.9Cost of sales (199.0) - (199.0) (274.7) - (274.7) ------- ------- ------ ------- ------- ------Gross profit 1,211.8 - 1,211.8 1,217.2 - 1,217.2 Distribution costs (841.9) (13.6) (855.5) (839.4) (20.7) (860.1)Administrativeexpenses (119.4) (20.8) (140.2) (145.1) (23.9) (169.0) ------- ------- ------ ------- ------- ------Operating profit 250.5 (34.4) 216.1 232.7 (44.6) 188.1 Share ofprofit fromjoint ventures - - - 0.3 - 0.3Share ofprofit fromassociates 0.6 - 0.6 0.9 - 0.9 ------- ------- ------ ------- ------- ------Operatingprofit of theGroup, jointventures andassociates 251.1 (34.4) 216.7 233.9 (44.6) 189.3 Net loss ondisposal ofbusiness andinvestments - - - - (8.7) (8.7)Net profit ondisposal ofpub restaurants - 196.6 196.6 - - - ------- ------- ------ ------- ------- ------Profit beforefinancing andtax 251.1 162.2 413.3 233.9 (53.3) 180.6 Finance costs (40.1) - (40.1) (64.0) (25.5) (89.5)Finance revenue 2.0 - 2.0 1.2 - 1.2 ------- ------- ------ ------- ------- ------Profit before tax 213.0 162.2 375.2 171.1 (78.8) 92.3 Tax expense 5 (68.8) (77.0) (145.8) (57.0) 12.8 (44.2) ------- ------- ------ ------- ------- ------Net profitfrom continuingactivities 144.2 85.2 229.4 114.1 (66.0) 48.1 Discontinuedoperations: ------- ------- ------ ------- ------- ------ Net profit ondisposal ofbusinesses - 48.5 48.5 - 208.0 208.0Profit for theyear fromdiscontinuedoperations 6.9 (3.3) 3.6 36.0 (27.7) 8.3 ------- ------- ------ ------- ------- ------ 6 6.9 45.2 52.1 36.0 180.3 216.3 ------- ------- ------ ------- ------- ------Profit for theyear 151.1 130.4 281.5 150.1 114.3 264.4 ======= ======= ====== ======= ======= ====== Attributable to:Parentshareholders 151.4 130.4 281.8 150.0 114.3 264.3Equity minorityinterest (0.3) - (0.3) 0.1 - 0.1 ------- ------- ------ ------- ------- ------ 151.1 130.4 281.5 150.1 114.3 264.4 ======= ======= ====== ======= ======= ====== Dividends paid and proposed per share in respect of the period (pence) Special - 135.00B share dividend 155.00 -C share dividend 159.00 -Interim 8.10 7.35Final 22.15 19.95 ====== ====== Earnings* Earnings per share Earnings per shareEarnings pershare 7 Continuing Total Continuing Total Continuing Total Operations Operations Operations Operations Operations Operations ------- ------- ------- ------- ------- ------- £m £m p p p p - basic for profit for the period 229.7 281.8 100.61 123.43 18.17 99.85- basic for underlying profit # 144.5 151.4 63.29 66.31 43.10 56.67- diluted for profit for the 229.7 281.8 99.83 122.47 18.02 99.03 period- diluted for underlying profit # 144.5 151.4 62.80 65.80 42.75 56.20 * Earnings used for earnings per share calculations are after the add back of minority interests.# Underlying profit is profit before exceptional items. Consolidated statement of recognised income and expense Year to 1 March Year to 2 March 2007 2006 -------- ----------- £m £mCash flow and net investment hedges:Loss taken to equity (1.1) (0.3)Exchange differences on translation of foreignoperations (0.9) 1.4Actuarial gains/(losses) ondefined benefit pension schemes 38.0 (93.5)Tax on items taken directly to or from equity (11.9) 28.6 -------- -----------Net gain/(loss) recognised directly in equity 24.1 (63.8) Profit for the period 281.5 264.4 -------- -----------Total recognised income and expense for the period 305.6 200.6 ======== =========== Attributable to: Parent shareholders 305.9 200.5Equity minority interest (0.3) 0.1 -------- ----------- 305.6 200.6 ======== =========== Effect of changes in accounting policy on the consolidated statement of recognised income and expense: Equity holders of the parentNet loss on cash flow hedges onfirst time adoption of IAS 39 - (3.2) ======== =========== Consolidated balance sheet 1 March 2007 2 March 2006 --------- -------- Notes £m £mASSETSNon-current assetsIntangible assets 78.5 79.0Property, plant and equipment 2,487.6 2,677.1Investment in joint ventures 1.1 35.2Investment in associates 0.9 0.8Other financial assets 1.1 5.4Derivative financial instruments 56.8 78.5 --------- -------- 2,626.0 2,876.0 --------- -------- Current assetsInventories 12.8 17.5Trade and other receivables 67.5 119.0Income tax prepayment 7.1 21.0Derivative financial instruments 8.3 10.2Cash and cash equivalents 70.5 49.6 --------- -------- 166.2 217.3 --------- -------- Assets classified as held for sale 6 59.1 302.6 --------- --------TOTAL ASSETS 2,851.3 3,395.9 --------- -------- Current liabilitiesFinancial liabilities 86.3 145.1Provisions 6.2 0.6Derivative financial instruments - 0.3Trade and other payables 287.1 277.8 --------- -------- 379.6 423.8 --------- -------- Non-current liabilitiesFinancial liabilities 882.8 874.8Preference shares 3.2 3.1Provisions 15.2 32.5Derivative financial instruments 5.9 3.0Deferred income tax liabilities 309.5 174.2Pension liability 196.0 338.0 --------- -------- 1,412.6 1,425.6 --------- --------TOTAL LIABILITIES 1,792.2 1,849.4 --------- --------NET ASSETS 1,059.1 1,546.5 ========= ======== EQUITYShare capital 151.9 151.1Share premium 38.1 36.1Capital redemption reserve 4.7 -Retained earnings 2,738.9 3,231.8Currency translation 0.8 1.7Other reserves (1,875.6) (1,877.0) --------- --------Equity attributable to equity holders of theparent 9 1,058.8 1,543.7 Equity minority interest 0.3 2.8 --------- --------TOTAL EQUITY 9 1,059.1 1,546.5 ========= ======== Alan ParkerChief Executive Christopher RogersFinance Director 24 April 2007 Consolidated cash flow statement Year to 1 March Year to 2 March 2007 2006 ----------- ----------- Notes £m £m Profit for the year 281.5 264.4 Adjustments for:Taxation charged on total operations 5 153.3 39.2Net finance cost 37.4 89.0Total income from joint ventures - (6.3)Totalincome from associates (0.6) (10.3)Gain on disposal of property,plant and equipment (195.7) (3.0)Net profit on disposal ofbusinesses and investments (48.5) (191.7)Impairment loss onrevaluation of Condor joint venture - 29.3Depreciation and amortisation 102.8 118.8Impairment of property and goodwill 12.6 35.2Reorganisation costs - 13.3Other non-cash items (8.2) 2.8 ----------- -----------Operating profit before working capital changes 334.6 380.7 Decrease in inventories 4.1 2.3Decrease/(increase) in tradeand other receivables 74.7 (18.3)(Decrease) in trade and other payables (4.0) (10.3)Payments against provisions (8.7) (16.6)Payment to pension fund (102.3) (103.0) ----------- -----------Cash generated from operations 298.4 234.8 Interest paid (39.3) (91.5)Taxes paid (12.8) (40.7) ----------- -----------Net cash flows from operating activities 246.3 102.6 ----------- ----------- Cash flows from investing activitiesDisposal of investments,subsidiaries and jointventures - discontinued * 6 361.5 889.2Disposal of investments - continuing - 6.9Net cash disposed of - (18.2)Purchase of property, plant and equipment (241.2) (228.6)Purchase of intangible assets (2.1) (1.6)Proceeds from disposal ofproperty, plant and equipment 487.6 12.0Acquisition of subsidiary,net of cash acquired (2.7) (0.2)Dividends from joint venture - 11.1Dividends from associates - 71.6Interest received 3.2 1.5 ----------- -----------Net cash flows from investing activities 606.3 743.7 ----------- ----------- Cash flows from financing activitiesProceeds from issue of share capital 7.6 14.4Costs of purchasing own shares (275.8) (9.5)Increase in short-term borrowings 26.1 6.1Proceeds from long-term borrowings 49.1 610.0Issue costs of long-term borrowings - (1.4)Repayment of long-term borrowings (123.4) (1,013.0)Dividends paid 8 (529.0) (475.5) ----------- -----------Net cash flows used in financing activities (845.4) (868.9) ----------- -----------Net increase/(decrease) incash and cash equivalents 7.2 (22.6)Net foreign exchange difference (1.2) 0.6Opening cash and cash equivalents 30.1 52.1 ----------- -----------Closing cash and cash equivalents 36.1 30.1 =========== =========== Reconciliation to cash and cash equivalents in the balance sheet:Cash and cash equivalents shown above 36.1 30.1Add back overdrafts 34.4 19.5 ----------- -----------Cash and cash equivalents shown within current assets on the balance sheet 70.5 49.6 =========== =========== * including disposed of net overdraft Notes to the consolidated financial statements At 1 March 2007 1 Authorisation of financial statements and statement of compliance with IFRS The consolidated financial statements of Whitbread PLC for the year ended 1March 2007 were authorised for issue by the board of directors on 23 April 2007.Whitbread PLC is a public limited company incorporated and fully domiciled inEngland and Wales. The Company's ordinary shares are traded on the London StockExchange. The significant activities of the Group are described in note 3. The Group's financial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRS) as adopted for use in theEuropean Union and as applied in accordance with the provisions of the CompaniesAct 1985. 2 Accounting policies Basis of preparation The consolidated financial statements of Whitbread PLC and all its subsidiarieshave been prepared in accordance with IFRS. The consolidated financial statements are presented in pounds sterling and allvalues are rounded to the nearest hundred thousand except when otherwiseindicated. The significant accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the accounts of Whitbread PLCand all its subsidiaries, together with the Group's share of the net assets andresults of joint ventures and associates incorporated within these financialstatements using the equity method of accounting. These are adjusted, whereappropriate, to conform to Group accounting policies. The financial statementsof subsidiaries are prepared for the same reporting year as the parent company. Apart from the acquisition of Whitbread Group PLC by Whitbread PLC in 2000/1,which was accounted for using merger accounting, acquisitions by the Group areaccounted for under the acquisition method and any goodwill arising iscapitalised as an intangible fixed asset. The results of subsidiaries acquiredor disposed of during the year are included in the consolidated accounts from orup to the date that control passes respectively. All intra-group transactions,balances, income and expenses are eliminated on consolidation. Unrealised lossesare also eliminated unless the transaction provides evidence of an impairment ofthe asset transferred. The income statement for the comparative period has been restated to reflect thedecision to dispose of the interest in TGI Friday's and the Pizza Hut jointventure, both of which have been classified as discontinued operations. Thesegmental note for the comparative period has been restated to reflect thesegmental analysis implemented during 2006/7, see note 3 for more details. Significant accounting policiesGoodwill Goodwill arising on acquisition is capitalised and represents the excess of thecost of acquisition over the Group's interest in the fair value of theidentifiable assets and liabilities of a subsidiary at the date of acquisition.Goodwill is reviewed for impairment annually or more frequently if events orchanges in circumstances indicate that the carrying value may be impaired. Ondisposal of a subsidiary the attributable amount of goodwill is included in thedetermination of the profit or loss on disposal. Intangible assets Intangible assets are carried at cost less accumulated amortisation andaccumulated impairment losses. Intangible assets acquired separately from a business are carried initially atcost. An intangible asset acquired as part of a business combination isrecognised outside goodwill if the asset is separable or arises from contractualor other legal rights and its fair value can be measured reliably. IT software IT software is amortised on a straight-line basis over the estimated useful lifeof the asset, estimated between three and ten years. The carrying values arereviewed for impairment if events or changes in circumstances indicate thattheir carrying value may not be recoverable. Other Other intangible assets are amortised over periods of up to ten years. Thecarrying values are reviewed for impairment if events or changes incircumstances indicate that their carrying value may not be recoverable. Property, plant and equipment Prior to the 1999/0 financial year, properties were regularly revalued on acyclical basis. Since this date the Group policy has been not to revalue itsproperties and, while previous valuations have been retained, they have not beenupdated. As permitted by IFRS 1, the Group has elected to use the UK GAAPrevaluations before the date of transition to IFRS as deemed cost at the date oftransition. Fixed assets are stated at cost or deemed cost at transition toIFRS, less accumulated depreciation and any impairment in value. Gross interestcosts incurred on the financing of major projects are capitalised until the timethat they are available for use. Depreciation is calculated on a straight-linebasis over the estimated useful life of the asset as follows: Freehold land is not depreciated. Freehold buildings are depreciated to their estimated residual values overperiods up to 50 years. Plant and equipment is depreciated over three to 30 years. The carrying values of property, plant and equipment are reviewed for impairmentif events or changes in circumstances indicate that their carrying values maynot be recoverable. Any impairment in the value of fixed assets is charged tothe income statement. Profits and losses on disposal of fixed assets reflect the difference betweennet selling price and the carrying amount at the date of disposal and arerecognised in the income statement. Payments made on entering into or acquiring leaseholds that are accounted for asoperating leases represent prepaid lease payments. These are amortised on astraight-line basis over the lease term. Impairment The Group assesses assets or groups of assets for impairment whenever events orchanges in circumstances indicate that the carrying value of an asset may not berecoverable. Individual assets are grouped for impairment assessment purposes atthe lowest level at which there are identifiable cash flows that are largelyindependent of the cash flows of other groups of assets (cash generating unitsor "CGUs"). If such indication of impairment exists or when annual impairmenttesting for an asset group is required, the Group makes an estimate of itsrecoverable amount. An assessment is made at each reporting date as to whether there is anyindication that previously recognised impairment losses may no longer exist ormay have decreased. If such indication exists, the recoverable amount isestimated. A previously recognised impairment loss is reversed only if there hasbeen a change in the estimates used to determine the asset's recoverable amountsince the last impairment loss was recognised. If that is the case, the carryingamount of the asset is increased to its recoverable amount. That increasedamount cannot exceed the carrying amount that would have been determined, net ofdepreciation, had no impairment loss been recognised for the asset in prioryears. Such reversal is recognised in the profit or loss. After such a reversal,the depreciation charge is adjusted in future periods to allocate the asset'scarrying amount, less any residual value, on a systematic basis over itsremaining useful life. For the purposes of impairment testing all centrally held assets are allocatedin line with IAS 36 to CGUs based on management's view of the consumption of theasset. Any resulting impairment is recorded against the centrally held asset. Goodwill and intangibles Goodwill acquired through business combinations is allocated to groups of CGUsat the level management monitor goodwill, which is at brand level. The Groupperforms an annual review of its goodwill to ensure that its carrying amount isnot greater than its recoverable amount. In the absence of a comparable recentmarket transaction that demonstrates that the fair value less costs to sell ofgoodwill and intangible assets exceeds their carrying amount, the recoverableamount is determined from value in use calculations. An impairment is then madeto reduce the carrying amount to the higher of the fair value less cost to selland the value in use. Property, plant and equipment For the purposes of the impairment review of property, plant and equipment theGroup considers CGUs to be all trading outlets. The carrying values of property, plant and equipment are reviewed for impairmentwhen events or changes in circumstances indicate the carrying value may not berecoverable. The recoverable amount is the greater of net selling price and value in use. Inassessing value in use, the estimated future cash flows are discounted to theirpresent value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset. Foran asset that does not generate largely independent cash inflows, therecoverable amount is determined with reference to the CGU to which the assetbelongs. Impairment losses are recognised in the income statement in theadministrative and distribution line items. Consideration is also given where appropriate to the market value of the asset,either from independent sources, or in conjunction with an accepted industryvaluation methodology. Inventories Inventories are stated at the lower of cost and net realisable value. Cost iscalculated on the basis of first in, first out and net realisable value is theestimated selling price less any costs of disposal. Provisions Provisions for warranties, onerous contracts and restructuring costs arerecognised when the Group has a present legal or constructive obligation as aresult of a past event; it is probable that an outflow of resources will berequired to settle the obligation; and a reliable estimate can be made of theamount of the obligation. Provisions are discounted to present value where the effect is material using apre-tax rate that reflects current market assessments of the time value of moneyand the risks specific to the liability. The amortisation of the discount isrecognised as a finance cost. Exceptional items The Group presents on the face of the income statement those items, which areseparately identified by virtue of their size or incidence so as to allow abetter understanding of the underlying trading performance of the Group. The Group will include the profit or loss on disposal of property, plant andequipment and impairment in exceptional items. Foreign currency translation Monetary assets and liabilities denominated in foreign currencies are translatedinto sterling at the rates of exchange quoted at the balance sheet date.Non-monetary items that are measured in terms of historical cost in a foreigncurrency are translated using the exchange rates as at the dates of initialtransactions. Trading results are translated into the functional currency (generally sterling)at average rates of exchange for the year. Day to day transactions in a foreigncurrency are recorded in the functional currency at an average rate for themonth in which those transactions take place, which is used as a reasonableapproximation to the actual transaction rate. Translation differences onmonetary items are taken to the income statement except where they are part of anet foreign investment hedge, then translation differences are taken directly toequity. The differences that arise from translating the resultsof foreign entities at average rates of exchange, and their assets andliabilities at closing rates, are also dealt with in a separate component ofequity. On disposal of a foreign entity, the deferred cumulative amountrecognised in equity relating to that particular foreign operation is recognisedin the income statement. All other currency gains and losses are dealt with inthe income statement. A number of subsidiaries within the Group have a euro functional currency. Theseare translated into sterling in the Group accounts. Balance sheet items aretranslated at the rate applicable at the balance sheet date. Transactionsreported in the income statement are translated using an average rate for themonth in which they occur. Revenue recognition Generally, revenue is the value of goods and services sold to third parties aspart of the Group's trading activities, after deducting discounts andsales-based taxes. The following is a description of the composition of revenuesof the Group: Sale of goods Sale of food and beverages - revenue is recognised when food and beverages aresold. Franchise fees - received in connection with the franchise of the Group's brandnames. Revenue is recognised when earned. Leisure club subscriptions - subscriptions are recognised over the period thatmembership relates to. Royalties Royalties are recognised as the income is earned. Rendering of services Owned hotel revenue - including the rental of rooms and food and beverage salesfrom a network of hotels. Revenue is recognised when rooms are occupied and foodand beverage is sold. Finance revenue Interest income is recognised as the interest accrues using the effectiveinterest method. Dividend income Dividend income is recognised when the Group's right to receive the payment isestablished. Cash flows are included net of recoverable VAT. Leases Leases where the lessor retains substantially all the risks and benefits ofownership of the asset are classified as operating leases. Rental payments inrespect of operating leases are charged against operating profit on astraight-line basis over the period of the lease. Lease incentives arerecognised as a reduction of rental income over the lease term. Borrowing costs Borrowing costs are recognised as an expense in the period in which they areincurred, except for gross interest costs incurred on the financing of majorprojects which, under the allowed alternative treatment, are capitalised untilthe time that the projects are available for use. Retirement benefits In respect of defined benefit pension schemes, the obligation recognised in thebalance sheet represents the present value of the defined benefit obligation asadjusted for any unrecognised past service cost, reduced by the fair value ofthe scheme assets. The cost of providing benefits is determined using theprojected unit credit actuarial valuation method. Actuarial gains and losses arerecognised in full in the period in which they occur in the statement ofrecognised income and expense. For defined benefit plans, the employer's portion of the past and currentservice cost is charged to operating profit, with the interest cost net ofexpected return on assets in the plans reported within finance costs. Theexpected return on plan assets is based on an assessment made at the beginningof the year of long-term market returns on scheme assets, adjusted for theeffect on the fair value of plan assets of contributions received and benefitspaid during the year. Curtailments and settlements relating to the Group's defined benefit plan arerecognised in the period that the curtailment or settlement occurs. Payments to defined contribution pension schemes are charged as an expense asthey fall due. Share-based payment transactions Certain employees and directors of the Group receive equity-settled remunerationin the form of share-based payment transactions, whereby employees renderservices in exchange for shares or rights over shares. The cost ofequity-settled transactions with employees are measured by reference to the fairvalue, determined using a stochastic model, at the date at which they aregranted. The cost of equity-settled transactions are recognised, together with acorresponding increase in equity, over the period in which the performanceconditions are fulfilled, ending on the relevant vesting date. The cumulativeexpense recognised for equity-settled transactions at each reporting date untilthe vesting date reflects the extent to which the vesting period has expired,and is adjusted to reflect the directors best available estimate of the numberof equity instruments that will ultimately vest. The income statement charge orcredit for a period represents the movement in cumulative expense recognised asat the beginning and end of that period. Tax The income tax charge represents both the income tax payable, based on profitsfor the year, and deferred income tax. Deferred income tax is recognised in full, using the liability method, inrespect of all temporary timing differences between the tax base of the Group'sassets and liabilities, and their carrying amounts, that have originated but notbeen reversed by the balance sheet date. No deferred tax is recognised if thetemporary timing difference arises from goodwill or the initial recognition ofan asset or liability in a transaction that is not a business combination and,at the time of the transaction, affects neither the accounting profit nortaxable profit or loss. Deferred income tax is recognised in respect of taxabletemporary differences associated with investments in associates and interests injoint ventures, except where the timing of the reversal of the temporarydifferences can be controlled and it is probable that the temporary differenceswill not reverse in the foreseeable future. Deferred income tax assets are recognised to the extent that it is probable thattaxable profit will be available against which the deductible temporary timingdifferences can be utilised. The carrying amount of deferred income tax assetsis reviewed at each balance sheet date and reduced to the extent that it is nolonger probable that sufficient taxable profit will be available to allow all orpart of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates thatare expected to apply in the year when the asset is realised or the liability issettled, based on tax rates that have been enacted or substantively enacted atthe balance sheet date. Tax relating to items recognised directly in equity is recognised in equity andnot in the income statement. Treasury shares Own equity instruments which are held by the Group (treasury shares) arededucted from equity. No gain or loss is recognised in the income statement onthe purchase, sale, issue or cancellation of the Group's own equity instruments. Investments in joint ventures and associates Joint ventures are established through an interest in a company (a jointlycontrolled entity). Investments in joint ventures and associates are initially recognised at cost,being the fair value of the consideration given and including acquisitioncharges associated with the investment. After initial recognition, investments in joint ventures and associates areaccounted for using the equity method. Financial instruments Other financial assets Investments in available-for-sale assets are initially recognised at cost, beingthe fair value of the consideration given and including acquisition chargesassociated with the investment. After initial recognition available-for-sale investments are measured at fairvalue. Gains and losses arising from changes in the fair value ofavailable-for-sale investments are recognised directly in equity, until theinvestment is disposed of or until the investment is determined to be impaired,at which time the cumulative gain or loss previously reported in equity isincluded in the income statement for the period. Some assets held by the Group are classified as financial assets at fair valuethrough profit or loss. On initial recognition these assets are recognised atfair value, subsequent measurement is also at fair value with changes recognisedthrough the interest line in the income statement. Impairment of financial assets The Group assesses at each balance sheet date whether a financial asset or groupof financial assets is impaired. - Assets carried at amortised cost If there is objective evidence that impairment has occurred the amount of theimpairment loss is measured as the difference between the carrying value and thepresent value of estimated future cash flows. The discount rate is the originaleffective rate of interest. The carrying amount of the asset is reduced, withthe amount of the loss recognised in administrative costs. If, in a subsequent period, the amount of the impairment loss decreases and thedecrease can be objectively related to an event occurring after the impairmentloss is recognised, the previously recognised impairment loss is reversed in theincome statement to the extent that the carrying valueof the asset does not exceed its amortised cost at the reversal date. - Assets carried at cost If there is objective evidence that impairment has occurred the amount of theimpairment loss is measured as the difference between the carrying value and thepresent value of estimated future cash flows. The discount rate is the originaleffective rate of interest. The carrying amount of the asset is reduced, withthe amount of the loss recognised in administrative costs. - Available-for-sale financial assets If an available-for-sale asset is impaired, an amount comprising the differencebetween its cost and its fair value is transferred from equity to the incomestatement. Reversals of impairment losses on debt instruments are recognised inthe income statement, if the loss can be objectively related to an eventoccurring after the impairment loss was recognised. Reversals in respect ofequity instruments classified as available-for-sale are not recognised in theincome statement. Trade and other receivables Trade receivables are recognised and carried at original invoice amount less anyuncollectible amounts. An estimate for doubtful debts is made when collection ofthe full amount is no longer probable. Bad debts are written-off whenidentified. Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank and inhand and short-term deposits with an original maturity of three months or less.For the purpose of the consolidated cash flow statement, cash and cashequivalents consist of cash and cash equivalents as defined above, net ofoutstanding bank overdrafts. Borrowings Borrowings are initially recognised at fair value of the consideration receivednet of any directly associated issue costs. Borrowings are subsequently recordedat amortised cost, with any difference between the amount initially recorded andthe redemption value recognised in the income statement using the effectiveinterest method. Derivative financial instruments Derivative financial instruments used by the Group are stated at fair value oninitial recognition and at subsequent balance sheet dates. Hedges are classifiedas either fair value hedges when they hedge the exposure to changes in the fairvalue of a recognised asset or liability; or cash flow hedges where they hedgeexposure to variability in cash flows that is either attributable to aparticular risk associated with a recognised asset or liability or a forecastedtransaction. Hedge accounting is only used where, at the inception of the hedge, there isformal designation and documentation of the hedging relationship and it meetsthe Group's risk management objective strategy for undertaking the hedge and itis expected to be highly effective. Gains or losses from remeasuring fair value hedges, which meet the conditionsfor hedge accounting, are recorded in the income statement, together with thecorresponding changes in the fair value of the hedged instruments attributableto the hedged risk. Where the adjustment is to the carrying amount of a hedgedfinancial instrument, the adjustment is amortised to the income statement suchthat it is fully amortised by maturity. The portion of any gains or losses of cash flow hedges, which meet theconditions for hedge accounting and are determined to be effective hedges, arerecognised directly in equity. The gains or losses relating to the ineffectiveportion are recognised immediately in the income statement. When a firm commitment that is hedged becomes an asset or a liability recognisedon the balance sheet, then, at the time the asset or liability is recognised,the associated gains or losses that had previously been recognised in equity areincluded in the initial measurement of the acquisition cost or other carryingamount of the asset or liability. For all other cash flow hedges, the gains orlosses that are recognised in equity are transferred to the income statement inthe same period in which the transaction that results from a firm commitmentthat is hedged affects the income statement. For derivatives that do not qualify for hedge accounting, any gains or lossesarising from changes in fair value are recognised immediately in the incomestatement. Hedge accounting is discontinued when the hedging instrument expires or is sold,terminated, exercised or no longer qualifies for hedge accounting. At that pointin time, for cash flow hedges, any cumulative gain or loss on the hedginginstrument recognised in equity is kept in equity until the forecastedtransaction occurs. If a hedged transaction is no longer expected to occur, thenet cumulative gain or loss recognised in equity is transferred to the incomestatement. Recognition and derecognition of financial instruments The recognition of financial instruments occurs when the Group becomes party tothe contractual provisions of the instrument. The derecognition of a financial instrument takes place when the Group no longercontrols the contractual rights that comprise the financial instrument, which isnormally the case when the instrument is sold, or all the cash flowsattributable to the instrument are passed through to an independent third party. Significant accounting judgements and estimates Estimation uncertainty - impairment of goodwill Key assumptions concerning the future, and other key sources of estimation, atthe balance sheet date have a significant risk of causing a material adjustmentto the carrying amounts of assets and liabilities within the next financialyear. The Group determines whether goodwill is impaired at least on an annual basis.This requires an estimation of the value in use of the CGUs to which thegoodwill is allocated. Estimating the value in use requires the Group to make anestimate of the expected future cash flows from the CGU and also to choose asuitable discount rate in order to calculate the present values of those cashflows. Standards issued by the IASB not effective for the current period and notadopted by the Group. The following standards and interpretations have been issued by the IASB, theybecome effective after the current year-end and have not been early adopted bythe Group: Adopted by the Group during periodsInternational Financial Reporting Standards (IFRS) Effective commencing date IFRS 7 Financial Instruments: Disclosures (1) 1 January 2007 2 March 2007IAS 1 Amendment - Presentation of Financial 1 January 2007 2 March 2007 Statements: Capital Disclosures (2) IFRS 8 Operating Segments (2) 1 January 2009 27 February 2009 International Financial Reporting Interpretations Committee (IFRIC)IFRIC 8 Scope of IFRS 2 (2) 1 May 2006 2 March 2007IFRIC 9 Reassessment of Embedded Derivatives (2) 1 June 2006 2 March 2007IFRIC 10 Interim Financial Reporting and Impairment (2) 1 November 2006 2 March 2007IFRIC 11 IFRS 2 - Group and Treasury Share Transactions (2) 1 March 2007 2 March 2007IFRIC 12 Service Concession Arrangements (2) 1 January 2008 29 February 2008 (1) This standard requires additional disclosures to be made for financial instruments. There will be no impact on the reported amounts of financial instruments as a result of adopting this financial standard. (2) The impact on the Group's financial statements is not expected to be material. 3 Segment informationThe 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 offersdifferent products and serves different markets. The Group has four core areas of operation: Operation Nature of operation Premier Travel Inn Operation of budget hotels. Restaurants Operation of full service and self service pub restaurants. Costa Operation of coffee shops. David Lloyd Leisure Operation of fitness clubs across the UK, Ireland, the Netherlands, Belgium and Spain, providing racquets, health and fitness club facilities and expertise. Following the recent reorganisation of the Group and business disposals thesegments have been changed to reflect the resultant size and shape of theGroup's activities. This has resulted in the renaming of the Pub Restaurantssegment to Restaurants and Costa being reported in its own segment. In additionprior year comparatives have been restated to include TGI Friday's and Pizza Hutas discontinued operations. Inter-segment revenue is from Costa to the other segments. Transactions wereentered into on an arm's length basis in a manner similar to transactions withthird parties. Included within unallocated operations are those that are managed by a centraldivision. The Group's geographical segments are determined by the location of the Group'sassets and operations. The Group materially operates within the UK and as suchthe secondary format of geographical segments is not presented. The following tables present revenue and profit information and certain assetand liability information regarding business segments for the years ended 1March 2007 and 2 March 2006. Total contin- Discon- Premier David uing tinued Total Travel Rest- Lloyd Unallo- Elimin- oper- oper- oper-Year ended 1 March 2007 Inn aurants Costa Leisure cated ation ations ations ations £m £m £m £m £m £m £m £m £mRevenueRevenue from external customers 458.5 518.9 172.3 237.3 23.8 - 1,410.8 113.5 1,524.3Inter-segment revenue - - 2.8 - - (2.8) - - - ------- -------- ------ ------ -------- -------- -------- -------- --------Total revenue 458.5 518.9 175.1 237.3 23.8 (2.8) 1,410.8 113.5 1,524.3 ======= ======== ====== ====== ======== ======== ======== ======== ========= EBIT (1) 156.2 52.3 17.8 46.4 (21.6) - 251.1 8.0 259.1Add back loss made byminority interest - - 0.3 - - - 0.3 - 0.3 ------- -------- ------ ------ -------- -------- -------- -------- -------- EBIT attributable to 156.2 52.3 18.1 46.4 (21.6) - 251.4 8.0 259.4shareholders ======= ======== ====== ====== ======== ======== ======== ======== ========= ---------------------------------------------------------------------------------------------------------EBIT attributable to shareholders 156.2 52.3 18.1 46.4 (21.6) - 251.4 8.0 259.4Segment exceptional items: - Net profit/(loss) on disposal of property, plant and equipment (0.2) 0.7 (0.5) (1.1) 0.7 - (0.4) (0.5) (0.9) - Net release of provision - - - - - - - 8.2 8.2 - Impairment of propertyand other assets - (1.8) (1.2) (8.2) (1.4) - (12.6) - (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 tominority interests - - (0.3) - - - (0.3) - (0.3) ------- -------- ------ ------ -------- -------- -------- -------- --------Segment result 155.4 51.2 16.1 37.1 (43.7) - 216.1 10.4 226.5--------------------------------------------------------------------------------------------------------- Operating profit 216.1 10.4 226.5 Share of profit from associates 0.6 - - - - - 0.6 - 0.6Non-operating exceptionals: Net profit on disposal ofpub restaurants - 196.6 - - - - 196.6 - 196.6 Net profit on disposal ofbusinesses and investments - - - - - - - 48.5 48.5 ------- --------- --------- Profit before financing and tax 413.3 58.9 472.2 Net finance costs (38.1) 0.7 (37.4) ------- --------- --------- Profit before income tax 375.2 59.6 434.8 ------- --------- --------- Income tax expense (145.8) (7.5) (153.3) ------- --------- ---------Net profit for the year 229.4 52.1 281.5 ------- --------- --------- Assets and liabilities Segment assets 1,267.9 622.1 75.4 568.0 - - 2,533.4 65.4 2,598.8Investment in joint ventures 1.1 - - - - - 1.1 - 1.1Investment in associates 0.9 - - - - - 0.9 - 0.9Unallocated assets - - - - 114.9 - 114.9 - 114.9 ------- -------- ------ ------ -------- -------- -------- -------- --------Total assets 1,269.9 622.1 75.4 568.0 114.9 - 2,650.3 65.4 2,715.7 ------- -------- ------ ------ -------- -------- -------- -------- -------- Segment liabilities (50.9) (61.5) (18.5) (44.6) - - (175.5) (11.9) (187.4)Unallocated liabilities - - - - (629.8) - (629.8) - (629.8) ------- -------- ------ ------ -------- -------- -------- -------- --------Total liabilities (50.9) (61.5) (18.5) (44.6) (629.8) - (805.3) (11.9) (817.2) ------- -------- ------ ------ -------- -------- -------- -------- -------- ------- -------- ------ ------ -------- -------- -------- -------- --------Net assets 1,219.0 560.6 56.9 523.4 (514.9) - 1,845.0 53.5 1,898.5 ======= ======== ====== ====== ======== ======== ======== ======== ========= Reconciliation of assets and liabilities reported above to those reported on the balance sheet Assets reported above 1,269.9 622.1 75.4 568.0 114.9 - 2,650.3 65.4 2,715.7Non-current derivative - - - - 56.8 - 56.8 - 56.8assetsCurrent derivative assets - - - - 8.3 - 8.3 - 8.3Cash - - - - 70.5 - 70.5 - 70.5 ------- -------- ------ ------ -------- -------- -------- -------- --------Assets per balance sheet 1,269.9 622.1 75.4 568.0 250.5 - 2,785.9 65.4 2,851.3 ======= ======== ====== ====== ======== ======== ======== ======== ========= Liabilities reported above (50.9) (61.5) (18.5) (44.6) (629.8) - (805.3) (11.9) (817.2)Current financial - - - - (86.3) - (86.3) - (86.3)liabilitiesNon-current financial - - - - (882.8) - (882.8) - (882.8)liabilitiesNon-current derivative - - - - (5.9) - (5.9) - (5.9)liabilities ------- -------- ------ ------ -------- -------- -------- -------- --------Liabilities per balance (50.9) (61.5) (18.5) (44.6) (1,604.8) - (1,780.3) (11.9) (1,792.2)sheet ======= ======== ====== ====== ======== ======== ======== ======== ========= Other segment informationCapitalexpenditures: Property, plant and equipment - cash basis 119.6 58.0 23.0 25.6 4.7 - 230.9 10.3 241.2 Property, plant and equipment - accruals basis 124.1 61.8 24.9 28.7 4.1 - 243.6 8.5 252.1 Intangible fixed assets - - 0.3 1.8 - - 2.1 - 2.1 Depreciation 35.0 27.0 10.6 22.3 2.3 - 97.2 3.1 100.3Amortisation - - - - 2.5 - 2.5 - 2.5 (1) EBIT shows the segment result before exceptional items. It is profit before financing and tax andexceptional items. Total contin- Discon- Premier David uing tinued TotalYear ended 2 Travel Rest- Lloyd Unallo- Elimin- oper- oper- oper-March 2006 (restated) Inn aurants Costa Leisure cated ation ations ations ations £m £m £m £m £m £m £m £m £mRevenueRevenue from external customers 392.9 619.9 140.3 224.6 114.2 - 1,491.9 200.3 1,692.2Inter-segment revenue - - 2.7 - - (2.7) - - - ------- -------- ------ ------ -------- -------- -------- -------- --------Total revenue 392.9 619.9 143.0 224.6 114.2 (2.7) 1,491.9 200.3 1,692.2 ======= ======== ====== ====== ======== ======== ======== ======== ========= EBIT (1) 129.8 74.9 13.3 41.3 (25.4) - 233.9 39.3 273.2 ---------------------------------------------------------------------------------------------------------EBIT (1) 129.8 74.9 13.3 41.3 (25.4) - 233.9 39.3 273.2Segment exceptional items: - Net profit/(loss) on disposal of property, plant and equipment 0.3 1.5 (1.0) - - - 0.8 2.2 3.0 - Impairment of property and goodwill - (5.7) (3.3) (18.3) (7.3) - (34.6) (0.6) (35.2) - Reorganisation - - - - (10.8) - (10.8) - (10.8)Share of profit from joint ventures (0.3) - - - - - (0.3) (6.0) (6.3)Share of profit from associates (0.6) - - (0.3) - - (0.9) (9.4) (10.3) ------- -------- ------ ------ -------- -------- -------- -------- --------Segment result 129.2 70.7 9.0 22.7 (43.5) - 188.1 25.5 213.6--------------------------------------------------------------------------------------------------------- Operating profit 188.1 25.5 213.6 Share of profit from joint ventures 0.3 - - - - - 0.3 6.0 6.3Share of profit from associates 0.6 - - 0.3 - - 0.9 9.4 10.3Non-operating exceptionals: Net loss on disposal ofbusinesses and investments - (1.1) - (3.7) (3.9) - (8.7) 200.4 191.7 Impairment loss on revaluation of Condor joint venture - - - - - - - (29.3) (29.3) -------- -------- --------- Profit before financing and tax 180.6 212.0 392.6 Net finance costs (88.3) (0.7) (89.0) -------- -------- ---------Profit before income tax 92.3 211.3 303.6 -------- -------- --------- Income tax expense (44.2) 5.0 (39.2) -------- -------- ---------Net profit for 48.1 216.3 264.4the year -------- -------- --------- Assets and liabilities Segment assets 1,140.4 876.3 60.5 574.5 - - 2,651.7 149.5 2,801.2Investment in joint ventures 5.4 - - - - - 5.4 264.4 269.8Investment in associates 0.8 - - - - - 0.8 10.0 10.8Unallocated assets - - - - 175.8 - 175.8 - 175.8 ------- -------- ------ ------ -------- -------- -------- -------- --------Total assets 1,146.6 876.3 60.5 574.5 175.8 - 2,833.7 423.9 3,257.6 ------- -------- ------ ------ -------- -------- -------- -------- -------- Segment liabilities (42.3) (55.4) (14.0) (45.4) - - (157.1) (15.1) (172.2)Unallocated liabilities - - - - (654.0) - (654.0) - (654.0) ------- -------- ------ ------ -------- -------- -------- -------- --------Total liabilities (42.3) (55.4) (14.0) (45.4) (654.0) - (811.1) (15.1) (826.2) ------- -------- ------ ------ -------- -------- -------- -------- --------Net assets 1,104.3 820.9 46.5 529.1 (478.2) - 2,022.6 408.8 2,431.4 ======= ======== ====== ====== ======== ======== ======== ======== ========= Reconciliation of assets and liabilities reported above to those reported on the balance sheet Assets reported above 1,146.6 876.3 60.5 574.5 175.8 - 2,833.7 423.9 3,257.6Non-current derivative assets - - - - 78.5 - 78.5 - 78.5Current derivative assets - - - - 10.2 - 10.2 - 10.2Cash - - - - 49.6 - 49.6 - 49.6 ------- -------- ------ ------ -------- -------- -------- -------- --------Assets per balance sheet 1,146.6 876.3 60.5 574.5 314.1 - 2,972.0 423.9 3,395.9 ======= ======== ====== ====== ======== ======== ======== ======== ========= Liabilities reported above (42.3) (55.4) (14.0) (45.4) (654.0) - (811.1) (15.1) (826.2)Current financial liabilities - - - - (145.1) - (145.1) - (145.1)Current derivative liabilities - - - - (0.3) - (0.3) - (0.3)Non-current financial liabilities - - - - (874.8) - (874.8) - (874.8)Non-current derivative liabilities - - - - (3.0) - (3.0) - (3.0) ------- -------- ------ ------ -------- -------- -------- -------- --------Liabilities per balance (42.3) (55.4) (14.0) (45.4) (1,677.2) - (1,834.3) (15.1) (1,849.4)sheet ======= ======== ====== ====== ======== ======== ======== ======== ========= Other segment informationCapital expenditures: Property, plant and equipment - cash basis 65.4 54.1 20.9 43.3 5.2 - 188.9 39.7 228.6 Property, plant and equipment - accruals basis 61.9 58.0 21.3 39.2 2.8 - 183.2 35.3 218.5 Intangible fixed assets - - - - 1.6 - 1.6 - 1.6 Depreciation 32.5 34.8 9.0 22.5 1.9 - 100.7 11.1 111.8Amortisation 0.2 - - - 6.8 - 7.0 - 7.0 (1)EBIT shows the segment result before exceptional items. It is profit before financing and tax and exceptional items. 4 Exceptional items Restated 2006/7 2005/6 £m £mContinuing activities: Reorganisation costs (1) (21.4) (10.8)Impairment of property, plant and equipment (12.6) (21.5)Net (loss)/profit on disposal of property, plant and equipment (0.4) 0.8Impairment of goodwill - (5.8)Impairment of intangible assets - (7.3) ------- -------Operating exceptionals (34.4) (44.6) Net profit on disposal of pub restaurants (2) 196.6 -Net loss on sale of businesses and investments - (8.7)Interest cost of early redemption of debentures - (25.5) ------- ------- 162.2 (78.8) ------- ------- Tax on continuing exceptional items (77.0) 12.8 ------- ------- Total continuing exceptional items 85.2 (66.0) ======= ======= Discontinued activities: Net (loss)/profit on disposal of property, plant and equipment (0.5) 2.2Warranty and onerous contract provisions (3) 8.2 -Provision for loan write-down (4) (5.3) -Impairment loss on revaluation of Condor joint venture - (29.3)Impairment of property, plant and equipment - (0.6) ------- -------Operating exceptionals 2.4 (27.7) Net profit on disposal of businesses 48.5 200.4 ------- ------- 50.9 172.7 ------- ------- Tax on discontinued exceptional items (5.7) 7.6 ------- ------- Total discontinued exceptional items 45.2 180.3 ======= =======Total exceptional items 130.4 114.3 ======= ======= Distribution costs include impairment of £12.6m, reorganisation expenses of£0.6m and loss on disposals of property, plant and equipment of £0.4m.Administration costs include reorganisation costs of £20.8m. (1) During 2005/6 the Board instigated a fundamental reorganisation of all central support functions and the financial impact of this decision has continued into the current period. In addition the announced disposal of 235 pubs led to a further restructuring during 2006/7 to reflect the resultant shape of the Group. The costs principally relate to redundancy, closure costs and a pension curtailment credit. (2) During the period 235 trading pubs, together with four sites not yet trading, have been disposed of to Mitchells & Butlers resulting in a profit on disposal after costs of £196.6m. Contingent deferred consideration of as much as £7.5m may be due to Whitbread in future periods. This has not been accounted for due to uncertainty regarding whether it will be received. (3) During the year a provision for an onerous contract was released resulting in a credit to the profit and loss account of £13.3m. In addition, new provisions for warranties on disposals and onerous contracts were created which resulted in a charge to the income statement of £5.1m. (4) As a result of Swallow Hotels Limited going into administration in 2006 we have provided for the deferred consideration on the sale of Swallow branded hotels which occurred during 2003/4. We continue to pursue the outstanding balance and are liaising with the administrators in this matter. 5 Taxation Consolidated income statement for continuing operations Major components of the tax charge for continuing operations for the years ended1 March 2007 and 2 March 2006 are: 2006/7 2005/6 £m £mCurrent tax Current tax expense 17.7 1.1 Adjustments in respect of current tax of (0.3) (0.4) previous periods ------ ------ 17.4 0.7Deferred tax Origination and reversal of temporary 128.4 43.5 differences ------ ------ 128.4 43.5 ------ ------ Tax reported in the consolidated ncome statement for continuingoperations 145.8 44.2 ====== ====== Consolidated statement of recognised income and expense Pensions 11.9 (28.6) ------ ------Tax reported in equity 11.9 (28.6) ====== ====== A reconciliation of the tax charge applicable to profit from operatingactivities before tax at the statutory tax rate to the actual tax charge at theGroup's effective tax rate for the years ended 1 March 2007 and 2 March 2006respectively was as follows: Accounting profit before tax from continuingoperations 375.2 92.3Accounting profit before tax from discontinuingoperations 59.6 211.3 ------ ------Profit reported in the consolidated incomestatement 434.8 303.6 Tax at current UK tax rate of 30% (2006 - 30%) 130.4 91.1Effect of different tax rates in overseas companies - 0.7Effect of associated and joint venture companies (0.2) (5.0)Expenditure not allowable/income not taxable inrelation to discontinuing operations 11.9 (43.9)Adjustments to tax expense in respect of previousyears 7.0 (0.4)Adjustments to deferred tax expense in respect ofprevious years 4.2 (3.3) ------ ------ 153.3 39.2 ====== ====== Tax expense reported in the consolidated incomestatement for continuing operations 145.8 44.2Tax expense/(recovery) attributable to discontinuedoperations 7.5 (5.0) ------ ------ 153.3 39.2 ====== ====== Deferred taxDeferred tax at 1 March 2007 relates to the following: Consolidated Consolidated balance sheet income statement 2007 2006 2006/7 2005/6 £m £m £m £mDeferred taxliabilitiesAcceleratedcapitalallowances 102.3 101.5 2.2 7.9Propertyvaluation 272.6 184.5 88.1 5.2 ------ ------Gross deferredtaxliabilities 374.9 286.0 ------ ------ Deferred tax assetsPensions (58.8) (101.6) 30.9 31.0Tax losses (2.8) (1.9) (1.2) -Other (3.8) (8.3) 8.4 (0.6) ------ ------Gross deferredtax assets (65.4) (111.8) ------ ------ ------ ------Deferred taxexpense 128.4 43.5 ------ ------ ====== ======Net deferredtax liability 309.5 174.2 ====== ====== At 1 March 2007 there was no recognised deferred tax liability for taxesthat would be payable on the unremitted earnings of overseassubsidiaries of £3.1m. Tax relief on total interest capitalised amounts to £0.5m (2006 - £0.6m). 6 Discontinued operations On 21 April 2006 Whitbread and Marriott completed the sale of the Marriott jointventure to the Royal Bank of Scotland. The Group's share of the proceeds was£217.6m. The transaction resulted in a loss on disposal before tax for the Groupof £25.0m in the current year. On 8 May 2006 the preference and ordinary sharesheld by Marriott International in Condor 2 were redeemed. As a result Condor 2became a wholly owned subsidiary of Whitbread PLC. Outside of the joint venture, Whitbread retained its investment in a furtherseven of the original properties which have been sold during the year resultingin a net profit on disposal of £4.7m. On 12 September 2006 Whitbread sold its 50% investment in Pizza Hut UK Limitedto Yum! Restaurants Holdings for an agreed value of £112.0m. After adjustmentsfor debt and other liabilities £99m in cash was received resulting in a profiton disposal of £68.8m. Prior periods presented in these financial statementshave been restated to reflect its status as a discontinued operation. On 17 January 2007 Whitbread announced its intention to dispose of its TGIFriday's business for an aggregate price of £70.4m. Completion took place on 2March 2007. The associated assets are classified as held for sale at 1 March2007. All the properties and investments described above have been reported withindiscontinued operations for the years presented. The effect of the disposals during the period is as follows: Marriott Pizza hotels Hut Total £m £m £m ------- -------- -------Sale proceeds 291.3 112.0 403.3Total net assets sold (300.5) (42.8) (343.3)Costs of disposal (11.1) (0.4) (11.5) ------- -------- ------- (20.3) 68.8 48.5 ------- -------- -------Net (loss)/profit on disposal ofbusinesses (20.3) 68.8 48.5 ======= ======== ======= Sale proceeds are made up asfollows:Cash 274.0 99.0 373.0Cash foregone in lieu of paymentof debt - 13.0 13.0Deferred consideration 17.3 - 17.3 ------- -------- -------Total consideration 291.3 112.0 403.3 ======= ======== ======= On the face of the cash flow, disposals of subsidiaries and investments reportedas discontinued operations are the net of cash proceeds of £373.0m and the costsof disposal of £11.5m. Total net assets sold comprises the following assets and Totalliabilities: £m -------Investment in associate 10.0Investment in joint venture 277.4Fixed assets 53.6Debtors 8.1 -------Total assets sold 349.1 ------- Creditors (5.8) -------Total liabilities sold (5.8) ------- Total net assets sold 343.3 ======= Cash flows relating to discontinued operations are as follows: Year to 1 March Year to 2 March 2007 2006 £m £m -------- ------- Marriott hotelsNet cash inflows from operatingactivities 1.2 14.7Net cash flows from investingactivities (5.4) (10.2) -------- -------Net (decrease)/increase in cash and cashequivalents (4.2) 4.5 ======== ======= TGI Friday'sNet cash inflows from operatingactivities 9.5 7.5Net cash flows from investingactivities (2.5) (8.6) -------- -------Net increase/(decrease) in cashand cash equivalents 7.0 (1.1) ======== ======= Profit for the year from discontinued operations is made up as follows: Year to 1 March 2007 Before Exceptional Total Restated exceptional Items Year to 2 March items (note 4) 2006 £m £m £m £m ------- ------- -------- ------- Revenue 113.5 - 113.5 200.3Cost of sales (36.9) - (36.9) (48.0) ------- ------- -------- -------Gross profit 76.6 - 76.6 152.3 Distributioncosts (60.3) (0.5) (60.8) (110.3)Administrativeexpenses (8.3) 2.9 (5.4) (16.5) ------- ------- -------- -------Operatingprofit 8.0 2.4 10.4 25.5 Share ofprofit fromjoint ventures - - - 6.0Share ofprofit fromassociates - - - 9.4 Exceptional items (note 4)Net profit ondisposal ofbusinesses - 48.5 48.5 200.4Impairmentloss onrevaluation ofCondor jointventure - - - (29.3) ------- ------- -------- ------- Profit beforefinancing andtax 8.0 50.9 58.9 212.0 Finance costs - - - (1.5)Finance income 0.7 - 0.7 0.8 ------- ------- -------- -------Profit beforetax 8.7 50.9 59.6 211.3 Income tax expense:- related to pre-tax profit (1.8) - (1.8) (2.6)- related to pre-tax profit exceptional - 1.4 1.4 -- related to prior year disposals - (7.1) (7.1) -- related to profit on disposal - - - 7.6 ------- ------- -------- ------- Profit for theyear fromdiscontinuedoperations 6.9 45.2 52.1 216.3 ======= ======= ======== ======= Assets classified as held for saleThe major classes of assets classified as held for sale and measured at thelower of carrying amount and fair value less cost to sell are as follows: Year ended 1 Year ended 2 March 2007 March 2006 £m £m -------- ------- Assets Property, plant and equipment 56.8 58.0Investment in joint venture - 234.6Investment in associates - 10.0Inventories 0.6 -Trade and other receivables 1.7 - -------- -------Total assets 59.1 302.6 ======== ======= 7 Earnings per share Basic earnings per share is calculated by dividing the net profit for the yearattributable to ordinary shareholders of £281.8m (2005/6 - £264.3m) by theweighted average number of ordinary shares outstanding during the year of 228.3m(2005/6 - 264.7m). The adjusted earnings per share is presented so as to show more clearly theunderlying performance of the Group. Diluted earnings per share is the basic and adjusted basic earnings per shareafter allowing for the dilutive effect of the conversion into ordinary shares ofthe weighted average number of options outstanding during the period. The numberof shares used for the diluted and adjusted diluted calculation is as follows: 2006/7 2005/6 m m ------- ------- Weighted average number of ordinary shares forbasic earnings per share 228.3 264.7Effect of dilution - share options 1.8 2.2 ------- ------- Adjusted weighted average number of ordinary sharesfor diluted earnings per share 230.1 266.9 ======= ======= Where the share price at the year end is lower than the option pricethe options become anti-dilutive. At the year end no such options werein issue (2005/6 - 104,671). Earnings per share on discontinued operations Restated 2006/7 2005/6 p p ------- ------- basic earnings per share 22.82 81.68- diluted for profit for the period 22.64 81.00 Adjusted basic earnings per share is calculated asfollows: Earnings Earnings per shareTotal operations 2006/7 2005/6 2006/7 2005/6 £m £m p P ------- ------- ------- ------- Earnings and basic earnings per share 281.8 264.3 123.43 99.85Earnings and basic earnings per shareattributable to:Exceptional items - gross (note 4) (213.1) (93.9) (93.34) (35.47)Adjust for tax on exceptional items(note 4) 82.7 (20.4) 36.22 (7.71) ------- ------- ------- -------Underlying profit and basic earningsper share for profit for the period 151.4 150.0 66.31 56.67 ======= ======= ======= ======= Earnings Earnings per share Restated RestatedContinuing operations 2006/7 2005/6 2006/7 2005/6 £m £m p P ------- ------- ------- ------- Earnings and basic earnings per share 229.7 48.1 100.61 18.17Earnings and basic earnings per shareattributable to:Exceptional items - gross (note 4) (162.2) 78.8 (71.04) 29.77Adjust for tax on exceptional items(note 4) 77.0 (12.8) 33.72 (4.84) ------- ------- ------- -------Underlying profit and basic earningsper share for profit for the period 144.5 114.1 63.29 43.10 ======= ======= ======= ======= Earnings Earnings per share Restated RestatedDiscontinued operations 2006/7 2005/6 2006/7 2005/6 £m £m p P Earnings and basic earnings per share 52.1 216.2 22.82 81.68Earnings and basic earnings per shareattributable to:Exceptional items - gross (note 4) (50.9) (172.7) (22.30) (65.24)Adjust for tax on exceptional items(note 4) 5.7 (7.6) 2.50 (2.87) ------- ------- ------- -------Underlying profit and basic earningsper share for profit for the period 6.9 35.9 3.02 13.57 ======= ======= ======= ======= Underlying profit is reported on net profit from continuing activities beforeexceptional items, these being impairment of property, plant and equipment,impairment of goodwill, impairment of intangibles, reorganisation costs, netprofit on disposal of fixed assets, net profit on disposal of businesses andinvestments, interest charge on early redemption of debentures, provision forloan write-down and other material, non-recurring items. 8 Dividends paid and proposed 2006/7 2005/6 £m £m ------- -------Declared and paid in the year:Equity dividends on ordinary shares: Final dividend for 2005/6 - 19.95 pence (2004/5 -18.35 pence) 51.3 54.6Interim dividend for 2006/7 - 8.10 pence (2005/6 -7.35 pence) 17.8 18.9Special dividend - 135.00 pence - 402.0 ------- ------- 69.1 475.5 ------- ------- Dividends on other shares: B share dividend - 155.00 pence 264.4 -C share dividend - 159.00 pence 195.5 - ------- ------- 459.9 - ------- -------Total dividends paid 529.0 475.5 ======= ======= Proposed for approval at AGM:Equity dividends on ordinary sharesFinal dividend for 2006/7 - 22.15 pence (2005/6 -19.95 pence) 43.8 51.7 ======= ======= 9 Reserves Share Share premium Capital Other reserves Retained Currency Total Minority Total capital redemption earnings translation interest equity reserve £m £m £m £m £m £m £m £m £m At 3 March 149.6 23.2 - (1,870.2) 3,507.4 0.3 1,810.3 5.8 1,816.12005 ------ ------ -------- ------ ------ ------- ------ ------ ------ Effect ofadopting IAS - - - (3.2) 2.3 - (0.9) (3.1) (4.0)32 & 39 ------ ------ -------- ------ ------ ------- ------ ------ ------At 4 March 149.6 23.2 - (1,873.4) 3,509.7 0.3 1,809.4 2.7 1,812.12005 ------ ------ -------- ------ ------ ------- ------ ------ ------ Totalrecognisedincome and expense forthe year - - - (0.3) 199.4 1.4 200.5 0.1 200.6Ordinaryshares issued 1.5 12.9 - - - - 14.4 - 14.4Cost of ESOTsharespurchased - - - (9.5) - - (9.5) - (9.5)Loss on ESOTshares issuedto - - - 6.2 (6.2) - - - -participantsAccrued sharebased - - - - 7.4 - 7.4 - 7.4paymentsMovement injoint ventureand - - - - (3.0) - (3.0) - (3.0)associatesreservesEquitydividends - - - - (475.5) - (475.5) - (475.5) ------ ------ -------- ------ ------ ------- ------ ------ ------At 2 March 151.1 36.1 - (1,877.0) 3,231.8 1.7 1,543.7 2.8 1,546.52006 ------ ------ -------- ------ ------ ------- ------ ------ ------ Totalrecognised - - - (1.1) 307.9 (0.9) 305.9 (0.3) 305.6income andexpensefor the yearOrdinaryshares issued 0.8 6.8 - - - - 7.6 - 7.6Bonus issue ofpreferenceshares - (4.8) - - - - (4.8) - (4.8)Preferencesharescancelled - - 4.7 - (275.7) - (271.0) - (271.0)Reimbursementof ESOT - - - 1.2 - - 1.2 - 1.2sharesLoss on ESOTshares issuedto - - - 1.3 (1.3) - - - -participantsAccrued sharebased - - - - 5.2 - 5.2 - 5.2paymentsAdditions - - - - - - - 0.6 0.6Disposals - - - - - - - (2.8) (2.8)Equitydividends - - - - (529.0) - (529.0) - (529.0) ------ ------ -------- ------ ------ ------- ------ ------ ------ At 1 March 151.9 38.1 4.7 (1,875.6) 2,738.9 0.8 1,058.8 0.3 1,059.12007 ====== ====== ======== ====== ====== ======= ====== ====== ====== Nature and purpose of reserves: Share capital Share capital includes the nominal value on issue of the Company's sharecapital, comprising 76.80p ordinary shares. Share premium The share premium reserve is the premium paid on the Company's 76.80p ordinaryshares. Retained earnings A portion of retained earnings is undistributable following the adoption ofIFRS. The 'revaluation reserve' reported under UK GAAP has been reclassified asretained profit at the date of transition to IFRS. Foreign currency translation reserve The foreign currency translation reserve is used to record exchange differencesarising from the translation of the financial statements of foreign subsidiariesand other foreign currency investments. Capital redemption reserve A capital redemption reserve has been created on the cancellation of the Group'sB and C preference shares. 10 Events after the balance sheet date On 2 March 2007 the Group sold its interest in TGI Friday's for consideration of£70.4m. A final dividend of 22.15p per share (2006 - 19.95p) amounting to a dividend of£43.8m (2006 - £51.7m) was declared by the Directors at their meeting on 23April 2007. These financial statements do not reflect this dividend payable. This information is provided by RNS The company news service from the London Stock Exchange

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