Whitbread Regulatory News (WTB)

Resilient FY20. Decisive actions to position Whitbread for long-term growth

FY20 performance was in line with expectations with commercial initiatives driving an improved H2. We have taken decisive action in response to the COVID-19 pandemic, to protect our teams, guests and the business. We have enhanced our liquidity position and agreed a range of covenant waivers that mean we are able to withstand many months of our hotels being closed or at low occupancy. We are ready to re-open quickly and safely, and the business is well positioned to return to strength. The Rights Issue to raise £1bn, launched today, will enhance both our financial flexibility and our ability to successfully execute our strategy in the UK and Germany, where we can drive attractive returns on investment in the long-term. Winning business models such as ours are well-placed to thrive as the situation normalises, and our long-term strategy places Premier Inn1 in a position to succeed.

FY20 Operational Highlights: 

· Resilient FY20 performance delivered in-line with expectations; improved UK trading in H2

· Quarterly performance improving sequentially through the year, with Q4 total UK accommodation sales growth 20bps ahead of the market

· Premier Inn customer scores continued to improve demonstrating best-in-class operational performance

· Material acceleration in network growth in Germany - open and committed pipeline now stands at 9,800 rooms across 52 hotels.

COVID-19: Protecting the business through rapid and decisive action

· Robust operational response to protect our teams, guests and the continuity of the business

· All restaurants and the vast majority of hotels closed in the last week of March 2020

· Decisive action taken to reduce cash outflows and further enhance liquidity, including significant reductions in capital expenditure and discretionary spend, voluntary pay cuts for Board and management team and use of UK and German Government support packages

· Dividend payment suspended

· Covenant waivers granted from lenders for 18 months

· Strong balance sheet as we entered FY21; cash of £503m and undrawn Revolving Credit Facility (RCF) of £950m

· Confirmed as an eligible issuer under the UK Government's Covid Corporate Financing Facility (CCFF) 

· c.27k furloughed staff remain on full pay and full refunds provided for customers

· Supporting the community and national effort by making rooms available to NHS staff and other key workers at selected hotels, passing fleet delivery capacity to supermarkets and donating enough food to make over 335k meals to charities following our restaurant closures.

COVID-19: Positioning the business for a successful recovery

· UK hotels ready to open when the government advises; internal scenarios include the assumption that hotels are closed, or at low levels of occupancy, until September 2020. German hotels re-opened 11 May 2020

· Revised operational protocols tested and working in 39 open hotels. Our operating model ensures strict social distancing, significantly enhanced hygiene standards and specific staff training can be rigorously and consistently enforced across the estate

· Well positioned to return to strength as customers seek value and expected to rely on their most trusted brands

· Flexibility to adapt our operating model in a post-lockdown world:

· Direct distribution model provides early visibility on consumer behaviour and dynamics, supporting rapid adaptation of the consumer proposition

· More flexible-rate products launched to provide booking confidence

· Leading brand, network scale, direct bookings, domestic customer bias and value focus will all support a strong return in a weakened competitor environment.

Post COVID-19: Driving long-term value

· Whitbread had significant liquidity as we entered FY21 and the COVID-19 crisis

· Intention to raise £1bn by way of a fully underwritten Rights Issue, alongside 18-month covenant waivers, providing a strong platform for future growth and investment to drive share gains

· In the UK, we will continue to grow and innovate, by leveraging the powerful competitive advantages of our operating model and capitalising on the enhanced structural opportunities that are expected to exist post COVID-19

· In Germany, our aim is for Premier Inn to be the number one budget hotel operator, replicating our UK success story. We will continue to invest in growing our German pipeline and believe we have a long-term line-of-sight to over 60k rooms through both organic and inorganic investment

· Opportunity remains to make value-accretive investment at attractive returns, ensuring Whitbread is well-positioned to resume its long-term growth and value creation when conditions and operations normalise.

(a) FY19 restated for the adoption of a new adjusting items policy where in FY19 IAS19 Pension interest is no longer adjusted for. Measures are presented for the continuing business which excludes the performance of the Costa business, with the exception of discretionary free cashflow and lease adjusted net debt : FFO which include Costa in FY19. Further information can be found in the Notes to the accompanying financial statements

(b) Includes £9m of revenue relating to the transitional service agreement that was in place with Costa (FY19: £2m)

† signifies an alternative performance measure (APM) - see the Financial Review of this statement and Notes to the accompanying financial statements for further details

· Statutory revenue up 1.1% to £2,072m supported by contribution from new capacity and improvement in absolute and relative performance through the second half, despite continued weak market conditions

· Adjusted profit before tax decreased by 8.2% to £358m, as a result of weaker UK travel market conditions, particularly in the regions, the high rate of industry-wide inflation, despite mitigating cost saving actions, and the start-up nature of our German operations

· Statutory profit before tax increased 28.4% to £280m and statutory profit for the year increased 23.2% to £218m primarily due to separation costs incurred in the prior year from the disposal of the Costa business

· Lease adjusted leverage / FFO of 2.6x; significant liquidity with cash on deposit of £503m, undrawn RCF of £950m at the balance sheet date, and currently £600m limit available under the CCFF scheme

· High levels of early investment in Germany (including the cash payment on the last day of the financial year towards the acquisition of the Foremost Hospitality Group) and the weaker UK market conditions driving a reduction in return on capital; remain confident in future performance of recent investments.

Alison Brittain, Whitbread Chief Executive Officer, commented:

"Whitbread delivered a resilient financial performance in FY20 in line with expectations, against a backdrop of low UK business and consumer confidence which particularly impacted the regional hotel market. The commercial initiatives we implemented during H1 helped drive a particularly strong end to the year, when we were trading ahead of the market and achieving very strong guest scores. In Germany, we completed the acquisition of the Foremost Hotels on 28 February 2020, growing the number of open and pipeline hotels to 52.

However, the period after the year-end has been dominated by the impact of the rapidly evolving COVID-19 pandemic. In response, the business took rapid and decisive action to protect our teams and our guests, and to secure our business to ensure that we will be in the best possible position to rebound strongly. 

We are pleased to have been able to help in the national effort, by keeping 39 hotels open that are located near hospitals for use by NHS staff and other front-line key workers. We transferred our vehicle delivery capacity to supermarkets to help their supply chains, and also donated over 158 tonnes of food to charities, producing over 335,000 meals for those in need.

I would like to take this opportunity to thank all our employees for their hard work over the last year, and the resilience they have shown in the face of the current very challenging situation. I am extremely proud of, and grateful to, all our teams and in particular those colleagues who have volunteered to work in our open hotels.

Having taken every step we could to ensure that we have the financial capability to withstand the initial period of lockdown, our focus has turned to re-opening and positioning ourselves for a successful recovery. The hotels that we have re-opened in Germany and the UK have given us a head start in implementing new and comprehensive safety, health and hygiene protocols that will give our teams and guests the re-assurance that we can continue to deliver the very high quality standards that they expect from Premier Inn. 

Despite the challenges the industry faces, Whitbread's strategy to drive long-term value has not changed and remains compelling. We have a significant opportunity to continue to build out our pipeline in the UK, along with optimising our large network of hotels by investing in upgraded formats such as our Premier Plus rooms, which are proving very popular with both our business and leisure guests. Germany offers an enormous opportunity for structural growth, with a large domestic market and a fragmented and declining independent sector. As a result of the current crisis, we expect there to be an impact on the competitive landscape and to see a material slowdown in the supply of rooms in both our key markets, and potentially an acceleration in the decline of the large independent sector. Our ownership and operating model underpins a winning customer proposition, that we believe will thrive as customers return to travelling domestically and continue to seek value and to rely on their most trusted brands. 

Our strong balance sheet has for many years been a source of competitive advantage and has underpinned our long-term success. To enable us to continue to invest with confidence in the compelling structural growth opportunities that we see in the UK and Germany, we are raising £1bn through a fully underwritten rights issue. Optimising the balance sheet in this way will enable the business to be in the best possible position to continue investing and taking market share in our fragmented sector when the current situation normalises. 

Whitbread is a strong and much-loved business that has successfully navigated numerous turbulent periods during its proud 278-year history. The combination of the strengths of our people, business model and our brands, alongside a strong balance sheet and the decisive action that we have taken, means that when the COVID-19 situation passes, we will be in a position of strength to continue to increase market share, support our colleagues and guests and create further significant value for shareholders." 

For more information please contact:

Investor queries | Whitbread | investorrelations@whitbread.com | +44 (0) 1582 888 633

Media queries | Tulchan Communications, David Allchurch / Jessica Reid | +44 (0) 20 7353 4200

Footnotes and definitions are contained immediately prior to the financial statements.

A webcast for investors and analysts will be made available at 8.15am on 21 May 2020 and will be followed by a live Q&A teleconference at 9:30am. Details of both can be found on Whitbread's website (www.whitbread.co.uk/investors).

†Alternative performance measures

We use a range of measures to monitor the financial performance of the Group. These measures include both statutory measures in accordance with IFRS and alternative performance measures (APMs) which are consistent with the way that the business performance is measured internally. We report adjusted measures because we believe they provide both management and investors with useful additional information about the financial performance of the Group's businesses.

Adjusted measures of profitability represent the equivalent IFRS measures adjusted for specific items that we consider relevant for comparison of the financial performance of the Group's businesses either from one period to another or with other similar businesses.

APMs are not defined by IFRS and therefore may not be directly comparable with similarly titled measures reported by other companies. APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measures.

* Funds from operations (FFO) = Net cash flows from operating activities, adding back changes in working capital, property rent & cash interest

* Statutory profit for the year is for the continuing business unless specified

CEO Overview | A business well-placed to withstand turbulent times

COVID-19: Protecting the business through rapid and decisive action

Whitbread was performing well prior to the COVID-19 situation. The business delivered a resilient financial performance during FY20, with performance improving in H2, in particular in Q4 when total accommodation sales growth was 20bps ahead of the market. Statutory revenue grew 1.1% to £2,072m supported by the contribution from new capacity and the improved performance through the second half of the year, despite continued weak market conditions. Adjusted profit before tax decreased by 8.2% to £358m, as a result of low business confidence driving weaker UK travel market conditions, particularly in the regions, the high rate of industry-wide inflation, and the start-up nature of our German operations. Our already high brand strength and guest scores also improved during the year.

Impact on the business to date

Trading in the period subsequent to the year-end has however been materially adversely impacted by COVID-19. In the 11-week period to 14 May 2020, total accommodation and F&B revenues were down 75% year-on-year. Following the closure of all of our restaurants and the majority of our hotel network, on the Government's guidance, at the end of March, total accommodation and F&B revenues were down 99% in the last seven weeks. The COVID-19 situation is rapidly changing, and while we were able to reopen 16 hotels in Germany on 11 May 2020, our internal scenario planning currently assumes that our UK hotels and restaurants will remain closed, or operating at low levels of occupancy, until September. Demand recovery is then expected to be slow as social distancing restrictions are gradually relaxed.

Decisive action to protect the business and preserve cash

The business has a well-developed set of contingency plans. As the global pandemic progressed throughout February 2020, and then rapidly escalated in March 2020, the business deployed its contingency plans in full response to COVID-19. Following the series of Government announcements on social distancing in the week commencing 16 March 2020 and also the further announcements and guidance from the UK Prime Minister on 23 March 2020, the business implemented a range of operational actions to prioritise the safety and well-being of customers and staff, including:

· The temporary closure of all restaurant and pub operations on 21 March 2020

· The temporary closure of the majority of Premier Inn hotels in the UK and Germany, with 39 Premier Inn hotels in the UK remaining open specifically to provide accommodation for NHS staff and other front-line key workers.

We are an operationally leveraged business which benefits us in the good times, but in times like these will result in a material adverse impact on profitability. As previously guided, a 1% fall in RevPAR equates to a £12m-£15m adverse impact on earnings. This increases to £18m when the impact of the closure of restaurants is included and as fixed costs become a higher proportion of the overall cost base at lower revenue levels.

We have therefore taken immediate action to reduce cash outflows during this year:

· All discretionary P&L spend has been eliminated, including our room refurbishment plans, marketing, non-essential training and staff recruitment and the postponement of the previously announced incremental investment of £25m

· We have placed over 27,000 of our employees on temporary furlough, with the Government support package paying up to 80% and a maximum of £2,500 of the furloughed employees' salaries per employee per month

· Capital expenditure will only be incurred for essential hotel maintenance, or where a site is significantly complete, including the refurbishment and rebranding of the acquired Foremost hotels in Germany, and to maintain core IT programmes and infrastructure. After these actions, total capital expenditure for the year is expected to be c.£250m

· Voluntary pay cuts have been taken by the Board and senior management team

· The Board has also decided not to declare a final dividend for the full year FY20 and to suspend future dividend payments until the COVID-19 situation is clearer and when the existing lender covenant waiver period ends.

We will also benefit from the Government's decision to stop the payment of business rates for a 12-month period, which would have cost c.£120m over the year.

Whilst our reaction to the COVID-19 crisis has been robust, our actions have been taken with a view to the long-term impact on the business. We believe it is important to act responsibly in times of crisis and treat our stakeholders fairly. Examples of these actions include:

· Providing full cash refunds to our customers for all cancelled bookings

· Continuing to pay our suppliers, many of which are small or medium sized businesses, in a timely manner, including our March rent being paid on time and in full

· Furloughed staff remaining on full pay, as we pay the additional 20% of salaries on top of the Government furlough credit

· National minimum wage increases made for our hourly paid staff

· Supporting the community and national effort by making rooms available to NHS staff and other key workers at selected hotels, passing fleet delivery capacity to supermarkets and donating over 158 tonnes of food to charities following our restaurant closures

· Reducing Executive and Non-Executive Directors pay and a pay freeze for all other salaried staff.

COVID-19: Positioning the business for a successful recovery

Ready to reopen safely

We tentatively reopened 16 hotels in Germany on 11 May 2020, and our UK hotels and restaurants are ready to reopen when the Government advises. Our internal scenario planning assumes our UK hotels are closed, or at low levels of occupancy, until September 2020. When safe and practical to do so, we are able to reopen each of our hotels and restaurants quickly, in what will be a phased reopening to help match supply against levels of demand.

Our experience in operating the 39 hotels that are currently open for NHS staff has given us a head-start in implementing workable solutions for social distancing and enhanced hygiene measures. These include social distancing signage and protocols, health screening and illness response procedures, correct use and regular changing of PPE equipment and enhanced cleaning standards. Our operating model and end-to-end ownership will ensure that these new standards and ways of working can be rigorously enforced across our entire estate.

Our operational focus prior to, and during, the reopening phase includes increased engagement with our customers to help leverage brand loyalty and emphasise our high standards, maintaining our focus on both B2B and leisure customers, and the active management of our supply chain to ensure we are able to provide a near-full customer offering. We have introduced a wider range of cancellation options into our booking conditions, giving our customers greater confidence when they book. Overall, we believe our leading customer proposition positions us very well to attract customers in a post-lockdown environment, as customers seek value and are expected to rely on their most trusted brands.

Liquidity and balance sheet

Whitbread entered the new financial year with balance sheet headroom, with lease adjusted net debt to FFO of 2.6x, net debt of £323m, substantial liquidity through its accessible cash of £503m and access to an undrawn Revolving Credit Facility of £950m. Subsequently, Whitbread has been confirmed as an eligible issuer under the UK Government's Covid Corporate Financing Facility (CCFF), with an issuer limit of £600m.The business is also backed by a valuable freehold property estate.

Elements of the business' financing are subject to financial covenants. At the year-end, the business had significant headroom to these covenants. However, given that we are not currently able to assess the full year impact of COVID-19, we entered into discussions with lenders and have successfully negotiated waivers for any possible technical breach that may have resulted from the temporary closure of our hotels and restaurants, and an 18-month waiver on the current EBITDA related covenants for both the Revolving Credit Facility and the US private placement debt. The arrangements between the Group and the Trustee of the Whitbread Group Pension Fund contain similar financial covenants, in respect of which we have also negotiated an 18-month covenant waiver. The current covenants have been replaced with debt and liquidity tests that are covered in more detail in the Finance Director's review.

Despite all of the mitigating actions the business has taken, in the first half of FY21 Whitbread expects cash outflows of approximately £600m, including operating cash outflows of c.£80m per month during the period of closure or low occupancy, an initial £100m outflow from the refunding of customer deposits, and c.£130m capital expenditure outflows on committed projects including the refurbishment of the Germany Foremost hotels acquired this year. These outflows will be partially offset by approximately £70m-85m of furlough benefits during H1. While the business currently has significant liquidity to withstand a prolonged period of materially reduced or no demand, the impact of COVID-19 will have a significant impact on its profitability, the leverage of the business, and our ability to execute our strategy with confidence. The Rights Issue, announced today, to raise gross proceeds of £1bn is designed to ensure that the business emerges from the COVID-19 pandemic with a strong balance sheet and in the best position possible. The Right Issue proceeds will:

· Help replace the imminent cash outflow resulting from our hotels and restaurants being closed

· Return our balance sheet to a position of strength that will give Whitbread a real competitive advantage

· Allow us to invest with confidence and flexibility in our strategy especially in Germany, opening our committed pipeline in the UK, and keeping our products ahead of the competition

· Provide liquidity headroom in the event of a COVID-19 resurgence.

The Rights Issue is expected to further enhance Whitbread's competitive advantage when others may be financially constrained, enabling the business to leverage the advantages of our ownership and operating model, and to fully capitalise on the compelling structural opportunities in both the UK and German markets.

Post COVID-19: Driving long-term value

Whitbread's long-term strategy is highly relevant post COVID-19

The impact of COVID-19 will be material on our sector, especially on the significant independent sector and on new branded supply growth. Despite this, Whitbread's long-term strategy for value creation in the UK and internationally remains unchanged and our operating model structurally and competitively advantaged.

Whitbread's vertically integrated model, which combines the ownership of property, hotel operations, brand, and inventory distribution has enabled Premier Inn to grow at a significantly faster pace than competitors, deliver a consistently superior customer experience and generate a strong return on capital for shareholders over the last 15 years. The business believes this operating model is the optimal approach to access the growth opportunity in the budget sector.

Whitbread's strategic priorities remain consistent with its proven plan to create sustainable shareholder value over the long-term. Whitbread expects to achieve long-term growth in earnings and dividends, combined with strong return on capital through disciplined execution in three key areas:

· Continuing to grow and innovate Premier Inn in its core UK market, by leveraging the competitive advantages of our operating model and capitalising on the enhanced structural opportunities that are expected to exist post COVID-19

· Focusing on Premier Inn's strengths to grow at scale internationally, by replicating Premier Inn's UK success story in Germany

· Enhancing the capabilities to support long-term growth, by ensuring we have financial flexibility, the appropriate cost-base to reflect the post COVID-19 world, and acting responsibly through our Force for Good programme.

We are confident in our ability to deliver long-term sustainable returns on incremental investment:

· We believe our ability to capitalise on the enhanced structural opportunities that are likely to exist, combined with the competitive advantage of our ownership and operating model, and ongoing initiatives including segmentation and site optimisation, will help offset the adverse impact of a weaker macro-economic environment on demand

· Sector-wide cost headwinds can be countered by the benefits both organic and inorganic growth and an efficiency programme that will ensure the cost base of the business reflects demand.

These factors will enable the business to perform well in the UK and take market share and to capitalise on the material growth opportunity in Germany. These strong fundamentals, combined with an appropriate capital structure, will enable Whitbread to drive long-term value.

Compelling structural growth opportunities

The UK and German markets are characterised by long-term migration from independent to budget branded hotels. Between 2010 and 2019 independent hotels' market share fell 9 percentage points in the UK, while Premier Inn's market share grew from 6% to 11%. Despite this decline, the independents sector still represents 48% of the UK market, and over 70% of the German market. Post COVID-19, the decline in independents' share of the market is expected to accelerate as demand significantly weakens and structural cost pressures persist. Other branded competitors are also likely to be financially constrained. Premier Inn is well-placed to capitalise on the expected contraction in competitor supply and to take market share. Premier Inn will also benefit from its 92%/8% domestic to inbound customer skew, as customers choose more domestic travel both through choice and as a result of international travel restrictions.

Operating model is a clear competitive advantage

Premier Inn's vertically integrated model provides a clear competitive advantage, enabling the delivery of a winning customer proposition that will have a strong appeal to customers in a post lock-down and post COVID-19 world. The key components of the model that drive our competitive advantage are:

Brand Strength: Premier Inn is recognised as one of the world's strongest hotel brands, achieving excellent quality and best in value scores2 in the YouGov Hotel Brand Index survey, ranking in first place for satisfaction, impression, value and likelihood-to-recommend. The strength of the brand makes Premier Inn the first choice for more travellers.

Scale advantage: Our vertically integrated model provides increased control of network planning and property development aspects of our hotel operations. This means we can efficiently access locations where we see opportunities to expand, which has enabled Premier Inn to almost double its number of rooms in the UK since 2010 to become the UK's largest hotel network. We therefore have more hotels in locations where our customers want to stay, and we are able to drive economies of scale by leveraging our scale to keep unit costs low and by rationalising management overheads.

Operational control: Ownership of all aspects of our hotel operations ensures greater control over the customer experience, resulting in a high-quality offering delivered on a relentlessly consistent basis throughout the estate. The offering is also continually evolving through innovative new products such as hub and Premier Plus. The operating model delivers best-in-class operational performance, as evidenced by high staff retention levels and the very high customer satisfaction scores the business regularly achieves.

Direct Distribution: Premier Inn's 97% direct distribution is industry-leading and ensures that Premier Inn's gross RevPAR is the same as net RevPAR achieved after cost of sales, unlike independents or most other brands, which pay high commission rates to third parties such as online travel agents.

Property Flexibility: A willingness to be flexible with respect to freehold or leasehold acquisition ensures new sites are in the best locations and have the optimal size and format. Ownership of around 60% of the hotel estate gives Premier Inn control over the initial development of the hotel, and subsequently how it is maintained, extended, or re-developed. Further opportunities remain to optimise the network by individual asset, as well as more broadly through catchment optimisation and creating a more optimal portfolio of assets. Whitbread's asset-backed balance sheet also supports a strong financial covenant, which means that in competitive bid situations for new leasehold developments, Premier Inn is often the preferred tenant and can secure more favourable lease and rental terms. Freehold ownership also reduces earnings volatility through the cycle and could provide a flexible source of funding for the future when the market recovers.

These components combine to deliver a winning customer proposition, providing the customer with more choice, value for money, outstanding product quality, excellent customer service and consistently high hygiene standards. Going forward, this offering positions us very well to take market share in a post-lockdown environment, as customers are likely to seek value, quality, and the familiarity of their most trusted brands.

International growth - Germany

Premier Inn's aim in Germany is to leverage the strengths and capabilities of the UK business to create the number one budget brand in the structurally attractive German hotel market. This includes the same flexible approach to property to gain superior site access, encouraging direct distribution and delivering a best-in-class value for money proposition.

The German hotel market is a third larger than the UK and even more fragmented, with almost three-quarters of the market still consisting of small independent operators, which are experiencing a structural decline to the benefit of branded hotels. Despite this, the branded budget hotel sector still only represents a 9% market share, compared to 28% in the UK, as franchise operators have historically struggled to expand with limited property financing options available. Consequently, Premier Inn's vertically integrated model and willingness to invest capital in expansion provides a strong advantage in the budget market, supported by replicating the strong quality and value credentials from the UK. As in the UK, the impact of COVID-19 is expected to accelerate the decline of independents, and the post COVID-19 environment is likely to present greater opportunities to invest in or acquire assets that will deliver strong returns in the long-term.

Premier Inn's rate of expansion in Germany has materially accelerated over the last six months, culminating in the completion of the acquisition from the Foremost Hospitality Group on 28 February 2020 which had 13 open hotels (with an additional 6 hotels in the committed pipeline). The open and committed pipeline in Germany now stands at almost 10,000 rooms across 52 hotels. At the end of FY20, 6 hotels were open and all performing ahead of expectations. Despite COVID-19, we were able to refurbish and rebrand 10 of the acquired hotels during the lock-down period, and opened these hotels, alongside the reopening of the 6 already operational hotels, on 11 May 2020.

While the pace of our organic and acquisitive growth in Germany is expected to slow temporarily in response to COVID-19, given the scale and characteristics of the German hotel market, together with the performance of our open hotels in Germany to date, we remain focused on continuing our expansion in Germany in the medium-term.

Efficiencies

In 2016, Whitbread began a five-year programme to generate £150m of efficiency savings and mitigate inflationary cost pressures. This ambition was achieved in less than three years from a combination of procurement benefits and shared services, across both Premier Inn and Costa. Following the successful early delivery of this programme, and the continued high inflation rates in our sector, Whitbread stated that its new target was to generate £220m of operating expenditure and capital expenditure savings during FY20, FY21 and FY22. £45m of this operational efficiency savings was delivered in FY20. This efficiency programme will now evolve as the Group considers further cost reductions as it responds to COVID-19 and to drive longer term efficiency savings once the market starts to recover.

A Force for Good

Whitbread's sustainability programme, Force for Good, ensures that being a responsible business is integrated throughout the way Whitbread operates, by supporting its guests, local communities, team members and suppliers to live and work well. The 2019 Dow Jones Sustainability Index (DJSI) score ranked Whitbread as second in the European Travel & Leisure industry, for the second year in a row. Whitbread also qualified for inclusion in the Sustainability Yearbook 2020. These are excellent results that highlight our commitment to become a more sustainable business.

In the current COVID-19 situation, we have been able to help in the national effort by keeping hotels open that are located near hospitals for use by NHS staff and other front-line key workers. We also transferred our vehicle delivery capacity to supermarkets to help their supply chains, and we have donated over 158 tonnes of food to charities, producing c.335,000 meals, following our restaurant closures.

Whitbread's 'Opportunity' strategy aims to provide all employees with a platform to reach their full potential. This includes removing barriers to entry and promoting inclusivity and diversity throughout the organisation, as well as leading training and development schemes. Investment continues in the Whitbread apprenticeship programme with the creation of more than 4,500 apprenticeships since 2014/15.

Through the 'Community' strategy, Whitbread has supported Great Ormond Street Hospital since 2012 with £7.5 million raised towards the Premier Inn Clinical Building which opened in 2018. A further £10 million pledge was made and raised towards a new state of the art Sight and Sound Centre due to open in 2020, which will provide a world-class facility for children with sight and hearing problems.

Whitbread's nutrition strategy supports the Government's aims to tackle childhood obesity. Customers are provided with informed menu choices and progress towards Public Health England's sugar reduction target of 20% by 2020 is well underway. So far, Beefeater has achieved 29% and Brewers Fayre 34% sugar reductions in their desserts range.

As part of Whitbread's commitment to operate in a responsible way, we have set stretching sustainability targets including the removal of all single use plastics by 2025 and a 50% reduction in food waste by 2030. All Premier Inn owned hotels and restaurants in the UK are powered by 100% renewable energy, and over 20% of hotels have electricity generating solar panels. Premier Inn's operating model enables us to take meaningful actions consistently across the entire network, and we are the largest hospitality company in Europe to set a science-based carbon reduction target that will see the business reduce its carbon emissions by 50% by 2025, having already reached a 39% reduction against this target.

Operating a traceable and sustainable supply chain is vital for the hospitality industry and Whitbread has been recognised by NGO Development International as the leading accommodation provider in the FTSE 100 for compliance and conformance with the UK Modern Slavery Act and good practice in human rights.

Outlook for FY21

Given the unprecedented situation and the material adverse impact on revenues to date, it is not currently possible to confidently assess the full-year impact on the business' revenues. Our internal scenario planning assumes that our UK hotels and restaurants will remain closed, or operating at low levels of occupancy, until September. Demand recovery is expected to be slow as social distancing restrictions are gradually relaxed.

The approximate expected impact of both the self-help measures the business has implemented and Government support measures are summarised in the table below.

(a) 16 January 2020 (b) Government support scheme

COVID-19 is expected to result in a very material loss of revenue during FY21 and, despite the actions the Group is taking, this is likely, given the Group's high fixed and semi-variable costs, to have a material impact on earnings which may result in the Group not making any profit during the financial year, with the clear possibility that it is materially loss-making during that period. As a result, FFO leverage ratio is expected to increase significantly.

The greater impact on PBT for every 1% of RevPAR compared to previous guidance is due to the inclusion of the impact from restaurants and the higher proportion of fixed costs at the expected lower occupancy levels.

In the first half of FY21, operating cash outflows of c.£80m per month are expected during the period of closure or low occupancy. In addition, in H1 the business will incur an initial £100m outflow from the refunding of customer deposits, and c.£130m capital expenditure on committed projects including the refurbishment of the acquired Foremost sites in Germany. These outflows will be partially offset by approximately £70m-85m of furlough benefits during the period to the end of August.

While the near-term outlook is uncertain, we believe the business is well-placed to overcome these challenges. We entered the year with leverage headroom and significant liquidity, and have taken decisive action to protect cash flows and further augment liquidity through access to CCFF funds. These measures and the Rights Issue announced today will ensure our balance sheet is optimised for growth in the post COVID-19 environment. A strong financial position combined with our leading operating model and the power of our brands, means that when the market starts to recover, we will be in the best possible position to take advantage of any supply weaknesses that may exist post COVID-19, driving both profitability in the UK and fast growth in Germany. We are confident in our ability to drive attractive returns on investment in the long-term, and winning business models such as ours are well-placed to thrive. Our long-term strategy places Premier Inn in a position to succeed.

FY20: Whitbread was performing well prior to the COVID-19 situation: Financial performance in FY20 was resilient with a strong end to the year

The business delivered a resilient financial performance during FY20, with performance improving in H2 and in particular in Q4 when total accommodation sales were 20bps ahead of the market. Statutory revenue grew 1.1% to £2,072m supported by the contribution from new capacity and the improved performance through the second half of the year, despite continued weak market conditions.

Over the year, the UK regional market was challenging, with Brexit uncertainty leading to declines in business and consumer confidence, in-turn driving lower demand for short-stay, domestic travel. Premier Inn's performance was impacted more than the market, reflecting a higher regional presence and a higher proportion of domestic and business customers. The London market was strong, with Premier Inn's total accommodation sales growth outperforming the market in London during the second half of the year.

Adjusted profit before tax decreased by 8.2% to £358m, as a result of the weaker UK travel market conditions, particularly in the regions, that tracked low business confidence following protracted Brexit negotiations. We also experienced a high rate of industry-wide inflation, that we partially mitigated with our cost saving actions including the delivery of approximately £45m of cost efficiencies, and additional costs in Germany as we expanded our operations. Statutory profit before tax increased 28.4% to £280m and statutory profit for the year increased 23.2% to £218m primarily driven by the prior year including £172m of adjusting items, mostly relating to the cost incurred in the disposal of Costa.

Return on capital for the UK of 11.2% was 210bps lower than last year due to the weaker UK market and sector-wide inflationary pressures. Ongoing significant capital investment in Germany, including the cash payment on the last day of the year for the acquisition of the Foremost Hospitality Group, resulted in a total Group return on capital of 9.5%, 270bps down from last year. At the year end, Whitbread had 6 open hotels in Germany (4 of which opened during the year) with total invested capital of around £350m including £170m paid to date for the Foremost acquisition.

Premier Inn UK | Resilient performance with commercial initiatives driving improved H2 

· Total UK adjusted revenue up 0.4% to £2,050m driven by capacity additions and improved performance

· Commercial initiatives including improved yield management, the opening of over 500 Premier Plus rooms and B2B targeting starting to improve performance, particularly in H2

· Industry-leading direct distribution rate of 97%

· Capacity additions (2,906 rooms added) and weak market resulting in a reduction in occupancy.

Premier Inn UK total accommodation sales declined by 0.1% driven by weak regional market conditions, mostly offset by the contribution from capacity additions. A decline in like-for-like accommodation sales was driven by a combination of both lower occupancy and a lower average room rate. The weakness in business and leisure consumer demand persisted throughout FY20, especially in the regions, where total accommodation sales declined by 1.6% and RevPAR declined 5.3%. In London, Premier Inn's total accommodation sales growth was good at 5.2%, driven by over 30% capacity growth over the last three years, which continues to mature.

Premier Inn's performance versus the market improved throughout FY20, as the positive commercial actions implemented in the first half of the year started to deliver. This included the roll-out of over 500 Premier Plus rooms, an increased focus on the B2B segment, and changes to yield management, with refinements to event and short-lead time pricing.

Premier Inn's total accommodation sales growth outperformed the market in London for the final three quarters of the year and narrowed the gap to the regional market to only 20bps in the final quarter.

UK total accommodation sales growth comparison

The business has continually innovated and enhanced the customer experience, and during the year a trial of Premier Plus rooms was launched in 27 hotels. These upgraded rooms are targeted especially at business customers and provide an even more comfortable stay at great value for money. The initial trial has been successful, and while the roll-out is currently on-hold due to the extreme market conditions, when we are past the COVID-19 crisis, the next stage of the trial will see that capacity increase to over 2,000 rooms.

During the year, Premier Inn opened a further 25 hotels including 2 hub hotels bringing the UK hotel network now to 821 hotels. Although the market is currently extremely challenging, investment in the existing estate will continue to give the opportunity to win market share from the fragmented independent sector. In the short-term, a proportion of the committed pipeline of over 13,000 rooms, of which around 80% is leasehold, is expected to be delayed, as third-party hotel builds are slowed or paused.

Premier Inn Germany | Increasing capabilities to build a strong hotel network

Premier Inn's aim in Germany is to leverage the strengths and capabilities of the UK business to create the number one budget brand in the structurally attractive German hotel market. This includes the same flexible approach to property to gain superior site access, encouraging direct distribution and delivering a best-in-class value for money proposition.

Premier Inn's rate of expansion materially accelerated in the second half of FY20, culminating in the completion of the acquisition of the Foremost Hospitality Group on 28 February 2020. This Group comprised of 13 open hotels, 10 of which have now been refurbished and opened under the Premier Inn brand, and 6 pipeline hotels which are planned to open over the next 24 months. The Premier Inn Germany open and committed pipeline now stands at almost 10,000 rooms across 52 hotels.

We re-opened 16 hotels on 11 May 2020, 6 of which were open at the end of FY20 and pre-lockdown closures. These hotels were performing ahead of expectations with market leading satisfaction scores. The Frankfurt, Munich & Hamburg sites all score highly on TripAdvisor at 4.5/5. As the sites continue to mature, we are seeing good rates of occupancy and returns are developing as expected.

The pace of organic and acquisitive growth will slow temporarily in response to the COVID-19 situation, however given the scale and attractive nature of the opportunity in Germany, there is a clear appetite to continue the fast pace of expansion in the medium term, once this crisis has abated.

The pipeline of new capacity in Germany (reflecting the Foremost acquisition which completed on the day following the year-end) is a mix of acquired hotels and the organic pipeline of new leasehold and freehold sites:

(a) Open as at 11th May 2020

Premier Inn Middle East | Estate increased to 10 hotels

Premier Inn has a productive partnership with Emirates in the Middle East, with two new hotels opened during the year, bringing the total operation to ten hotels. The market continued to be competitive, with a high level of new capacity being added in advance of the planned World Expo in Dubai in 2020. Losses from our 49% share of the joint-venture amounted to £1m, in-line with the prior year. As in other markets, revenue has been significantly impacted by COVID-19 and the subsequent impact on the World Expo.

Financial review | Resilient financial performance

· Statutory revenue 1.1% ahead of last year at £2,072m, supported by capacity additions and improved performance in H2

· Adjusted profit before tax of £358m was 8.2% behind last year, due to a weaker UK market and sector-wide inflation, partly offset by the ongoing efficiency programme and lower net finance costs

· Statutory profit before tax increased 28.4% to £280m and profit for the year increased 23.2% to £218m, primarily due to adjusting items in the prior year of £172m of which £108m related to the disposal of the Costa business

· Retained strong balance sheet following completion of £2.5bn Costa capital return programme

· Lease adjusted leverage / FFO of 2.6x; significant liquidity through cash on deposit of £503m, undrawn RCF of £950m at the balance sheet date, and eligibility for the CCFF scheme in April 2020 with an issuer limit of £600m. Net debt of £323m, with net debt / adjusted EBITDA (pre-IFRS 16) of 0.6x

· Return on capital declined 270bps to 9.5% driven by the investment in Germany, the weaker UK market conditions and sector-wide inflation.

Financial highlights

(a) FY19 restated for the adoption of a new adjusting items policy where IAS 19 Pension interest is no longer adjusted for. Measures are presented for the continuing business which excludes the performance of the Costa business, with the exception of discretionary free cashflow and lease adjusted net debt : FFO which include Costa in FY19. Further information can be found in the Notes to the accompanying financial statements

(b) Includes £9m of revenue relating to the transitional service agreement that was in place with Costa (FY19: £2m)

(c) Turnover rent and rental income continue to be recognised in the P&L post IFRS 16

Operating performance | Resilient results delivered in challenging market conditions

· Total UK accommodation sales were broadly flat and like-for-like accommodation sales declined 2.4%, impacted by continued weak regional market conditions

· London accommodation total sales growth of 5.2%, 70bps ahead of the market, driven by new capacity maturing

· Regional accommodation total sales decline of 1.6%, 70bps behind the market, with the gap narrowing throughout the year and resulting in total Premier Inn accommodation sales being ahead of the market by 20bps in Q4

· Revenue more than doubled in Germany to £12m driven by maturity of two existing sites and the opening of four further sites

· UK return on capital of down 210bps from 13.3% to 11.2% due to market conditions and net cost inflation.

(a) FY19 restated for the adoption of a new adjusting items policy where IAS 19 Pension interest is no longer adjusted for. Measures are presented for the continuing business which excludes the performance of the Costa business

(b) Includes £9m of revenue relating to the transitional service agreement that was in place with Costa (FY19: £2m)

(c) Includes one site in each of; Jersey, Ireland & the Isle of Man

(d) EBITDAR/EBITDA for Middle East represents the share of losses from a joint-venture operation 

(e) Rent = property rent, turnover rent, car leases & rental income

Premier Inn in the UK held revenue broadly flat at £2,050m, supported by new capacity with 2,906 rooms being added in the year. Adjusted EBITDA (pre-IFRS 16) decreased by 8.4% to £581m as a result of the weak regional market and net cost inflation which was primarily driven by National Living Wage increases and higher energy costs, partially offset by c.£45m of cost efficiencies.

Market conditions continued to be challenging in the UK hotel sector, particularly in the regions, and as a result total accommodation sales declined by 0.1% and like-for-like sales declined by 2.4%. Commercial initiatives, including improved yield management, an increased focus on the B2B segment and continued product innovation helped close the gap to the midscale and economy market3 in H2 to 20bps, with Q4 performance beating the market by 20bps. Continued investment in the F&B proposition across the estate, in terms of both the offering and price points, helped drive sales growth of 1.3% and support improvements in like-for-like sales.

Premier Inn's expansion in Germany accelerated in the second half of the year, culminating in the completion of the Foremost Hospitality Group acquisition on the first day of FY21. Losses in the year signify the start-up nature of the current operations, with central costs supporting the ability to rapidly expand the open and committed pipeline hotel network of 52 hotels, whilst currently only supported by revenues from six open hotels.

Premier Inn's business in the Middle East is operated through a joint venture with Emirates. The market has seen supressed demand and significant new supply additions ahead of Expo20, and losses in the Middle East were in-line with last year at £1m, representing a 49% share of the joint-venture's losses after tax.

Return on capital for the UK was down 210bps year on year to 11.2% due to the weak regional market conditions and the high inflation in the sector. Return on capital for the Group was 9.5% reflecting the timing of continued material investment in Germany.

Adjusting items

Total adjusting items before tax were £78m (FY19: £172m), including £15m relating to the disposal and separation of Costa. An impairment of £10m has been recognised following a fire at a hotel in Bristol offset by the related anticipated insurance claim proceeds of £16m covering property and loss of trade. A write-off and impairment charge of £69m was recorded against, underperforming hotels, hotels held for sale, other property costs and IT intangible assets. Further detail on adjusting items can be found in Note 5 of the accompanying financial statements.

Net finance costs

Net finance costs for the year were £128m (FY19: £147m), including IFRS 16 lease interest of £115m. This was £19m lower than the prior period due to higher interest received on the cash balance held from the sale of Costa proceeds and non-occurrence of the pension finance cost, resulting from the pension moving to an IAS 19 surplus. Further details are contained in Note 9 in the Annual Report and Accounts.

Taxation

Adjusted tax for the year of £69m (FY19: £76m) represented an adjusted effective tax rate of 19.3% (FY19: 19.4%). The statutory tax expense charge was £62m (FY19: £41m) with the year-on-year increase driven by the increase in statutory profit as a result of FY19 adjusting items relating to the disposal of Costa.

Earnings per share

(a) FY19 restated for the adoption of a new adjusting items policy where IAS 19 Pension interest is no longer adjusted for. Measures are presented for the continuing business which excludes the performance of the Costa business

Adjusted basic earnings per share increased 12.6% to 193.6p, benefitting from the reduction in the weighted average number of ordinary shares from 182.8m to 149.4m following the share buyback programme and tender offer. Statutory basic earnings per share increased 50.9% to 145.9p primarily due to the higher separation costs incurred in the prior year from the disposal of Costa together with the reduction in the weighted average number of ordinary shares. Full details are set out in Note 7 of the accompanying financial statements.

Dividend

Whitbread's dividend policy is to grow the dividend broadly in line with earnings across the cycle. However, in light of the impact of the COVID-19 situation, the Board has decided not to declare a final dividend for FY20. Dividends will not be paid during the current covenant waiver period, as a condition agreed with Whitbread's lenders and pension trustees. The Board hopes to return to paying dividends again following the normalisation of the Group's financial position and performance.

Capital discipline | Leverage headroom at the end of FY20

(a) FY20 funds from operations excludes the second phase of the accelerated pension settlement of £274m (FY19: excludes first accelerated payment of £107m)

Debt funding facilities | Diverse funding, enhanced through COVID Corporate Finance Facility

(a) Includes impact of hedging using cross currency swaps and excludes unamortised fees associated with debt instruments (b) Confirmed as an eligible issuer under the CCFF in-line with Fitch rating of BBB/F2 (c) £1,683m is due to mature in more than one year from the balance sheet date

Whitbread entered the new financial year with lease adjusted net debt / FFO of 2.6x, substantial liquidity through its accessible cash of £503m and access to an undrawn Revolving Credit Facility of £950m. Whitbread has subsequently been confirmed as an eligible issuer under the UK Government's Covid Corporate Financing Facility (CCFF), with an issuer limit of £600m. The business is also backed by a valuable freehold property estate.

Elements of the business's financing are subject to financial covenants including net det to EBITDA and interest cover. At the year-end, the business had significant headroom to these covenants. However, given that we are not currently able to assess the full year impact of COVID-19, we entered into discussions with lenders and have successfully negotiated waivers for any possible technical breach that may have resulted from the temporary closure of our hotels and restaurants as a result of COVID-19, and an 18-month covenant waiver for both the Revolving Credit Facility and the US private placement debt. The existing covenants have been replaced during the covenant waiver period with two new tests: net debt (excluding lease liabilities) must be less than £2bn and liquidity headroom to available facilities must be greater than £400m.

In the first half of FY21, operating cash outflows of c.£80m per month are expected during the period of closure or low occupancy. In addition, in H1 the business will incur an initial £100m outflow from the refunding of customer deposits, and c.£130m capital expenditure outflows on committed projects including the refurbishment of the acquired Foremost sites in Germany. These outflows will be partially offset by approximately a total of £70m-85m of furlough benefits during H1. While the business has significant liquidity to withstand a prolonged period of materially reduced or no demand, the Rights Issue, announced today, to raise £1bn will ensure that the business emerges from the COVID-19 pandemic with a strong balance sheet and is able to continue investing at appropriate levels in the highly attractive UK and German markets. This will enhance Whitbread's competitive advantage when others may be financially constrained, and ensure that the business emerges from the current crisis in the strongest position possible.

(a) Turnover rent and rental income continue to be recognised in the P&L post IFRS 16 ; (b) £51m of costs associated to the timing of payments relating to the sale of Costa; (c) Includes the second phase of the one-off pension settlement of £274m

Cash generated from operations of £686m was £376m lower than the prior year due to the contribution of Costa in FY19 and the timing of transaction and separation costs of £51m relating to the disposal of Costa in FY19. Discretionary cash flow of £317m benefited from reduced finance costs resulting from the cash balance received from the sale of Costa, and a lower tax charge driven by the tax relief granted on the one-off pension contributions made during the year. FY20 includes the second phase of the one-off pension settlement of £274m and capital expenditure supporting organic and M&A growth across UK and Germany equated to £434m. FY20 net debt was £323m, a reduction of £2,906m primarily driven by the cash used to purchase shares through the buyback programme and tender offer, pension cash outflows including the one-off pension settlement of £274m and increased spend on expansionary capital.

Capital investment | Cashflow enables material investment

*FY19 excludes discontinued operations

Capital expenditure totalled £588m in FY20 (FY19: £462m). This includes £167m developing new sites and extending existing sites in the UK. Capital expenditure for Premier Inn Germany includes spend relating to the portfolio acquisition of 19 hotels from the Foremost Hospitality Group. The total cost of that transaction is around £300m of which £170m has been paid to date, with the remaining costs incurred depending on the timings of both the refurbishment schedule and the delivery of six pipeline hotels. £154m of capital was spent refurbishing and maintaining hotels and restaurants and on our IT systems.

The Group's capital expenditure requirements vary from year-to-year based on, among other factors, different capital intensity in different operations and markets and specific reinvestment requirements in relation to its hotels. The Group's capital spend will reduce significantly in FY21 in response to the COVID-19 situation but is expected to return to normal levels when the market starts to normalise.

Pension

The Group's defined benefit pension scheme, the Whitbread Group Pension Fund (the "Pension Fund"), had an IAS19 surplus of £190m (FY19: £(120m)). The primary reasons for the improved IAS19 funding position were asset performance and Whitbread's one-off contribution to the Pension Fund of £381m (£107m in FY19 and £274m in FY20) which was part of an agreement with the Trustee following the sale of Costa. The agreement released Costa from its obligations to the Pension Fund and included some contingent protection, which has enabled the Trustee to significantly reduce the Pension Fund's investment risk. This replaced the previous protection and previously agreed deficit recovery plan, which would have required Whitbread to make total payments of £326m to the Pension Fund over the following four years. Additional contributions to the Pension Fund of approximately £10m per year continue to be made through the Scottish Partnership arrangements.

As part of the agreement with the Trustee, in the event that Whitbread breaches an EBITDA related covenant, Whitbread is required to make a cash payment to improve the funding position. If Whitbread does not settle this contribution the Trustee can realise the equivalent value through the security it holds over £450m of Whitbread's freehold property. Whitbread has reached agreement with the Trustee for a covenant waiver period for the EBITDA related covenant which will now not be tested until March 2022. New covenants have been introduced during the period of the waiver in line with those given to Whitbread's lenders described above. An additional £50m of security has also been given to the Trustee for the duration of the covenant waiver period. In the event the security is not in place within a defined timeframe, a £50m additional cash contribution will become payable. A waiver for the same period has also been agreed with the Trustee for any possible technical breach that may have resulted from the temporary closure of our hotels and restaurants.

UK Return on capital declined by 210bps to 11.2%. The impact of the weak regional market on like-for-like revenue performance and also the timing of investment in the UK estate, was partly offset by net capacity additions, and accounted for 130bps of the decline. Staff costs, primarily National Living Wage increases, drove a 70bps decline, while the impact of other cost inflation and property costs, including business rates, were broadly offset by the ongoing costs efficiency programme. There is currently £384m of capital invested for future openings which has an adverse impact on Whitbread's continuing reported return on capital of 90bps.

Post Balance sheet events

In light of the COVID-19 pandemic and the impact on Whitbread we have disclosed a number of Post Balance Sheet Events. These include but are not limited to, with full details shown in Note 12 of the accompanying financial statements; the timing of the impact of the pandemic on the Group, the closure of our hotels and restaurants following Government guidance and subsequent customer refunds and potential impairments, the sensitivities around interest rates, exchange rates and the pension fund, the updated position on acquisitions, Lender and Pension trustee covenant waivers and covenant replacements, and the benefit from the Coronavirus Job Retention scheme, the business rate holiday and acceptance for the COVID-19 Corporate Funding Facility with an issuer limit of £600m.

On 28 February 2020, post the balance sheet date, the Group acquired 100% of the share capital of Foremost Hospitality Hiex GmbH. Further details on the acquisition are in Note 35 in the Annual Report and Accounts.

The Group has announced its intention to raise £1bn by way of a fully underwritten rights issue. This will provide an appropriate capital structure and a strong platform from which to deliver on the Group's growth strategy

Costa Disposal | Successful completion of return of capital programme

Following the sale of Costa Limited to The Coca-Cola Company for £3.9bn, which completed in January 2019, Whitbread announced its plans to return £2.5bn surplus capital to shareholders. The first phase was a share buyback programme conducted from 17 January 2019 to 10 May 2019. This first phase completed with a total of £486m of Ordinary Shares repurchased. Of this amount £316m of Ordinary Shares were repurchased in FY20.

The second phase was a tender offer, which resulted in £2bn of Ordinary Shares being repurchased in July 2019. The completion of the tender offer resulted in a total of £2.5bn being returned to shareholders and the repurchase and cancellation of 49m shares. There is currently no further surplus capital to be returned to shareholders.

IFRS 16 Leases | Non-cash financial reporting changes in FY20

The impact of the new accounting standard for leases, which is fully adopted in FY20, is outlined below. Whilst there is a significant impact on the statutory income statement and balance sheet, there will be no change to Whitbread's cashflows and its growth plans, including the ongoing disciplined approach to capital allocation. Furthermore, no detrimental impact is expected to Whitbread's covenants or ability to satisfy its liabilities.

IFRS 16 - Summary of changes and impacts

Under IFRS 16, lease liabilities and associated 'right-of-use' assets are recognised on the balance sheet using discounted cash flows. As many of Whitbread's leases are long property leases, these changes have significantly increased both total assets and total liabilities, and had a material impact on key performance metrics, including earnings per share.

In the income statement, rental charges for operating leases are replaced with depreciation of the newly recognised asset and interest on the newly recognised lease liability. This in turn impacts some of Whitbread's key reporting measures, including adjusted operating profit, which has increased as a pre-interest measure, and profit before tax, which has decreased as a disproportionate amount of interest is applied at the start of a lease.

FY20 IFRS 16 impact on Balance Sheet

*Includes working capital adjustments, see supplementary information for further detail

FY20 IFRS 16 impact on Income Statement

Key performance measures under IFRS 16

Under IFRS 16, EBITDAR will not be impacted and will therefore provide a good indicator for continuing operating performance. In addition, certain adjustments will be required to ensure the important return on capital measure remains a meaningful and consistent metric going forward.

Other information

Going concern

The directors have concluded that it is appropriate for the consolidated financial statements to be prepared on the going concern basis. This assessment is considered to be a critical accounting judgement. Full details are set out in Note 2 of the Annual Report and Accounts.

Risks and uncertainties

The directors have reconsidered the principal risks and uncertainties of the Group as reported on pages 54 to 57 of the Annual Report and Accounts 2019/20 and these include:

· Pandemic - impact of COVID-19 or any other pandemic on the business;

· Economic Climate - results in a decline in GDP, consumer and business spending, a fall in RevPAR and inflation pressure impacting growth plans;

· Cyber and Data Security - reduces the effectiveness of systems or results in loss of data;

· International growth - the inability to successfully execute our strategy in Germany

· Change - ability to execute the significant volume of change;

· Retention and wage inflation - failure to maintain staff engagement and retention in a tightening labour market;

· Third party arrangements - business interruption as a result of the withdrawal of services below acceptable standards or reputational damage as a result of unethical supplier practices;

· Terrorism - impacts the safety and security of customers or staff and the consequent impact on trading;

· Health and safety - death or serious injury as a result of company negligence;

· Food safety and hygiene - the preparation and storage of food and/or supply chain failure results in food poisoning and reputational damage.

The risk of a wider macro-economic effect as a result of the UK leaving the EU, including foreign exchange and interest rate fluctuations, is considered under the Group's assessment of Economic Climate risk. 

Climate risks, of which sustainably is key area, is an emerging risk for Whitbread and our approach to identifying and managing this is embedded into the risk management framework and integrated through policies and the risk control mechanisms. Further information on our sustainability work can be found in the Force for Good update on pages 48 to 53 of the Annual Report and Accounts 2019/20.

Supplementary information

Further information is available in Microsoft Excel from: www.whitbread.co.uk/investors/results-reports-and-presentations. This information includes:

· Premier Inn network data;

· Premier Inn sales & financial information;

· IFRS 16 adjustments and impact to financial statements; and

· Adjusting items.

American Depositary Receipts

Whitbread has established a sponsored Level 1 American Depositary Receipt (ADR) programme for which Deutsche Bank perform the role of depositary bank. The Level 1 ADR programme trades on the U.S. over-the-counter (OTC) markets under the symbol WTBDY (it is not listed on a U.S. stock exchange).

Rounding

Certain financial data contained in this document have been rounded and accordingly may not add up to 100 per cent. As a result of this rounding, the totals of data presented in this document may vary slightly from the actual arithmetic totals of such data. Where applicable, year-on-year growth percentages have been calculated from the financial data presented in the year end accounts, which are reported to one decimal place. Where year-on-year growth percentages are immaterial or do not provide an appropriate measure of performance, the designation "n.m." (not measured) is included.

Notes

†The Group uses certain APMs to help evaluate the Group's financial performance, position and cash flows, and believes that such measures provide an enhanced understanding of the Group's results and related trends and allow for comparisons of the financial performance of the Group's businesses either from one period to another or with other similar businesses. However, APMs are not defined by IFRS and therefore may not be directly comparable with similarly titled measures reported by other companies. APMs should be considered in addition to, and are not intended to be a substitute for, or superior to, IFRS measures. APMs used in this announcement include like-for-like sales, adjusted operating profit, adjusted profit, adjusted basic earnings per share, net debt, return on capital, discretionary free cash flow, lease-adjusted (debt) / cash : FFO and EBITDAR. We have new / revised APMs as a direct result of the adoption of the new adjusting items accounting policy (see Note 2 in the Annual Reports & Accounts for further details). For full definitions please refer to the glossary at the end of the document.

Consolidated income statement

Year ended 27 February 2020

1 The prior year consolidated income statement has been restated to reflect the impact of adopting a new accounting policy in respect of IFRS 16 Leases and re-presented to reflect the introduction of a new alternative performance measure (see Note 3).

Consolidated statement of comprehensive income

Year ended 27 February 2020

1 Prior year profit for the year has been restated to reflect the impact of adopting a new accounting policy in respect of IFRS 16 Leases (see Note 3).

Consolidated statement of changes in equity

Year ended 27 February 2020

1 Amounts have been restated to reflect the impact of adopting a new accounting policy in respect of IFRS 16 Leases (see Note 3).

2 Following the completion of the sale of Costa on 3 January 2019, the Group announced its intention to start an irrevocable share buyback programme for a total commitment of £500.0m. In the year to 27 February 2020, the Group purchased 6.5m (2018/19: 3.5m) ordinary shares representing approximately 3.3% (2018/19: 1.8%) of the issued ordinary share capital at an average price of £48.00 per share (2018/19: £48.87), and an aggregate cost of £315.8m (2018/19:£169.9m) under the share buyback programme.

3 Amounts have been restated to reflect the Group's irrevocable commitment for the purchase its own shares. This has the impact of recognising the full value of the Group's commitment to repurchase shares in the year to 28 February 2019 (see Note 13).

4 Tax on cash flow hedges which had previously been recognised within retained earnings, has been transferred to other reserves.

Consolidated balance sheet

At 27 February 2020

1 Prior year consolidated balance sheets have been restated to reflect the impact of the adopting a new accounting policy in respect of IFRS 16 Leases (see Note 3).

2 The prior year balance sheet has been restated to reflect the Group's irrevocable commitment for the purchase its own shares. This has the impact of recognising the full value of the Group's commitment to repurchase shares in the year to 28 February 2019 (see Note 13).

Consolidated cash flow statement

Year ended 27 February 2020