Whitbread backs plan despite profit slip; activist pressure heats up

Whitbread PLC on Tuesday urged shareholders to vote against a board change proposed by one of its investors, as the company reported a 62% drop in first-half profit.

The Dunstable, England-based Premier Inn owner booked pretax profit of £109.1 million for the 26 weeks ended August 27, down from £287.2 million a year earlier.

Adjusted pretax profit was down by a more modest 9% to £286.8 million from £315.6 million. Adjusted earnings before interest, tax, depreciation, amortisation, variable lease payments and rental income rose 1.2% to £608.4 million from £601.0 million.

Reported revenue edged up 1.9% to £1.57 billion from £1.54 billion. Premier Inn revenue per available room for the first half ticked up 2% in the UK & Ireland, and 1% in Germany.

According to the company, strong trading in the UK & Ireland and Germany during the first half was offset by temporary costs.

It was optimistic about its forward-booked position and reaffirmed full-year guidance.

The company left its interim dividend unchanged from the year prior, at 36.4 pence per share.

Whitbread shares rose 2.0% to 2,559.00 pence each on Tuesday morning in London, but are down 21% over the past year, and down 24% over the past five years.

It has called a general meeting for November 9, which was requisitioned by 7% shareholder Corvex Management LP.

Back in May, Corvex had urged Whitbread to put itself up for sale. Last month, it proposed to appoint a new director of its choosing to the board, which is the matter on which shareholders will vote at the requisitioned meeting, and which Whitbread's board unanimously recommends voting against.

The New York-based activist hedge fund issued a statement last month arguing: "Whitbread has materially underperformed its peers and the wider market over multiple time horizons and is trading at a significant discount to its peers. In Corvex's view, the board's recent strategy review failed to address Whitbread's underlying challenges and was poorly received by the market."

Corvex said that since the sale of Costa in 2018, Whitbread has delivered limited compound annual growth in earnings per share, and flat dividends, while lease-adjusted net debt has risen.

Corvex added: "The consequences are clear: shareholders have suffered negative total returns of approximately negative 17% over the past ten years, negative 18% over the past five years and negative 22% over the past year, materially underperforming comparable companies and relevant indices."

For the cited negative 17% return over the past 10 years, Corvex noted a 130% rise in the return for the FTSE 100 index, which Whitbread is a part of.

Whitbread hit back on Tuesday by saying: "Corvex has stated that the proposed appointment is intended to support a further review of the strategic alternatives available to Whitbread, without a predetermined outcome. The board has considered that proposition carefully.

"However, the board has only recently completed precisely such a review and believes that reopening the very recent business and strategic review would be a complete waste of company – and shareholder – resources. It would also destroy the positive momentum we are building and delay or compromise the delivery of value which the five-year plan is on track to create."

According to Whitbread, the strategic plan was launched after "proactively" reviewing the business, in response to "significant external fiscal headwinds, including sharp increases in UK employment costs and business rates".

Whitbread said the plan is already bearing fruit, estimating that it had saved about £39 million so far, via "reducing total capital expenditure, directing capital towards Whitbread’s highest-returning opportunities, reducing capital intensity and increasing shareholder returns".

"Adding an additional director with a very different agenda will compromise the delivery of the plan," it stressed.

Corvex has failed to offer a better alternative to this plan, Whitbread said, and has failed to indicate how its director nominee, James Gemmel, would support the plan.

Whitbread added that it is "on track to deliver £450 million to £500 million of property proceeds in FY27...with a further £30-GBP40 million profit before tax uplift from the accelerating growth plan and £15-GBP5 million from Germany expected in FY28".

In the company's half-year results announcement, Chief Executive Dominic Paul commented: "Whitbread is a business with increasing strategic momentum... Our commercial programme and technology-led enhancements are contributing to positive like-for-like sales momentum that, together with the delivery of material cost efficiencies, is helping to mitigate the impact of cost inflation.

"Whilst our plan assumes no change in future years, we are continuing to press the UK government to protect jobs and investment by reducing the previously announced increases in business rates in its forthcoming budget.

Paul said the company's approach to capital allocation has reduced growth capital expenditure by about £1 billion and that the accelerating growth plan will lead to "double-digit returns for shareholders".

"This is a critical year for the delivery of the plan, and we are progressing rapidly, with all branded restaurants now replaced by a more tailored F&B offering for hotel guests and planning applications already underway. Having agreed the sale of 173 sites and with offers already received for the majority of remaining sites, we are on track to deliver as planned," the CEO continued.

"We are executing well and remain confident in both the full year outlook and the delivery of our five-year plan that will generate £2 billion available for shareholder returns by FY31."

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