whitbread plc

Whitbread PLCSummary Report 2003/4

Successful brandmanagementin leisure

Business and financial highlights

Adjustedearnings per share (pence)

2001/2 2002/3 2003/4

1,721

1,7801,866

2001/2 2002/3 2003/4

187*

214

241

2001/2 2002/3 2003/4

47.85

52.72

58.22

Profit before exceptionalitems and tax (£m)

Adjusted* earnings per share

up 10%

to 58.22p*before goodwill amortisation and exceptional items

*excluding business disposals

Continuing businesses have nowachieved double-digit earningsgrowth for six reporting periods in succession

Whitbread 2003/4 change

Divisional sales (excluding business disposals) (£m) 1,866 +4.8%

Profit before exceptional items,goodwill amortisation and tax (£m) 249 +12%

Profit before exceptional items and tax (£m) 241 +13%

Return on capital employed (%) 10.1 +0.7% point

Divisional sales* (£m)

Whitbread brands

Dividend per share (pence)

2001/2 2002/3 2003/4

17.80

19.87

22.30

Return on capital employed (%)

2001/2 2002/3 2003/4

8.7*9.4

10.1

Increased dividend

up12%to 22.30p

Strong cash flow

£137

millionnet inflow

*excluding business disposals

ContentsBusiness and financial highlights 1

Chairman’s statement 2

Chief executive’s review 4

Finance director’s review 7

Chief executive designate 10

Brand review 12

Board of directors 30

Directors’ report 32

Corporate social responsibility 33

Remuneration report 36

Audit report 39

Shareholder services 39

Summary group profit and loss account 40

Summary group cash flow statement 41

Summary group balance sheets 41

The Whitbread Summary Report aims to giveshareholders a clear and concise overview of the group’s business and prospects, but does notcontain sufficient information to allow for as fullan understanding of the results and affairs of thegroup as would be provided by the full WhitbreadAnnual Report and Accounts 2003/4.

The full Whitbread Report and Accounts 2003/4are published on the company’s website(www.whitbread.co.uk) and can also be obtained,free of charge, either by completing and returningthe option card on the reverse of the Form of Proxy,or by telephoning Computershare on 0870 703 0103.

Whitbread PLC Summary Report 2003/4

Chairman’s statement

Current trading

For the first seven weeks of the new financial year (to 22 April 2004),like-for-like sales growth was as follows:

Marriott +2.3%

Travel Inn +4.9%

Pub restaurants +2.4%

High street restaurants +4.7%

David Lloyd Leisure* +5.8%

(*5 weeks)

Like-for-like sales growth for the groupas a whole was 3.5%.

The timing of the Easter holiday affectsyear-on-year analysis.We will provide a further trading update at the AnnualGeneral Meeting on 15 June 2004.

Outlook

The popularity of Whitbread’s brandshas never been greater. Projections forthe UK economy, consumer confidenceand our major markets are positive.The board expects further progress inthe current financial year, in terms oftrading performance, organic growthand the more efficient use ofshareholders’ assets.

Dividend

The board’s confidence in the organicgrowth prospects for the group isreflected in the final dividend paymentof 16.15p per share. This makes a totaldividend for the year of 22.30p which is an increase of 12%. It will be paid on 16 July 2004 to shareholders on the register at the close of business on 14 May 2004.

The board expects further progressin terms of organic growth, marginimprovement and the more efficientuse of shareholders’ assets.

Continued double-digitearnings growth

This has been another strong year forWhitbread. Continuing businesses havenow achieved double-digit earningsgrowth for six reporting periods insuccession.

Comparable divisional turnoverincreased by 4.8% to £1,866m despitethe disposal of Swallow hotels and anumber of pub restaurants. Profit beforetax and exceptional items increased by13%, to £240.8 million, as a result of theorganic development of our brands,a 2.7% improvement in like-for-like salesand rigorous cost controls. Groupmargin increased from 14.0% to 14.8%.

We achieved exceptional growth inoperating profits from our restaurants,up 14%;Travel Inn, up 11%; and DavidLloyd Leisure, up 12%. Marriott, however,continued to feel the effects of weakdemand in the four-star hotel sector.

Across the group, return on capitalemployed exceeded 10% after a further 0.7% point rise.

The cash position was again healthywith a net inflow of £137m helped by£112m of disposal proceeds. Net debtdecreased to £793m and with gearingof 38% the balance sheet remains strong.

Capital expenditure totalled £230m.Of this, £96m was expansionary capitalexpenditure, invested in new sites,mainly for Travel Inn, Brewers Fayre,Brewsters and David Lloyd Leisure.

People

In December I announced that Alan Parkerwould succeed David Thomas as chiefexecutive following the AGM in June.On behalf of my colleagues on the boardI should like to congratulate Alan on hisappointment and to thank David for hiscontribution to Whitbread over some 20 years. He leaves the proud legacy of a very successful business withexcellent growth prospects.

I also wish to thank Bill Shannon for his outstanding contribution both as managing director of WhitbreadRestaurants and as a member of the board. Bill has served Whitbread well for 30 years and is also to step downfollowing the AGM.

I am delighted that Angie Risley, grouphuman resources director, joined theboard on 1 May 2004. Angie has alreadymade a major contribution to thecompany, and as a member of the board she now takes on the direction of Whitbread’s corporate socialresponsibility programme.

The skill and dedication of Whitbread’speople in serving our customers is thereal driving force behind this positiveperformance. I should like to thank all of them for another excellent year.

Sir John BanhamChairman

4 May 2004


Chief executive’s review

A pivotal year

As my final full year with Whitbread,the last 12 months have had specialpersonal significance, but moreimportantly they mark a pivotal point in the company’s evolution.

In an environment of rising businesscosts (notably labour and insurance) we have had to work hard to improvemargins across the group. And byfocusing on growing sales on a like-for-like basis we have been able to drive ourreturn on capital employed above 10%.

Both Travel Inn and David Lloyd Leisurehave recorded impressive growth in salesand profits and have pushed ahead onreturn on capital employed.

There is a renewed optimism aroundBeefeater, a brand that this yearcelebrates its 30th birthday.We have a new format for the brand that isshowing real promise, while the overallimprovement in the profitability of ourpub restaurants is a highlight.

And by chalking up a 33% increase inprofits, our high street restaurantsbusiness has now exceeded its targetedlevel of 25% return on capital employed.

While Marriott’s profit per roomperformance continues to improve inrelative terms against the sector, werecognise the need to generate bettervalue from the shareholder fundscurrently invested in the brand.

I should like to express my thanks to everyone at Whitbread for makingpossible these first-rate results.It is their dedication to serving ourcustomers that separates Whitbreadbrands from the competition.

Travel Inn 2003/4 change

Sales £230 million +12%

Like-for-like sales +3.6%

Operating profit £74.0 million +11%

Return on capital employed 13.6% +1.0% point

It has been another good year forBritain’s most popular hotel brand:a year of strong sales; and a year of double-digit profit growth.

Occupancy dipped in the first sixmonths as our London propertiessuffered from broad market pressure;but after a steady second half wefinished the year at 80.2%.

The impact of price changes and the increased proportion of rooms in Metro and Capital units pushed achievedroom rate up 3.8% and helped to raiseroom yield from £32.95 to £33.28.

The addition of more than 1,000bedrooms on large leasehold sites led to a slight decline in operating margin;but return on capital employed haspowered ahead to 13.6%.

We maintain progress towards ourmedium-term target of 25,000 bedrooms.Having added more than 1,500 over the last 12 months, we have ended theyear with 18,173 bedrooms under the Travel Inn brand.

Marriott 2003/4 change

Sales £391 million (0.3)%

Like-for-like sales (0.2)%

Operating profit* £71.5 million (10)%

Return on capital employed* 6.2% (0.3)% point

* before goodwill amortisation of £8.0m

Marriott has delivered another grittyperformance in a market that remainstough. Operating profit has fallen andwe have seen further erosion in returnon capital employed, but we haveperformed better on profit per roomthan our peer group average.

Occupancy has edged ahead to 71.5%and I take heart from a gradual returnto like-for-like sales growth since thehalf year.

The disposal of a number of Swallowhotels in the second-half has reducedcapital intensity; reviewing the capitalstructure within Marriott is a focus for 2004/5.

We are exploring new ways of developingthe Marriott brand without the use ofsignificant amounts of shareholderfunds. Our agreement with Royal Bankof Scotland to manage its Victoria &Albert Hotel in Manchester, under the Marriott name, is a good example of this approach.

The company I leave is very differentfrom the one that I took on as chief executive in 1997.Whitbread is a more focused business:each of our brands has a strong claim to UKleadership; and the underlying prospects forgrowth in each of their market segments –including four-star hotels – are strong.


Chief executive’s review

Pub restaurants 2003/4 change

Sales £590 million +1.3%


Operating profit £84.1 million +9.8%

Return on capital employed 11.5% +1.6% points

A near ten per cent rise in operatingprofit is a considerable achievement in a year when disposals totalled more than50 outlets, against 13 new openings.

We have made major gains in return oncapital employed and we have a higherquality estate of pub restaurants thanwe had 12 months ago.

We have a new format for our Beefeaterbrand in 24 outlets, that are nowdelivering stronger sales, profits andreturns; and we intend to roll this outto another 40 Beefeaters in 2004/5.

Following the disposal of tail sites we are also seeing sales and marginimprovement across the Beefeaterestate as a whole.

Brewers Fayre/Brewsters hasstrengthened margins and return on capital employed, but there is workto do in broadening the appeal ofBrewsters to drive sales from adult diners.

High streetrestaurants 2003/4 change

Sales* £453 million +8.4%


Operating profit* £28.5 million +33%

Return on capital employed* 25.3% +6.1% points

* excluding restaurant brands disposed of in 2002/3

Our high street restaurants continue todrive significant improvement in sales,

and two development sites in theNetherlands from Cannons; developinga club in Barcelona, Spain; and preparingto open in Brussels, Belgium in thecurrent financial year.

Return on capital employed across thebrand as a whole (including operations in mainland Europe) stands at 9.5%,while margin has edged ahead by 0.4%point to 24.1%. Member retentionremains strong at 73%.

We continue to drive considerableimprovement out of our mature clubs.Overall performance is set to improvefurther as a higher proportion of ourestate reaches mature levels of return.

Britannia Soft Drinks

Currently,Whitbread owns 23.75% ofBritannia Soft Drinks Limited. In March2004 an exclusive bottling agreementwas entered into with PepsiCo. This hascreated an opportunity for a public listingfor Britannia Soft Drinks as described inthe Finance Director’s review.

Britannia Soft Drinks enjoyed strongtrading, increasing profits by 28%, andhas paid to Whitbread a cash dividendfor the year of £11.6m.

A more focused business

The company I leave is very differentfrom the one that I took on as chiefexecutive in 1997.Whitbread is a morefocused business: each of our brandshas a strong claim to UK leadership;and the underlying prospects for furtherorganic growth in each of their marketsegments – including four-star hotels –are strong.

David ThomasChief executive

4 May 2004

operating profit and return on capitalemployed. Raising returns by more than10% points in just two years has takenthis business past its 25% target.

Pizza Hut has once again performedwell against its key measures, and haspaid to Whitbread a cash dividend forthe year of £9.5m. Costa has hadanother year of strong profit growthand is making good progress throughfranchising overseas. T.G.I. Friday’scontinues to make progress inconverting exceptionally strong salesper unit to bottom line growth.

David Lloyd Leisure 2003/4 change

Sales £202 million +10%


Operating profit* £49.1 million +12%

Return on capital employed* 9.5% +0.3% point

* before goodwill amortisation of £0.4m

David Lloyd Leisure continues to improveagainst all key performance criteria,with turnover, like-for-like sales, operatingprofit and return on capital employedall moving ahead.

In the last three years, operating profit in the UK and Ireland has grownby 80% while the number of clubs hasclimbed from 44 to 56. Membership of David Lloyd Leisure clubs in the UK and Ireland now stands at 321,000.

A reinvigorated approach to new clubdevelopment gives us a strong platformfor growth: in February we opened our56th club, at Oxford; we have begunconstruction of a new club at Worthing,West Sussex; and we have local planningconsent for sites in Aberdeen, Glasgow,Southend-on-Sea and Farnham, Surrey.

The brand has taken its first steps intomainland Europe: acquiring five healthclubs (with total membership of 20,000)

Operating profit grew by 6.7%.Profit margin increased from 14.0% to14.8%, while return on capital employedincreased from 9.4% to 10.1%.

These financial statements show the benefit of the group’s focus on:achieving sales, profit and margingrowth from existing businesses;improving return on capital employed;and cash generation. Unlike previousyears, the figures are no longerimpacted by the demerger of Pubs andBars or major business disposals.

Operating profit, profit margin and return on capital employed figuresreferred to in this review are statedbefore exceptional items.

Like-for-like sales figures exclude salesof outlets first opened or disposed ofduring 2002/3 or 2003/4.

Year end date

The company is in the process ofimplementing a group-wide enterpriseresource planning (ERP) system. Thisimplementation has enabled allsubsidiaries to conform to a common‘end of week’ day. Our year end is nowthe Thursday nearest to 1 March,a formula that gives 4 March for 2004and 3 March for 2005.

Accounting polices

The Urgent Issues Task Force (UITF)abstracts 17 – as amended (EmployeeShare Schemes) and 38 (Accounting forESOP Trusts) were adopted in the year.The comparative figures have beenrestated to comply with these extractsalthough the changes are not material.All the other accounting policies adoptedin preparing these accounts are consistentwith those used in the previous year.

Turnover

Turnover grew by 2.7% on a like-for-likebasis. Comparable divisional turnovergrew by 4.8%. Headline reported turnoverwas up by 0.6%. Last year’s figure includedsales of the Pelican high street businessup to 31 May 2002 and sales for the fullyear of the residual beer productionactivity, which ceased in April 2003.

Operating profit

Operating profit grew by 6.7%.Marriott’s profit was constrained by the depressed four-star hotel market.All other divisions recorded strong profit growth.

Profit margin increased from 14.0% to14.8%, while return on capital employedincreased from 9.4% to 10.1%. Onceagain these improvements reflect thecontinued focus on cost control andasset management.

Exceptional items

Exceptional costs before interest andtax amounted to £25.8 million. Theimpairment charge of £15.5m representsthe diminution in the values of fourMarriott branded hotels and one siteheld for development.The net loss of£10.3 million on the disposal of fixedassets relates primarily to book losseson the sales of pub restaurants and theSwallow hotels. These amounts are allnon-cash items.

Interest

The net interest charge before exceptionalcosts declined by £8.8 million to £52.2 million as a result of a lower levelof net debt and lower interest rates.

Net interest, before exceptional costs,was covered 5.6 times by operating profit.

£3.3 million of the interest charge forthe period relates to financing costsassociated with the realisation of taxlosses not previously recognised in theaccounts. These costs have been treatedas exceptional, in line with thetreatment of the associated tax credit.

Tax

The charge of £77.1 million againstprofit before exceptional itemsrepresents a rate of 32.0%.

The exceptional tax credit of £30.2million reflects: the realisation of taxlosses not previously recognised;deferred tax relating to the charge forimpairment and the sale of the Swallowhotels; and a repayment of tax to theSwallow companies relating to periodsprior to their acquisition by Whitbread.

Finance director’s review

Shareholder return

Basic earnings per share (EPS) were 55.74 pence, while adjusted basic EPS was 58.22 pence – an increase of 10% year-on-year. Adjusted basic EPS excludes exceptional items andgoodwill amortisation.

The total dividend for the year of 22.30 pence per share represents anincrease of 12%. The dividend paymentis 40% of post-tax earnings beforeexceptional items (cover of 2.5 times).The final dividend of 16.15 pence pershare will be paid on 16 July 2004 to allshareholders on the register at the closeof business on 14 May 2004.

The company’s share price opened thefinancial year at 521 pence and closed itat 740 pence. Net asset value per shareincreased over the year from 668 penceto 703 pence. The last revaluation of thegroup’s properties was carried out in1998/9. Consequently £1.8 billion oftangible fixed assets are carried at cost.

Capital expenditure

£230 million was invested in propertyand plant, including the businessacquisition of five health clubs and twodevelopment sites in the Netherlands,compared with £218 million last year.Of this amount, £96 million (2002/3 –£114 million) related to the acquisitionand development of new sites. This islower than we had intended, particularlyin David Lloyd Leisure and Travel Inn.However, the development programmesfor these brands have now beenreinvigorated. Other expenditureincludes £17 million on acquiring andimplementing a group-wide enterpriseresource planning (ERP) system.

The current forecast is for capitalexpenditure in the range of £250-275million in 2004/5.The majority ofexpansionary capital expenditure willbe directed at developing new TravelInns and David Lloyd Leisure clubs.

Cash flow

The net cash inflow before use of liquidresources and financing was £137 million.This compares with a net inflow of £39 million for 2002/3. The underlyingcash inflow (after adjusting for businessacquisitions and disposals, the cost ofacquiring and developing new sites andthe disposal of hotels and restaurants)was £122 million (2002/3 – £101m).

The decline in tax paid reflects the cashimpact of the exceptional tax credits ofthe last two years.

The increase in the proceeds from salesof property and plant, up from £29 millionto £112 million, reflects the sales of theSwallow hotels and pub restaurantsreferred to earlier.

We are considering ways to improve thereturn on capital employed of our Marriottbusiness and whether the level of capitalcommitment is in the best interests ofshareholders in the current, strainedmarket conditions for four-star hotels.

Pensions

The pensions charge to the profit andloss account continues to be based onSSAP24. The charge reflects the 2002triennial valuation of our definedbenefit schemes, which resulted indeficits on the funds of £64 million. Theschemes were closed to new memberson 31 December 2001.

The third stage of the FRS17 (RetirementBenefits) transitional arrangements hasbeen adopted. At the end of 2002/3,there was an FRS17 pension fund deficitof £420 million. The net deficit, after tax,was £294 million. At the end of 2003/4,the net deficit had fallen to £256 million.It should be noted that the FRS17calculations are susceptible to changesin interest rates on the value ofliabilities and to short term movementsin equity values.

In line with our aim to be the ‘Employerof Choice’, the board announced in April 2003 that the company had signedan agreement with Whitbread PensionTrustees Limited. Under that agreement,the company has undertaken to fundthe pension scheme for a period of up to 15 years and has given undertakingsto the trustees similar to some of thecovenants provided in respect of itsbanking agreements. The company’sliability under these undertakings iscapped at £300m. As a consequence of this agreement, payments are beingmade into the fund for each of threeyears, starting in 2003/4, at a rate of £15 million above the anticipated SSAP 24 charge. There will be no change to the charge to the profit andloss account, as a consequence of thisagreement, before the next triennialvaluation in March 2005.

Financial position

Net debt at the year end amounted to£793 million, resulting in a balancesheet gearing ratio of 38%. Net interestwas covered 5.6 times by operatingprofit before exceptional items.

At the year end, £523 million of thecommitted credit facilities were unused.In March 2004 a £475 million committedcredit facility, which expires in April2005, was reduced by £200 million.

Going concern

The directors have a reasonableexpectation that the company hasadequate resources to continueoperating for the foreseeable future.For this reason, the going concern basiscontinues to be adopted in preparingthe accounts.

page 8 Whitbread PLC Summary Report 2003/4

Capital expenditure (£m) 2003/4 2002/3

Hotels – Marriott 41 27

– Travel Inn 37 65

Restaurants – Pub restaurants 60 47

– High street restaurants 16 15

Sports, health and fitness 59* 54

Other 17 10

230* 218

* including £21m to acquire the Cannons health club business in the Netherlands

Finance director’s review

Financial risks and treasury policies

The main financial risks faced by thegroup relate to: the availability of fundsto meet business needs; fluctuations ininterest rates; and the risk of default bya counterparty in a financial transaction.

The Treasury Committee, which ischaired by the finance director, reviewsand monitors the treasury function. Theundertaking of financial transactions ofa speculative nature is not permitted.

The group finances its operations by acombination of internally-generatedcash flow, bank borrowings and long-term debt market issues. Thegroup seeks to achieve a spread in the maturity of its debts.

Interest rate swaps and interest ratecaps are used to achieve the desired mix of fixed and floating rate debt.The group’s policy is to fix or cap aproportion of projected net interestcosts over the next five years. This policyreduces the group’s exposure to theconsequences of interest ratefluctuations.

Interest rate risk management

At the year end, £422 million (57%) ofgroup net sterling debt was fixed for aweighted average of 7.5 years, usingfixed rate borrowings and interest rateswaps. The average rate of interest onthis fixed rate sterling debt was 6.8%.

Based on the group’s net debt position at the year end, a 1% change in interestrates would affect costs by approximately £4 million, or around 1.5% of the 2003/4operating profit before exceptional items.

Foreign currency risk management

At the year end, foreign currencyborrowings amounted to £72 million.These borrowings provide a partialhedge against overseas investments.

Transaction exposures resulting frompurchases in foreign currencies arenormally hedged by forward foreigncurrency transactions and currencyoptions.

International Accounting Standards

Whitbread will be required to adoptInternational Accounting Standards(IAS) when preparing its group accountsfor 2005/6. In preparation for this, allexisting IAS’s have been reviewed indetail so as to assess their likely impacton our reported figures and the actionsrequired to collect the necessary data.

Progress and clarity to date has beenhindered because most of the keystandards have only recently beenfinalised. Consequently, while it hasbeen possible to reach some high levelconclusions, more time is needed tocomplete calculations and have thesereviewed by our auditors. This activityhas now commenced with a view toagreeing the opening adjustments forIAS reporting before the end of 2004/5.We intend to publish these adjustments,with supporting narrative, well beforewe present our first IAS figures, whichwill be for our 2005/6 interims.We areaiming to start collecting data on adual basis (UK GAAP and IAS) witheffect from the second half of 2004/5.

Adoption of IAS, with its focus on thebalance sheet and the incorporation of fair value accounting, will increasethe volatility of reported profits. Themain causes of this increased volatilitywill be:

• the requirement to account for thesurplus or deficit on our pension fundin our balance sheet and the fact thatthe values of the assets and liabilitiesof the fund will be based on marketvalues at the balance sheet date; and

• the requirement to incorporate themarket values of financial derivativesinto our balance sheet.Where suchderivatives can be demonstrated tohave operated as an effective hedgeagainst all or part of certain underlyingfinancial instruments (which wouldnormally be their intended purpose),the value of those instruments willalso be adjusted in the balance sheet.

The year on year movements in themarket values of pension fund assetsand liabilities and certain unhedgedfinancial derivatives will be reported inthe income statement (the IAS equivalentof the current profit and loss accountand statement of total of recognisedgains and losses).

Our opening IAS balance sheet will alsobe impacted by the requirement toaccount for deferred tax on gains onsales of property rolled over into newassets and on previously reported gainson the revaluation of properties.

Britannia Soft Drinks

In March 2004, we announced that theexisting shareholders in Britannia SoftDrinks Limited (BSD) had signed anagreement with PepsiCo which creates an opportunity to undertake an initialpublic offering (IPO) of BSD. In conjunctionwith the other shareholders we willdetermine the best time to realise thisopportunity but it is unlikely to bebefore our year 2005/6.Whitbread has a 23.75% shareholding in BSD.

David RichardsonFinance director

4 May 2004

Strong cash flow

£137

millionnet inflow

Chief executive designate

Shareholder valueWe are committed to deliveringimproved returns for our shareholdersand ensuring that they are kept aboveour cost of capital on a sustained basis.

Return on capital employed (%)

Earnings growthWe maintain our commitment todelivering earnings growth, principallyby driving organic sales and investing in opportunities to continue our journeyas a high growth company.

Trading margin (%)

The best is yet to comeI have great respect for what DavidThomas has achieved in transformingWhitbread, in a number of toughsituations during his seven-year tenure as chief executive. Today the company is in good shape, but I know that wehave only just started.

David has been the first to tell me thatwe are still in transition from being a good company to being a greatcompany. Put simply, the best is yetto come.This summer we will beconducting a review of each brand to be clear what value it can deliver to the Whitbread group in terms of pace,materiality and synergy.

I see a tremendous opportunity to makeWhitbread a more integrated companywith sharper focus, unlocking valuethrough greater synergy and moreefficient ways of working.


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Competitive edgeIt is our brands that hold the key toWhitbread’s long-term competitiveadvantage and value creation.We arecommitted to delivering operationalexcellence and being the best operatorof the best brands in the leisure sector.

Market leadership will be judged not in terms of pure scale, but through a balanced scorecard of value creation,customer preference and employeesatisfaction.

There remains significant potentialwithin this business and I intend toaccelerate the strategic processes thatwill release it.

Leadership talent

What really matters is the quality of service that our employees delivereveryday in more than 1,900 retail unitsacross the company. We are committedto being the ‘Employer of Choice’ and we already attract many of the mosttalented individuals in our industry.We are a people business and my focuswill be continued investment in ourpeople through world classdevelopment programmes.

We are still in transition from being a good company to being a great company.Put simply, the best is yet to come

Strong cash flowAs a business we are increasing thedistribution of our brands, while at thesame time generating strong cash flow.

Net cash flow (£m) (including disposals)

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Exciting timesI have been in the hospitality industryall my working life.

I have the honour of being both councilchairman for the British HospitalityAssociation and a board member of ourcountry’s leading tourism organisation,VisitBritain.

In many ways, I feel all this has been in preparation for this tremendousopportunity to lead Whitbread. I ampassionate about the task ahead anddeeply appreciative of the board whohave given me their unanimous support.

These are exciting times for Whitbread.

Alan ParkerChief executive designate

4 May 2004


Brand review

Truly great brands live above and beyond the sum of their products and services.At Whitbread we are buildinggreat brands. Already we havebrands that are leaders intheir markets, and we arecommitted to achieving that position across ourbusiness as a whole.

measures of successa passion for winning. Our brands will be number onein every market we serve

power of brandsquite simply, leaders in their markets, with strongconnections with their customers

strength of managementwe have exceptionally talented leaders, we haveprocesses that are both imaginative and rigorous.We make our decisions work better

insights on leisurewe have deep insights into what customers want and thedetermination to build our businesses around those insights

If the Travel Inn at your chosen location is full,our unique national booking system will automaticallyfind you the nearest available Travel Inn bedroom.This ability to ‘cross-sell’ generates an additional £1 million revenue per month


Brand review


measures of success

power of brands

strength of management

Marriott

insights on leisure

In February 2004 the business securedagreement to operate Manchester’sVictoria & Albert Hotel under theMarriott brand from the hotel’s owners,Royal Bank of Scotland. It is part of anapproach that focuses on operationalexcellence and brand management todrive improving returns from ourshareholders’ capital.

Focus on operational excellenceSince Whitbread acquired theMarriott franchise in 1995 it hasmoved the brand from cameostatus to the second largest four-star hotel business in the UK, withalmost 10,000 bedrooms.

Marriott’s emergence in this sector is no longer driven exclusively by majorcapital investment, as we seek moreimaginative routes to market.

The opening of the London MarriottKensington in July 2003 representedthe culmination of a three-yearprogramme to convert 25 formerSwallow hotels to the Marriott brand.

The redevelopment of the 216-bedroomproperty on Kensington’s CromwellRoad, with its impressive eight-storeyglass atrium, was the most ambitious of all the conversions.

The return on Whitbread’s investmentcomes from the higher room rates andimproved occupancies that the hotel is now capable of achieving.

101%profit per room performancemeasured against ‘best in class’and market competitorsSource:TRI Hospitality Consulting, March 2004

Consistent excellence in customer service is the keyto brand preference in four-star hotels.

Marriott’s ‘Spirit to Serve’ programme focuses everyassociate on a common goal – exceeding guestexpectations. Over the last year it has helped thebrand to set new benchmarks for guest satisfaction.

Brand review

Travel Inn

18,173 bedrooms makes Travel Inn the largesthotel brand in the UK

For the second year insuccession Travel Inn has been voted one of the top 100companies in Britain to workfor*, improving its standingfrom 91st to 72nd. Travel Innis the only hotel brandfeatured in the list.

*Sunday Times survey – March 2004

“I believe that Travel Inn is the bestbudget hotel business in the UKtoday. I believe it because we haveheld occupancy above 80% yearafter year; I believe it because weare able to improve revenue peravailable room with the sameconsistency.

“All these factors enable us to makereturns that are difficult to matchanywhere else in the sector.”– Mike Tye, managing director of Travel Inn

Satisfaction guaranteedTransparent pricing and a remarkablyconsistent and well-invested estategives each guest the assurance thathe or she pays the same price andenjoys the same standard of hospitalityas every other guest staying in thesame Travel Inn on the same night.

The brand’s ‘100% SatisfactionGuarantee’ is a promise of a full andimmediate refund if any Travel Inn guest is unhappy with his or her night’sstay. Unique among major UK hotelbrands, it is important in helping tobuild consumer trust and is an expressionof the brand’s confidence in itself.

11%increase inoperating profit

Fast-trackA hotel is a people business – butthat doesn’t stop Travel Inn fromusing cutting edge technology toimprove customer service.

“The fact that over 20% of our roombookings are made through our websitetells us something about the importanceto our guests of web communications.Working with Swisscom Eurospot weare installing wireless internet access in every single Travel Inn.

“We are also building on advances invoice-recognition software to improveour telephone bookings:guests can nowmake reservations faster;while ourTravel Inn reception staff have more timeto deal with customers face-to-face.”– Mike Tye, managing director of Travel Inn.


Brewers Fayreand Brewsters

measures of success

power of brands


insights on leisure

Whitbread understands the strength of a house’s distinctive character and theimportance of maintaining the rightbalance between the national brand andthe local name.

National brand, local reputationBrewers Fayre is a national brandbuilt on the local market-placereputation of more than 240individual pub restaurants.

For regulars, Brewers Fayre is the Dog & Partridge, the Three Horseshoesor Whitewebbs House. The brand itself is a hallmark of quality, and shorthand forhonest pub food served in traditionaland welcoming surroundings.

RejuvenationIn 2003/4, 45 Brewers Fayres were touched by ‘rejuvenation’ – a rolling programme of minorrefurbishments that keeps theestate fresh.

“Rejuvenation helps Brewers Fayre to move forward, evolving with consumertastes.” – Ian Webster, managing directorof Brewers Fayre and Brewsters.

“By focusing on these key areas we are delivering on our promise to serve‘Britain’s favourite pub food’.”– Ian Webster,managing director of Brewers Fayre and Brewsters.

16.0%operating marginIn an environment of rising businesscosts, Brewers Fayre and Brewstershave once again made significantimprovements in operating margin,up 0.6% point on last year.

A family favouriteThe most common reason peoplechoose to dine at Brewers Fayre is when they want a relaxed andinformal meal out with friends and family.

“It’s important that our customers feel at home when they’re out for a meal with us.That is why Brewers Fayre meanscomfortable surroundings, friendlyservice and a menu of familiar favouritesfor every member of the family.

Brand review

Brewsters is 2004’s ‘Parent Friendly Restaurant of theYear’. This is the third time in succession that Brewstershas picked up the accolade, which is awarded byTommy’s, the baby charity.

A unique market positionThe creation of Brewsters in 2000may be viewed as a bold step or apiece of inspired thinking, dependingupon one’s perspective.

Until that point,Whitbread’s BrewersFayre brand had been many things tomany people: in some locations it was aclassic British food pub; in others afamily-focused restaurant, withexcellent children’s play facilities.

In deciding to segment the estate,Whitbread created the UK’s firstnational brand of restaurants aimedspecifically, though not exclusively, atyoung families.

It has enabled Brewsters to establish aunique market position, and has helpedBrewers Fayre to define itself moreclearly in the minds of consumers.

Peace of mindBrewsters understands that whileparents sometimes need a break,their children are never far fromtheir thoughts.

That is why the Brewsters brand hasbeen built around the idea of providingfun for children and peace of mind forparents: all Brewsters Fun Factories areequipped with Parentcam CCTV; and all children in the Fun Factory are kitted out with a security tag that alertsparents and staff should a child leavethe Fun Factory.

“Our managers are a talentedbunch – they have to be.The ability to run a pubrestaurant,a fun factoryfor kids and in many cases a Travel Inn as well requires a particular set of skills.”– Ian Webster,managing director of Brewers Fayre and Brewsters.


The new Beefeater restaurants give customers the feelingof private dining space. This innovation is helping the brandto attract a new generation of diners

Brand review


measures of success

power of brands


insights on leisure

In February 2003,Whitbreadunveiled a new format for its classic Beefeater brand.

The restaurants themselves have a more contemporary feel, the service is less formal and the menu allowscustomers to be as adventurous as theychoose with a range of special dustings,marinades and sauces.

By concentrating on great grilled food, Beefeater is winning over a newgeneration of diners.

Beefeater

Higher profits, fewer assets,better returns

The Beefeater brand is now startingto deliver on its potential, drivinghigher profits out of fewer sites anda lower capital base.

Over the course of the year, return oncapital employed has moved ahead bytwo percentage points to 9%, and afurther improvement is being targeted.

A new format for the brand has beenrolled out to 24 sites; and there are 40 more to come in 2004/5.

3.9% like-for-likesales growth

Initial results are encouraging with a 30% sales uplift in sites that havebeen trading for a full 12 months, whilereturn on capital employed in thosesites now stands at 12.3%.

“People only relax if they feel secure in their environment.Weknow that our customers won’t really enjoy their meal if theyfeel self-conscious or in the way of others. For the time theyspend with us, our customers need to feel that they ‘own’ theirspace within the restaurant.”

“– Neil Riding, managing director of Beefeater, explains why 90% of all seating in new style Beefeater is in booths.

Brand review

Building strong teamsT.G.I. Friday’s understands the importance of stability and commitment in building strong teams.

Three in five store managers areappointed from within the brand; whilefour out of five operations managersare former store managers.

This brand strength has played a significant part in halving overallemployee turnover at T.G.I. Friday’s in just four years.

41T.G.I. Friday’srestaurants in the UK

T.G.I. Friday’sBetween 16 and 22 December 2003, T.G.I. Friday’s inLondon’s Haymarket chalked up world record gross salesof £178,015, the most that any of the brand’s restaurantsaround the globe has ever taken in a single week.

“You may have noticed a fewchanges at T.G.I. Friday’s overthe last year.We have updatedthe look and feel of therestaurants while taking careto preserve the idiosyncrasiesthat makeusspecial.”– Guy Parsons,

managing director of T.G.I Friday’s.

“At T.G.I. Friday’s we believe that our menu has somethingfor everyone and we hold true to our ‘Five Easy Pieces’promise that if we have the ingredients we will createdishes to order.” – Guy Parsons, managing director of T.G.I Friday’s.


measures of success

power of brands


insights on leisure

“Every single one of our restaurants – both full serviceand delivery – is now measured against its own specific‘balanced score card’.” – John Derkach, managing director of Pizza Hut (UK)explains why his brand has beaten its targets for financial performance, customerpreference and team member satisfaction.

Being in the right place…Pizza Hut shapes its distribution to consumer lifestyles.

For many people a meal out is no longer thecentral event. Instead it is something thataccompanies other activities, like a trip tothe shops, a family outing to the cinema,or a night at home in front of the TV.

This is behind the brand’s move into retail and leisure parks and also explainsthe growing popularity of its homedelivery franchises.

Delivering on a promisePizza Hut promises that every pizzadelivered to customers will be ‘hotand on time’.

The brand’s claim is backed up by theoffer of a free order next time if it failsto deliver on this promise.

Pizza HutPizza Hut UK’s reach has never been greater. The netaddition of 29 new full-service restaurants and 32 newhome delivery units in 2003/4 is giving more people acrossthe country the opportunity to ‘grab a slice of the action’.

578 Pizza Hut units in the UK

Brand review

Costa

Competitive edgeCosta is the only major brandedcoffee store business that roastsand blends its own coffee. This givesthe brand a significant advantagein a competitive marketplace, andhas opened up new opportunities to develop through franchising.

Costa already has a franchiseagreement in the UK with RoadChef,the motorway services group; and hasdeveloped a brand-presence in theMiddle East through four separateoverseas franchise partners.

30millioncups of coffee sold in Costa stores

Ahead of the packSeeking imaginative routes tomarket has helped Costa draw clear of the chasing pack in the UK branded coffee store sector.

“We put great effort into understandingwhere our customers want us to be.We now have a better quality estate of Costa stores, a developing franchisebusiness and agreements with some ofthe strongest names in UK retailincluding Waitrose, Abbey, Ottakar’s,Waterstone’s and RoadChef.”– Mark Phillips, managing director of Costa.

People in Britain still drink more instant coffee,on average, than any other nation in Europe.Nine years ago,Whitbread spotted the opportunity to introduce more of them to real coffee served theItalian way. Since then Costa has moved from fledgling business to flourishing national brand.

David Lloyd Leisure health and fitness coachesachieve qualifications from the National Academyof Sports Medicine. Our members benefit fromworking with the best


Brand review


measures of success

power of brands


insights on leisure

David Lloyd Leisure

321,000 members of DavidLloyd Leisure clubs

TrustThe most powerful expression of the David Lloyd Leisure brand is the trust members place in itspeople. That is why you will find only David Lloyd Leisure fitnesscoaches in David Lloyd Leisure clubs.

The brand requires every one of itshealth and fitness coaches to undergotraining at the David Lloyd LeisureCampus, to study for and attain a Related Vocational Qualification fromthe National Academy of Sports Medicine.

“Our club managers are focused on member retention and thecreation of economic profit. Theirunderstanding of member needs,combined with a heightenedappreciation of the assets theycontrol is changing the way ourmanagers think about thebusiness. This more than anythinghas led to the 2.9% pointsimprovement on return on capitalemployed over the last 3 years.”– Stewart Miller, managing director of David Lloyd Leisure

“No two people join our clubs for precisely the same reason.We seek to understand what our members want to achieve and what will motivate them to be successful; and then wetailor solutions to meet their needs.

“We know how powerful group exercise can be in helping people to remain focused and to find enjoyment in the pursuit of a sports, health or fitness goal. This is why our clubstypically provide 60 hours of group exercise classes every week– many of them designed specifically for children.”– Stewart Miller,

managing director of David Lloyd Leisure

In achieving double-digit profitgrowth for three years in a row,David Lloyd Leisure has signalled itsarrival as a real powerhouse brand.

But it is the manner in which thebusiness has achieved this that reallystands out; generating most of itsrecentgrowthfrombettermanagementof established clubs, rather than theheadlong pursuit of scale.

£49.1moperating profit before goodwill amortisation

Brand review

Brand distributionWhitbread is predominantly a UK business, with more than 1,900 outlets across the country

Overseas interests

GermanyWhitbread operates 63 full servicesteakhouse restaurants across Germanyunder the Maredo brand.

Whitbread also operates the Treudelberg Marriott Hotel & Country Club,outside Hamburg.

Netherlands

In December 2003,Whitbread acquiredCannons Health & Fitness BV fromCannons Health Clubs Limited for £21m.

The business comprises five existing clubs(which will be re-branded under theDavid Lloyd Leisure name) and two clubscurrently in development.Working with alocal partner,David Lloyd Leisure is currentlyseeking further sites in the Netherlands.

62upscale hotels, comprising 9,648 bedrooms, across the UK underMarriott brands.

302budget hotels, comprising 18,173 bedrooms, across the UK.

246pub restaurants across the UK.

149pub restaurants with children’sFun Factories across the UK.

187 full service pub restaurants across theUK under the Beefeater and Out & Out brands.

41American restaurant & bar outletsacross the UK.

578 full service, home delivery and takeaway outlets across the UK.

346coffee stores, principally in the UK,but also under franchise in the Middle East.

56 tennis, health and fitness clubsin the UK and Ireland.

Board of directors

Rod KentSenior Independent Director (since 24 April 2003).Also Chairman of Whitbread Pension Trustees Limited.September 2002

56

Audit,Nomination and Remuneration Bradford & Bingley plc (Chairman), Grosvenor Limited (Chairman) Close Brothers Group (Non-executive director), Grosvenor Group HoldingsLimited (Non-executive director)Esmée Fairburn Foundation (Trustee)Gained extensive investment banking experience as Managing Director of Close Brothers Group until October 2002

Lord WilliamsonIndependent Non-Executive DirectorMay 1998

69

Audit, Nomination, RemunerationActive member of the House of LordsHas significant civil service experience,having held a number of key posts:Deputy Director General for Agriculture at the European Commission (1977 – 1983)Head of the European Secretariat, UK Cabinet Office (1983 – 1987)Secretary-General of the European Commission (1987 – 1997)

Position:

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Sir John BanhamChairman (since June 2000)November 1999

63

Nomination (Chairman)Geest PLC (Chairman), Amvescap PLC (Senior Independent Director),ECI Partners LLP (Chairman), Cyclacel Limited (Chairman)Became the first controller of the Audit Commission in 1983

Appointed Director General of the CBI in 1987

Chairman of both Kingfisher PLC and Tarmac PLC during the nineties as well as being the first Chairman of the Local Government Commission for Englandand founding Chairman of West Country Television

David TurnerIndependent Non-Executive DirectorJanuary 2001

59

Audit (Chairman), Nomination, RemunerationBrambles Group (Chief Executive),Previously Finance Director of GKN PLCBrings significant financial expertise to the company, both as a member of the Board and as Chairman of the Audit Committee







Charles GurassaIndependent Non-Executive DirectorJuly 2000

48

Nomination, Remuneration (Chairman)Whizzkidz Limited (Director), 7days Limited (Chairman)Has significant knowledge and experience in the travel and tourism industry,having been Chief Executive of Thomson Travel Group and a director of TUI AG.Previously the head of Leisure,World Sales and director of Passenger and Cargo Business at British Airways




Prue LeithIndependent Non-Executive DirectorSeptember 1995

64

Audit, Nomination, RemunerationWoolworths Group PLC (Non-executive director), Omega International Group PLCGained extensive knowledge and experience in contract catering and restaurant management as the founder of Leith’s LimitedPreviously non-executive director of Safeway PLC and Halifax PLC


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page 31

Alan ParkerManaging Director,Whitbread Hotel Company (will succeed David Thomas as Chief Executive in June 2004)May 2000

57

VisitBritain (Director), British Hospitality Association (Council Chairman)University of Surrey (Visiting Professor)Managing Director of Crest Hotels Europe, based in FrankfurtSenior Vice-President of Holiday Inn Europe, Middle East and Africa,based in Brussels.Joined Whitbread in 1992 as Managing Director of Hotel Company

David RichardsonFinance Director (since March 2001)May 1996

52

Serco Group PLC (Non-executive director and Chairman of Audit Committee),Britannia Soft Drinks Limited (Director)Qualified as an accountant with Touche Ross, before moving to ICL.Joined Whitbread in 1983. He was Whitbread Restaurants Planning Director and became Strategic Planning Director in 1996

David Thomas CBEChief Executive (since June 1997 – will retire in June 2004)May 1991

60

Nomination Xansa PLC (Non-executive director), In Kind Direct (Chairman elect),Sandown Park Limited (Non-executive director),Sector Skills Council for the Hospitality,Leisure, Travel and Tourism sector (Trustee)Previously with Finefare, Linfood and Grand MetropolitanJoined Whitbread in 1984Held position of Managing Director with both Whitbread Inns and Whitbread Restaurants and Leisure

Stewart MillerManaging Director, David Lloyd Leisure (since May 2001)May 200051

Business in Sport and Leisure Limited (Director),Skills Active UK (Director)Joined Whitbread in 1981

Roles have included Managing Director of both Whitbread Pub Partnershipsand Whitbread Pubs & Bars as well as Chief Executive of Pizza Hut (UK)

Angie RisleyGroup Human Resources Director1 May 2004

45

Member of Low Pay CommissionJoined Whitbread in 1985 as Human Resources Director Pizza Hut (UK)Roles have included Human Resources Director of Whitbread Hotel Company and Whitbread Restaurants

Bill ShannonManaging Director,Whitbread Restaurants (will leave the company in June 2004)December 1994

54

Aegon UK PLC (Non-executive director)Joined Whitbread in 1974 as a finance managerHas also been Managing Director of Beefeater Restaurant and Pub,Thresher,Whitbread Pub Partnerships and Whitbread InnsChairman of Pizza Hut (UK)

Position:











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Directors’ report

The full directors’report and full corporategovernance report are set out in the Annual Report and Accounts 2003/4 whichcan be found on the company’s website(www.whitbread.co.uk) or by writing to the company’s registrars at the address on page 39.

Principal activities and review ofthe business

A detailed review of the company’sactivities, the development of itsbusinesses, and an indication of likelyfuture developments are given on pages 5 to 29.

Results and dividends

Group profit before tax and exceptional items £240.8m

Group profit before tax and after exceptional items £211.7m

Interim Dividend paid on 6 January 2004 6.15p per share

Recommended Final Dividend 16.15p per share

Total Dividend for the Year 22.30p per share

The final dividend will be payable on 16 July 2004 to shareholders on theregister at the close of business on 14 May 2004.The company aims to paydividends of approximately 40% ofprofits after tax, giving a dividend coverof some 2.5 times.

Shareholders may participate in adividend reinvestment plan, underwhich their cash dividend is used topurchase additional shares in thecompany. Further details can be foundon page 39.

Board of directors

The directors are listed on pages 30 and31. With the exception of Angie Risley,who was appointed to the board on 1 May 2004, all of the directors servedthroughout the financial year. DavidThomas and Bill Shannon will standdown following the AGM on 15 June 2004.

Angie Risley will stand for election andSir John Banham, Alan Parker andStewart Miller will stand for re-electionat the forthcoming AGM in accordancewith the company’s articles ofassociation. Details of directors’servicecontracts are given on page 38. None ofthe non-executive directors has a servicecontract.

Details of the directors’interests in sharesof Whitbread PLC are shown in the fullRemuneration Report on pages 44 to 48of the Annual Report and Accounts.

Share capital

Throughout the year, the authorisedshare capital has been £315,000,000divided into 630,000,000 ordinary sharesof 50 pence each. Details of the issuedshare capital can be found on page 75 ofthe Annual Report and Accounts.

Major interests

As at 28 April 2004, the company had been notified of the following major interests:

No of % ofShares issued

capital

AXA S.A. 54,627,046 18.36

L&G IML* 14,537,736 4.89

*Legal & General Investment Management Limited

Corporate governance

Whitbread is committed to high standardsof corporate governance.With theexception of certain provisions relatingto directors’service contracts and theappointment of a senior independentdirector, the company has complied withthe provisions set out in Section 1 of thecurrent Combined Code2 throughout theyear. Rod Kent was appointed as SeniorIndependent Director in April 2003 and,as explained in the summaryRemuneration Report on page 38, theexecutive directors’service contractsnow comply with the provisions.

The Company Secretary produced a reviewof the company’s corporate governanceprocedures, which was considered bythe board in February 2004.The aim ofthe review was to consider whether thecompany complied with the newCombined Code 1.The board agreed thatthe company was already substantiallyin compliance with the new CombinedCode.

An explanation of how the main andsupporting principles of the newCombined Code are being applied is setout in the full corporate governancereport on pages 36 to 39 of the AnnualReport and Accounts 2003/4.

Internal controlThe board is responsible for the group’ssystem of internal control and forreviewing its effectiveness.Such a systemis designed to manage rather thaneliminate the risk of failure to achievebusiness objectives and can only providereasonable, and not absolute, assuranceagainst material misstatement or loss.

The board has established an ongoingprocess for identifying, evaluating andmanaging the group’s significant risks.The process was in place throughout the2003/4 financial year.This process isregularly reviewed by the board andaccords with the internal control guidancefor directors on the Combined Code.

Auditors

Ernst & Young LLP have expressed theirwillingness to continue in office asauditors of the company and a resolutionproposing their re-appointment will beput to shareholders at the AGM.

After proper consideration, the AuditCommittee is satisfied that the company’sauditors, Ernst & Young LLP, continue tobe objective and independent of thecompany. In coming to this conclusionthe Audit Committee gave fullconsideration to the non-audit workcarried out by Ernst & Young LLP.

The Audit Committee has consideredwhat work should not be carried out bythe external auditors and have concludedthat certain services including internalaudit, acquisition due diligence and ITconsulting services will not be carriedout by Ernst & Young LLP.

Annual General Meeting

The AGM will be held at 2.00pm on 15 June 2004 at The Queen Elizabeth IIConference Centre, Broad Sanctuary,Westminster, London SW1P 3EE.Thenotice of meeting is enclosed with thisreport and is accompanied by a letterfrom the Chairman.

1 The new Combined Code is the CombinedCode on Corporate Governance published in2003 and effective for reporting yearsbeginning on or after 1 November 2003.

2 The current Combined Code is theCombined Code on Corporate Governancepublished in 1998.

Corporate social responsibility

Whitbread takes corporate socialresponsibility (CSR) very seriously withAngie Risley, group human resourcesdirector, being the director with boardresponsibility. It is integral to thebusiness behaviour of each of thecompany’s brands.The relationshipsthat we enjoy with our stakeholdersreflect the value that the companyattaches to CSR.Whitbread believes thatbusiness has an important role to playin creating healthy communities in whichto trade and that being a good corporatecitizen is an essential ingredient inachieving sustainable growth.

For Whitbread, corporate socialresponsibility is:

Being the ‘Employer of Choice’ –implementing policies that will help Whitbreadbecomethe‘EmployerofChoice’;

Taking the environment seriously –reducing its environmental impactwhere it makes sound commercial sense;

Community commitment – buildingstrong and mutually beneficialpartnerships with its communities;

Marketplace leadership – running itsbusinesses in a way that will single itout as a great provider of services, and a favoured partner to do business with.

In addition Whitbread maintains highstandards of corporate governance (theCorporate Governance report is set outon pages 36 to 39 of these report andaccounts.)

To demonstrate the importance of CSRto the company an in-depth report canbe found on the company’s website(www.whitbread.co.uk).This section of the report and accounts however,explains some of the policies which have been agreed at group level. It alsohighlights,through a number of casestudies,ways in which some of our brandshave applied these policies in practice.

‘Employer of Choice’

Whitbread is committed to offering its people a rewarding and challengingworkplace.It aims to become the ‘Employerof Choice’, demonstrated by current andpast employees recommending thecompany as a great place to work.

In pursuit of this goal Whitbread has arange of policies covering such issues asdiversity, employee well-being andequal opportunities. The company willcontinue to develop policies on any otherhuman rights issues which may arise.

Travel Inn – A top 100 employerTravel Inn has followed on from a number of our other brands bybeing included in the Sunday Timeslist of the top 100 best companies towork for. In particular,Travel Inn wasrecognised for showing strength in the following areas:

• strong sense of family within its teams;

• open and honest communicationbetween managers and employees;

• excellent training schemes includinginduction, service training,appraisal and graduate training;

Travel Inn was the only UK hotelcompany in the top 100. Managingdirector, Mike Tye, commented thathe was ‘extremely proud to be part ofa business that is so highly rated bythe people who work for us’.

In addition to Travel Inn’s inclusion in the the Sunday Times list, Marriott andT.G.I. Friday’s are the only hotel andrestaurant businesses to be included in the Financial Times list of the best 50companies to work for.

Training & developmentThe recruitment and retention of highlymotivated and talented people is essential.Great emphasis is placed on improvingthe skills, expertise and performance ofemployees through a continuingprogramme of training and development.

Whitbread RestaurantsWhitbread Restaurants has createdthe Chef Modern ApprenticeshipScheme.This year alone it has recruitedover 250 people who are currentlyworking towards an NVQ award.

MarriottMarriott’s Apprenticeship Schemecurrently has more than 400 youngpeople working towards eitherfoundation or advanced modernapprenticeships. They came fromacross the country and most areas of hotel operation, including reception,administration, kitchen, restaurant,bar, as well as spa and leisure club.The Marriott Golf ManagementDiploma, the Marriott VirtualUniversity and the MarriottGraduate Programme are furtherexamples of Marriott’s commitmentto training and development.

David Lloyd Leisure David Lloyd Leisure has demonstratedthe importance that it attaches totraining and development bycreating its own ‘Campus’. It has alsodeveloped an industry-leading RVQqualification in health & fitnesstraining. To date 600 employees haveachieved this qualification.

Employee involvementWhitbread is committed to listening to and involving its employees andbelieves that open and regular two-waycommunication at all levels is an essentialpart of the management process.

All employees are asked their views viaregular opinion surveys and specificplans are put in place to addressfeedback from these surveys.

Employees also have opportunities to express their views and receiveinformation about the company atregular meetings with management,through elected representatives at‘Business Improvement Groups’.

BeefeaterIn a recent opinion survey over 80%of the Beefeater workforce said thatthey were ‘satisfied’ working for thecompany. However, a number ofemployees felt that they couldperform even better with additionaltraining and there was the suggestionthat staff facilities could be improved.The company listened to the viewsexpressed and, as a result, a newtraining programme has beencreated and work has begun toimprove facilities for staff.

Employee share schemeIn December 2003,2,551 employees weregranted options over 1,005,199 sharesat 610.7 pence under the terms of theSavings-related Share Option Scheme.At 21 April 2004 over 5,000 employeesheld options over more than 3.7 millionshares under that scheme.

Disability managementAs part of an ongoing and rigorouspolicy review process, the company iscommitted to implementing a formaldisability management policy.Thisincludes a detailed training programmeto ensure that Whitbread is capable ofoffering people with disabilities thesame employment opportunities asother employees.

If an employee becomes disabled in thecourse of his or her work with the group,full support can be provided.This may be



through training programmes forexample, to ensure that whereverpossible, the individual can remain incontinued employment within the group.

Health & SafetyWhitbread endorses the Health & SafetyCommission’s ‘Revitalising Health &Safety’strategy and in support of this:

• the Chief Executive has been appointedthe director responsible for ensuringthat health & safety risk issues areaddressed;

• brand managing directors havesubmitted papers to the board settingout their personal commitment andthe strategy for embedding health &safety throughout their businesses;

• each brand has a health & safety planthat is reviewed each quarter

• quarterly health & safety performancereports are presented to the board for review.

During the year:• the health & safety officers

in each David Lloyd Leisure clubreceived an externally accreditedChartered Institute of EnvironmentalHealth (CIEH) qualification in health & safety;

• an indoor play area child safetyvideo was produced for WhitbreadRestaurants and distributed intothe business;

• over 750 restaurant brand unit andarea managers attended full dayhealth & safety workshops;

• ten Marriott hotel managers receivedthe advanced CIEH accreditation inhealth & safety with more coursesplanned for next year;

• swimming pool safety was reviewedand revised;

• crisis management plans have beenreviewed and tested;

• the number of reportable employeeaccidents was reduced by 10% from393 to 352.

The environmentWhitbread has long been aware of its responsibility to the environment,and three years ago stepped up itscommitment.There is now a formalpolicy and progress is reported onWhitbread’s website.The aim is toimprove performance every year andnew systems are being put in place to track progress more accurately.

The sheer scale of its business makesWhitbread a significant contributor tothe UK economy. However, the companyis also aware of the potential scale of itsenvironmental impact.

Whitbread is committed to reducingthat impact and making a positivecontribution when appropriate.This isnot only because it wants to be countedas a company which makes a difference,but also because it makes soundcommercial sense.

Nevertheless,over the last three years thecompany has been working towards aunified approach wherever it makes goodbusiness sense and at the same timefocusing its energies on achievingverifiable measurement systems for all itsmajor environmental performance areasacross its businesses.

Whitbread Food LogisticsWhitbread Food Logistics (WFL) isresponsible for the distribution offood, drink and supplies to thegroup’s 1,900 restaurants, hotels andclubs throughout the UK. Its fleet of105 articulated trucks delivers 20 million boxes and travels almost11 million km a year.

By routing its trucks more efficiently,using only modern vehicles five yearsold or less,and introducing backhauling(collecting from our suppliers on theway back from deliveries) WFLmanaged to significantly reduce CO2

emissions and generate significantcost savings to the business.

WFL has pioneered state-of-the-arttechnology within the fleet with foot-operated tail lifts that synchronisewith rolling shutter doors.These notonly reduce driver fatigue and improvesafety they also provide bettertemperature control thereby reducingthe amount of diesel needed to runthe refrigeration units.All WFL’s vehiclesnow have this new technology.

There were a number of highlights in 2003/4:

• energy consumption reduced by 7.8%on a like-for-like basis across the group,and by 15% at David Lloyd Leisure;

• CO2 emissions reduced by almost25,000 tonnes during the year;

• Water consumption reduced by262,000 cubic metres, equating to anannual cost saving of £470,000;

• A new partnership agreement wassigned with Groundwork under which Whitbread is set to deliver 300regeneration / environmental projectsnationwide over the next three years.

A greener car fleetWhitbread has been working hard toreduce the environmental impact ofits car fleet since 1999, and wasrecently awarded its third ‘green star’under the Government backedTransport Energy Motorvate scheme.The scheme recognises company carfleets that are managed in anenvironmentally responsible manner.

Community commitment

The Whitbread group has been activelyinvolved in the community for over 25 years.Throughout that time it hasstarted,funded,joined or supported a range of leading and award-winningprogrammes.

During last year alone,Whitbread’scommunity investment programme,including the Whitbread CharitableTrust, contributed over £2m.This wasmade up of direct cash contributions,donated employee time and re-cycledfurniture and equipment. In addition,Whitbread’s employees, members andguests have raised a further £1mthrough charitable activities.

The umbrella theme of the company’sprogramme is ‘helping young peopleachieve their potential’,specificallybecause young people are critical to its business.Not only does Whitbreademploy many thousands of young people,but many tens of thousands more areamong its customers.

To realise the ambition of helping youngpeople,Whitbread has established a number of successful partnershipswith young people’s charities andorganisations at national level.

Another successful partnership is thatbetween David Lloyd Leisure and the Sir Steve Redgrave Charitable Trust.

David Lloyd Leisure Flag RelayDuring 2003, David Lloyd Leisuresigned up to a new partnership withthe Sir Steve Redgrave CharitableTrust in a bid to help raise thousandsof pounds for the five-times Olympicchampion’s young people’s charity.

The first major project of thepartnership got off to a great startwhen members of David Lloyd Leisurecarried a symbolic flag in a six weekfund-raising relay.

Starting in May, members and stafftransported the flag by land and seabetween each of David Lloyd Leisure’s55 clubs.The relay started in Dublin,travelled north to Belfast beforecrossing to Glasgow in ‘Drum’, theveteran of the Whitbread Round theWorld Yacht Race, and making its waysouth via the Derby Water SportsCentre.The flag arrived in London inJune when Sir Steve joined the teamin a final row up the Thames toCounty Hall.

The relay raised over £125,000 for the Trust all of which is now beingdistributed to the local youngpeople’s charities nominated bymembers and staff at each of David Lloyd Leisure’s clubs.

Marketplace leadership

Whitbread aspires to running itsbusinesses in a way that singles it outas a great provider of services and afavoured partner to do business with.

SuppliersWhitbread is wholly committed to anethical way of operating and sets outclear standards of behaviour for allemployees in the Code of BusinessEthics.This code extends to dealingswith suppliers and the company’s fairtrading policy sets the objective ofensuring that suppliers share thecompany’s values and commit tomeeting its standards.

Costa – FairtradeCosta supports Fairtrade, the globalorganisation dedicated to ensuringthat communities which growproducts such as tea and coffee receivea fair price for their work and products.

Fairtrade accredits companies whichbuy direct from the growers and thusbenefit them and their communities.Cafedirect is the leading BritishFairtrade accredited tea and coffeecompany,and Costa has been stockingits products for several years.

Investing to meet customer needsWhitbread has always worked hard to make sure all its customers andguests have the opportunity to enjoy all its facilities. For example thecompany has developed a specificcompliance programme for therequirements of the DisabilityDiscrimination Act.

Ensuring customers can make informed choicesWhile Whitbread is passionate aboutmaking sure its customers have a greattime when they visit its restaurants, thecompany is also keen to be known as aresponsible restauranteur.With this inmind Whitbread has undertakensignificant work across its brands toreduce the salt levels in many of its most popular dishes. In additionWhitbread has increased the number of healthier meal options available onits children’s menus.

Beefeater has also increased theproportion of grilled dishes and given its guests increased opportunities tochoose healthier meals.

This report has highlighted just a fewexamples of Whitbread’s approach to CSR. There are many others fromaround the group. Further, in depth,information on the company’s policiesand activities will be available in theCSR section of the company’s website.(www.whitbread.co.uk).


Whitbread Young Achiever AwardsThe new Whitbread Young AchieverAwards, launched in 2003 inpartnership with the Home OfficeActive Community Unit, specificallyrecognise and reward the outstandingachievements of young volunteers,aged 16 to 25, in four areas: sport,community,environment and the arts.

Each category is sponsored jointly bya charity or industry partner and oneof our brands:

The Sport Award – Sport England and David Lloyd Leisure;

The Community Award – The HomeOffice Active Community Unit andCosta;

The Environment Award –Groundwork and Marriott;

The Arts Award – The RSA and T.G.I.Friday’s.

In its first year, the awards attractedalmost 500 nominations on behalf ofyoung people throughout the UK. Inaddition to a significant cash prizefor personal and project development,the winners received 12 monthsfollow-up support, which includedmany ‘money can’t buy’opportunities.

Charities of the yearFollowing an extremely successfulpartnership with Comic Relief for Red Nose Day 2003, which sawWhitbread Restaurants raise over£500,000 for the charity, the company’sindividual restaurant brands have beenresearching and signing up with ‘charity of the year’partners.

Each brand was looking for a partnerwhich was either already doing, or hadthe potential to do, extraordinary workwith young people. One suchpartnership is between Brewsters andthe Children’s Wish Foundation.

Brewsters and Children’s WishFoundationChildren’s Wish Foundation is aboutfamilies,with its aim of bringinghappiness to very sick children andtheir families by making their specialdreams come true.

Brewsters is committed to workingwith Children’s Wish Foundation andharnessing the power of‘extraordinary’people.We believethat with our customers’support,we can make a difference to childrensuffering from debilitating orpotentially terminal illnesses.

Customers and staff nationwide are now being invited to nominateyoung people and their families who could benefit.


The full Remuneration Report is set outon pages 40 to 48 of the Annual Reportand Accounts 2003/4.The SummaryReport states Whitbread’s policy andsummarises the remuneration paid todirectors during the year.The fullRemuneration Report, together with theproposed changes to the long termincentive plan, will be the subject of twoshareholder resolutions to be proposedat the AGM.

Shareholders should note that:• the executive directors have agreed

to reduce the notice periods of theircontracts to twelve months;

• the Remuneration Committee has endorsed the policy thatperformance conditions applying to executive share options should not be subject to retesting;

• during 2003 the RemunerationCommittee reviewed in depth thecompany’s remuneration policy andhas made a number of changes,described later in this report, toimprove alignment of shareholders’and directors’ interests.

An explanation of terms used in thisreport is given on page 38.

Remuneration Committee and advisers

The Remuneration Committee is chairedby Charles Gurassa, an independentnon-executive director.The othermembers of the committee during theyear were Sir John Banham, Chairman of Whitbread and Rod Kent, Prue Leith,David Turner and Lord Williamson, all ofwhom are independent non-executivedirectors. Sir John Banham has steppeddown as a committee member, but cancontinue to make his personal andvaluable experience available to thecommittee as an invited attendee.

The committee met nine times duringthe year and attendance details forindividual directors can be found in thetable on page 36 of the Annual Reportand Accounts.

The new terms of reference of thecommittee, which were adopted duringthe year, are summarised on page 39 ofthe Annual Report and Accounts and areavailable on the company’s website atwww.whitbread.co.uk. Copies may alsobe requested by writing to the CompanySecretary.

The committee recommends to theboard the specific overall remunerationpackages for executive directors andother members of the Group Executive,

and reviews the approach toremuneration for all other seniorexecutives. During the year, all thecommittee’s recommendations to the board were accepted.

The committee has appointed NewBridge Street Consultants LLP andTowers Perrin, who are independentremuneration consultants, to providespecialist advice.They provide no othertypes of services to the Whitbread group.

Slaughter and May and New BridgeStreet Consultants LLP advise thecompany on the implementation of the committee’s policy decisions.Angie Risley, group human resourcesdirector, is an internal adviser to theRemuneration Committee.Thecommittee also receives advice from theChairman, Chief Executive andCompany Secretary as appropriate.

Remuneration policy

The company’s policy for directors’remuneration for 2004/5 andsubsequent financial years is thatthe overall package will be sufficientlycompetitive to attract, retain andmotivate high calibre executives.They will be expected to have the skills, expertise and enthusiasm to achieve the group’s objectives and to enhance shareholder value. Suchremuneration packages will reflecttheir personal contribution and thecompany’s overall success. A significantproportion of total remuneration isperformance related.

The following comprise the componentsof remuneration of executive directorsand other members of the GroupExecutive. Details of the company’s policy on pensions can be found on page 43of the Annual Report and Accounts.

Base salary and benefits

Base salaries are reviewed annuallyagainst similar positions within UKlisted leisure, hotel and retail companiesof a similar market profile and against apan-sectoral group of companies with asimilar market capitalisation andturnover to the business for which thedirector is responsible. Before awardingany base salary increase to directors,careful consideration is given to tradingcircumstances across the whole groupand to average salary increases forWhitbread employees as a whole.Thepolicy is to pay market rates, but thecommittee acknowledges that flexibilityis required in order to recruit or retain a limited number of key executives.

Life assurance and individual privatehealth cover are core benefits providedto all executives. Non-core benefits, forwhich cash alternatives are available,are family health cover and a fullyexpensed company car. Limiteddiscounts on company products are alsoprovided in line with those given to allWhitbread employees.

Annual performance related pay

The following description of thecommittee’s policy on incentive pay issubject to shareholders approving thechanges to the company’s Long TermIncentive Plan (LTIP) as described in theNotice of Annual General Meeting 2004.

The policy objectives of Whitbread’srevised incentive arrangements are:

(a) to provide a clear link betweenperformance and reward, in order to motivate key executives;

(b) to place a greater emphasis onequity rewards, promotingalignment with shareholders;

(c) to promote retention by deferring a significant part of the rewards.

Annual performance is measured byreference to economic profit andpersonal performance.

Economic profit has many advantagesincluding:

• for corporate centre employees,it helps to ensure that capital is efficiently utilised within thecompeting brands in Whitbread or returned to shareholders;

• for brand executives, it reminds them that they are part of a widergroup and that profits earned by a brand have to take account of the cost of capital;

• retained profits and any future equityissues have to be efficiently utilised by the group.

Each year the board sets a series ofeconomic profit targets for the groupand each brand within the group. Forexecutive directors with group-wideresponsibility, the economic profit targetwill relate to the group as a whole, andfor directors with divisional responsibility,a combination of group and divisionaleconomic profit targets will be set.Theeconomic profit targets are set accordingto the commercial strategy of thecompany at the start of the financialyear under review.

Remuneration report

Remuneration report

At the end of the financial year, theeconomic profit results are calculatedand the committee assesses eachdirector against the pre-determinedtargets. Following this review, assumingtargets are met, three different types ofawards are made:

(a) an immediately payable cash sum;

(b) an award over Whitbread shareswhich will normally vest three years later provided that the director remains employed by the Whitbread group;

(c) an award over Whitbread sharesmade under the LTIP, which willnormally vest three years after the date of grant provided that theindividual remains an employee and a total shareholder return (TSR)performance target (described in more detail below) is satisfied.

The normal levels of cash, deferredequity and LTIP awards payable underthe plan to executive directors atdifferent levels of economic profitperformance will be:

Below Threshold Nil

Threshold 10% cash20% deferred equity

25% LTIP award

Target 22.5% cash50% deferred equity

62.5% LTIP award

Maximum 55% cash100% deferred equity

125% LTIP award

The percentages in the table areexpressed as a percentage of thedirectors’base salary. A straight-line will operate between the above levels of performance.

Threshold will be the minimum targetat which rewards will be earned.Targetedlevel of performance will be consistentwith budgeted performance, andmaximum will be significantly beyond budget.

It should be noted that unlike thereported year, in the revised year goingforward the directors’annual cashperformance-related payment anddeferred equity award will be capped.Further, if budgeted performance isachieved, the cost to Whitbread will beno greater than the company’s existingincentive arrangements. Cash paymentsfor the target performance also remainthe same.

In addition, a maximum of 20% of salarycash bonus will be payable for personalperformance.The personal objectivesare based on a ‘balanced scorecard’approach, including such elements asincreasing sales, reducing operatingcosts, development of people,maximising customer satisfaction, andother individual objectives where theseare over and above day-to-day jobresponsibility.These targets are set atthe beginning of each financial yearand, for directors, are reviewed by thecommittee after the year end.

LTIP awards

Vesting of shares subject to an LTIP awardwill depend on continued employmentand the meeting of a TSR performancetarget over three years.The RemunerationCommittee favours a TSR performancetarget because it more closely aligns the interests of executives to those of shareholders.

Following the committee’s decision in October 2002, the comparator groupshall comprise the constituents of theFTSE Leisure and Hotels sector index,which is regarded as the mostappropriate given the business mix andstrategy of the company, at the time ofgrant. Performance will be measuredover the three financial years followingthe financial year for which the bonus is declared. Averaging will take placeover the three month period before thestart and end of the performance periodto reduce the impact of short term shareprice fluctuations.

The next award under the LTIP will bemade in May 2004 on the same terms as awards in previous years.

The vesting schedule for any grantsmade after June 2004 will be:

Position at Vesting which the Schedulecompany is ranked

Upper quartile Full vestingand above

Between median Pro rata on and upper quartile a straight-line

between quarter and full vesting

Median Quarter vests*

Below median None

* This will be reduced from 50% vesting at median.

The TSR performance of the company andthe other members of the comparatorgroup will be calculated by an independentthird party on behalf of the committeeusing reliable financial information.

Share options

If shareholders approve the amendmentsto the LTIP at the 2004 AGM, the previouspolicy of making annual grants ofoptions will be discontinued from the2004 AGM. Options may be granted inexceptional circumstances, for example,on a senior recruitment or following anacquisition. An earnings per share basedperformance condition will apply to anysuch options, and to the extent that theperformance condition is not satisfiedafter three years, the option shall lapse,i.e. no opportunity to retestperformance will be allowed.

This will be the case in respect of optionsgranted in 2004, and for which theperformance target will requireearnings per share growth of RPI plus12% over the three year performanceperiod.The committee remains of theview that earnings per share is theappropriate financial test for marketvalue options because the option has an inherent share price growth target.

Chairman’s agreement

Sir John Banham entered into a letter of agreement with the company settingout the terms of his appointment aschairman of Whitbread. His contract,which commenced on 21 June 2000,is terminable on one year’s notice.Thecontract requires that any salaryincrease will not exceed the averageincrease generally paid to the UKemployees of the Whitbread group.

Directors’ service contractsThe executive directors have agreed toreduce the notice periods of theircontracts to twelve months.Theemployment of David Thomas will endwhen he retires from the companyimmediately following the company’sAGM in 2004. By mutual agreementBill Shannon will also be stepping downfrom the board on 15 June 2004 and willbe leaving the company on 30 June2004.This follows a review (in which Billwas involved) of board responsibilities.The payment he will receive for the earlytermination of his service agreementwill be £587,300. In addition thecompany will pay a fixed sum of£162,000 to enhance his pension.Thesesums are based on 12 months’salary,benefits and pension entitlement.

In the event that the employment of anyof the other executive directors with the

company is terminated without notice,the contracts provide for payment of aspecific sum for breach of contractcomprising one times each of annualsalary, estimated bonus, car benefit andthe cost of private medical insurance,together with the cost of 12 months’life assurance. In addition, pensionentitlement is enhanced by crediting 12 months’additional service.Commencement dates for contracts (as amended) were as follows:Stewart Miller (1 May 1990) Alan Parker (1 September 1992)David Richardson (1 November 1993)Angie Risley (1 May 1990)Bill Shannon (1 December 1993) David Thomas (31 March 1993).

The Remuneration Committee has agreedthat new appointments to the boardwould be made on the basis of a serviceagreement with one year’s notice.


Remuneration report

Chairman and executive directors’ remuneration for the year ended 4 March 2004

Total 2003/4 Increase Transfer Cash gains Notional gains Value remuneration in accrued value made on exercise made on exercise of LTIP

excluding pension of accrued of options of options vested in pensions in 2003/4 pension in 2003/4 in 2003/4 2003/4

£(1) £ £ £ £ £(4)

Sir John Banham 197,914 - - - - -

Stewart Miller 417,841 14,650 1,458,650 - 987(2) 145,977

Alan Parker 461,411 19,047 1,717,355(3) - - 145,977

David Richardson 651,284 20,088 3,390,466 87,976 21,761 175,180

Bill Shannon 1,149,688 17,602 3,853,762 - 1,185(2) 179,559

David Thomas 1,401,050 41,578 6,820,822 66,263 7,656(2) 291,969

(1)Total emoluments for the year were £4,436,022, including non-executive directors’ fees (2002/3 – £3,092,195).For full details see the Annual Report and Accounts 2003/4.

(2)Options exercised under the Savings-related Share Option Scheme(3)In addition Alan Parker has an entitlement in respect of a transfer value received from a previous employer’s pension scheme.

At 4 March 2004 the transfer value was £700,048 (£604,500 at 1 March 2004)(4)The monetary value of the vested award is the value at the date of vesting. This may be different to the value on the date that the director

chooses to exercise his nil-cost option. Further details can be found on page 47 of the Annual Report and Accounts.

60

80

100

120

140

160

180

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Whitbread FTSE Leisure & Hotels sector

March 2004March 2003March 2002March 2001October 2000£50

£60

£70

£80

£90

£100

£110

£120

Whitbread FTSE Leisure & Hotels sector

01/03/200401/03/200301/03/200201/03/200101/03/200001/03/1999

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Historical TSR PerformanceGrowth in the value of a hypothetical £100 holding since October 2000 FTSE Leisure & Hotels sector comparison based on 30 trading day average values

Historical TSR Performance Growth in the value of a hypothetical £100 holding over five yearsFTSE Leisure & Hotels sector comparison based on 30 trading dayaverage values

The committee reserves the right,in exceptional circumstances, to applygreater flexibility for externalappointments to the board.

explanation of terms

TSRTotal shareholder return is thedifference between the share price at the start of a performance periodand that at the end of a period plusthe dividends paid during the period

EPSEarnings per share

Economic profitOperating profit net of a capital charge

Audit report

Shareholder services

We have examined the group’ssummary financial statement for theyear ended 4 March 2004 whichcomprises the summary group profitand loss account, the summary groupcash flow statement, the summarygroup balance sheet, the chiefexecutive’s review, the finance director’sreview, and the Remuneration Report.

This report is made solely to thecompany’s members, as a body, inaccordance with Section 251 of theCompanies Act 1985.To the fullestextent required by the law, we do notaccept or assume responsibility toanyone other than the company and the company’s members as a body,for our audit work, for this report, or forthe opinions we have formed.

Respective responsibilities ofdirectors and auditors

The directors are responsible forpreparing the Summary Report inaccordance with applicable law.

Our responsibility is to report to you ouropinion on the consistency of thesummary financial statement withinthe Summary Report with the fullannual accounts, the Directors’Reportand the Directors’Remuneration Report,and its compliance with the relevantrequirements of section 251 of theCompanies Act 1985 and theregulations made thereunder.We alsoread the other information contained inthe Summary Report and consider theimplications for our report if we becomeaware of any apparent misstatementsor material inconsistencies with thesummary financial statement.

Basis of opinionWe conducted our examination inaccordance with Bulletin 1999/6 ‘Theauditors’statement on the summaryfinancial statement’ issued by theAuditing Practices Board for use in theUnited Kingdom.

Opinion

In our opinion the summary financialstatement is consistent with the fullannual accounts, the Directors’Reportand the Directors’Remuneration Reportof Whitbread PLC for the year ended 4 March 2004 and complies with theapplicable requirements of section 251of the Companies Act 1985, andregulations made thereunder.

Ernst & Young LLPRegistered AuditorLondon4 May 2004

Independent auditors’ statement to the members of Whitbread PLC

For further information about the companyand its businesses please visit the Whitbreadwebsite at www.whitbread.co.uk

Electronic shareholdercommunicationsShareholders wishing to receive theAnnual Report and Accounts and/or theInterim Report in electronic rather thanpaper form should register their instructionat www.mywhitbreadshares.com in theelectronic communications section.

Registrar

The company’s registrar isComputershare Investor Services PLC,PO Box 82,The Pavilions,Bridgwater Road,Bristol BS99 7NH.The website address is www.computershare.com.For enquiriesregarding your shareholding pleasetelephone 0870 703 0103,or [email protected] also view up-to-date informationabout your holdings by visitingwww.mywhitbreadshares.com.Pleaseensure that you advise Computersharepromptly of any change of address.

Capital gains tax

Market values of shares in the companyas at 31 March 1982 were as follows:

‘A’limited voting shares of 25p each 103.75p

‘B’limited shares of 25p each 103.75p

Whitbread has had discussions with theInland Revenue concerning the capitalgains tax cost of Whitbread sharesfollowing the reduction of capital on 10 May 2001. It is confirmed that themarket value of each Whitbread shareon 10 May 2001 for these purposes was606.5p and the market value of eachFairbar share was 230p.

Dividend reinvestment plan

Full details of the plan, which offers youthe chance to reinvest your cash dividendin the purchase of additional companyshares, are available from the registrarsat the address given above or onwww.whitbread.co.uk in theshareholder services section.

Shareholder benefits

Details of discounts and offers byWhitbread businesses have been mailedwith this report. Any future offers will besubject to review by the board. It isintended that next year they will only besent to those shareholders with at least100 shares in the company.

Financial diary – 2004/5 (dates subject to confirmation)

5 May Results announcement12 May Ex dividend date for final dividend14 May Record date for final dividend15 June AGM at Queen Elizabeth II Conference Centre16 July Payment of final dividend2 September Half year end28 October Announcement of half year results3 November Ex dividend date for interim dividend

4 January 2005 Payment of interim dividend3 March 2005 End of financial year

Designed and produced by Dragon. Printed by First Impression. Photography by Andy Wilson, Mike Ellis, Michael Heffernan and Martin Levenson

Printed on totally chlorine free paper produced from sustainably managed forests, sawmill residues and forest thinnings.


Summary group profit and loss account Year ended 4 March 2004

2003/4 2002/3 (restated)

Before Beforeexceptional Exceptional exceptional Exceptional

items items Total items items Total£m £m £m £m £m £m

Turnover – group and share of joint ventures 1,977.4 - 1,977.4 1,965.1 - 1,965.1

Less share of joint ventures’ turnover (189.2) - (189.2) (171.0) - (171.0)

Group turnover 1,788.2 - 1,788.2 1,794.1 - 1,794.1

Operating profit/(loss) * 293.0 (15.5) 277.5 274.6 (5.0) 269.6

Non-operating items - (10.3) (10.3) - (6.2) (6.2)

Profit/(loss) before interest 293.0 (25.8) 267.2 274.6 (11.2) 263.4

Interest (52.2) (3.3) (55.5) (61.0) - (61.0)

Profit/(loss) before tax 240.8 (29.1) 211.7 213.6 (11.2) 202.4

Tax (77.1) 30.2 (46.9) (66.4) 16.4 (50.0)

Profit after tax 163.7 1.1 164.8 147.2 5.2 152.4

Minority interests (0.3) - (0.3) (0.4) - (0.4)

Profit earned for ordinary shareholders 163.4 1.1 164.5 146.8 5.2 152.0

Ordinary dividends (65.5) - (65.5) (58.7) - (58.7)

Retained profit for the year 97.9 1.1 99.0 88.1 5.2 93.3

Earnings per share (pence)Basic 55.74 51.64

Adjusted basic 58.22 52.72

Dividends per share (pence)Interim 6.15 5.57

Final (proposed) 16.15 14.30

* Included in operating profit before exceptional items is income from joint ventures of £18.6m (2002/3 – £15.1m) and fromassociates of £22.4m (2002/3 – £17.8m).

The Auditors have issued an unqualified report on the annual financial statements containing no statement under Section237(2) or Section 237(3) of the Companies Act 1985.

Summary group cash flow statement Year ended 4 March 2004

Summary group balance sheet as at 4 March 2004

2003/4 2002/3£m £m

Cash inflow from operations 382.9 355.2

Dividends received from joint ventures and associates 21.4 13.3

Interest paid, less received (55.8) (63.4)

Tax paid (28.0) (49.6)

Net capital expenditure (102.0) (185.7)

218.5 69.8

(Acquisitions)/disposals of businesses (20.6) 23.1

Ordinary dividends paid to shareholders (60.4) (53.9)

Net cash inflow before changes in funding 137.5 39.0

Shares issued and movement on net debt (131.6) (29.3)

Increase in cash 5.9 9.7

20032004 (restated)

£m £m

Fixed assetsIntangible assets 147.6 141.5

Tangible assets 2,989.7 3,045.1

Investments 113.7 99.2

3,251.0 3,285.8

Current assets and liabilitiesStocks 24.4 23.9

Debtors 161.7 131.1

Cash at bank and in hand 68.8 75.4

254.9 230.4

Creditors – amounts falling due within one year (420.2) (474.4)

Net current liabilities (165.3) (244.0)

Total assets less current liabilities 3,085.7 3,041.8

Creditors – amounts falling due after more than one yearLoan capital (807.5) (879.8)

Provisions for liabilities and charges (179.8) (178.1)

2,098.4 1,983.9

Capital and reservesCalled up share capital 148.7 148.0

Share premium 13.5 7.3

Revaluation reserve 124.5 134.5

Other reserves (1,816.2) (1,825.4)

Profit and loss account 3,621.1 3,512.8

Shareholders’ funds 2,091.6 1,977.2

Minority interests 6.8 6.7

2,098.4 1,983.9

D M Thomas D H RichardsonDirector Director4 May 2004

Whitbread PLC

CityPointOne Ropemaker StreetLondonEC2Y 9HX

www.whitbread.co.uk

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