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Whitbread PLC
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Good morning, ladies and gentlemen, and welcome to the Whitbread Third Quarter Trading Update. My name is Tyler, I will be the coordinator for this morning's conference. [Operator Instructions] I will now hand over to Alison Brittain to begin.
Good morning, everyone. Thanks for dialing in for Whitbread's third quarter trading update, and I'm joined here this morning by our Group Finance Director and our Investor Relations team.I'm delighted to be presenting the results for Whitbread, which is -- the first time really is a focused hotel business, following the announcement of the completion of our sale to -- of Costa to Coca-Cola for GBP 3.9 billion, which we achieved ahead of schedule, well ahead of schedule on the 3rd of January, having had a very late in the day EU approval on the 21st of December. So we were able to mobilize to get that done. And as a result of that, you'll see that we've also announced that we'll commence our initial buyback program of up to about GBP 500 million of buybacks, which will start today, and that will run probably until our full year results announcement in April. And we will talk more about the further return of proceeds to shareholders at the Capital Markets Day on the 13th of February. The Capital Markets Day which we're holding, which is coming up very soon, will be hosted by members of our Executive team, and we're all very excited to be presenting the long-term strategies for the business. That's going to include details of the structural growth opportunities for Premier Inn, both in the U.K. and in Germany; how our model is best placed to access those opportunities; and then we'll cover the capabilities and the capital structure required to execute our plan.Turning now to the third quarter trading. Premier Inn's performed well during a challenging trading environment with U.K. total group sales up 2.5%, driven by continued hotel capacity addition. This growth, together with the ongoing success of our efficiency program, means that we are on track to deliver full year performance in line with this year's expectation. In the U.K., Premier Inn achieved total accommodation sales growth of 3.5% in the quarter, and that was delivered through the ongoing investment in new hotels and extensions over the last year, which we expect to mature, as you know, to levels of returns in line with our current estate.The London market had a strong third quarter and Premier Inn grew sales there at 9.8%, in line with the mid-scale and economy market. Conversely, the regional market was weaker in the third quarter due to lower confidence and higher levels of inflation affecting both business and leisure customers, and Premier Inn grew total sales by 1.8%. While Premier Inn's superior margin structure makes us more defensive to the impacts of lower demand than most of our peers, we expect subdued trends to continue throughout the fourth quarter and into the next financial year. But we do think that the U.K. hotel market continues to present an attractive long-term opportunity. We continue to win market share from the independent market by delivering high-quality capacity at good value for money. And we can continue over the longer term to run new Premier Inn hotels throughout the U.K., including our high-performing hub brand and the latest concept ZIP, which will open in Cardiff in just a few weeks' time. So we're confident this year of achieving room openings of 3,500 to 4,000 rooms in the U.K., and we'll continue to build our committed pipeline, which is -- already has approximately 14,000 rooms in it. Our F&B sales saw an improvement during the third quarter with like-for-like sales improving by about 160 basis points from the second quarter. However, market conditions are subdued, and we are therefore continuing to focus on menus, prices and targeted promotions to encourage a broad customer appeal.In Germany, our existing hotel in Frankfurt continues to perform well, with occupancy now at mature levels for the market and fantastic customer scores continuing. Our pipeline now stands at 34 hotels across 15 cities, which signifies our commitment to the market in the years to come. In preparation for opening a very significant number of our pipeline hotels in the following years, we're going to have to invest this year ahead of revenue generation. The investments that we'll make cover aspects like marketing, set-up costs, team costs, and that means we'll have losses of around GBP 12 million in the next financial year in Germany. And by the end of the full year of 2020, we would have expected to open another 16 hotels, including 13 from the Foremost Hospitality acquisition, which we're going to complete at the very end of February 2020, and that will supplement the organic pipeline. So essentially, the investment we make in the teams in preparation next year allows us to start booking into the hotels, which will be live with us at the very end of this financial year in February. And that's when the revenue will start to come through. Our property team in Germany remain active in looking at all opportunities to accelerate and extend our pipeline further, that's including freehold, leasehold sites for organic expansion and further bolt-on acquisitions.Our efficiency programs and investment in capabilities in technology procurement, property and supply chain is ensuring that we can deliver our growth plans efficiently. And despite the short-term economic uncertainty in the U.K., we're on track to deliver full year results in line with expectations. But we are cautious on the macroeconomic environment next year. We expect inflation will remain a significant challenge, along with probably weaker market RevPAR especially in the regions. And whilst our efficiency program continues to make good progress and will continue into the year delivering again likely savings of GBP 40 million to GBP 50 million, we do expect levels of cost increases including inflation to be GBP 20 million to GBP 30 million above factors around GBP 70 million. In addition, we plan to maintain our investment in the U.K. -- into U.K. growth. So often in a weaker environment, we might stall our -- companies might stall their investment, and so we're making it clear today that we'd like to maintain our investment in the U.K. growth that we see and increase our investment in Germany to take advantage of the long-term opportunities present. And despite the fact that it will be a weaker environment and we will continue with our investments, we do expect the underlying profit to hold up and be consistent with the previous financial year for next year.So despite the anticipated short-term macro environment, our unique model and leading market position in the U.K. puts us in a strong position to continue growing, both in the U.K. and internationally over the long term. The opportunity for growth, along with our disciplined approach to capital allocation, means that we will continue to create long-term value for shareholders. That was all I was going to say on this morning's announcement. And then Tyler, I'd like to turn it over please for Q&A, if we may.
[Operator Instructions] And your first question today comes from Jamie Rollo of Morgan Stanley.
The main one really is just about the downgrade for 2020, about GBP 30 million off consensus. It'd be really helpful if you could break down that between the different components, if you give them a statement, please. It sounds like it's mainly cost pressures was a bit more cautious in terms of message than that's previously been given. So second question to that would be what happens if RevPAR weakens further from here, does that then drop straight through to the bottom line? Or are there any other mitigating factors you could accelerate? And finally, on room openings, they seem like they're going to be quite Q4 loaded again. I know you obviously want to have it more evenly phased. So is that becoming an issue? And then does that have any impact on your sort of, forward opening program?
Okay. So I'll do a bit of a preamble, but I'll give Nicholas the -- initially the first 2 questions, their substance, and then maybe I'll come to the phasing at the end. But just as a sort of opener, I did a call earlier this morning, just before we started this call with some of the media that can't dial into the media call we have afterwards and somebody asked me why we were giving our guidance at this stage given the issues in the market. And I said, it is a very uncertain time as we know in the U.K. at the moment. There's not -- the political and therefore consequent macroeconomic environment could be weaker, it could be stronger, depending on the outcome of all of the political uncertainty that we're facing into at the moment. And really what we're trying to do is give a little bit of certainty within the context of what is a very uncertain planning horizon. And so I think you should take that in that spirit as well. We're trying to sort of guide in a way that is sensible. We expect a weaker top line and a weaker RevPAR and macro performance and we aren't therefore building in any possible Brexit bounce. We're sort of being cautious on the top line. And on top of that, as I said, we want to explain to people that we do think it is sensible for us to continue to invest in the long-term growth because we know that in previous situations where the top line has weakened, when we have therefore stopped investing, that we regretted that later. Because in a down environment, the independent sector fares quite badly, and it may accelerate the demise of the independent sector. And if we're about to pick up the market share as we come out of a difficult economic environment, we tend to then have a much stronger position. It does mean during the weaker environment, those that are putting capacity in do carry on putting capacity in. They've usually got spades in the ground and they've made the investments and they have to finish. So you get a compounding effect of that capacity opening. But then as you start to come through the period, nobody puts new investment in. And so you end up, as you come out of the recessionary period, having a couple of years where there's no capacity going in, some of the independents are coming out a bit faster and there's a real gap, and we can fill that gap. So that's just to give you a sort of headline on where we are and why we think investment is important. We also think continuing the German investment is important. I mean, the GBP 12 million and the building the team is really kind of obvious. If you've got 13 or 14 hotels opening in February 2020 and opening and trading on day 1 of ownership, we have to be making customer bookings into those hotels really from the second quarter of this year, and we need a team of people. We make sure that the IT is right and the finances are right, and we're dealing with all of that and the marketing. So that's a pretty obvious one. But even longer-term investment continuing the acquisition program, the organic and the inorganic acquisition program, we think gives Whitbread a solid long-term growth horizon of multiple decades, and therefore, halting that because of a short-term macroeconomic environment will just not be sensible. And notwithstanding all of that, I'll say it again, notwithstanding the fact that we think it should be weaker in the environment and we will continue with substantial investments, we are still going to be holding profit year-on-year, whereas I suspect many of our competitors would see their profit falling, so -- and without the investment profile as well. So that's why we're talking about this today, just giving everybody a sense going forward. Do you want to just give a bit more breakdown, I think general to the bit of a breakdown on what makes up the change of the position.
Yes. So we are cautious on sales. I think we're being conservative, we've been cautious overall. I don't think what happened this week with the political environment is going to move us in the right direction, it isn't helping us on that as well. So we're expecting from a kind of top line sales, we're expecting no help from the market at all. If not, it might be slightly negative. We're not giving RevPAR guidance today but we're not expecting any kind of help from that point of view. As Alison said, we're going to continue to invest. I mean, as we went into the kind of the Brexit scenario, we did a kind of -- we did a review about what lessons were learned from 2008, 2010, and I think lessons learned was to keep investing because actually that puts the pressure on the independent market. It grows your -- it enhances your structural growth opportunities in the longer term and continues to make sure that you're the best hotel company in the U.K. In terms of the moving parts and you've seen a softer top line, we're going to continue to invest in the business. And I guess, probably the efficiencies versus the cost increase is probably kind of worth just kind of touching on. You'll see that we've -- we're [ on lock guide ] aligned to this year's expectations, and that's despite Q3 and Q4 being a little bit softer than we thought we would do. So we've had some acceleration of the efficiency program into this year. And as we said before, we're hoping this year, this current year, to offset most of our cost inflation with efficiencies. Next year, we're seeing inflation continues, and that's particularly around food, it's around labor, particularly in the South of England and it's around utilities, where you're seeing gas and electricity, where you're seeing kind of 15% to 20% cost increases overall. And there is also some dissynergies from the separation of Costa out from Whitbread as we kind of flagged into H1. It's quite hard to disaggregate those synergies from inflation because they're all wrapped up in kind of our supply contracts. And we've had to separate hundreds of contracts over the last 3 months, probably a lot faster than we would have anticipated to do, which has probably not helped us as well. So because of that, we are seeing -- and because of the -- we're still making really good progress with our efficiency, and we're still expecting to make kind of GBP 40 million to GBP 50 million of efficiency savings next year, which is a good number, but we're expecting the kind of cost inflation and the cost increases to be kind of GBP 20 million, GBP 30 million ahead of that overall. Just quickly here touching on Germany, Alison called out that we're making GBP 12 million losses. That is higher than we had indicated before. By the end of next year, we'll have opened 2,500 -- we'll have got 2,500 room opens. We were hoping to open a lot of the rooms kind of in the third quarter, and they're really to do with the acquisition that we're making. But actually, as it turns out, most of those will open right at the end of next year, so significant, 13 of the 16 hotels will have opened, I think, virtually in the last week of next year. So we get no kind of top line help from that, but you've got all the kind of set-up costs coming through overall so...
In aggregate, it will be our highest room openings ever across if you count Germany and the U.K. together because we'll probably end up being in the sort of 6,000 to 6,500 room openings during next year. But as you say, we'll come on to phasing in a minute. In Germany, they are about as back-end loaded as you can get from the perspective -- but they are operating and trading hotels, so we won't be moving beds in on the last day or anything like that in terms of the construction and development side of it. But they will -- the revenue will be generated literally in the last week of the trading year.
Your second question, it was about -- the question was about what happens if RevPAR weakens through the year. And I guess we'd always look to see why it has weakened and how long we think it has weakened. And if we think this is a long-term issue, we can always take action. If we think it is a short term, and saying short term over 1 year or 2, then actually the best thing to do is to continue to invest in the business. So we'll be kind of -- we'll be hesitant to cut back on investment if we thought it was a short-term weakness overall. We've already got, we think, quite an ambitious efficiency program in there as well. So we have -- I guess one of the levers that we've kind of -- we'll have less to pull on because we've already got quite ambitious plans in there overall, but there will always be other things -- areas we will look to. I would just kind of reiterate though that actually in a downturn when RevPAR weakens, we've got -- one of the things you want to make sure is you've got a strong balance sheet over that period. As you know, where we are with our leverage and with our freehold, of course, we've got a far stronger balance sheet than most of our competitors in this environment as well, to weather this out.
So -- and then on phasing. Yes, I am peculiarly interested always in phasing. From the German side, there's not a lot of change you can make if the acquisition has its franchise label be taken off, and IHG are holding them to their 2-year franchise agreement. So that is February 2020. So although at the very end of the financial year, it is what it is. And on the U.K. side, what it shows you actually, the frustrating element of construction and development, is if you're doing leasehold. You don't have the same level of control as when you have freehold. So we control our own freehold agenda in terms of when we go on site and when we build and how we construct and develop. And the same goes for extensions. So when we're dealing with developers and we're taking the leasehold, we can, on occasions, do slippage that was not what we would have wanted or planned. Actually, we saw that in Germany as well as in the U.K. where we've had a couple of hotels slip by a quarter, which takes them into a different financial year. So we can't always control all of it, but we do try and get phasing to be sensible. [ And do so in line ].
Your second question today comes from Vicky Stern of Barclays.
Just 3 questions, picking up on some of the things you just touched on actually. Just on Germany, so is it the sort of entirety of the delta between the GBP 6 million loss that you were previously guiding for next year and the GBP 12 million now? Is that all about those rooms shifting from Q3 to [ Nick thinks ] to the very end of the year, i.e., the revenues, or it's also a sort of recognition of greater investment needed as opposed to what was the difference between the last communication there and now? Second question is -- sorry, maybe go ahead...
No, ask them all. You're right, ask them all, and we'll come back to each one.
So second one, just the GBP 70 million inflation next year. Can you just give us a sense of what that number looks like for this year, your expectations for 2019? And I appreciate you can't sort of necessarily draw out how much is the synergy from some cost of sales versus the inflation piece, but you did allude to the fact that some of that is short term. So perhaps any color as to your perception of the short-term elements of that, how much might fall out and when that would fall out?
Yes. Okay, so well, let me start with Germany without getting in too much of the detail, yes, some of the issues, yes, we will be going to the full 2-year endpoint before we take [ possession ] of the revenue for the hotel. So there's a bit of that. The -- we've got a team -- we've got a better grip on what we will now need as a team to be running 30 to 50 hotels, which is how we are creating the teams which, when you're only really running 1 hotel, you just don't need the infrastructure. We kind of kept the infrastructure light. And then the third element is we have upweighted our construction and development team in Germany and some of those people are going to arrive in this coming financial year that we've spent this year hiring, because there's always a 6-month gap where people work their notices, et cetera, because we are wanting to accelerate our development in Germany. And now that we have got quite a lot of construction going on in the pipeline, either through developers or our own freehold construction, we're upweighting the construction oversight as well by having a couple of additional pretty heavyweight people who were in the development and construction team. So that's the makeup. So the little bit of it, which is about future investment and making sure that we are -- we're set up for better development going forward. And some of it is the teams that actually operate and run the hotels on an ongoing basis, which get covered by the revenue. But -- so that's the German difference. And is that all right, Vicky?
Yes, thank you.
The GBP 70 million.
Yes, if you want to pick that up, Nick, that would be great.
Yes, the GBP 70 million inflation, I mean, most of it is inflation for this year. You're right, there are some dissynergies, some costs to that. As I said earlier, it's a bit hard to -- it's quite hard to unpick those from the inflation because they're all tied up in the same contracts overall. If you look at this year's kind of inflation, you're probably looking at kind of GBP 40 million to GBP 60 million worth of inflation at the moment overall. You're right that the synergy [ vet ] should be short term, but it might just take a couple of years to unpick.
Just -- sorry, finally, so the biggest delta between the GBP 40 million to GBP 60 million inflation this year and the GBP 70 million figure next year, is that FX driven in terms of your purchasing? What are the main drivers there?
You've got FX on food, which is one of them. But actually, it's all of them a little bit higher. The labor, the utilities and the food are all just a bit higher than they were last year.
Yes. And we wouldn't expect any downward pressure on labor given the -- again, given the issues that we have in terms of Europe. So we'd expect a more -- I think if you speak to any of the big employers, everyone from Amazon to retailers, to leisure who are the employers of lots and lots of people, they will say there will be no downward pressure. The -- so national sort of minimum wage stuff is not going to be the effective wage rate increase. There will probably be a higher than that effective wage increase as we go through the next few years. I suspect that's an ongoing cost. And of course, that does make it quite difficult for players without scale to operate. All of these additional inflationary costs just make it more burdensome for people who haven't got any scale.
The next question comes from Lena Thakkar from HSBC.
If I could ask I think 3 as well. So just going back to that bridge of GBP 30 million. If I've understood you correctly, we're looking at -- that's come from about GBP 20-odd million of cost inflation, GBP 6 million from Germany, which only leaves a few million after that. And there's a bit more investment and the dissynergies, et cetera. So how much have you actually priced in for the weaker RevPAR? It doesn't look to be a lot there. Is there a downside there? Or has your outlook not materially changed since last time? A second question just in terms of openings. They look a bit light this quarter. I take the point that, they will be a bit more Q4-weighted. But can you just talk about what's causing that because I know it was a very specific ambition to try and even that out. So just trying to understand where the delays are coming from. And then in terms of Germany, I know it's difficult to predict, but can you give us some kind of a trajectory for how those losses will evolve and move to profitability over the medium term? That will be helpful.
Right. So just quickly touching on the bridge. You're right, I mean, I'm not -- we're not giving RevPAR guidance at this point. As I said, it's incredibly difficult planning in this environment at the moment so we're not giving RevPAR guidance. I think if you probably looked across the market, I think mostly it's probably about 1% growth in market RevPAR next year. We think that's going to be more flat, and it could be negative to be quite honest there overall. Just in terms of the opening, I think we kind of talked about that. Actually, there's a bigger skew towards the leasehold portfolio. We're less in control of that than we are of the freehold because actually, most of freehold will have been in the first 3 quarters -- most of the openings that were in the first 3 quarters are in freehold, which we are in control of. So it's just the way it has fallen, but we'll continue to press to get those spreads...
And we don't have any doubts that we will complete the opening program at the level of those 3,500-plus rooms this year. That's -- we've got weekend -- I mean, we are now in January. We still -- 6 weeks to go to the financial year end, we're quite clear with those opening programs. The opening program will complete as planned.
Yes. And in terms of Germany, we'll talk a bit more about that at the CMD, I'm afraid. I'm afraid if I talk about it now, no one might not come to the CMD. So...
I'm sure they'll still come.
You're right. We've got 6,000 rooms in the pipeline, 2,500 opening by the end of next year as well. So moving in the right direction. So it will be good...
Yes. It will be good to have a solid revenue line to talk about in Germany, and we will have that by the end of next financial year.
Richard Clarke from Bernstein will be your next question, Alison.
Three questions as well, if I may. So Premier Inn growth this quarter, 3.5%. That's the lowest we've seen for a while, and I think probably the first quarter where we could say your absolute growth is below the market growth. So any sense, if you are losing market share, who is doing better? How are they doing better? And how does that give you confidence that other players will fall out if they've got better RevPAR growth? And the second question is on -- this I think is the first quarter we've seen you sort of lap a negative like-for-like RevPAR with a negative like-for-like RevPAR. Are any of your hotels getting close to any kind of hurdle rate? Are they still -- still saw absolute performance good enough? Any exits we could expect from underperforming hotels? And then the third question. It looks like you've phased some profits out of last year into this year to hit this year's guidance number. Any reason why you've made that decision? Why it was a sensible decision to move profits from next year into this one?
So I'll just touch on the last one. That is just about timing of where our efficiencies fall. And of course, you take your efficiencies as early as you possibly can. So that's not necessarily about phasing...
Yes, we haven't made decisions to think about profits.
It's about where you get the savings.
Yes. Sorry, yes, I didn't kind of recognize the third question. Sorry, Richard, it's not the way the decision-making works. So we haven't consciously said let's move profit between years. We just literally book the efficiencies when the efficiencies come. The -- in terms of overall, we are running a program, a very detailed program, of looking at our asset base and looking at it sort of catchment by catchment and we have what we call the perfect pound structure for our properties, particularly in towns and cities where we have multiple hotels. And so -- and as a -- in the history of the company, we've never churned hotels until this year. Actually, we've done our first couple of hotel churns. And -- but we would expect a program of churning hotels over the next period because we're now very big, and some of the towns or cities, we could optimize better by closing smaller units and adding extensions to larger units. And that program is not something that you necessarily do in-year because you have to build and close with some symmetry. But we'll talk a little bit -- we'll probably talk a bit more about that at the Capital Markets Day in terms of how we will approach churn to optimize the performance of the estate over time, which is essentially a relatively new set of skills that we've built over the course of the last 18 months and are now executing. So if you leave that for Capital Markets Day, we'll talk about it in more detail.
Yes. Just as your first question in terms of overall growth, 3.5% below the market. I mean just 2 things you say, you skewed because the market is skewed towards London versus us. So we only have about 20% of our sales come from London, and the market is much bigger so -- because London is doing well relatively, it pushes the market ahead. So there's a slight mix. Having said that, what we have seen in the market, actually even in the regions, we've seen more space open in the last year than we've seen historically. And this goes back to the fact that in 2013 -- 2012, '13, '14, the market was quite good, a lot of people put down -- started putting, cut down acquiring sites and put in transmission. No brands in particular. It's a wide variety of brands you probably wouldn't have heard of. And they've been opening those sites now, but I guess what you'll see over the next few years is you'll see the reverse of that because the market is downturning. You'll see a kind of drying up of that additional supply coming into the market, which at the same time, as you see the pressure on the independents, should be a good thing for us. Now I think that is the kind of the key reason for us. I think we've opened quite a lot of capacity in the market as well. And then when you've added the capacity and you see a downturn in the market, it just comes a little bit more volatile, but not significantly.
So Tim Barrett from Numis will be your next question.
I had one on cost and one on something else, actually. Cost-wise, I think you're saying GBP 60 million mitigation this year and GBP 40 million to GBP 50 million next year. Could you put the cumulative of that and what you achieved in 2018 into the context of the original cost savings for that? Just basically help us understand how much there might be left in the medium term.
Okay. Yes, Tim, keep that up, yes.
And I know it was asked a while ago, but the GBP 150 million to GBP 200 million planned from the old data...
Yes, yes. No, no, that's a good question. I'll come back to that, yes. And you had a second?
Yes, please. Food and beverage, down 1.5. Was there a Christmas bounce in there, akin to what others have seen? Or was it pretty steady across the quarter...
Let me -- no, perfect. No, I'll take the first one and I'll give Nicholas the second one. In terms of sort of costs overall, we set up that program with a GBP 250 million target, which some of it was Costa. I mean, I think it would be fair to say that we've blown the target. So we've completed that piece of work, and we knew that we would -- we knew this year, this would be sort of last year of it. But what I don't want you to extrapolate from that is that, that is the program finished because what we've spent the last 3 years doing is building a culture where everyday efficiency and the efficiency program will be a continuing part of our ongoing operation. So when we get to the Capital Markets Day, we'll give you some more guidance on what you can expect the next 3-year efficiency program -- 3- or 4-year efficiency program to look like and how we think it will shape over that period. But no, we are expecting it to be an ongoing efficiency, even though technically speaking, yes, we finished the original program several years early with the initial activities we undertook. And on F&B, Nicholas, if you want to...
Yes. Just on F&B, it's a little bit better than the run rate. I think you've just got to put that in the context that in this first half of the year with the World Cup and we had extremes of weather, which were very cold and then very hot, and because we're not a wet-led and drinks-led restaurant, we think we did as well as the rest of the market in the World Cup and the hot weather. So that's kind of gone in our favor slightly in the second half.
Yes, again...
[indiscernible]
Yes. Again, we'll just...
Knockout Christmases.
Yes, Christmas was fine, pretty good Christmas but...
Christmas was okay. I mean, you've seen, actually, you've seen -- again, it's been particularly led by drinks in the marketplace as well. Actually, food hasn't been too bad as well actually outside the M25 interruption. So it's been all right.
We have 2 more questions remaining on the phone lines. Monique Pollard from Citigroup is your next.
Just a couple from me, if I may. The first one, on the room openings this year, so you're saying you should get just 3,500 for this year at least, and that if I think about...
Yes, 3,500 to 4,000.
3,500 to 4,000. So -- and that includes one of the hotels that was guided to in Germany that has been part of that guidance, but not the other one. How big is that hotel that's sort of slipping into next year? And does that explain the sort of delta versus the previous guidance?
It's...
No, no, not at all. It slipped a quarter and it's 150 rooms. So no, it -- absolutely not, no. So yes, I mean we say 3,500 to 4,000. We've -- 4,000 is what we've been sort of tracking for ourselves, but the issue we always have on the year-end, is you have a year-end date and if you literally have a development that, where they say we're going to be a week later on the development, you slip into the final year -- you slip into the next financial year. In Germany, the slippage is more like a quarter or 1.5 quarters slippage. And again, it's a developer that [ son scales ] have slipped. And it's sort of insignificant in the scheme of things.
Okay, great. And then the second question was just on next year where you think weak -- you think the market RevPAR in the region is slightly weaker than expected. Obviously, Nicholas, you just talked before about how the supply growth -- that you've seen supply growth elevated in London but also in the region and that, that might start to reverse out. But I guess when you're thinking about next year and you're thinking about that weaker-than-expected RevPAR, is part of that the supply growth that hasn't yet reversed? Or is it purely a view on the sort of weaker demand environment in the U.K.?
No, it's -- my comment was more about the kind of macro environment. But you are right that you will still see success, a little bit more supply coming to market than you do historically. It just takes a little bit of time for that to ramp down because if it stops -- people will stop kind of -- I think in the last year, people have stopped putting money down on buying new spaces in the hotel market, but that's been [ inflationary ] for a couple of years.
Anything people have started building, have got planning permission, gone and bought the land and started building, they will finish because it doesn't make sense to mothball once you've had people on-site. You can mothball your land bank if you haven't gone on-site. So you would expect that there'll be some immature new supply that will have gone in this year that will struggle to mature out, but it will be sitting there through a weaker environment. And you'll get some additions coming through on the supply as people finish building off sites which are now under construction. What will then happen is people will either mothball if they've got property, but obviously most of them did buy freehold so there's not a lot of that going on and they won't commit to further investment. So it's 3 years from now, 2.5 to 3 years from now, that you see then the contraction in supply growth as nothing comes through, because if you don't buy it -- if you don't start the development today -- if you start development today, it probably opens in 2.5, 3 years from now. And that's what's not going to happen, that people aren't going to get -- lay down for that development now, looking into the weaker environment that they're seeing. So it always -- the supply always operates sort of slightly in the wrong place in a cycle because of the way people think about it. So that's what you'll see happening.
Your last question, Alison, comes from Jaafar Mestari of Exane BNP Paribas.
Just one for me, please. On this GBP 70 million cost inflation that you expect for full year '20, could you maybe break it down between labor, food, I guess including FX and then utilities? Because some of those obviously are not getting worse if rates [ still ] move, but some of those are not going away like the labor piece.
Yes, I'm not going to do this because we're not going to go to that level of detail at the moment. Maybe at the year-end presentation, we'll give a little flavor on that.
Yes, not going to do a breakdown into the individual components at this time. Sorry, we can't do that. Sorry -- apologies. That last question was a no, which is not a good way to end. But nonetheless, thank you for all of your questions, which were good. And thanks for dialing in this morning.
Ladies and gentlemen, that does conclude today's call. Thank you for joining and enjoy the rest of your day.