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Whitbread slides into red as Premier Inn feels UK hotel squeeze

Last updated: 10:01 22 Oct 2019 BST, First published: 07:48 22 Oct 2019 BST

Whitbread plc -

Premier Inn owner Whitbread plc (LON:WTB) succumbed to the weak UK hotel market in the first half of the year, with sales and profits swinging into the negative.

The FTSE 100 group reported revenue just below flat at £1.08bn for the six months to 29 August and a 5.4% rise in adjusted earnings per share to 113p.

READ: Premier Inn owner Whitbread reports weaker sales after Costa disposal

EPS was lifted by the buy-back £486mln of shares as part of the £2.5bn cash being returned to shareholders after selling its Costa Coffee arm for £3.9bn at the end of its previous trading year.

These were just about the only figures that were not noticeably in decline during the half-year, with like-for-like UK hotel accommodation sales down 3.6% or down 0.6% on a total basis thanks to new room capacity.  

Accommodation sales were hit by a combination of lower occupancy and average room rate, with weakness in business and leisure demand in the second quarter, especially in the UK regions.

Total Premier Inn LFL revenue per available room (revpar) declined 5% in the half, better than the 6% in the first quarter, but worse than the UK ‘midscale and economy’ hotel market decline of 2.4%.

Adjusted profit before tax fell 5.6% to £251mln, or 4.1% to £236mln after taking account of the new IFRS accounting rules. 

Chief executive Alison Brittain said: “Shorter-term trading conditions in the UK regional market have been difficult, particularly in the business segment where we have a higher proportion of our revenue, whilst trading in London remained strong.” 

She highlighted activities underway to build “brand strength”, including trials of new higher specification 'Premier Plus' rooms, as well a £25mln of cost efficiency efforts delivered to offset part of the ongoing inflation in the industry, with more to come.

In Germany, Whitbread has opened new hotels in Hamburg and Munich to add to its Frankfurt property, both “performing well” so far.

Aiming to complete an agreed 19-hotel acquisition by February 2020, with 13 hotels to be rebranded to Premier Inn in the first half of next year, the German pipeline has increased by 25% to 7,280 rooms over the past year, compared to around 13,000 rooms in the UK pipeline.

Not a big surprise

Analysts at UBS noted that statutory profit before tax of £172mln compared to £187mln a year earlier and a consensus forecast of £178mln.

"We think the shares will rebound given a relief that 1H20 results are broadly in line with expectations and guidance," UBS said.

The shares were searching for direction in early trade, down 1% to 4,169p by mid morning.

Richard Hunter, head of markets at Interactive Investor, said: “Now without the significant buttress of the Costa business, Whitbread is finding life tough.

"The majority of the group is now represented by Premier Inn, and therefore largely in the hands of the hotels market. As business confidence starts to wane given the uncertain economic outlook in the UK, let alone the possibility of recession, two of the corporate expenditure lines which are traditionally sacrificed first in an effort to curb costs tend to be advertising and business travel.

"The latter has clear implications for Whitbread, even within its home market, and especially in its regional presence, where business stays are an important part of its model."

Even so, Hunter gave a nod to the company's robust balance sheet, underpinned by a strong property portfolio.

Russ Mould at AJ Bell said Whitbread's ability to expand in Germany could be impacted by the economic slowdown in the country.

“Investors will hope innovations such as Premier Plus higher specification rooms can pay off for the business which at least has a strong balance sheet to weather any storms thanks to the proceeds from the Costa deal.” 

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