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Whitbread launches rights issue as cash burn expected to last until past September

The Premier Inn owner also published full-year results showing adjusted profit before tax down 8% on revenue up 1%

Whitbread PLC -

Whitbread PLC (LON:WTB) is planning a £1bn rights issue as it expects cash outflows of around £600mln as its hotels are expected to remain closed until September and only see a slow recovery afterwards due to the coronavirus pandemic.  

The operator of the Premier Inn hotel chain said the 1-for-2 fully underwritten rights issue will be priced of 1,500p per new share, a discount of 37.4% to the theoretical ex-rights price of 2,395p and a 69% discount to the level the shares started the year.

Announcing the fundraising alongside results for the year to 27 February, where adjusted profit before tax fell 8% to £358mln on revenue up 1% to £2.1bn, the FTSE 100 group detailed various measures it has taken to reduce cash outflow since its hotels were closed in late March as part of the UK coronavirus lockdown, including putting more than 27,000 staff on the government furlough scheme.

Around £80mln of cash per month is still expected to flow out of the business during the period of closure or low occupancy, with an extra £100mln outflow from customer refunds and around £130mln of capital expenditure on committed projects. 

This cash burn will be partially offset by roughly £70-85mln of furlough benefits during the first half of the new year, plus £120mln of business rate support.

As a highly operationally levered business, Whitbread will also face a sizeable impact on profitability, with every 1% fall in revenue per available room leading to a £12-15mln hit on earnings, rising to about £18mln when including the impact on its restaurants and gastropubs.

Chief executive Alison Brittain said the group has secured 18-month waivers on its lending covenants and the rights issue is designed return the balance sheet to a position of strength and “enable the business to be in the best possible position to continue investing and taking market share in our fragmented sector when the current situation normalises”.

In the UK, 39 hotels have remained open to house NHS staff, while in Germany 16 hotels have been opened, which Brittain said has given the chain "a head start in implementing new and comprehensive safety, health and hygiene protocols".

Shares in the company fell 12% on Thursday morning to 2,491p.

Analysts at UBS said they were forecasting a loss before tax of £100mln for the current year.

“The announcement of a surprise rights issue has wrongfooted investors," said Richard Hunter, head of markets at Interactive Investor.

"The usually negative statements of either a profit warning or a cancellation of the dividend have become almost de rigueur during the current crisis and have been largely accepted by investors, but a rights issue is rather different," he said.

"Traditionally seen as a call for financial help in a distressed situation, the additional surprise in Whitbread’s case is that there had been no obvious signs. A strong balance sheet, underpinned by a large property portfolio, is in addition to around £500mln of cash and access to credit of £950mln."

   --Adds shares and broker comment--

Quick facts: Whitbread PLC

Price: 2244 GBX

Market: LSE
Market Cap: £4.53 billion

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