Whitbread Profits Dip Amid “Challenging Market”

premierinnWhitbread, the owner of Premier Inn, reported a first-half drop in pre-tax profit and UK accommodation like-for-like sales amid “challenging” market conditions in the UK as business and leisure confidence weakened.

Adjusted profit before tax decreased 4.1 per cent to £236m in the first six months of the fiscal year compared with £246m a year earlier. Adjusted revenue for the group came in at £1.1bn, matching last year’s figure, the company said in a statement earlier this week.

Alison Brittain, Whitbread Chief Executive Officer, commented:

“We have delivered a resilient first half profit performance despite challenging market conditions in the UK. 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. Against this challenging backdrop, we have a number of activities underway which continue to build our brand strength as the UK’s favourite hotel chain.

We are enhancing and optimising our UK hotel network and have successfully trialled new higher specification ‘Premier Plus’ rooms in two hotels, with fantastic customer feedback. We are on track to have 500 Premier Plus rooms this year, with ambitions for a total of 2,000 over the next year. We have also made good progress in delivering our ambitious efficiency targets, helping to offset part of the ongoing industry-wide inflation.

In Germany, our confidence in the long term opportunities grows and our expansion plans are firmly on target. Our German pipeline has increased 25% to 7,280 rooms over the last year and we continue to look for ways to accelerate our ambitions. We have opened new organic hotels in Hamburg and Munich, which are both performing well and we are also making good progress in preparation for completing the 19 hotel acquisition in February 2020, with 13 hotels to be rebranded to Premier Inn in the first half of next year.

Whilst the near-term market conditions in the UK remain uncertain, we have confidence in the long-term structural opportunities available in the domestic budget travel markets in the UK and Germany. Following successful completion of our return of surplus capital programme, we still have a strong balance sheet, providing support for ongoing disciplined deployment of capital, which will deliver growth over the longer term.”

Update on the market and outlook

Market conditions in the UK continue to be challenging with business confidence remaining weak and leisure confidence in decline, coinciding with heightened political and economic uncertainty, which has continued into the third quarter of FY20. This has impacted hotel domestic demand, particularly in the regional market, where 80% of Premier Inn hotels are located. There has also been a greater decline in short-lead discretionary bookings, which tend to be at higher price points.

With this uncertainty, it is difficult to predict how business confidence and business investment will evolve in the second half of FY20 and into FY21 and impact demand for short-stay, domestic travel. Whitbread’s guidance for FY20 results is detailed further in this statement, with guidance given in April 2019 for costs, efficiency savings, investment in Germany and revenue sensitivity remaining unchanged. Trading conditions in the UK hotel market will continue to be monitored closely.

However, as outlined at Whitbread’s Capital Markets Day in February 2019, there remains significant long-term opportunities in both the UK and Germany, which can be accessed due to Whitbread’s strong financial position, strong cash generation and disciplined capital allocation.