• Premier Inn pushes ahead with expansion

Whitbread was confident at its first half results that its Premier Inn brand would continue to grow in the current economic environment, forecasting growth in both occupancy and estate despite what outgoing CEO Alan Parker called an "uncertain" economic environment.

Parker, speaking at the group's results presentation, said: "There's a long way to go yet. We've got about 7% of the total hotel market at the moment. Why shouldn't that be double?" He added that the brand, which saw revenues up by 14% at £355.7m, was "well placed to grow in the current environment."

Parker said: "While the economic outlook remains uncertain, we are confident for the year. The consumer is concerned about value for money and they are watching their pennies carefully. In our markets we feel we're in a fairly buoyant position."

Whitbread is planning to build Premier Inn's estate by around a third, from 43,000 rooms to 55,000, by the end of 2014. The brand added 795 rooms during the period, with sales up 14.0%, driven by a combination of increased volumes and new units. Around 1,700 are likely to be added in the second half, plus a minimum of 3,500 rooms in the next full year, with only around 500 from expanding existing hotels.

As previously announced in September, 633 rooms will leave the estate following the decision to exit the 10-year management agreement on 14 hotels run by Roadchef plus one run by Moto. The total UK portfolio will comprise over 43,000 rooms across more than 590 hotels by the end of the year.

At the time of going to press Whitbread announced that it was due to join the W in Leicester Square, London, with an 84-room hotel in the former Queen's Hotel to open in Spring 2012.

The brand's overseas operations, which includes 1,079 rooms in India, Dubai and Ireland, saw losses extended, with the hotels and restaurants division reporting a loss of £3.1m, from a loss of £1.7m in the same period last year.

Parker commented that, for the group as a whole "margins have improved as the benefits of both our structural and operating cost reduction programmes are realised. I am delighted that our return on invested capital has increased to 13.1%, well ahead of our cost of capital".

Parker credited the Premier Inn brand's 9.4% revpar increase in part to its adoption of dynamic pricing, a model which new CEO Andy Harrison will be familiar with through his time as CEO at EasyJet. Parker said that Saturday nights now competed with Tuesdays and Wednesdays as the brand's peak time for bookings, adding: "We focused all our advertising on the leisure market and that is why we have seen the increase at the weekend."

With like-for-like occupancy up 9.2 percentage points to 79.3% the brand is nearing its 80% occupancy target, although, Parker said "the last quarter of the financial year tends to be seasonally weaker and will pull the full year average down". CFO Chris Rogers told Bloomberg that the group could meet the 80% target by 2012. Regional revpar was up by 8.5%, with London up 13.2%.

Premier Inn is also increasingly its business through corporate travellers, who accounted for 60% of sales in the first half, and the brand saw a 24% rise in revenue from corporate accounts to £103m during the period.

The company said its sales team had been focused on growing large corporate accounts such as Fujitsu, Virgin Atlantic, Jewson, nPower and some central Government departments.

Parker is set to be honoured with the Lifetime Achievement Award at next year's International Hotel Investment Forum in Berlin, with Jonathan Worsley, co-organiser of IHIF, commenting: "He has been lauded for having made Whitbread ‘priced for the credit crunch before the credit crunch'. His strategy of focusing on recession-friendly budget hotels, coffee bars and pub restaurants has paid off with increasing revenues and profitability in arguably one of the most challenging trading conditions for a generation."

Pre-tax profit came in at the high end of analysts' expectations, rising to £151m, from £105.9m in the same period a year ago. The group underlined its strong balance sheet – debt has been cut by £46.2m to £467.2m since 4 March –  by increasing its interim dividend by 16.6% to 11.25p.

Despite concerns over unfavourable comparables in the second half, analysts at Panmure Gordon have estimated an increase in second-half pre-tax profits by between 5% and 7% to a range of £285m and £290m.

Nigel Parson, an analyst at Evolution Securities, said in a research note: "The market had expected good interims from Whitbread and this was duly delivered. Whitbread has emerged from recession in good condition with a strong platform for growth."

 

HA Perspective: Alan Parker has been a steady hand on the Whitbread tiller and that under his watch the company has outperformed most expectations. He is a deserving candidate for lifetime achievement awards given how he has grown and developed the UK's biggest hotel brand.

Looking forward, however, Premier Inn needs to make progress on its expansion outside of the UK. Parker has been cautious about pushing too hard and too fast. Critics might characterise it as timidity.

Incoming CEO Andy Harrison's obvious opportunity to stamp his authority on the company would be in revitalising this overseas growth.

Share →