• Whitbread cautious on trading and growth

Whitbread chose to emphasise the value-for-money nature of its offers across hotels, restaurants and coffee shops at its half-year results this week.

And it made clear that spending on expansion may be reined in if conditions make it appropriate.

The pace of opening new Premier Inn rooms quickened during the six months to August 28. The first half saw 15 new hotels with 1,380 rooms open against 830 rooms in the previous first half.

Capital expenditure was correspondingly up, reaching £131m against £97m in the earlier period. But chief executive Alan Parker said that the company would "review the pace and phasing of expansion as necessary".

Even if rooms growth was cut back Whitbread would ensure that it maintained its market leadership with Premier Inn, said Parker.

About £50m of capex is committed for the next financial year, equating to about 2,500 rooms. In the current year, the target is for 4,000 rooms and it had been intended to maintain this pace of growth.

Parker said that like-for-like sales would "inevitably slow" during the second half. "It will be more challenging in the rest of the year." If prospects deteriorate significantly, then Whitbread "has various levers under review that we can flex if necessary", including scaling back on capex.

The deteriorating conditions might, however, also bring opportunities to make acquisitions as property prices come down. Parker said there were "unrealistic expectations by vendors and I expect they will be adjusted over the next 12 months".

The 21 former Holiday Inn Express units bought from Mitchells & Butlers had already been rebranded and were now on the Premier Inn system. The capex to alter the properties to Premier Inn standards would be spend by the financial year end.

What helped to make acquisitions work was that Whitbread could rebrand and integrate hotels with speed, said Parker.

During the question and answer session at the end of the results presentation, Parker said he had not noticed Travelodge becoming more aggressive but he said there had been some price reductions from three- and four-star competitors.

The performance in the first half was strong. Revpar at Premier Inn was up 6.5%, outperforming its rivals by 2.9% based on TRI Hospitality's HotStats figures.

Hotels and restaurants are now reported together, reflecting the new management structure, and combined sales were up 12.5%. But the rooms business continues to be the strongest, showing a 17.8% rise against 6.4% for restaurants.

Increased sales to business customers were helping to compensate for a weaker leisure market for Premier Inn. Business guest were buying smarter, claimed Parker who claimed that against three- and four-star competitors, business guests could shave a third off there overall costs of staying, with a 28% saving on room rate and 41% on f&b and other ancillaries. In London, the overall savings could be even higher, up to 41%, thanks particularly to the more competitive f&b offering.

Business guests now make up more than 60% of Premier Inn sales and there were 1,800 new companies signed up to business accounts in the first half, a rise of 16%.

There is an ongoing focus on costs at Whitbread. It believes it will have shaved £20m off on an annual basis in the next financial year and £25m in the year after.

It said that cost inflation, however, was unpredictable. Wages were up 4%, impacting 30% of cost base; utilities were up 20%, impacting 4% of cost base; and input food and drink prices were up 4% to 5%, impacting 17% of cost base.

 

HA Perspective: There has been some talk about Whitbread's business model being counter cyclical. It clearly is not but it should, however, prove more resilient.

There appears considerable growth left in budget hotels and this will come increasingly at the expense of competitors, both in the mid-market and at the bed and breakfast level.

With its strong balance sheet and moderate levels of gearing, Whitbread looks set to be one of the predators in the current downturn.

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