• Harrison rings no changes at Whitbread

Andy Harrison, Whitbread's replacement for Alan Parker at the helm, looks set to follow the lead set by his predecessor as he presented the group's third quarter trading update.

With like-for-like sales at Premier Inn up by 8.7%, Harrison said that the group was "an excellent company in good shape with a good strategy. There's no need for radical change". He did, however, confirm that the group saw its biggest opportunity outside the UK as being in India.

Harrison added: "What we will all continue to do inside the company is to build on our strengths and our growth opportunities and to continue with a programme of continuous improvement. I'm not expecting any headline-grabbing news, but there will be a lot of work going on to make a big company better.

"Despite tougher comparatives and an uncertain outlook for consumer spending, the outturn for the full year will be in line with market expectations for strong profit growth."

Chris Rogers, group FD, also commented that, after building up the group's business accounts, it is to shift focus from large corporates to SMEs, after signing up "between 20 and 30". Business accounts were cumulatively up by 23.8%, having risen by 24.0% at the end of the first half. In explanation, Rogers said that the larger companies expected preferential rates "which it was less keen to give". He added: "A lot of our hotels we could fill without the large corporates."

The group said that it was looking at opportunities with the government in light of the spending review, but Harrison commented: "Government makes decisions very slowly and working out what the decision-making prices are takes time. Government is a small proportion of our sales. It may grow, it should grow, but it will take time".

The group said that the adoption of dynamic pricing had helped drive business, particularly at the local hotel level, but that increased advertising, growing the estate and the business account card had also contributed.

Premier Inn recorded like-for-like occupancy for the quarter of just over 81%, up from 76% in the same quarter last year. Rate was up by 2%, with revpar up by just under 9%, driven by London and the stronger regional hotels.  For the full year occupancy is expected to reach 77%, just shy of the brand's target of 80%.

The group said that the last week of the quarter had been hit by the snowy weather, to the tune of between £1m and £2m in sales, which it did not expect to make up. Looking to the VAT rise at the start of the new year, Rogers said: "VAT will be passed on, but using sensible price points. The experience of the last couple of years shows that the VAT whether it's up or down has not had a dramatic impact on the business. The more important point is a macro level, whether the increase in VAT is the straw that breaks the consumers' back."

Premier Inn has 585 hotels in the UK, with close to 43,000 rooms, and has a target of reaching 55,000 rooms by 2013/2014. Some 2,519 rooms have been added year-to-date. The long lead time for development in the sector meant that the group did not expect to exceed its plans to open around 3,500 rooms this year, possibly adding "a couple of hundred" more. It had no plans to do any further sale and leaseback deals similar to the £36.65m deal announced just before Christmas last year with M&G Investments.

Rogers said: "I can assure you, you won't find me sitting in the office on Christmas Eve explaining a sale and leaseback this year. It's a lever we can pull as and when we need it, but we do believe in a predominantly freehold estate."

Outside the UK, the group has three hotels in Dubai, plus two being built in Abu Dhabi, one in Bangalore and one in Delhi. The Dubai hotels had, Rogers said, been held back in terms of occupancy and rate by the wider issues in the Dubai economy.

Harrison said: "The biggest potential opportunity is in India, and we are just at the moment distilling all the learning that we've had from what's effectively been some test marketing and then we'll decide how to take that business forward."

He maintained a cautious stance, adding: "We need to balance building a brand with a strategy that's going to manage our capital risk, that's going to limit the capital that we commit to opportunities like that in a sensible balanced way."

The comments were made before the news surfaced that InterContinental Hotels Group had signed a deal with Duet India Hotels to introduce the Holiday Inn Express brand to India, with a total of at least 3,500 rooms by 2013.

Harrison, however, was staying closer to home, commenting: "At the top of my list of priorities is to make sure we continue to deliver on seizing the opportunities in the UK."

 

HA Perspective: Harrison has taken over a company at the top of its game. But he has to do more than just sit back and follow the strategy implemented by Parker.

Costa has been a soaring success for Whitbread and the company is right to shout about this. It is, however, Premier Inn that provides the financial substance behind the coffee froth.

And it is with Premier Inn where the expectations are to change the strategy to more fully embrace expansion overseas so that Whitbread can deliver growth in future decades and not just the next few years.

Harrison tacitly admitted that – at least for now – hotel growth is focused on the UK, given the relative failure of Premier Inn's forays into Dubai and India.

The lesson in India has been about the need to find the right joint venture partner. After the fanfare in 2007 when it was announced that there would be 80 hotels over the next decade, Whitbread was forced to buy out its JV partner Emaar MGF in early 2010 with very little progress in terms of new hotels.

The plan was then scaled back from $600m of investment to barely $110m which will deliver just nine hotels and 1,295 rooms. This is not a size that makes any economic sense for Whitbread and if faster progress cannot be made the sensible move would be to offload the Indian operation.

The bigger issue though is finding a route to international growth. Harrison's arrival at Whitbread was applauded in part because of his experience with growing easyJet overseas. He will need to make headway soon.

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