Premier Inn lifts Whitbread; Costa split continues
Premier Inn lifts Whitbread; Costa split continues
27 JUNE 2018 8:38 AM

Despite poor spring U.K. weather and a late Easter, Premier Inn’s sales growth and pipeline helped buoy Whitbread PLC’s overall performance as its split of its coffee division begins.

DUNSTABLE, England—Whitbread PLC’s hotel division, comprising mainly Premier Inn-branded hotels, delivered fairly strong in the first quarter of 2018 despite poor weather in the spring and a late Easter, according to executives at the company.

CEO Alison Brittain said she was pleased with the initial progress in Whitbread’s four-year plan to split its hotel division from its Costa Coffee division, which has in the quarter included putting together a dedicated project team, hiring outside advisors and continuing to shape the infrastructure and efficiencies of the initiative.

In this quarter it was the drive in opening and expanding its hotels footprint that gave Whitbread PLC executives the confidence to reiterate that the firm was in line to meet previously announced expectations for full-year 2018.

“Premier Inn in the (United Kingdom) has continued to gain market share with total accommodations sales growth of 4.3% in the quarter, delivered by ongoing investment in attractive new hotels and extensions, which we expect to mature to levels of returns in line with the current estate,” Brittain said.

“We started the year with (overall) total group sales up 3.2%, driven by investment in new Premier Inn hotels. … This growth along with our group-wide efficiency program to offset the sector-wide inflationary pressures means that we’re expecting to deliver full-year performance in line with expectations,” Brittain said during a conference call to announce the company’s first-quarter 2018 earnings and performanceIf .

“We remain committed to de-merging Costa as fast, as practical and as appropriate as possible to optimize value to our shareholders,” Brittain said, referring to that decision made at its full-year 2017-2018 earnings call in April.

Nicholas Cadbury, group finance director, said he believed Premier Inn’s performance was in line with the market.

Cadbury said sales growth was up but like-for-like growth, the metric he said Premier Inn uses to measure itself, was flat, although again in line with both the market and the economy and midscale segment.

“London, overall we’re down 3%, in the regions 0.9%, but total sales in regions is up 3.8%, and overall, Premier Inn capacity has increased,” Cadbury said.

Cadbury said he was not comparing Premier Inn revenue per available room with that of the market.

“Yes, we’re down 1.9%, and we’ve flagged thus before in terms of the overall market because we’re really focused on extensions and that depresses (revenue per available room),” Cadbury said.

“The market remains subdued in the first quarter due to a combination of high levels of supply growth, including significant openings of our own, and the strong performance of the market this time last year when the weak pound (sterling) encouraged inbound tourism,” Brittain said.

“Consequently Premier Inn delivered flat like-for-like sales in line with the market,” Brittain added.

“We’re one of the few companies that can do extensions, owning in many cases the freeholds and having control of the estate, which is pretty low-risk for us as we know there is the demand for particular locations. That increases occupancy, profit and revenue but reduces RevPAR,” Brittain said.

“And we know we cannibalize in London, as no new hotels are too far from existing ones, but we know in year two the original hotel will come back, so it makes good business sense (for) us in the long term,” Brittain said.

“We’re really focused on driving return on capital and adding value,” Cadbury added.

Germany rises
Premier Inn in the U.K. saw like-for-like sales drop 0.9%, but sales growth increased 2.5% in the U.K. and 2.2% overall.

Brittain said those forces had more of an effect on performance in London than it did in the U.K. regions.

“Premier Inn’s significant capacity addition of 13.8% meant that we grew accommodations sales by 6.3%, well ahead of the market. The London market continues to be an attractive long-term opportunity … we have a lower market share in London,” she said.

Brittain said both its main Premier Inn brand and its “more compact” The Hub by Premier Inn would seek a larger footprint in London, and she said a stronger domestic market and improvements in the ease of corporate bookings would help buoy such growth.

“Forward bookings have improved recently, and we are confident of achieving our room-opening target of (4,000 to 4,500) rooms this year in the U.K. and Germany, as well as our 85,000 U.K. rooms by 2020,” Brittain said.

Brittain said currently the firm has in the U.K. 72,879 opened rooms, with a further 14,000 in its committed pipeline.

Food-and-beverage sales, though, had a tougher quarter, with a drop of 1.9%, Brittain said, which she blamed on poor spring weather and the timing of Easter.

The company’s footprint continues to increase in Germany, Brittain added, with another signing secured in Mannheim, for a new organic pipeline of 12 assets, which together with the February 2018 addition of 19 hotels from Foremost Hospitality Group GmbH will result in a total room count of 6,000 keys.

One German hotel, in Frankfurt, is open now, and Brittain said it was doing well across all three of the major metrics. Three additional hotels in the country are planned to open by the end of 2018.

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