Revised capital strategy sets up Premier Inn to thrive
 
Revised capital strategy sets up Premier Inn to thrive
21 MAY 2020 8:38 AM

Whitbread PLC and its major hotel brand Premier Inn are well-positioned to get through the COVID-19 crisis in good shape, according to the company’s CEO, speaking during a presentation on preliminary full-year 2020 earnings.

DUNSTABLE, England—Whitbread PLC and its hotel chain Premier Inn, with a portfolio mostly in the United Kingdom, are positioned to benefit from a recovery starting with domestic travel, CEO Alison Brittain said.

Speaking on Whitbread’s full-year 2020 preliminary earnings numbers’ conference call, Brittain said the firm’s guidance for the remainder of the year would show the Premier Inn brand’s robustness and that it is well-placed to take advantage of the opportunities she is convinced will come in the next few months.

The firm expects to raise a further £1 billion ($1.22 billion) via a fully underwritten rights issue, Brittain said, that would issue one new share for shareholders’ every two, alongside 18-month covenant waivers from its lenders, pension fund and other investors.

She said the rights issue would allow the firm to concentrate on reopening and operational strategies and, in a weakened economy, to have operational and capital advantages in securing both leasehold and freehold sites.

She added 16 hotels in Germany—where the company is making an asserted push to establish its second major market—have reopened, but Whitbread’s British portfolio is not expected to open until at least September.

Executives underlined the company has cash reserves of £503 million ($616 million) and an undrawn credit line of £950 million ($1.16 billion) and has been confirmed as an eligible issuer under the U.K. government’s “COVID-19 Corporate Financing Facility.”

Brittain said the capital strategy will allow Whitbread to ensure “that we stay on the front foot and in the best possible position to take advantage of what we think are going to be significant opportunities that will be coming in what will be a constrained and competitive environment.”

This means that the firm’s next test in regard to its earnings before interest, tax, depreciation and amortization will not be until early 2021, she added.

The additional shares’ initial price will be £15 ($18.37) per share, a discount of 37.4% on the theoretical ex-rights price, she said, adding the capital reorganization will allow “significant headroom to withstand many months of closure and many months of very low demand.”

Tough times
Brittain added approximately 27,000 employees have been placed on furlough but remain on full pay. The company’s website said it employs approximately 35,000, most of which, Brittain said, are on hourly wages, which Whitbread did increase in April in line with the government’s National Living Wage.

Whitbread opened approximately 1,000 rooms in the U.K. in the first two months of the year in nine properties for the U.K. and Ireland, which brings its total portfolio to approximately 80,000 rooms across more than 800 hotels.

Fifty-two hotels with approximately 9,800 rooms are opened or in the pipeline for Germany, and during the lockdown 10 of the 13 German hotels Whitbread purchased from Foremost Hospitality, a deal finalized just before the crisis, were fully renovated and rebranded. The final three will open in the next few weeks.

All bookings were fully refunded, at a cost of approximately £100 million ($122 million), and both suppliers and rent have been paid in full, she said.

Discretionary (profit and loss) spend was canceled, non-committed capital expenditure was postponed and the executive team and the board members took voluntary pay reductions, Brittain said.

No final dividend was declared for 2019, she added, and additional capital relief has come from a freeze on business-rate payments in the U.K.

Thirty-nine of Whitbread’s U.K. hotels remained open to house National Health Service workers and other frontline personnel, and booking has reopened for stays starting in July per government recommendations, Brittain said.

She said the sale of the company’s Costa Coffee division to Coca-Cola in 2019 was, in hindsight, a smart move.

Brittain said the firm at the end of February entered its “new financial year with a very strong balance sheet, plenty of liquidity, low leverage.”

“Revenue continued to grow by over 1% to just over £2 billion ($2.45 billion), and profit before tax on an adjusted basis was … (at the) expected level of $358 million ($438 million) and statutory profit was up 28% to £280 million ($343 million),” she said.

The business was trading well before the pandemic, especially in the second half of 2019, when 97% of bookings were direct, she noted. By the end of March, nearly all of Whitbread’s hotels closed due to the pandemic.

As of press time, Whitbread’s stock was trading on the London Stock Exchange at £24.96 ($30.57) per share, a decline of 45.1% year to date. The Baird/STR Hotel Stock Index was down 33.6% for the same time period.

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