The owner of the United Kingdom’s largest budget brand Premier Inn said its liquidity position, strong covenant and owner-operator model bodes well for the future, as it announces a discussed second round of job cuts has now been shelved.
Senior executives at Whitbread PLC, parent company of the Premier Inn brand, underlined the difficulties of trading in the current environment but said that developments in landlord negotiations and traveler sentiment have resulted in confidence moving forward.
A round of job cuts, expected this month at the British firm, now no longer will happen.
On a call with analysts to discuss the 13 weeks of trading up to 26 November 2020, CEO Alison Brittain said early signs of plateauing COVID-19 cases, the rollout of several vaccines and the summer weather to come are buoying traveller sentiment.
“It is the return of confidence that is so important to the economy,” she said.
In September 2020, Whitbread announced it would cut more than 6,000 jobs, but Brittain said that number has now been rolled back to approximately 1,500.
“We were really pleased the outcome was not as high. In law, you have to publish the highest number, and we worked very hard to find different ways to find savings in our operations. We thought there might have been a phase two of redundancies (this month), but we have now closed down that program,” she said.
Alison Brittain, CEO. (Whitbread PLC)
The company also drew attention with its decision to pay 50% of its rent due in the last quarter of 2020 to landlords—a strategy Brittain said is just about the sharing of some of the pain of the pandemic.
“Historically we’ve been a fantastic tenant and have a fantastic covenant. Our landlords had not helped us, indeed, had not been asked. This is not a criticism, but entering these conversations helped us move onto subjects such as the overtime re-gearing of leases,” she said.
“We have strong liquidity, and we are cognizant of our tenancy responsibilities. We have been sensible and rational. It is not an ongoing notion of our not paying rent,” she said, adding the company’s hotels can make cash contributions to the parent company with very low occupancies.
Germany, Brexit and furlough schemes also are having an impact on business, Brittain said.
She said Whitbread is building a business of scale in Germany, having in December 2020 completed the purchase of 13 hotels from Centro Group.
“We have an open and committed portfolio of 68 hotels, which is really important to us, (and) a presence in most of the major and secondary cities. Restrictions in Germany are similar (to the U.K.). The majority of our 29 hotels there are open, but also at very low levels of occupancy,” she said.
In an earnings release, the company stated the Centro Group purchase “will result in a loss in Germany next year of (approximately) £10 million ($13.7 million) whilst these sites are refurbished and rebranded to Premier Inn.”
“In addition, in full-year 2022 the impact of every one-percent decline in Germany revenue per available room versus our pre COVID-19 Germany RevPAR expectation of (approximately) £60 ($82) will result in a £1 million ($1.37 million) reduction in profit before tax,” the release stated.
The company’s U.K. RevPAR for the quarter was down 70.9% year over year.
“We are protecting our liquidity through careful cash management,” Brittain said.
She said the firm has approximately £800 million ($1.1 billion) of cash on deposit and £1.2 billion ($1.6 billion) in undrawn liquidity.
“This will help make us a winner when (the pandemic) finishes. It is tough out there, but we are confident and well placed to outperform a continually strained competitor set … and to take advantage of enhanced performance when it arrives,” she said.
Government help has been invaluable to the overall industry but something Whitbread has not had to draw on, Brittain said.
She said more than 30,000 employees were put on the government’s furlough scheme during the first period of the pandemic, but that number now is 23,000 on either full or partial furlough.
“In the heady days when all we worried about was labor, we did not have a great deal of impact from whether there would be a (Brexit) deal or no deal, apart from the confidence that would give the market. Eighty percent of our staff was British, (and) now there is more unemployment in the U.K., so labor will be less of a concern when the economy returns,” she said.
Nicholas Cadbury, group finance director, said the firm normally pays approximately £700 million ($953.9 million) of tax per annum, and about one-third of that came back to the company in taxpayer cash support.
Nicholas Cadbury, group finance director. (Whitbread PLC)
Brittain said Whitbread is one of the highest taxpayers on the Financial Times Stock Exchange.
Cadbury said the value of its commercial property has not changed.
“There have been very few valuations of hotels (during the pandemic). I suspect it has held up pretty well, as what sits behind it is a strong covenant and strong liquidity,” he added.
Brittain added that government reductions in value-added/sales tax and business rates also have been incredibly important.
“We hope the government gives further help. That is a good policy decision for the government, as hospitality does have the possibility of bouncing back very quickly,” she said.
For the 13 weeks of trading up to 26 November 2020, Whitbread reported hotel occupancy of 49.3%.
Brittain said the firm came in at 8.9% percentage points above the average for the midscale and economy market in the quarter.
She said total U.K. revenue declined year over year by 55.2%.
Revenue in the five weeks to 31 December 2020, as government restrictions tightened, declined 66.4%, with occupancy for that period averaging 31.1%.
As of press time, Whitbread’s stock was trading on the London Stock Exchange at £32.10 ($43.74) per share, a decline of 21.84% year over year. The London Stock Exchange’s FTSE 100 Index was down 11.1% for the same period.