Executives at Whitbread PLC, owner of Premier Inn, are encouraged by strong year-over-year earnings and opportunities to grow, in large part due to a decline in independent hotels in its key market, the United Kingdom.
Premier Inn is the United Kingdom’s largest hotel company by property number. The company has more than 90,000 hotel rooms open and in its pipeline in the U.K.
CEO Dominic Paul said that the company estimates 70% of the independent hotels that have closed in the U.K. since the height of the pandemic “will not come back and [have] been converted to alternative use.”
“This declining independent sector and the challenging financial situation means supply is restricted. We previously said supply would not return to pre-[COVID 19] levels until 2026, but we now, after refreshed [internal] analysis, say that it will not return for at least five years,” Paul said.
He added new hotel and leisure projects in the U.K. have fallen by 40% year over year, which also gives the firm an “unique position to take advantage of” and allowed it to “purchase freehold in prime locations at attractive yields.”
Whitbread's latest earnings release, for a period it designates as half-year 2024, shows that revenue is up and a further 300 million pounds sterling ($365 million) is to be returned to shareholders.
Total shareholder returns since April 2023 equal £766 million ($933 million), and current cash flow is approximately £792 million ($965 million).
Revenue for the period increased 17% year over year to £1.6 billion ($1.95 billion). Adjusted earnings before interest, taxes, depreciation and amortization grew by 23% over the same period.
Paul said even compared with a particularly strong last full year, the half-year results showed notable improvements in revenue, profits and margins.
Hemant Patel, chief financial officer, said the revenue gains were driven by U.K. accommodations sales and a continued progress in Germany. The firm's German portfolio posted profits before taxes of £6 million, compared with £3 million in the same period the year before, he said.
“We have there 57 open hotels, all in prime locations, where we had only six before the pandemic. We’re learning to adapt our model to the German market,” Patel said, noting the focus in Germany is to continue to learn and adapt its U.K. model for that market.
He said the firm’s “balance sheet has always given us the confidence to invest during challenging times.”
Paul said that even while Whitbread’s pipeline in the U.K. is historically low for the company, it is still larger than all of its competitors’ pipelines combined.
The company has added 20,000 rooms since full-year 2018, he said.
In the U.K., the firm recently opened its first fully electric hotel. In Germany, it is continuing to add momentum, reach maturity and Patel claimed soon Whitbread will be the dominant operator there.
“Germany has no obvious hotel brand leader,” he said.
Currently in Germany, the firm has approximately 10,000 open rooms and 6,000 rooms in its development pipeline. French hotel firm Accor’s brand Ibis has approximately 22,000 rooms open in the country.
In addition to growing its portfolio, the firm has allocated between £500 million and £550 million in full-year capital expenditures to maintain and enhance its existing hotels.
Testing Booking
Paul said in Germany the firm is testing distribution via Booking.com.
He said the firm on occasion has used the online travel agency in the U.K., although it is not partnering with them now.
“Our strategy continues to be one of low-cost distribution; commercial and operational control; an asset-backed balance sheet and high-operating leverage. We sold 9% more hotel rooms to 15.2 million [people] in these results than we did in pre-pandemic numbers,” he said.
“We have 91,000 open rooms and potential to reach 125,000. Even in periods of high inflation, we are able to grow revenue and margins,” he said.
Business travelers are an increasing share of demand for the company, and Paul said Premier Inn enjoyed a revenue per available room premium over its midscale and economy competitors of £6.6 million in the latest results.
As of press time, Whitbread PLC stock was trading at £34.22 a share, an increase of 32.2% year over year. The London Stock Exchange’s FTSE 100 index was up 10% over the same period.