First half sales were 76.8% lower than last year, as Whitbread's hotels were closed for a large part of the period. The group did however sees a slightly improved second quarter result, with 98% of UK hotels open by the end of the half and occupancy averaging 51% in August. That reflects strong demand in tourist locations and a boost from the 'Eat Out to Help Out' scheme.
Whitbread expects demand to remain subdued for a while and as a result has announced plans to make up to 6,000 redundancies, approximately 18% of their workforce. The group said it is a "regrettable by necessary step to emerge from the crisis with a lower cost base."
The shares fell 2.4% following the announcement.
Business and leisure travel has tended to fluctuate with the fortunes of the economy but the coronavirus is a particularly travel acute crisis.
As the owner and operator of the Premier Inn hotel chain, lockdowns meant Whitbread was closed for most of its first half. And while the group's hotels and restaurants are open again - with a marked boost to performance from staycations and the 'Eat Out to Help Out' scheme - it's set to be a long road to recovery.
We're in what's likely to be the low point for European travel for a generation. August was an important breather for the group, but seaside staycations are no substitute for international and businesses travellers visiting the UK's major cities. And with working from home looking like it's here to stay, the return of business travellers could be more a question of 'if' than 'when'.
When it comes to owning and operating hotels running costs are pretty fixed regardless of how many guests show up. Once costs are covered, each additional guest is almost pure profit. This is great during the good times, but a nightmare when conditions sour. Without the ability to flex the cost base losses quickly mount.
Without full hotels the group isn't profitable, so a lower and more flexible cost base is essential. With revenues expected to be subdued for a while, management's doing everything they reasonably can to reduce costs. What started as furloughing 27,000 members of staff, has evolved to 6,000 redundancies - a reflection of the fact coronavirus may have changed Whitbread's world for good.
Owning its hotels rather than leasing them helps, as the group's rent payments are lower than they would otherwise be, although they're still substantial. Having said that a sizeable property portfolio means the company is shouldering significant quantities of debt.
Whitbread's June rights issue, raised a further £1.0bn cash, and provides the group with significant breathing room. That could get absorbed just keeping the group's head above water, although with plans to grow share in both the UK and Germany announced in May - we expect it's on the lookout for opportunities too.
The shares currently trade just under 1 times book value, someway below the longer run average. Whether that's justified depends on your take on international and business travel. Will it recover and if so how quickly? As things stand we remain cautious about the world that Premier Inn's are reopening to.
Whitbread key facts
- Price to book value: 0.9
- 10 year average P/B: 2.0
- Prospective yield: 1.5%
Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
Half Year Trading Update
Whitbread's first half declines reflect the fact that its UK hotels were closed from the end of March and started to reopen in July, with 98% (801 hotels) opened by the end of August. Germany's 6 hotels were closed for a slightly shorter period but the group opened a further 13 hotels over the period following acquisitions.
On reopening both regions have seen strong demand in tourist destinations while city demand remains subdued. In the UK, average occupancy at tourist destinations was 80% in August, which together with the 'Eat Out to Help Out' scheme meant, total sales were down just 38.5% on last year. In Germany trends mirrored the UK although total August sales were three times last year, boosted by acquisitions.
The first two weeks in September saw these trends continue, with a pickup in Business demand, albeit from a low base. September and October are traditionally a busier time for business bookings but the group says it's too early to judge Covid-19's impact.
Whitbread took a number of measures to improve liquidity which included cutting non-essential spend, accessing government schemes and a £1bn rights issue. The group says it's close to completing a programme to reduce head office head count by around 15 - 20%.
As previously guided, these measures mean that every 1% drop in revenue now results in a hit to profits of around £18m.
Hargreaves Lansdown's Non-Executive Chair is also a Non-Executive Director of Whitbread.
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