Ladies and gentlemen, welcome to the Whitbread Q1 Analyst Call Q&A session. My name is Nadia, and I'll be coordinating the call today. If you would like to ask a question at the end of the presentation, please press star followed by one on your telephone keypads. I will now hand over to your host, Alison Brittain, CEO of Whitbread, to begin. Alison, please go ahead.
Thank you. Good morning, everyone, and thank you for joining the call for our Q1 trading update. I'll just start with a very brief overview of today's announcement, and then we'll go straight into Q&A. During the quarter, we traded significantly ahead of the market in the U.K. despite the government restrictions that were in place for almost all of the quarter. Our total U.K. accommodation sales were 11 percentage points ahead of the mid-scale and economy market. As expected and as a result of the ongoing government restrictions, total U.K. accommodation sales were down over 60% with food and beverage around 86% down versus quarter one 2019. That's the last year of trading before the pandemic.
Since the May 17th, when we were once again able to welcome leisure guests for overnight stays and fully reopen our restaurants for indoor dining, we've seen strong trading and encouraging trends driven by the anticipated post-lockdown bounce in leisure spend. We're seeing very strong forward bookings in tourist locations throughout the summer and improved forward bookings throughout the majority of the estate, and we're also seeing a continued gradual increase in business demand. In Germany, 19 of our 30 operational hotels are open, and occupancy levels are improving in a challenging but recovering market. Our accelerated pipeline growth continued in the quarter with 3 new hotels added, taking our open and committed pipeline to 73 hotels and over 13,500 rooms. We'll continue to look for opportunities to grow, both organically and through acquisitions, with a focus on ensuring good returns.
Investing to win in the year ahead is imperative to driving our outperformance. Our Rest Easy campaign is driving strong website volumes, whilst our improved business account management, relaunched Business Booker tools, and enhanced travel management company distribution will all help the recovery in business demand. We're continuing to invest in our product and room refurbishments to ensure that our hotel estate remains well invested. We've also recommenced the rollout of Premier Plus rooms, targeting 2,000 rooms by the end of this financial year. We believe our long-term strategy is highly compelling. We see a significant opportunity for our business to leverage the competitive advantages of our scale, ownership model, strong brand, market-leading direct distribution, and broad customer reach. As we've already seen, we have clear evidence of this in our strong performance versus the market so far.
In both the U.K. and Germany, our financial strength will enable us to capitalize on the enhanced structural opportunities that will exist, investing in our customer proposition when others are constrained and driving long-term value for stakeholders. I'll now hand it back to Nadia, who can host the Q&A. I look forward to hearing your questions. I have with me Nicholas Cadbury, our CFO, and Paul Timms from IR.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypads. If you choose to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question comes from Bilal Aziz from UBS. Bilal, please go ahead. Your line is open.
Good morning.
Good morning. Thank you very much. Good morning. Thanks for taking my question. Just two from my side, please. We've clearly all discussed at length over the past year the sustainability of Premier Inn's U.K. outperformance, which may have been helped during the restrictions. I appreciate it's very early days since those were eased. Can you speak to the market to feel like you're holding onto some of those outperformance gains? Just comment on that, please, as initially you've got some cleaner data perhaps. Number two, more broadly on the pricing strategy. You mentioned it a few times today. Just how are you currently thinking about potentially using pricing to sustainably take market share or versus pricing for higher occupancy as now you're starting to see it? Thank you.
We'll play tag team, Nicholas and I. I'll start briefly the questions, and Nicholas will come in as well. In terms of our U.K. outperformance, first of all, I guess we're really encouraged by the trading. The start point is we're encouraged by the trading performance since the May 17th. We definitely saw the leisure bounce that we expected, albeit I think it's been stronger than we would've anticipated, and we're seeing very positive trends throughout the rest of the estate, not just sort of travel and leisure destinations.
We had a real advantage against our competitors based on both the commercial initiatives that we've undertaken, the brand work, the work we've done in the background on the way that we interact with the customer, the way that we drive volume of direct sales, the way that we drive our business accounts, credit management, Business Booker tool, Travel Management Companies, a whole raft of sort of self-help that we did. We also, of course, played a very strong card on making sure people felt safe with our COVID-secure environment, booking safely, and then booking with flexibility by changing our rate classes to allow for fully flexible bookings plus partially flexible, but always with a mind to the fact that people want to be confident when booking. That's given us an advantage.
Combined with our domestic skew, we've come out of the blocks very quickly compared to everybody else. That's allowed us to take some early market share gains. We wouldn't expect to keep the level of outperformance that we're seeing now, some of which will still in part be about the four and five-star market not opening as fast as we have. When they come back, if they all come back, of course, we'll see how that plays out. We're expecting to maintain some outperformance over a long-term period. Nicholas, anything to add?
I'd just say we're pretty pleased. We saw particularly in May, since the second half of May, you saw leisure customers coming back, wanted to stay somewhere that they could trust. I think with the help of our advertising campaign that we ran in April as well, kind of gave us an extra awareness and boost front of mind as well.
Yeah. In terms of pricing strategy, we very clearly set out we've been pricing for occupancy. It's been quite difficult to predict pricing market dynamics through the pandemic and then as we come out of it. The recovery for us, we want to be occupancy-led from very low levels of occupancy, get that up then start to recover our price. You can see in the outperformance that is working well for us. That strategy is the right one. Allowing others to take our occupancy by pricing too high early on would not have given us the outperformance that you've seen or the ability to maintain brand presence in the market. What we are seeing, one of the dynamics in the market is late booking. A higher proportion of people are booking later in the cycle than would've been the case pre-pandemic.
We've not got a huge amount of sight of the sort of midterm here. We are seeing our rate increasing week on week. We're focused on rate. We will undoubtedly in the tourist destinations in the summer have very strong rates, with strong occupancy and strong rate. We've got the occupancy at the right levels, we will now be focusing on improving the rate as part of the strategy. Not at the expense of occupancy, though. Hopefully that answers both questions.
That's very clear. Thank you very much.
Thank you. Our next question comes from Vicki Stern of Barclays. Vicki, please go ahead. Your line is open.
Morning, Vicki.
Morning. Just slightly on the nature of the recovery in recent weeks since that May the 17th opening, just if you could flesh out a little bit who's been traveling. Clearly many more than sort of accounted for by your 15% hotels that are sort of obvious holiday destinations. What sort of leisure travel has been coming back? I guess what hasn't? I'm assuming that's a sort of big event piece, but just a bit more color on what you're seeing in terms of the nature. You mentioned a bit of a further improvement in business demand. Just wondering if any of that's white-collar business travel or that's still mostly blue collar at this stage.
Yeah.
Related to that, anything in recent weeks' performance or in the news flow we've had, I guess since you last reported, that makes you feel in any way different about the fate of the independents? Obviously, we've had full reopening pushback. The rent moratorium's extended now into next March. International travel's not coming back quickly. There's been just a bunch of different stuff going on, and just curious how that sort of makes you feel about the domestic independents.
Okay. Nature of recovery, quite similar to how we talked about this four or five weeks ago in that strong bounce in leisure demand. I think that's broader and stronger than we thought. As in it's taking in more than just the traditional bucket-and- spade seaside areas. We're seeing a broader recovery in occupancy across a much wider variety of places across our estate. The obvious exceptions to that recovery are London and airports, which are both still pretty tough areas to be trading in. Broadly across our estate, we're seeing a good occupancy recovery across the board. In leisure, that's obviously not event driven. We do benefit from events, all types of events, sporting and leisure events. That's not back. Clearly the football matches, weddings, et cetera, haven't been back in this period.
We are seeing lots of travel for people just to have breaks away, overnight stays, trips to family, getting out into the countryside. Even city breaks, even our city, with the exception of London, even our bigger cities are showing good high levels of occupancy and recovery. That's been very pleasing to see, and probably the difference from when we last spoke would be that that's been stronger and looks more sustained than we had originally hoped. On business demand, yeah, continued blue-collar worker or trades working stays with us. That had been through the pandemic. We've seen that, but we're still seeing the gradual improvement in that as well, and the start of business travel that's not quite that trade-led. Again, not into London and not into airports because it's not international in nature.
We are definitely seeing some recovery in what you'd call non-trades related business. That's probably a bit stronger than we thought as well.
You can see that too, our March to May build-up of occupancy.
Yes
which is pretty pleasing.
Yeah. In terms of your question on independents, it's quite anecdotally at the moment. Anecdotally, we are seeing a lot of independents not opening or being up for sale in local markets, lots of local B&Bs and small guesthouses and country house for sale signs if you go onto the estate agents' websites. Whilst we haven't got anything that I think you could hang your hat on, I think it'd be too early for us to be fully sure that the operators aren't temporarily rather than permanently closed. There is quite a lot of anecdotal evidence that quite a range of independent hotels are for sale or not reopening. We'll just be keeping an eye on that, as you would expect.
Great. Thank you very much. Thank you. Our next question comes from Jamie Rollo of Morgan Stanley. Jamie, please go ahead. Your line is open.
Morning, Jamie.
Morning. Thanks. Just two questions, please. First, just really back to the pricing and also if you could talk about your yield management. I'm really wondering how price-sensitive demand is. It sounds like you've been very surprised by the strength in leisure. You must be running over 80% in maybe early June. I think you also said that pricing will improve from here. Do you think perhaps you undersold yourselves in the first quarter? How are you managing your management with that sort of very uncertain demand outlook? Secondly, is there any more you can add on labor cost inflation/availability, please?
Yeah, nothing undersold in quarter one because we were essentially restricted until the May 17th, which is pretty much the entire quarter. We only had 10 days at the end of the quarter where we opened up for what we now know as the leisure bounce. In leisure destinations as we might have said before, but maybe not, we didn't start in leisure destinations with a pricing ladder that started at low rates. Our yield management systems just simply started at higher rates.
In many of those locations, the typical ones you'd think of, The Bucket & Spade, Cornwall, coastal areas, the yields on those hotels will be very good through the summer because we knew that the demand would be strong and it was sort of set up in the correct way up front. Across places like city centers where there was no forward bookings in the quarter and where we're seeing demand come through now, obviously we manage on a dynamic basis and as we fill hotels then the rate increases. We are still competing with competitors that are offering very low rates and there is some price competition in there. As I said, what's worked in terms of performance against the market is keeping the occupancy out of our competitors' hands and taking that booking rather than losing it to them.
Now we have occupancy as you go through the occupancy curve, the rate comes through as the demand comes through. We're pretty comfortable that the strategy we've adopted to date has been the most sensible and appropriate one. Yes, we do think we will get more rates through as the year progresses if the demand sticks and we don't see any sort of backward slide in the autumn.
Second question on labor.
Oh, labor. Yes, sorry. Second question on labor. Yeah, it's well reported across the industry that there's quite a crisis on labor for hospitality generally and in fact you've probably seen a lot of commentary in the media on members of the sector who just can't open because they haven't got labor or they're coming back to reopen and aren't able to do so or are very constrained in capacity. Hospitality sector scrambling en masse to reopen has not helped that. For Whitbread, as always, we're in a slightly different position. We've had the benefit of using flexible furlough and also the benefit of being open in our hotels all the way through rather than closing them. That's allowed us to rotate people on shifts and keep them engaged and involved in the business in a better way.
Lots of other operators in the sector actually were cash constrained so much that they wouldn't use furlough. They laid off their workforces because of course on the furlough you still have to pay the National Insurance and pension contributions and stuff. The cash flow step too far. They're recruiting from scratch as opposed to bringing people back. We managed to keep whole teams than anticipated. We've now got much more flexible workforce which is a situation that we've placed during lockdown as you know. We've been able to flex hours up. It's not a perfect model by any chance. It is quite a big step up in demand after we did struggle in some places. We've got some hotspots. We're not immune to the problem, although I think we're faring better than most.
We've had some hotspots particularly coastal and of course we'll be looking very hard at places, coastal areas where we normally have a seasonal workforce anyway and we'll have to recruit for the summer on a seasonal basis. We may start to see some of that play through into salaries. If you're thinking about the ongoing issue of therefore salary appreciation and inflation, it's worth remembering that last-
Year, at the start of the pandemic, we made the National Living Wage rise, which is a 5% increase to all of our staff, even though the government said that it wasn't required to be made. We chose to make it. Of course, most of hospitality didn't. We've just put in another National Living Wage increase just in the last few weeks. So we've already got, to some extent, a relatively good position in terms of base wages. We'll monitor it closely as we move forward. Is that helpful, Jamie?
Yeah. Can I just pick up on the first question? I was really talking about the last four weeks. It'd be helpful to break down that 27% drop in sales. It sounds like rates over 20% down within that, but are you saying that should now improve?
It was a rise of occupancy led in terms of the 74% occupancy. We had 27% down sales, which was mainly in rate overall. We'll have to see, Jamie. I think there are rate opportunities as we go through the summer. As you know, as we said, we've got very short lead times into bookings at the moment, so we don't get much advance demand at the moment. We think there are opportunities, but as you said, our priority is to get occupancy first.
Anyway, I mean. Yeah. Okay. Excellent. We'll go to the next question.
Perfect. Our next question comes from Jaafar Mestari from Exane BNP Paribas. Jaafar, please go ahead. Your line is open.
Morning.
Hi. Morning, everyone. Morning. Two questions for me, please. Firstly, just on being occupancy led. Just so I understand, the total improvement in trading since the May 17th has been around +50 points. Of that occupancy, I think you're saying was 50% early May, is now 75%, so occupancy is about +25 points better. Would that suggest that average prices are already the remaining +25 points, i.e., that they're about half of the most recent sequential improvements, or am I missing something?
I don't think we're going to get into weekly pricing, I'm afraid. Sorry about that.
Fair.
We don't even get too carried away ourselves by weekly pricing, particularly when you've got a half term in there which starts to distort things a little.
Okay, I understand that. Occupancy you've disclosed, so that it was 50%, it's now 75%.
Yeah.
Super. Secondly, I don't think we've seen a full update on your dynamic pricing engine in a while. If that engine is going to be quite key for the next months, can you maybe just remind us how sophisticated it had become pre-COVID? How many hotel categories? I think you had at some point 80 different price ladders. You were doing daily differentiated segments of pricing. Have you added to that to make the engine away?
It's not a static thing by a long way. We've got a long way from 80 price ladders to individual hotel by the hour where we are now. It is sophisticated. The only thing that we've had to react to is it works off algorithms and uses previous trading history. Previous trading history has been quite difficult to read. We've had to adapt it quite significantly. We've done a huge effort by the team as well to be keeping an eye on it and being able to manage it in the right way as we do.
Yeah. As Nicholas said, it is a sophisticated tool. It is a permanent work in progress, so it never ends, and we never stop working on improving it and tailoring it and tinkering with it, et cetera. We continue to work on the data analytics and AI analytics that sit behind it to make it perform better. The shock of a pandemic and a closure in the previous year definitely impacts it. A good example would have been actually the intervention we make for what we projected to be a strong summer of leisure demand. Those bookings would not have been in the system in quite the same way year on year. In order to manage the yield for those, we would intervene and essentially guide the system to do a steeper ladder and start at a higher base pay.
This year, because of the nature of the situation in the previous year, we've probably intervened more than normal. It is a good, solid system, and it does its job when its base prices are input and its ladder based on occupancy is input. It works.
Super. These beasts usually feed on historical data, as you said. Today, what's the inputs? Is it becoming a lot more manual?
Not a lot more manual, no. Mostly, what we'll do is if we have to intervene, we just amend an algorithm. We'll amend it, part of the system and give it a steeper curve or a shallower curve, depending on what we think that individual micro-market, and we do go down to micro-market level, what we think we would be seeing in those micro-markets. It continues to operate in every hotel as an individual hotel, and it is an hourly, almost minute-by-minute system reacting to demand into that site and bookings into that site and driving the price.
Yield off the back of where it thinks we should be.
Just because we're a bit short of time, probably the most interesting.
Okay.
Thank you. Thank you so much.
No problem.
Thank you. Our next question comes from Leo Carrington from Credit Suisse. Leo, please go ahead. Your line is open.
Morning, Leo.
Good morning. If I might ask on the net room additions, Q1 seems to be quite a good result versus the framework outlined with your full-year results. Is some of this the delayed openings from last year coming through, or are you just simply finding completions and openings to be progressing better than anticipated? Then looking back a bit further, do you have a view on how your room openings have been doing compared to the other budget branded peers, both as a direct peer and some of the asset light names?
Yeah.
If you could outline how you performed versus them, that would be very interesting.
The short answer to question one is yes. Obviously, lots of things slowed down last year. We had quite low openings overall for the year, lower than many previous years. Some of those were delays at our behest if we were controlling the site, or during the early stages of the pandemic where we had the opportunity to slow down, and others were developers obviously, who were off-site for at least three months of last year and therefore development slowed down. We had a good scrub of our pipeline last year. We also re-reviewed all of the pipeline to make sure that under more subdued conditions and with lower NPVs based on a first 18 months post-opening slower position from COVID, that we still have good returns across that pipeline of openings, which we now do. It's a good, strong pipeline.
Those additions that you're seeing, there was the highest first quarter room opening results we've ever had, certainly on my watch, and that, as I said, was mostly the overflow from last year coming through into this year. In terms of our position versus others, we have historically always opened the largest numbers of rooms in the sector. We've been a grower of the estate and the asset light's been broadly flat, a bit of growth. Travelodge in the last year or two put on some rooms, 1,000 rooms, 1,500 rooms.
Travelodge about 1,000 rooms this year, maybe a pre-
Yeah
sign one. I think in the first quarter, I don't think we've opened any rooms at all.
Yeah, quite unique. Yeah. That's not unusual.
Okay, thank you very much.
Thanks, Leo.
Thank you. Our next question comes from Joe Thomas from HSBC. Joe, please go ahead. Your line is open.
Morning.
Good morning. Just again, a couple of questions, please. One, I was very encouraged to hear that the city breaks are coming back through. Just wondering why that might not be London so far, and presumably you would expect that to come back as we get into summer holidays and things? Perhaps you could give a bit of detail, just some early thoughts, I suppose, on that? Secondly, the uptake from the business travel booking systems, is that still something that you are working towards, or is there any early evidence that that's coming through already? Thank you.
Just to TMC, I mean, we're working hard on TMCs. As you know, we think it's a bit of the market that is untapped for us. It's about 15% of the business market, which we haven't played in. We think it'll be a big opportunity for us. It mainly services international and white-collar workers. At this time, it's probably the segment of the market that's hit the most overall. Right now it's a relatively low level of sales for it. As that market recovers, we've used the last year to build those relationships, build those contracts up in place. We think it'll be a good part of the business when it recovers, but right now it's quite low.
If I take the question on London and airports are the two areas that are the hardest areas in terms of being tough still. Yes, we've been pretty pleased actually with how broad the recovery has been in our estate across all the other parts of the country and other types of hotels, city, urban, rural, tourist, et cetera, small, medium, and large. To get to the sort of levels of occupancy we're looking at, that needed to be quite broad. London and airports, obviously, no one's traveling and London is, don't forget the demand in London is dominated by business travel, white collar, and international travel, so generally. Whilst we haven't historically played, certainly on the inbound market, and we've been domestic focused there isn't the thrust of demand yet in London and there isn't that recovery.
By the look of it, we're not going to see that until the autumn in terms of any form of returning to normal business work in London, particularly following Boris's announcement of a four-week delay. I suspect the working from home directive probably stays in force for a lot of companies in London. I'm sure there will be some leisure travel, some domestic leisure travel in London, but that doesn't make up the bulk of the London market, and they will need to see business demand and international demand return to London to make it more vibrant.
Thank you.
Thank you. Our next question comes from Alex [audio distortion] from Redburn. Alex, please go ahead. Your line is open.
Hello. Good morning.
Hi, Alex.
Morning.
How you doing? Thanks so much for taking the question. I've just got one, and I guess it relates to what you just alluded to from this travel guidance and restrictions from the government. Again, not wanting to get too short-termist, but what kind of trading do you see around some of the comments like Portugal coming off the green list? I'm just trying to work out because we saw a big spike in staycation searching when that happened. I'm just trying to work out how much of the leisure strength you're seeing this summer is because the travel restrictions have been worse than we thought about three months ago. Thanks so much.
To be fair, the strength of the leisure demand for the summer has been there before the recent announcements and the recent changes. What we don't see is a sort of an instant reaction to everything. I think we did see an uptick in bookings after the first announcement, which actually had a very low list of green countries, with or without Portugal. We didn't see much of a change in anything post the second announcement where Portugal came off the green list. That didn't stimulate a spike. Yes, of course, I suspect that this year the U.K.'s tourism industry will definitely be enhanced with the notion of staycation and the difficulty people are having in thinking about traveling overseas. I'm sure that that is the case, but we don't see an instant reaction to every piece of news flow.
Of course, our business is much broader than those staycation travel resorts, which is only about 14% of our estate, and we're seeing the recovery across the broader part of our estate rather than just those tourist coastal locations.
Thanks very much.
Good.
Thank you. Our next question comes from Ivor Jones from Peel Hunt. Ivor, please go ahead. Your line is open.
Good morning. Morning, Alison. I just wanted to check the changes in revenue that you're talking about there. It's net revenue, isn't it? Which follows on to ask when we get to September and when VAT goes back up, I think I know the answer to this, but you won't be saying the government's put VAT up, we have to put prices up and try and protect net revenue that way. You'll just carry on with pricing policy as it is, I guess.
Yeah, it's net revenue because we dynamically price. You have to react to the market. Whatever the market does, you react to it whether demand or supply is. It's quite difficult to predict what benefits or disadvantage you get as VAT moves over the course of the year. Hopefully, for the VAT, everyone moves up with us, but we'll wait and see.
That 27% down is a bigger percentage growth in the most recent period.
Sorry, 27% down is?
In revenue that you're reporting for the most recent trading is net revenue. Gross revenue is down materially more than that.
Because of the VAT.
Correct.
Okay. Thank you. The other thing, I just wondered if you would talk about your thoughts about serving delivery meals from the restaurants now that the hotels are starting to recover and business is back. I wonder if your position's changed or developing. Thank you.
Not particularly, no. At the moment, we're sticking to reopening and serving in-house and in-home. We did look quite a lot, as you might imagine, at how a takeaway service would work for us during the lockdown period when we were essentially looking for all ideas for generating revenue. It's not quite as easy as it looks to either launch or indeed make it profitable and appropriate returns lead. No, we're not looking at that at the moment.
Thank you.
Okay. Thanks, Ivor. I think we've probably got time for one or two questions more if there are one or two left.
That was our final question, Alison. Do you want me to do another reminder? Are you happy to conclude?
I think our teams will all know how to lodge a question, so it looks like we are done. Just thanks for everybody's time and attention this morning and look forward to seeing you all soon. Take care. Hopefully in a Premier room.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect your lines.