Ladies and gentlemen, welcome to the Whitbread Q1 Analyst Call Q and A session. My name is Nadia, and I'll be coordinating the call today. I will now hand over to your host, Alison Britton, CEO of Whitbread to begin. So 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 and 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 UK accommodation sales were 11 percentage points ahead of the mid scale and economy market. But as expected and as a result of the ongoing government restrictions, total UK accommodation sales were down over 60% with food and beverage around 86% down versus quarter one twenty nineteen, that's the last year of trading before the pandemic. Since the May 17, 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 demand. 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 three 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 this 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 UK 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 back to Nadia, who can host the Q and A. I look forward to hearing your questions. I have with me Nicholas Cabri, our CFO and Paul Tins from
Thank you. Our first question comes from Bilal Aziz from UBS.
Just two from my side, please. So we've clearly all discussed at length over the past year, the sustainability of Premier Inn UK outperformance, which may have been helped during the restrictions. I may appreciate it's very early days since those were eased, but at least relative to the market, you feel like you're holding on to some of those outperformance gains. So just comment on that, please, as initially you've got some cleaner data perhaps. And 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 of now you're starting to see it? Thank you.
Okay. Well, I mean, just we'll play tag team, Nicholas and I. So I'll start straight to the questions and Nicholas will come in as well. But in terms of our UK outperformance, yes, I mean, first of all, I guess, we're really encouraged by the trading. So the start point is we're encouraged by the trading performance since the May 17.
We definitely saw the leisure bounce that we expected, albeit I think it's been stronger than we would have anticipated. And we're seeing very positive trends throughout the rest of the estate, not just sort of travel and leisure destinations. So 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 book at all, travel management companies, the 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, you know, booking safely, and then booking with flexibility by changing our rate classes to allow for, you know, fully flexible bookings plus partially flexible, but always with a mind to the fact that people want to be confident when booking. So that's given us an advantage.
Know, combined with our domestic SKU, we've come out of the blocks very quickly compared to everybody else. And and that's allowed us to take some early market share gains. I mean, 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 and when they come back, if they all come back, of course, we'll see how that plays out. But we're expecting to maintain some outperformance over the long term period. Nickel, anything to add over?
No, I'll just say, we're pretty pleased with it. We saw, particularly in May, since the May, saw the larger customers coming back, wanting to stay. They wanted to stay somewhere that they could trust. And I think with the help of our advertising campaign that we won in May, April as well, it kind of gave us an extra awareness and boost front of mind as well.
Yes. And 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 as we come through the pandemic and then as we come out of it. And the recovery for us, we want to be occupancy level led from very low levels of occupancy, get that up and then start to recover our price. And you can see in the outperformance that, 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 nor the ability to maintain brand presence in the market. So but what we are seeing, one of the dynamics in the market is late booking. And so we a higher proportion of people are booking later in the cycle than would have been the case pre pandemic. And so, you know, so so we, you know, we've not got a huge amount of sight of the sort of midterm here.
So we we are seeing our rate increasing week on week. We're focused on rate. We we will undoubtedly in the tourist destinations in the summer have very strong rates, you know, with with strong occupancy and strong rate. And we will we will, you know now 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, Good morning.
Firstly, on the
nature of the recovery in recent weeks since that May 17 opening, just if you could flesh out a little bit who's been traveling. Clearly, many more than just accounted for by your 15% of hotels, sort of obvious holiday destination. So what sort of leisure travel has been coming back? And I guess, what haven'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. And you mentioned a bit of a further improvement in business demand. Just wondering if any of that's white collar business travel, that's still mostly blue collar at this stage. And and then 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, but the rent moratorium is extended now into next March.
International travel is not coming back quickly.
It's been just a bunch
of different stuff going on. And just curious how that sort of makes you feel about the domestic independence.
Okay. So nature of recovery, quite similar to how we talked about this four or five weeks ago in that strong banks in leisure demand. I think that's broader and stronger than we thought. So as in it's taking in more than just the traditional bucket and spade seaside areas. So we're seeing a broader recovery in occupancy across a much wider variety of places across our estate.
And the obvious exceptions to that recovery are London and airports, which are both still pretty tough areas to be trading in. But across broadly across our estate, we're seeing a good occupancy recovery across the board. So in leisure, that's obviously not event driven. And we do benefit from events, you know, all types of events, sporting and leisure events. That's not back clearly.
The football matches, weddings, etcetera haven't been back in this period. And but we are seeing lots of travel for people just to have, you know, breaks away, overnight stays, trips to family, getting out into the countryside, what what even city breaks, even our city with the exception of London, even our bigger cities are showing good high levels of occupancy and recovery. So 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. And on business demand, yes, continued blue collar worker or trades working stays with us and 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. But we are definitely seeing some recovery in in what you'd call non trades related business. And that's probably a bit stronger than we thought as well.
You can see that through our March May buildup of occupancy, which is pleased to tell you that we were pleased.
And then in terms of your question on independence, it's it's quite anecdotal at the moment. But we I mean, anecdotally, we are seeing a lot of independence not opening or being up for sale, you know, in local markets, lots of local BNBs and small guest houses and, you know, sort of country house for sale signs if you get if you go on to the estate agent's website. And and so whilst we haven't got anything that I think you could hang your hat on, I think we would you know, it's it's a bit too early for us to be fully sure that the operators aren't temporarily rather than permanently closed, but there is quite a lot of anecdotal evidence that, you know, quite a range of independent hotels are for sale or not reopening. So we we'll just be keeping an eye on that as you would expect.
Great. Thanks very much.
Thank you. Our next question comes from Jamie Rollo of Morgan Stanley. Jamie, please go ahead. Your line is open. Good morning, Jamie.
Thanks. Morning. Thanks. Just two questions, please. First, just really back to the pricing and also if you could talk about yield management.
I'm really wondering how price sensitive demand is. I mean, it sounds like you've been very surprised by the strength in leisure. You must be running over 80% in maybe early June. And I think you also said that pricing will improve from here. Do you think perhaps you undersold yourselves in the first quarter?
And how are you sort of managing the yield management with that sort of very uncertain demand outlook? And then secondly, is there anything more you can add on labor cost inflation stroke availability, please?
So yes, nothing under sold in quarter one because we were essentially restricted until the May 17, which is pretty much the entire quarter. So we only had ten days at the end of the quarter where we opened up for the what we now know is the leisure bound. Any in leisure destinations as as we might have said before, but maybe not. We we didn't start in leisure destinations with a pricing ladder that started at low rates. So we knew that there would be a leisure bounce for substantial proportion of the summer.
And so our yield management systems just simply started at higher rates. So in many of those locations, the typical ones you think of the Bucket And Spade, Cornwall, coastal areas, the yields on those hotels will be very good through the summer because we knew that the demand will be strong and it was sort of set up in the correct way upfront. Across places like city centers where they have there was no forward bookings in the quarter and where we're seeing demand come through now, obviously, we manage on rate on a dynamic basis. And as we fill hotels, then the rate increases. But we are still competing with competitors that are offering very low rates, and there is some price competition in there.
So 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. And now we have occupancy as you go through the occupancy curve, the rate comes through as the demand comes through. So we're pretty comfortable that the strategy we've adopted today has been the most sensible and appropriate one. And yes, we do think we will get more rate through as the year progresses if the demand sticks and we don't see any sort of backward slide in the autumn.
Second question was on labor.
Oh, Yes, sorry. Second question on labor. So yes, I mean, 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 they're coming back to reopen and aren't able to do so or very constrained in capacity. And so hospitality sector scrambling on mass to reopen has not helped that.
For Whitbread, we, you know, as always, in a slightly different position. We, you know, we've had the benefit of using flexible furlough, which means and we've also had the benefit of being open in our hotels all the way through rather than closing them. And that's allowed us to rotate people on shifts and keep them engaged and involved in the business in a better way. Lots of of other operators in the sector actually were cash constrained so much that they wouldn't use furlough and they laid off their workforces because of course, on the furlough, they still have to pay the national insurance and pension contributions and such a cash flow step too far. And so they're recruiting from scratch as opposed to bringing back.
We managed to keep hold of the that anticipated, we've now got much more flexible workforce, which is a situation that we've placed during lockdown, as you know. So we've been able to flex hours up to it's not a perfect model by any chance, and it is quite a big step up into and after we did struggle in some places, and we've got some hot spots. We're not immune to the to the problem, but we although, I think we're faring better than most. And we've had some hot spots, particularly coastal. And, you know, of course, we'll be looking very hard at places, coastal areas where we normally have a seasonal workforce anyway.
We'll have to to to recruit for the summer as on a seasonal basis. So we we may start to see some of that play through into salaries. But 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 wasn't required to be made. We chose to make it. Of course, of hospitality didn't.
And we've just put in another national living wage increase just in the last few weeks. And so we've already got to some extent a relatively good position in terms of base wages, And we'll monitor it closely as we move forward. Is that helpful, Jamie?
Yes. So can I just pick up on some of the on the first question? Was really talking about the last four weeks. It'd be helpful if you could 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 at the right, it was occupancy led in terms of the 4% occupancy. So the 27% down sales, which is mainly in rate overall. We'll have to see, Jamie. I mean, I think there are rate opportunities as we go through the summer. But as you know, as we said, we've got very short lead times into bookings at the moment.
So we don't get much warning about the demand at the moment. So we'll we'll we think there are opportunities, but we'll as you said, we've our priority is to get occupancy first.
Mhmm. Thank you. Mean, if
you yeah. Okay.
We go to the next question.
Perfect. Our next question comes from Jafar Mestari from Exane BNP Paribas. Jafar, please go ahead. Your line is open.
Good morning. Hi.
Good morning, everyone. Good morning. Questions for me, please. Firstly, just on being occupancy led.
Just so that
I understand that the total improvement in trading since the May 17 has been around plus 50 points. Of that, occupancy, I think you're saying was 50% early May, is now 75. So occupancy is about plus 25 points better. Would that suggest that average prices are already the remaining plus 25 points, I. E.
That they're about half of the most recent sequential improvement Or am I
I think we're going to get into weekly pricing, I'm afraid. Sorry about that. I'd love to can't drill it on that. 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 store things over and over. So
Okay. I understand that. I understand that. So occupancy, you've disclosed, so that it was 50.50%, it's now 75%. Okay.
Super. So secondly, I don't think we've seen a full update on your dynamic pricing engine in a while. So 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 added some points 80 different price ladders. You were doing daily differentiated segment pricing.
Have you added to that to make the engine more We in
continue to improve our it's not a static thing by a long way. So it's we've got long ways from enterprise ladders, individuality, we are now. So it is very sophisticated. I mean, the only thing that we've had to react to is it's got it works off algorithms and uses previous trading history. And previous trading history has been quite difficult to read.
So we've had to adapt it quite significantly within a huge effort by the team as well to be kind of keeping an eye on it and being able to manage it in the right way.
Yes. So as Nicholas said, it is a sophisticated tool. It is a permanent work in progress. So it never ends we never stop working on the improving it and tailoring it and tinkering with it, etcetera. So we continue to work on sort of 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. So for 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 would not have been in in in the system in quite the same way year on year. So in order to manage the yield for those, we would intervene and and, you know, and and essentially guide the system to do a steeper ladder and start at a higher base pay. So this year, because of the nature of the situation in previous year, we've probably intervened more than normal.
But it it is a good solid system, and it does its job when it's when it's based prices are input and it's ladder it's ladder based on occupancy is input. It works.
Super. And so these beasts usually feed on historical data, as you said. So today, what's the inputs? Is it becoming a lot more manual?
Not a lot more manual. No. Mostly, it's we we what we'll do is if we have to intervene, we just amend an algorithm. We we'll amend, you know, part of the system and, know, give it a steeper curve or a shallower curve depending on what we think the market that individual micro market. And we do go down to micro market level, what we think we would be seeing in those micro markets.
And 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 bit short of time, it probably will Interesting. Thank you. Thanks so much.
Thank you. Our next question comes from Leo Carrington from Credit Suisse from so Leo, please go ahead. Your line is open.
Good morning, Leo.
Good morning. If I might ask on the net room additions, Q1 seems to be quite a good result versus the sort of framework you outlined with your full year results. Some of this sort of openings delayed, delayed openings from last year coming through? Or are you just simply finding completions and openings to be progressing better than anticipated? And 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 both as a direct, peer and, and some of the asset light names?
And do you have if if you could sort of outline how you how you performed versus that, that would be very interesting.
Yes. So the short answer to question one is yes. So we obviously, lots of things slowed down last year. We've got low openings overall for the year, lower than many previous years. And and some of those were delays at our behest if we were controlling the site or during the early stages of the pandemic where we have the opportunity to slow down and others were developers, obviously, who were off-site for at least three months of last year and therefore, developments slowed down.
We had a good scrub of our pipeline last year. So we also sort of reviewed all of the pipeline to make sure that under more subdued conditions and with lower MPVs based on a first eighteen months post opening slower position from COVID that we still have good returns across that pipeline of openings, which we now do. So it's a good strong pipeline. And so those additions that you're seeing, there was a high the one is 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 sort of our position versus other, we have historically always opened the largest numbers of rooms in the sector. We we've been a grower of the estate and the asset life has been broadly flat and bit of growth. Travelodge in the last year or two, you know, put on put on some rooms, took a thousand rooms, 1,500 rooms.
Travel Lodge got about a thousand rooms this year, mainly from prehistoric, but pre pre pre signed, pre signed ones. But I I think in the first quarter, hardly anyone's opened any rooms at all. I think we're quite Yes.
So that's not unusual.
Our next question comes from Joe Thomas from HSBC. Joe, please go ahead. Your line is open.
Good morning. Good morning.
Good morning. Just I've got 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. Presumably, you would expect that to come back as we get into sort of summer holidays and things.
Perhaps you could give bit of detail just some early thoughts, I suppose, on that. And 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?
Just to TMC, what's the last one? Yes. I mean we're working hard on TMCs. As you know, it's a we think it's a bit of a market that is untapped for us. It's about 15% of the business market, which we haven't played in.
So we think it will be a big opportunity for us. It mainly services kind of international and white collar workers. So at this time, it's probably the segment of the market that is that's hit the most overall. So right now, it's a relatively low level of sales rate. But as that market recovers, we've used the last year to build those relationships, build those contracts up in place.
So we think it'll be a good part of the business where it recovers. But right now, it's quite low.
And if I take the question on London, London and airports are the two areas that are the hardest areas in terms of being tough still. And, 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, and tourist, etcetera, small, medium and large. So to get to the sort of levels of occupancy we're looking at, that needed to be quite broad. But London and well, airports, obviously, no one's traveling. And London is, you know don't forget the demand in London is dominated by business travel, white collar and international travel.
So so generally and whilst we haven't historically played certainly on the inbound market, we've been domestic focused, There isn't that sort of there isn't the thrust of demand yet in London and there isn't that recovery. And by the look of it, we're not going to see that until the autumn in terms of any form of sort of returning to normal business work in London, particularly following Boris' announcement of a four week delay. I suspect the working from home directive probably stays in force for a lot of companies in London. So I'm sure there will be some leisure travel and 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 Brighinall from Redburn. Alex, please go ahead. Your line is open.
Hello. Good morning. Hi, Alex. Good morning.
How are you doing? Thanks so much for taking my question. I've just got one, and I guess it relates to what you just alluded to from this kind of travel guidance and restrictions from the government. Again, not wanting to get to kind of short term, but 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 sort of 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 what you thought about three months ago. Thanks so much.
I mean, to be fair, the strength of the leisure demand for the summer has been there before the recent announcements and the recent changes. So 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. But we didn't see much of a change in anything post the second announcement where Portugal came off the green list that didn't, you know, sort of spike. So, yes, of course, I suspect that this year, The UK's tourism industry will definitely be enhanced with the notion of staycation and the difficulty people are having and 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. And 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.
Thank you. Our next question comes from Ivor Jones from Peel Hunt. Ivor, please go ahead. Your line is open.
Good morning. Morning, Ivor.
I just wanted to check that 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.
Yes. It's net revenue. Because we dynamically price, you have to react to the market, whatever the market does, react to it, whether demand or supply is. So it's quite difficult to predict what benefit or disadvantage you get as VAT moves over overall. Hopefully, if the VAT gets back, everyone moves up with it, we'll wait and see.
But that 27% down is a bigger percentage growth in the most recent period?
So the 27% down is?
In revenue that you're reporting for the most recent trading is net revenue, so gross revenue is down materially more than that.
Because of the inventory. Correct, correct.
Yes. Okay.
Thank you. And the other thing, I just wondered if you 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 has changed or developing. Thank you.
No, not particularly. No, we've at moment, we're we're sticking to reopening and and serving in in house and in home. We did look quite a lot, as you might imagine, at how take a takeaway service would work for us during the lockdown period when we were essentially, you know, looking for all ideas for generating revenue. But it's not quite as easy as it looks to either launch or indeed make it profitable and return appropriate returns led. So no, we're not looking at that at the moment.
Thank you. Okay. Thanks, Ivan. I think we've probably got time for one or two questions more if there are one or two left.
And that was our final question, Alison. So did you want to do want me to do another reminder? Are you happy to complete?
I think I think our our teams would all know how to lodge a question. So it looks like we are done. So just thanks for everybody's time and attention this morning, and look forward to seeing you all soon. Take care. Hopefully, in a Premier Inn.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect your lines.