Ladies and gentlemen, welcome to the Whitbread plc Q3 Trading Update Call. I will now hand over to your host, Alison Britton, CEO of Whitbread, to begin. Alison, please go ahead.
Good morning, everyone, and welcome to Whitbread's quarter three trading update. I'm Alison Britton, chief executive, and I'm joined here by Nicholas Cadbury, our finance director. I hope you've had the chance to read through the q three trading statement that was released at 7AM this morning. But nonetheless, I'll take a few minutes to talk through the highlights, and then we'll go straight into q and a. So let's start first with our third quarter results that was, for the quarter ending the November.
And as you know, we're operating in very challenging environment. And as a result, our UK accommodation sales were down 55.2% and occupancy was at 49.3%. However, we are relatively well placed with the benefit of a strong brand, direct distribution and a unique operating model. So we've continued to outperform the market in The UK with our accommodation sales at 8.9 percentage points ahead of the mid scale and economy market and our total market share growing from around 7% to 11%. In Germany, we continue to invest in the acceleration of our estate and in building a business of scale.
We're also taking the opportunity offered by cheaper priced assets and completed the acquisition of 13 hotels from the Centro Group in December, taking our total open and committed network to 68 hotels. This is a major step on our path to achieving a nationwide footprint in Germany with representation in most major towns and cities. But still a lot happened since the end of the quarter, so let's touch on that. Government restrictions have tightened, and The UK went into lockdown last week. And as we've said many times since the start of the COVID crisis, we've responded quickly and robustly, and we rapidly adapted our operations to what's required.
So I must call out the outstanding efforts of our colleagues as our teams continue to work tirelessly to maintain our very high operating standards, the customer service that we're known for, and high levels of health and safety. In line with the guidance, all of our restaurants are now closed, and we don't accept leisure guests, only key workers and those on essential business travel into our hotels. We currently have about two thirds of our hotels open, all of which have very strict hygiene standards in place. For the five weeks to the December, UK accommodation sales were down 66.4% with occupancy at 31.1%. Restrictions in Germany are similar, where we have also got the majority of our 29 hotels open, albeit also at very low levels of occupancy.
We expect these restrictions in The UK and Germany to remain until at least the end of the financial year. However, with the vaccination program underway, we're looking forward to the potential gradual relaxation of restrictions in the spring and business and leisure confidence returning and our market recovering over the coming year. We are in a strong position from a balance sheet perspective. Following the rights issue, we've around £800,000,000 of cash on deposit and around £900,000,000 of undrawn facilities, and on top of that access to £300,000,000 of the treasury CCFF program. That gives us a distinct competitive advantage and makes sure that we will be a winner when the market recovers.
So as I've said, it's pretty tough out there. But with our balance of business guests and leisure, focus on our domestic customer, where and operating in the strongest sector and with the strength of our brand and operating model and balance sheet, we think we remain well placed to continue to outperform the increasingly constrained budget branded and independent competitor set. We expect to see increasing opportunities to develop both in The UK and Germany, and our strong balance sheet provides the opportunity to take full advantage of those enhanced structural opportunities that we're already starting to see emerge in the market. That's all I was gonna say this morning, so I'm gonna hand back to Ruby, who will now coordinate questions for us.
Thank you very much. Thank you very much. Our first question is from Jamie Roller of Morgan Stanley. Your line is now open. Please go ahead.
Good morning, Jamie. Good morning.
Good morning, everyone. Happy New Year. Three questions, please. First, I have a very impressive acceleration in market share in The UK. Could you please talk about how sustainable that might be and whether some of that might just have been a sort of temporary phenomenon with maybe more of your competitors closing and obviously some parts of the market being more shut than others?
Secondly, on Germany, the guidance for losses still in fiscal twenty twenty three, that seems to be perhaps as much of due to action taken by Whitbread as to COVID perhaps. But I was just sort of wondering if you could talk about what your sort of RevPAR assumption is to drive that or maybe give us what your RevPAR breakeven is for that year? You've already given us the sort of the old target to hit the old returns numbers of £60 And then just finally, press reports about not paying half the rent in calendar Q4. £25,000,000 is a fairly small savings for the company. But does that not potentially affect the rental yields and your relationship with landlords and maybe remove some of the advantage you face, particularly against your sort of biggest budget competitor in signing new hotels?
Thank you.
Okay. So we'll we'll Nicholas and I will, we'll double hand this, this set of, issues. So why don't I just kick off in terms of saying, look, you know, in terms of The UK market share, of course, it's a it's a very strange market out there at the minute. And, certainly, the outperformance versus, mid scale and economy has come from the weaker budget branded operators and the independent sector. But, you know, I'm clearly helped in part by, you know, top end hotels, some of them not reopening, and some independents, I guess, staying shut as well.
So it is quite hard to predict the magnitude of gains going forward, but I would expect us to perform well. And we do know if we look back to, you know, previous, dislocations in the market and take, for example, the last, economic recession that we know that structurally, the independent, sector came out faster following that dislocation. And and they you know, a lot a lot of independents can hang on for twelve, eighteen months on at some point and and run for cash. But in the longer term, there's little investment that goes in. The product becomes, quite hard to to sell, and and eventually, you get a tailwind in the market with supply coming out over a two to three year period.
And that's what we saw last time, so it's what we'd expect this time. So we are expecting that phenomena to give us a boost over the coming, I guess, naught to three years. Germany. Do I speak Germany? Germany.
So we're just we're we're we're we're not giving any guidance on top line sales, around, obviously, in this environment. But because we have carried on investing in Germany through this year, which is the right thing to do to grow our our sizable platforms, we come out of it in a really strong position. We are giving some some kind of indications, over the next couple of couple of years at a at a in a good, close scale. And what we're saying is that we expect losses to increase, in f y twenty two, and that's, partly because of the fact that we have done the central deals on 13 hotels and the fact that we, we were hoping to refurbish them this year. We're actually refurbishing them next year now, so that'll be closed for a period of time, which adds about £10,000,000 worth of losses over over overall.
I know we're indicating just because of of COVID, we expect the maturity of hotels to to be delayed for eighteen to to eighteen months, which is which is not new news. It's what we've been been saying at that time. And that kind of pushes losses into 2023 as well as a result of that. So we're not giving kind of sales sales area, but we have what we have done is set it to breakeven in 2022. Our original assumptions was that RevPAR will be around about £60.
That that is maybe people may some people may think that's high, but actually it because it's just the hotels we all have got open at the moment are in prime city centers at at the moment. So I think that's still probably a good guidance for where that is at the at the at moment. The second question was was on rent. Yeah. I mean, just in terms of our landlords, you know, we we and a lot of our stakeholders have have helped us.
Most of our stakeholders have helped us through, to make sure that we're in a strong position to come out of this as well. And so we we wanted to kind of have discussions with our landlords as well about that to make sure that we we can ask this. We're in a quite a different position from most people who who who have made maybe have helped with health. You know, we've got a strong balance sheet. This isn't about kind of liquidity or about balance sheet.
This is about making sure that we have the funds to bounce back out of this and invest in the business when the time is right. We have had discussions with our with our landlords that involve not paying 50% of our rent in in in December that was well well publicized over that time. As as you know, we've got we've got a legal contract with our our landlords. So, you know, we're ongoing negotiations. It's still very early days in that overall.
You know, hopefully, it doesn't leave some saving. If it doesn't leave some saving, it might lead to deferment of, some rent or might have some kind of conversations about weak gears as well. So it's just it's a it's a way of kind of opening up of conversations with our landlords, which we think is the right thing to do. In in terms of kind of impacting our our yields on our freehold overall, I I think kind of we've we've
we've paid up we paid
our rent, you know, a 100% right up until this point in time even in when our hotels were closed. So we've we've been, like, everything has been a good tenant over overall. And we think the kind of our ask that we've done has has been a re has been a reasonable ask. In fact, most of our analysts have said it's a reasonable ask as well. So we don't expect it to have kind of any impact on our yields at all.
Yeah. The, Jenny, just in I mean, in terms of all of our responses, during the the the the last twelve months, we've been quite balanced and measured in the way in which we approach everything that we do across all of our stakeholder groups. And it is true that, we have historically been a great covenant and a fantastic tenant, and we intend to maintain our position as being a great covenant and a fantastic tenant. So we're not doing things that we think will jeopardize that because we think it is important for the long term health of the business, that that remains true. However, there was a there was an issue of, you know, of equitable contribution in in a time where we are closed and have a lot of our business closed, and that's what we're working with our landlords on at the moment.
And as Nicholas said, to be quite honest, you know, we are we are not at all, uncognizant of our contractual obligations, but it is helping us open other conversations, which we think will be, will support the business in the near term. And so so we think it's a good exercise. And just back on Germany for one second, I'll I'll just not in any detail at all, but it is important that, you know, if there are great opportunities in the market and given that we have got a strong balance sheet that we do take advantage of them and hence the first acquisition. So if if we see weaker players or or an opportunity for, you know, to to make an acquisition at a low price, that, you know, something we couldn't have done actually before the pandemic, then we do think it's the right thing for the shareholders for us to build that business. That does mean, of course, that we end up having more hotels in in a weaker position in the short term because they are closed or or low occupancy, it means we do have to close them to refurbish them.
And it does mean that there's a maturity cycle associated with it. So that will, of course, increase short term losses, but will provide a much stronger platform and a and a better business for the future in Germany. And, you know, I think we would look back and regret missing those opportunities even though it have a short term impact on profitability. And as I said said a couple of times, Jamie, to to you before and to everybody on the call, actually, we will we will think hard about when we report in April, how we start to think about, you know, splitting out the immaturity versus the business as usual trading activity within the German business so that we can give people a sense of the progress to to to underlying profitability in trading hotels.
That that would be very helpful. But so can I come back, Nicholas? Did did did you say on on the £60, did you say that's your breakeven RevPAR?
What we what we what we said is we we we said that the pre pre COVID assumptions on RevPAR was £660 in the note. So that's what we're that's what we're saying. And we were expecting to breakeven in f y twenty two, which is
Oh, okay. Yeah. But that that's not what you need to be breakeven. That that would be pre COVID peak target RevPAR to make a decent 10% return. It
it it it it probably probably the same thing to be close because if you in terms of that, because that's what we're fixing now is that you've got you've got yours your sites in big cities at the moment, is why the RevPAR is is high for that breakeven at the moment. They're large hotels in large city centers at the moment as well. And then you've got the kind of immaturity holding you back, which
is why you need to kind
of high RevPAR to get that breakeven.
Okay. Thank you.
Thank you, Jamie. Our next question is from Vicky Stern of Barclays. Your line is now open. Please go ahead. Morning, Vicky.
Morning. Happy New Year.
Just coming back to The UK. So you've got two thirds of your space open at the moment, which I think is quite impressive given, I guess, you need to be doing sort of high teens or so occupancy to to justify opening. Just what sort of business travel is happening now? I think that key worker list is is slightly broader than it was previously. So just just curious to know what sorts of travel is you're seeing.
Obviously, as we think about the fact that there could be further tightening of restrictions to know. And there's also been some discussion in the press recently about the government moving potentially some patients to hotels. Just curious if that's something that you're in discussions with them on. And then coming back on Germany, you obviously referenced it there a moment ago, but just just kind of update on what you are seeing in terms of opportunities in that market. I was sort of far away from it knowing in terms of, any, you know, obvious distress.
Have you actually seen any of that, over and above the the deal you've done already?
Okay. There's, yeah, there's there's quite a large, permitted list of of, key worker and essential travel. And, mean, largely speaking, Vicky, it's no leisure travel as you'd expect. Although there are exceptions to that. I don't I'm not sure you call it leisure, but for, you know, things like funerals, etcetera, or emergency situations.
So, so there there's even a list of what you call personal customers, that that are allowed to stay. But for the most part, it's business. It's quite a broad list of business travel that's available, not just blue collar. There are some light collar permitted reasons for travel as well, and that's, broadly speaking, what we're seeing. So as you would imagine, our, biz the business at low levels of occupancy, And we're lucky that we can actually operate at low levels of occupancy and make a cash contribution because we have, you know, large amount of freehold, etcetera.
So, so that puts us in a slightly different position to many others who who, you know, not not in the same place. And and so, you know, that most of our businesses during the week in the weekdays, you know, at the weekends, it's exceptionally quiet at the weekends. So that that's what we're seeing in terms of UK travel. In terms of patients, etcetera, yeah, I mean, we we have, always, offered to work with the government, and this is all the way through the pandemic on things that they need to, to operate, and that would include, you know, non I guess, COVID, patients, you know, that potentially could use hotels. Actually, I don't think there has been a demand for that.
We we haven't certainly, had approaches from government to that end. And I think there are probably a lot of better alternatives, including the Nightingales that they will go to before, they would move to, to hotel networks. So so that's all I'll say. But but we're very open minded about it and very open to help should they help be required. And in Germany yeah.
I mean, like bit like in The UK, it's hard to know what will reopen when everything's closed. And you haven't we've but, you know, there's been lots of things that have been closed for a long time, but there are government schemes in place to help people like the Kurz Kurzweig scheme, which is the German equivalent of the furlough scheme. And so I think it'll yeah. I mean, clearly, are seeing, sort of evidence of distress in the market, refinancing and other other forms of distress. But but as yet, I think, we can't see the full picture, and I think there will be more of it to come, as we get into the spring and summer, and then we'll really see what does, reopen and what is funded and has a strong balance sheet to operate.
And just to follow on that, mean, you've made quite clearly that now is the right time to take advantage of those opportunities even if it means there's a shorter term setback in profitability. As you think about the balance sheet, would you be willing to step outside of, previous leverage ranges, if the opportunities were significant enough?
We've we've we've all we've all said that kind of it's a it's a guide that leverage. We would if it's short term as long as we can see our way getting back into it. Yeah.
Yeah. We would. Thanks.
Thank you, Vicky. Our next question is from Bilal Aziz of UBS. Your line is now open. Please go ahead.
Good morning, everyone. Happy New Year. Just three from my side. Thank you. First one, just on the new sensitive guidance in Germany, perhaps just a clarification, and I appreciate you haven't guided for 2022.
But is this new sensitivity incremental to the 18,000,000 sensitivity provided for the whole business this year, or should we be thinking about stripping that out for next year? The next question, just on the independents. In the previous lockdowns, you mentioned a higher level of attrition that you were seeing. As we go through more iterations of lockdowns, have you started to see that trend so far? And lastly, just on more broadly pricing from the independents as well as the crisis lingers on, And what's the sort of pricing environment and behavior that you're seeing from, your competitive landscape, please?
Thank you.
Do you wanna start, Nicholas, on guidance?
Yeah. So just just in just in terms of, guidance, we've been we're we're holding the guidance for this year. And as you were saying, it's kind of 1% equals 18,000,000, and that's across the whole of the group. We we haven't given guidance for next year in terms of sales or from profitability. All all we're doing is just breaking out Germany a little bit more detail because it becomes because we've bettered through and because we have and because it's becoming a a size scale.
So it's kind of trying to kind of help encourage the kind of modeling modeling of of Germany separately. So we haven't given specific guidance on that.
On the on the independents, if I if I move on to that one, then, you know, you can see that during the the this last year, we have seen our own performance outperform the market, and that's because there are lots of hotels that just haven't reopened at all. And we don't know yet whether they will. It's quite hard on data for independence. It's quite difficult to collate. And we won't probably we we we do a fairly major survey every eighteen to twenty four months on it, which is quite labor and time consuming for us.
We probably there's no there's no point running that right now. That's probably something we do, in the in the, summer or autumn of, '21. So so we will and and so we believe we will start to see the supply contraction in our trading numbers first and as we come out of the spring. So if you think about, you know, what this has been like, we're now in our third lockdown in The UK. It's a year since the crisis, started or this by the time we come out of this lockdown, it will be.
The there'll be an ending to material government support, probably by April and and certainly into the spring. The rent buildup for operators hasn't gone away. They haven't had to pay rent because there's a moratorium, but that rent cost hasn't gone away and there'll be a debt to be paid. And then, of course, twelve months of severely reduced trading and facing into, you know, a a slow recovery, I guess. That that just, you know, makes for a very tough environment.
And for businesses that already have high levels of debt or have, you know, different model to us, particularly franchise businesses where you've got multiple other parts of your value chain that you have to pay away, like your booking and your and your franchise fees and your rent. It just makes for an incredibly difficult, period. So, we would expect that there to be a start to see an exit over the over the coming twelve months after the market once we open. And certainly, as I said before, in the last recession, we saw people hobble through for twelve to eighteen months and run things for cash. But then we ended up with a sort of tailwind, that helped us for the following three years as the independents came out faster during the following three years.
So, we are expecting that. And, you know, the the the declines in the independent sector, even only a 1% decline last time, helped fuel Premier Inn's growth over the last ten years. So it doesn't need to be much more than that to give additional market share gains for us. And and on top of that, you know, probably a constrained competitor set who themselves will be growing at a lower pace and investing in their businesses at a lower pace even if they survive. So, so so that's what we're seeing.
Although, as I said, data from the independent market isn't readily available, we we will do our own research as the year goes on. Do you wanna say something about Germany?
I was gonna say Germany.
I think if we we again, the data on Germany is is is not, is probably even less visible in terms of what's happening in the independent market in Germany. But what we do see, we see we see people who are approaching us, and we have seen a kind of acceleration of that at the moment in terms of the small small chains who, want to come to market at the moment.
There was a third question.
First question was about kind of pricing and kind of how what are we seeing in pricing and competition? It's it's quite quite varied, really. You're seeing the four and five star hotels who who are remaining open. Those who are open are kind of holding their kind of duct pricing discipline at the moment. And then and then it is it is it is quite varied.
You've got some some of the kind of other brands pricing very low in some locations and reasonably in other other locations. Particularly, I guess, where you're seeing low pricing is in city centers, particularly in London at the moment, which has been quite aggressive, from the competition overall. But as you kinda get more into the regions, it's more gonna be will be more more kind of measured more more rational.
Okay.
Very clear. Thank you very much.
Thanks, Ben.
Thank you, Bilal. Our next question is from Monique Pollard of Citi. Your line is now open. Please go ahead.
Good morning, Monique.
Morning, everyone. Good morning. Three questions for me if I can. The first was just coming back on the CentroGermany acquisition. I just wanted to understand, I think, you've made the comment that those hotels will be refurbished now, in the next financial year rather than this one.
I was just wondering on the timing of that given it seems that they are closed at the moment. The second question was on those really excellent market share gains over the period. I was just wondering if you had a sense of how much of that was sort of like for like sales out performance versus, you know, more hotels opened or some hotel growth versus the competition. Because when I look at your like for like RevPAR versus the scale in economy, even on that basis regionally and in London, it does seem like you're outperforming a bit. You know, that maybe you're getting better occupancy than some of your competitors, for instance.
And then the final question was just on the F and B provision right now. Obviously, you made the comment that, you know, two thirds of the hotels are open in The UK, but the restaurants are all shut. So are you able to provide some f and b provision that's still sort of keeping some sales coming through that channel as well for the guests, if not through restaurants?
Okay. Starting with Centro, and, of course, as you as you might imagine, the the best possible outcome would be to refurbish hotels while the government have them closed anyway or whether when they're at very low levels of occupancy. Unfortunately, the practical answer to that is you do have to get the building materials and building contracts in place to do the refurb work. So it's not quite as simple as, you know, you know, being in your own home and getting a painting decorate. So, yeah, the case goods come from various parts of the world and, and and.
And as you know, was quite opportunist, in nature of that particular acquisition. So it was executed with extreme speed. And and so it's likely to be the spring before we will have, builders on-site, contracted builders on-site with the right materials, and, you know, even even down to having all the surveys done and the and the building works planned. So it it just can't be done instantly. It's not it's not like painting and decorating.
It's more substantial than that.
It's just harder. It's environment as well. So it just takes longer.
Yes. Absolutely. And and in terms of, you know, in terms of outperformance, before I I'll get Nicholas to to to cover a few details, but so but in a broad perspective, what I would say is that, we are finding the model that we operate an advantaged model in this environment. I mean, we we've always liked our model, but the fact that we've got direct distribution, the fact that we maintain and manage and run the operating standards of our hotels, and the fact that we have a, you know, a massive brand positive feel, you know, within The UK and with a favorite hotel business is really has really stood us in good stead. And so, there is, of course, a combination of factors going into that outperformance, and some of it is is undoubtedly what else is open and what other opportunities there are for people to stay.
But but there is also a strong preference and direct preference for Premier Inn. And, of course, we are domestically focused, and it's all domestic travel. So, so we have a sort of an advantage model. And the advantage model not only is more attractive to guests, but it is also allowing us to be open more and have a have a broader network than than others.
And Yeah. No. I I was gonna add add to that is is actually if you, it's it's hard to split what's based on the fact that more hotels are closed and what's due to our our brand. But, you know, as I said, trust trusted brand is is never become more important to the moment. What you can see, though, is is actually we've got a good good market share gain on total sales, but, actually, we've got a good gain on on RevPAR as well, which kind of probably doesn't necessarily ignore spaces of of competition, but probably is kind of a a true true in kind of of what what's, closer to what's just just relating to our brand.
Yeah. And the money the last question is a short one because, f and b is closed. It it is it is a requirement that that it is closed, and so we are not offering any F and B, activity in any of our hotels at all, and and it wouldn't be allowable. So, so, no, that that isn't contributing in any way.
Understood. Very clear. Thank you. Thank
you, Monique. Our next question is from Tim Barrett of Numis. Your line is now open. Please go ahead. Morning, Tim.
Morning, everybody. I had two questions on the cost base, please. And the first actually follows up from the latter point. I guess it's quite unusual that you've got hotels open and no pubs or restaurants. Just directionally, would that mean your guidance for 2021, if that's the case, is slightly lower PBT impact because of the, the lower drop through?
And then secondly, on government support, I guess, no doubt you're lobbying behind the scenes. But if the retention scheme, the, CGRS and business rates, start to come back from from April and March respectively, what would the cost impact in 2022 be? Thanks very much.
Yeah. I'll I'll start, with the the la the latter question, but I'll hand over to to Nicholas for for the details. But, yeah, we're we're not lobbying just behind the scenes. We're we're we're lobbying in front of the scenes as well. We're in front of in front of the stage.
So, you know, just either for the hospitality industry overall, the business rates relief, and the VAT are both incredibly important. And and given that hospitality could bounce, because we saw in the summer, you saw what happened to to leisure and, consumer demand when we came out of the last lockdown during the summer period. It bounced amazingly quickly back. And so, you know, there is an opportunity for hospitality more broadly to help some economic recovery post pandemic. There's a lot of pent up saving in consumers' pockets at the minute that that could, go towards, leisure activity.
So, you know, helping hospitality, with rates relief and VAT, we think is a good policy for the government and one that would be very welcome for us and for other other, players. So yeah. So from a lobbying perspective, yes, we would be keen to see that. Nicholas, more more on the detail.
Yeah. I mean, I just because you just in terms of the kind of you you asked me specifically about what kind of government support we have. I mean, at the half year, we said that, we'd we'd have further income for the half of 85,000,000, and there was 20,000,000 expected in the next quarter. And you can see that that's that's continuing into into this quarter currently, but we don't know we don't know. We're still working through the detail of what what we're gonna what what's happening now is the announcement on restrictions is saying you.
So that's but that's an indication of that. And business rates we flagged before was about a £120,000,000 worth of saving overall. Just you asked about the kind of just about the restaurants and the playthrough. Does that change change anything? And then the guide the guide all we're saying is the guidance for this current year stays as it was despite our f and b being fully closed.
It's still that kind of 1% equals 18, roughly £18,000,000 for the PBT.
Oh, okay. So just in terms the logic of what I was thinking, is that fair? Lower drop through on pubs and restaurants?
Yes. Yeah.
Okay. Thank you very much.
Yes. Thanks, Tim. Thanks, Tim.
Our next question is from Leo Carrington of Credit Suisse. Your line is now open. Please go ahead.
Good morning.
Hello. Good morning.
Good morning. If I may ask on on, on Germany, looking forward or looking into FY 2023, aside from the incremental opening costs that you've already discussed, can you remind us of the underlying economics? At what point on an underlying basis you break sort of breakeven in Germany? And then does the current network of 68, once opened, potentially allow returns in line with the rest of the group? And second question, I guess, with two elements on distribution and network optimization.
Firstly, on distribution, maximizing direct, is there anything specific you've done during the pandemic to capitalize on guest loyalty? I'm not sure if there's maybe something helping drive your outperformance aside from what you've discussed already. And secondly, given the pressure, have you postponed any of the network optimization efforts that you highlighted, like closing small hotels or, introducing the Premier Plus rooms? Thank you.
Yeah. Okay. So, I mean, just to so an overall perspective on Germany is, you know, we we look at Germany holistically and we look at at individual sites and individual acquisitions. And in the in that context, we, we, you know, set ourselves, the the clear outcome of having, rates of return on capital at similar levels to The UK. So we it's quite a broad range that we guide to, which is 10 to 14%, and we don't expect that to change.
And where where you are right in your question, the larger the network we have, the more brand build we can do. When you when you only have a handful of hotels and remember, we started this financial year with only six hotels open in Germany, and and three of those had only opened, you know, in the in the previous weeks to the end of the financial year. And then during this period of of lockdown, we've had acquisitions come on stream. So we're going to to be ending the year with more like 26, 27, 28 hotels. But they haven't been open and trading, so we haven't run, build, built anything this year.
But as you as we come out of the crisis, we are going to have a pretty chunky estate. And remember in Germany, it's so fragmented that probably the the most the highest sort of brand aware chain is Motel One, and they have about 55 hotels. And we'll be trading about 30, and we've got a pipeline to 68. So that really allows us then to make more of the network effect and the brand awareness effect for, the domestic business and leisure traveler. And that what that does is therefore improve our maturity profile for new hotels, which as you might imagine, is is more of the four year maturity cycle, four to five year.
Whereas in The UK, we have a shorter maturity cycle because our brand is so well known. So so there's a combination of factors that go on in Germany, but and certainly, the larger the estate, the more opportunity there is to become part of the DNA and fabric of German society and German brand awareness. The, in terms of opportunities, I'll talk a little bit about our investment in Premier Plus, which we have pulled somewhat. You you just about kind of just give you Optimization. Want to optimising Optimization.
Sorry, Nicholas. There was a sub question about distribution. I love it. Yeah. I mean, we all find we found during the, all of the last, months that our direct distribution has been a real positive.
And we do think that model that is about, having a direct relationship with your customer is is a really good one. It's meant that we've been able to communicate directly with them. We make decisions on amendments and refunds and booking types and booking arrangements directly with them, and and that is just a more seamless process from a Bramble perspective. But it also allows us to run, you know, email campaigns and direct communication campaigns. And on the business side, the fact that we have, you know, people using our business booking tools means that they have a a direct relationship with us again, and we're able to contact and communicate with them, which I think has been enormously powerful as part of the model that we operate and quite different to the third party arrangement through a a non online travel agent.
In in terms of optimization, there were two two kind of elements there. It was you're asking about closing smaller hotels. We we continue to look at opportunities where we can do that and transfer sales to larger hotels. We've done about six so far this year. It's probably a little less than we thought we'd hope we'd do, but we've been quite choosy in terms of what prices we can sell at the moment.
So there is there is a market there, but we're making sure that we do it at the right right prices. And that that kind of churn, we hope, will will be continued, but it may not pick up until the market because of COVID overall. And then from the other side as well, in terms of how we're trying to drive ARR, it's it's it's through the premier, plus rooms. You know, we did 500 rooms last year. We were gonna do about 2,000.
That's been slowed down just because of that kind of situation we find ourselves in. What's been kind of interesting there is actually those those rooms have continued to outperform. Actually, not just the rooms, actually the whole hotels we've put those rooms into have continued to kind of outperform through through the pandemic. But leisure and for business guests actually interested interestingly enough. So we'll look to, you know, when the time's right, to get back onto the front foot of that, to kind of finish that gonna complete that rollout.
That'll be one of the one of the areas we'll prioritize when we come out of it.
Okay. Thank you very much.
Thank you.
Thank you, Leo. We do have a further question registered, but I'll take this opportunity to reiterate that should anyone wish to wish to ask one, it is Our next question is from Joe Thomas of HSBC. Your
line
is now open. Please go ahead.
Good morning. It's Joe here from HSBC. I just wondered on market share, if you might give a bit more detail, please. You've you've spoken a lot, Alison, about the independents exiting the market, but you you've also mentioned today and in the past, the branded budget sector. I just wondered if if there's any if there are any anecdotes or color that you could give us, around what might be happening there.
And then separately, two sort of related questions. One is when we come to think about any sort of long term impairment to business travel as a result of this pandemic, what what conclusions have you been able to draw so far from the admittedly very limited time that you've been open? Secondly, you have in the past talked about doing more on on reservation systems, booking systems, corporate travel, agents, etcetera. Can you just quantify what you think the opportunity is there now?
Okay. So, yes, three three, three elements there. So, you know, broadly speaking in the market, we did yeah. We have historically talked about the independence a lot, as you know. But I guess the way that I think about this is across budget branded more generally, there there are, there are kind of two operating models.
There's the operating model that we have, and actually interestingly, Travelodge have too, which is that we own and operate and manage and have direct relationship with those consumers and don't and don't use ATAs. And there are sort of the the asset light operators who don't own the properties and, and have an operator who run their businesses. And I think that that is quite that that model is likely to feel some stress, in as much as if you're if you're the operator of a franchise hotel, you have often got the rent to pay. Sometimes you have a land you you know, you're in the freehold, but mostly you you you're paying rent. You, you have brand fees to pay to the asset light provider of the of the name over the hotel.
You have most of your bookings going through online travel agents. And and it sort of is it's quite a different model to to the direct distribution and direct customer model. The you're also probably quite a lot more reliant on inbound, travelers rather than domestic. You know, the brand name for Premier Inn is so strong domestically that it it's it takes a lot of the budget travel within The UK. And and so what I suspect actually is that we will see some weakness across that that other broader set of competitors because, even for those that have, you know, sort of gone into the pandemic in a with with sensible gearing and and without being over indebted, it's going to be quite a stressful year and a slow recovery.
And, probably inbound is the last thing to come back. I suspect, there'll there'll be other things that will come back earlier. And so there'll be quite a constraint in terms of people's willingness to invest and grow and their ability to invest in the product itself and the refurbishment programs and cycles within their business depending on, you know, the nature of their financial position. So I think it is a broader weakness in the competitive set than just the independents. But, of course, the independents are 50% of the market.
And and I won't talk about Travelers particularly. I think that their issues are well trailed in the are under in the public domain in terms of the constraint that they may be under, again, for growth and, and investment more than anything else. Got a high high gearing and a higher debt rate than they would have wished to have, under normal circumstances. In terms of business travel, you know, business travel does fall fall into several categories. We we are well indexed on, blue collar travelers.
You know, so we have a lot of large corporates who who who deal with us where the stayer, they are the large corporate is the booker and payer of the stay. But the stayer, you know, are people who who work in manual jobs, you know, on projects around the country in in in groups. And we also, obviously, work a lot with small and medium sized businesses, for for white collar and blue collar activity. But but a lot of that activity can't be done from home. So the phenomena of whether or not people will continue to work from home in the same way as they are during the lockdown in the future, we're we're more immune to that than than some others, I guess, in the market.
So and we've got a good proportion that fall into that blue collar, workforce.
Yeah. Yeah. And And the last question was, I think it was about kind of travel management companies just in terms of what what, as you as you rightly said, we talked about this back, gosh, a year a year ago. It was an opportunity, and this is particularly around companies who use, corporates who use travel management companies to book their travel overall. That this area that we we played in, but was fairly minor to us over overall.
So we've and that that that could that could be about 15% of the market overall that we're we're we were relatively small in this as well. Now we've made we've made good progress in that over the over the last year, but, of course, the the corporate travel tends to be more kind of the white collar workers, and they feel the area that's been hit. So it's been relatively quite a small percentage of our sales, over overall. But, actually, we've we've we've had good good tractions from the companies and good tractions from customers and they were having to save up.
Yeah. And it is probably also just the the last point I make on on the sort of combined subject is we we, as you know, don't index, structurally for conferences and big meetings and internal meetings, again, which are really hard hit part of the market. We that's not an area we play, we don't have ballrooms and conferences, those even meeting, rooms. We we run a tight, budget focused operation.
Alright. Thank you.
Thank you. Thanks, Joe.
Our next question is from Ivor Jones of Peel Hunt. Your line is now open. Please go ahead.
Morning. Good morning.
Good morning. And I wanted to ask if you'd allocate capital to buying Premier Inn that you currently lease if it was value creating in The UK. And still back on the market share point, I wondered how much you're able to grow market share because you can satisfy demand you couldn't previously satisfy. I think you talked about it in the past, but how often in pre COVID times were Premier Inn simply full? Thank you.
Yeah. Actually, if I buy buy leases back, not not not too high on our priority. I mean and and the re the reason for that is the is, you know, in the hotels we we we lease, we make good returns on them. And therefore, you have to look at the incremental return on capital that you can make from buying it back. And that the incremental return on capital is is can be fairly low.
But just just specific specifically, and, of course, it's your kind of particularly in the near term where it hits your cash flow as well. So we we're always open to opportunities and happy one or two we've done over year over the years, but not not not high enough priorities at the moment. In terms of market market share, yes, you you you're right. If you go back two years ago, Tuesday and Wednesday night, were we were we were pretty full. And hence hence, it's been it's been carrying on with our network growth at the time and overall.
So and hence, it's also kind of switching on the travel management companies, but kind more recently to make sure that we keep that kind of Tuesday, Wednesday night to to full overall. So we'll have to wait to see if there's kind of opportunities there. But early early to say that, really. Great. Thank you very much.
Alright. Thanks, Pavel.
Thank you very much. We have no further questions registered, so I'll hand back to our hosts.
Thanks very much, everybody. Enjoy the rest of your day and the rest of the week. It's good to speak to you all, and thanks for your questions.
Thank you.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your line.