Good morning, all. Welcome to today's Whitbread PLC Interim Results Q&A session. My name is Adam, and I'll be the operator on this call. I'll now hand you over to Alison Brittain to begin. Alison, please go ahead.
Good morning, everybody. Thanks for dialing in to the Q&A session. I hope you've had the opportunity of listening to the presentation this morning and looking at the RNS statement, which went out at 7:00 A.M. The presentation was live at 8:00 A.M, and if you haven't, I think you can listen to it, Adam, when you wish. We're not going to cover any of the presentation on the grounds that many of you will have already heard it, but very happy to dive straight into the Q&A. Adam, if we have people wanting to ask a question, that'd be great.
We do indeed. Our first question today comes from Jamie Rollo of Morgan Stanley. Jamie, your line is now open.
Hi, Jamie. How are you?
Great, thanks. Morning, everyone. Well, thank you. Three questions, please. The first is just about our performance in September as opposed to August. I mean, it's really quite stark, and I'm wondering what's really driven that. Is Premier Inn discounting more, or do you think it's just really due to the lower corporate and London sales mix? Obviously, September's more of a corporate month than August. Has that outperformance continued into October? Secondly, on the cash burn, you've given us helpfully on Slide 15, your sort of break even math. I assume that means you weren't burning cash in August and September. Does that factor in the cost savings? If you could please quantify those cost savings and what impact that might have on cash burn in the second half of the year, if there's any sort of timelines you could give us there.
The other one was just on property. You've taken an intangible write-off or goodwill write-off. Any thoughts on the freeholds? Should we expect that write-down, if at all, to come at the year-end, or are the values holding up well? Thanks.
Great.
I took that as five questions, Jamie.
You gave me some questions. I'll stop doing that. Jamie, thanks. Let's start with the sort of performance. In a year where we're in the world that we're in, it's hard to say this, but we are actually pleased with performance from the perspective of outperformance of the market. We're pleased with how we emerged from lockdown, from full closure in August and July. The operational teams have really come into their own. They're doing an absolutely outstanding job. They did a great job of closing the business and at the same time, already in their minds preparing to reopen, which is why we got a fast start on reopening. Our plan all the way through was to maximize total accommodation sales. Because we have a low break-even point at unit level, having the business open in full is better for us.
It reduces the cash outflows, it improves our profitability or reduces our loss, whichever way you like to look at that. The ops team have done a great job. Not just in terms of we expected to come out fast, we opened fast, we opened across the pitch. We were not just opening Newquay or places with a nice view where the leisure travelers were in July and August. We were opening cities as well, which were at low demand, we were still outperforming the market, many of whom had not opened in those low-demand places. It was excellent, that has carried on, that outperformance has continued all the way through, even to today, from what we can see now. Of course, the smaller the market gets and the more it shrinks, the less you can outperform it.
You understand? That's just math. While the market is open and we're capturing share, we're pleased to be able to do that. The other thing we're pleased about with is notwithstanding what is quite a disruptive guest's journey in many cases, because, for example, having breakfast is quite different to how it used to be. There's no big buffet, and serving breakfast is incredibly difficult for the teams. Notwithstanding the changed journey for the guests and the constraints that they're under while staying with us, our guest scores have continued to improve, and the distance between us and the market in the YouGov surveys, not our own surveys, but the independent surveys, have grown, not shrunken. I'm really pleased with the way the ops teams have managed and the commercial teams have returned us to profitability. Well, not to profitability, but to break even.
We do expect that to continue and for that outperformance to continue. I think it is a function of the quality of the brand, the quality of the offer, the direct distribution, and the makeup of our broad customer base, which is quite distinctly different to others. Do you want to talk about cash?
Your second question was how it continued into October and our performance versus the market. We're only 10 days, kind of two weeks into it, but it has encouragingly-
Continued , which is good.
The next question was about kind of break even in August and September. On the slide that Jamie is referring to, page 15 of the presentation, it talks about our EBITDA, and this is old-fashioned EBITDA, so this is kind of pre-IFRS 16, so includes lease payments. We get to a break-even point when we are at 55% of occupancy, and our rate is down 20% year-on-year. You can see that in August and September, that is roughly where we were overall. From an EBITDA point of view, you're right, we were cash break even, and that's the kind of guidance we've given for the full year. On top of that, you also have kind of CapEx movements, and then you also have working capital. Probably just that can help you on working capital.
We had GBP 130 million of working capital outflow in the first half of the year, which was a lot of that was due to kind of customer cancellations, which we honored, and also the fact that the government schemes, we hadn't received the cash for a lot of, quite a significant amount of that. We expect to receive the cash in the second half of the year. We expect kind of roughly about GBP 50 million worth of the working capital unwind in the second half of the year as a result of that. The real working capital depends, of course, on the sales trajectory. The next question was about cost savings, because we announced a few weeks ago in our post-close statement some of the cost savings. We didn't actually give a specific number, because what we're actually building is a more variable labor cost base.
What it enables us to do is to make sure that we can still stick with our guidance for the full year, where 1% of sales movement equals GBP 18 million worth of profitability, up or down. The cost savings is really kind of already baked into our assumptions from the beginning of the year. The last question was about property, overall kind of thoughts on property. There's very little evidence out there of any transactions in the hotel market over the last few months. I would expect kind of yields to have moved out overall against us in that period, just because as they have done in most of the property market out there. What I would say, though, is that we are one of the few hotel chains who has continued to pay all of its rent.
With our strong liquidity, actually, we have a good covenant around it overall. We haven't been tested the market. We haven't got any intentions of testing it right now. We would expect our yields to have moved out, actually to have moved out far less than the rest of the market overall. That gives us tremendous kind of confidence, one, for our stakeholders, giving us that reassurance that we've got many billions of pound of free cash sitting behind us. More to the point right now, if we needed to raise additional cash, either for investments or further liquidity, we've got options out there at the moment. Does that answer your questions, Jamie?
If I could just clarify on the first one, you haven't mentioned RevPAR at all, but presumably there's still good RevPAR performance in-?
Yes, August, September as well?
Yeah.
Yes. Yeah, we did. We outperformed on RevPAR.
Correct.
It is not a discounting issue.
Correct. Yeah, total sales are pretty much tracking total RevPAR performance at the moment.
Thank you very much.
Yeah. [PG came in]. You've covered [three whole question].
Yeah.
Our next question comes from Vicki Stern of Barclays. Vicki, your line is now open.
Morning, Vicki.
Good morning. Yeah, just three from me. For the mix you talked about in the presentation, the better skew towards more essential and sort of manual business travel. Is there any way of quantifying that? I'm keen to understand if you've got any sense of what % of your business travel exposure is actually coming from that sort of more essential versus the type that could be replaced by calls. Any sort of rough data would be great. In terms of the U.K. rollout, obviously you called out in the presentation that you see COVID-19 slowing down the room growth in the U.K. more broadly. Just how are you thinking about your own appetite for actual room additions over the next few years? Just finally circling back on the asset.
A few years ago, you obviously had a plan in place to do around GBP 150 million-GBP 200 million of sale and leasebacks a year. As you say, there's clearly no transactions going on in the market right now as things stand. Just how are you viewing that opportunity to release cash from the estate? Is that very much about opportunistic opportunities where you see investment in Germany, for example, or anything sort of more proactive on your side? Thanks.
Okay. Let me start. Nicholas just chip in. Vicki, for everybody, because I know not everybody knows us as well as you do. Broadly speaking, we've got a business which is 50/50 business and leisure mix, which obviously in normal times stands us in very good stead because you get the weekends and the weekday business and therefore you get higher levels of occupancy. We're also not terribly exposed to inbound. We are mostly domestic business, both in Germany and in the U.K. U.K. is the bigger business. It's domestic business and leisure travelers who know the brand and book directly with us rather than going through a travel agency. In the leisure section of our business, we have a massive variety of leisure travel, really huge. Therefore it's got a lot of diversity to it and is diversified.
On the business side, we don't index on conferences and meetings because we don't do conference and meeting facilities in our hotels, and so we don't have those big group bookings. That's the same, we don't have much tour operator business on the leisure side, particularly inbound tour. We don't do that business, and we don't do big conferences and meeting activity in the business side. In the white collar end of our business, again, huge variety of rationale for travel sectors and everything. There's no one big bit that dominates that. What we do have, which is very different to the four-star market or the upper mid-scale market, is we have a lot of people who travel for work that cannot be done remotely.
We have a lot of contracts with project people who have got electricians and chippies and people digging roads and putting in pipes, white vans who are physically laboring on sites and in projects. That business, which is more SME business, big contracts with big companies plus SME, and that business is going to hold up and is less exposed. I don't really want to get into the detail of what percentage we think of each, but that's the broad thrust of what we do from a customer perspective. We also have the 20% London, 80% regional bias as well. Within all of that's a relatively robust position given the pandemic that we're facing into.
Yeah.
If I roll on to your second question, which is about rollout, we've got a pipeline of about 13,000 rooms. We always review that pipeline pretty much every quarter anyway. Obviously, we've been doing that to make sure that hurdle rates, we've obviously amended all of our models about how hotels will perform and when they will roll up, the NPVs have all changed and the years out before we return to normality. All of the models have been rerun, and we've not reduced our hurdle rates, et cetera. We've paused some things, some of our extensions that we might have done, we can do those later. As you know, once we've got planning permission, we've got three years or longer to undertake that. We'll phase our 13,000 rooms. We're happy.
Some things will come in, some things will go out. We're pretty comfortable with that as a U.K. rollout plan. There may be opportunities in the U.K. for infill activity in line with a competitive landscape, which is more challenged. That's very much cherry-picking. It's not taking great big blocks of other people's business. It would be cherry-picking things that fitted perfectly into our network plan and with our hurdle. In Germany. Sorry, back up. Just stick to the U.K., and I'll move to Germany. In the U.K., we do have an enormous opportunity for optimization, though. When we came back from lockdown, one of the things we wanted to check as early as we could was whether or not the outperformance of the Premier Plus rooms would remain an outperformance in the new world, as it were.
Actually, if anything, the outperformance has extended, and we've seen an increase in the return profile of Premier Plus rooms there. The rate is higher and occupancy level higher than it was pre-lockdown. Again, with an 840-odd hotel estate in the U.K., there's lots of opportunity for that investment in optimization and improving the yields and returns. In Germany, again, 72% independent, not a huge budget branded sector, and the same levels of early distress signs that we've already seen. You can see we took one opportunity just lately to cherry-pick 15 hotels from a bigger operation that fitted with our network plan, were good for refurbishment to Premier Inn, and hit our hurdles for returns. That's the sort of infill acquisition that I suspect you would see us be very interested in doing over this period and beyond.
Yeah.
Nick, has anything to add on either of those, mix or rollout?
No. That's good.
You want to pick up there [crosstalk].
In 2015, we announced we'd do GBP 150 million-GBP 200 million. We did do that in the following years after, I think, to about GBP 300 million worth of sale and leasebacks. Right now, when we think about our balance sheet, we're sitting in a place where we've got good liquidity, good facilities in place. We've got the freehold behind us, which kind of helps back us as well, which gives our stakeholders, all of our stakeholders, with good reassurance in this marketplace and reduces our kind of volatility going forwards. You don't have to look that far to our nearest biggest competitors to see what a full leasehold business can look like in this environment at the moment. It does give us options, though, the sale and leasebacks, as I mentioned earlier.
Primarily, it gives us options if we are looking at doing further acquisitions in Germany particularly, to go to that market and have a look at it. It also gives us further options if we need to look at our balance sheet, providing more security to our balance sheet overall, actually. Right now, it's not front of mind to actually liquidate any of our sale and leasebacks as well. We do have nice options there if we do need, if this kind of virus carries on in a detrimental way or if opportunities come up in Germany for us to do further acquisitions.
We've protected the quality of our covenant and tenancy.
Yeah.
You can imagine, we had lots of inbound interest from landlords who would like to have a Premier Inn covenant.
Yeah.
We don't doubt that we've got the options should we need them, but we don't currently need them.
Thanks very much.
Yeah. That covered everything.
Yeah. Great. Thank you.
Yeah. Brilliant. Thanks, Vicki.
Our next question comes from Monique Pollard from Citi. Monique, your line is now open.
Hi, Monique.
Morning. three questions from me, if I could. The first, just on the business leisure mix, 50/50 on average through the year. Just wondered if you could give us some sense of how that varies through the year. As we are going into sort of, I guess, what would traditionally be the more corporate quarter, if that mix changes at all or if it's relatively constant. Secondly, just on Germany, you seem to have signed a deal at what seems a very attractive price. Just wondered if you could give some indication of how pricing for deals in Germany has been changing over the past year and a few months as a result of COVID-19. In your presentation, you talked about the enhanced structural opportunity as a result.
Just wondered what more we could see there. Finally, just wondered if you had any thoughts on the pricing environment towards the end of October and as we go into November, when the most generous of the government furlough schemes start to roll off. I guess, a lot of the smaller hotels and independents will need to be making sure they get to a certain level of occupancy to ensure survival.
Okay, good. Let's go for that. In terms of business and leisure mix, clearly, what you would expect is the obvious pattern in that July and August was this year and is often more predominantly leisure-based. You see less business travel during those summer months because people are themselves off on holidays and more leisure. Certainly this year, we absolutely saw that this year. We were absolutely rammed full in any location that had a beach or a mountain or a view. Our metropolitan cities were incredibly quiet and London was moribund. That's what we saw. What you would normally see is that switch over and switch out in September for a much higher business mix as we go into September. You follow the patterns of holidays, you'll follow the pattern of where you get higher leisure.
Broadly speaking, business travelers aren't often with us at the weekends. That's mostly leisure travel. Our occupancy levels, we get good leisure travel throughout the year and reasonable business travel throughout the year, with the exception of the darkest nights of Christmas and the highest summer months, if that helps with that. On Germany, to some respect, it's too soon to tell. Germany, it is, as we know, a very fragmented market. The biggest brand is probably Motel One, which has been in the press a lot in terms of managing their leasehold portfolio and dealing with rents and all of the other issues. The other big players are B&B Hotels.
Motel One.
No, Ibis.
Ibis.
Ibis, yeah, which weren't in growth anyway. Over 70% of the market is independent and it is quite constrained, as you might imagine. Those independents were already in decline, structural decline. I think you should expect to see an acceleration in the structural decline. Quite a number of structural shifts in the world are being accelerated by COVID. The shift on retail from high streets to online, et cetera. This is another shift which I think will occur. Certainly, a lot of supply, including the budget branded actually, will be quite constrained in terms of the investment coming out of this and we'll see lower supply growth in the market and some great opportunities for transactions.
In Germany, as you know, the sort of transaction we've just done, which was a cherry-pick of 15 hotels that really suited us to take on and we will rebrand those. Principally the cost that we bear is to rebrand them to Premier Inn and refit the rooms and reception areas, which we will be able to do early next year. Those are the sorts of transactions which will work well for us in Germany. At the moment, we've seen a lot of, I guess, distress, but they've been all of things that potentially we haven't wanted to look at. They haven't fitted our network, they haven't fitted our brand standards, they haven't been the right room size or type, et cetera. You would expect that the weakest will go first and some of the stronger players will hold on for longer.
In terms of pricing, you've seen in the marketplace, at the mid scale current market in August and September, pricing was down about 25% overall. It's dropped a 2% in early October, but as I say, it's only a few days, kind of 10 days of October data we've got today. You mentioned the kind of JRS rolling off, but actually, the new JRS that was announced last week also rolls back on again. I think for some people, it might give them a breath of fresh air that they don't need to chase pricing down. We're seeing, I'd say it's good pricing, not overly aggressive pricing. We're trying to make sure we're keeping our kind of rational pricing by kind of pricing where we're seeing demand and pricing up where we're giving people more flexibility overall. Is that all right, Monique?
Yep. That's very helpful. Thank you.
Thank you.
Our next question is Jarrod Castle at UBS. Jarrod, your line is now open.
Thank you and good morning, everyone. Your room count is broadly stable. Your hotel count has gone down a little bit. Is there a plan to when you do develop bigger hotels or convert existing hotels into bigger hotels at the moment? That's question one. Question two, related to that, the number of restaurants also went up slightly, again, on slight decrease in the number of U.K. hotels. Wondering what's going on in terms of restaurant development. It's a business that's not really touched on much, but what is happening in the Middle Eastern business at the moment? Do you still think it's worth having that presence there of circa 3,000 rooms? Thanks.
Okay. Let me kick off with the network plan. Very broadly speaking, the new hotels that we open are larger, but I think that would be true and therefore, sort of have better economics. To some extent, if you recall the history of Whitbread, at the beginning of all of this, hotels were opened in the car parks of restaurants on A roads, and they were usually 40-bed hotels that were an adjunct to a pub. Obviously we've got a tail of small sites that look like that and a tail of under 80-bed sites. The new sites that we open are predominantly over 100 beds and therefore bring the size of the estate and number of rooms up.
We have talked in optimization terms, previously, at probably the last Capital Markets Day, actually, which was a couple of years ago now, around part of the optimization of the estate is to, within catchments, look at our total position in a catchment and make sure that we're optimized in that catchment. I think historically we've used Preston as an example where we've got six or seven hotels, but a couple of them are very small in the sort of 40-bed categories. We've got some in the center, we definitely want to regear and extend the lease, and we're building something new in places where the industry now is based or the science parks, et cetera. Optimizing the estate definitely gives us optionality.
When you've got a big U.K. business like ours, the investment in optimization is returns enhancing, and you could do that probably even more than room growth, actually. Yes, we have sold a couple of hotels this year, even in the lockdown period and opened as well. You'll see that happening and that being a planned activity for us. If I pick up, there was a Middle East question, but I pick up the Middle East question, then tell me if we missed one. The Middle East business is stable. It's a joint venture with the Emirates Group, so we own half of it. We're predominantly in Dubai and Abu Dhabi. It is going through exactly the same scenario as you are seeing here and in Germany, which is they are subject to restrictions and the occupancy levels are low.
The business is sort of managing on as close to breakeven as they can and keeping a tight watch on their cash flows. It's such a small part of our business that it's probably not worth saying anything more at this stage on it. Did we miss the question in the middle?
Yeah. Would you consider disposing of the other 50% in the Middle East? The middle question was just about the U.K. restaurants. The count's gone up from 765 at year-end to 768, obviously the hotel count's gone down. Just a bit of color in terms of restaurant development as well.
It's just a mix of joint versus service overall.
We don't open restaurants that aren't attached to a hotel.
Yeah.
Let's put it that way.
Yeah. 768, that is all of our restaurants. That's overall. Yeah.
There's no issue there. To be honest with you, at this stage, we're not in a position to even think about what we may want to do strategically with the Middle East at this stage.
Okay. Thanks very much.
Our next question comes from Richard Clarke at Bernstein. Richard, your line is now open.
Morning, Richard.
Hi. Good morning. Yes. Maybe just a point of clarification. On your last slide, you said the growth opportunity in the U.K. is now restricted to the pipeline and optimization. Are you stepping away therefore from the 110,000 room plan you had a few years ago? Is the kind of cap long-term now 90,000? A question on the Germany market as well. Obviously, you've pointed out in the U.K., you're skewed away from group. You've said in Germany in the past, that is a conference market. Your first hotel was right by the Frankfurt market. How are you feeling about the recovery there? When do you expect your German hotels to recover? Just in the German deal you've done, for the 15 hotels, a quick look makes it look like Centro has 41 hotels.
Did you pick those hotels out of the portfolio or were those the ones for sale? Is there potential to do more of a deal there with Centro?
Okay. Well, first of all, no, there's a difference between plan and potential. Potential over time, we'll have to assess that as we come through the pandemic. Actually, it's not impossible the potential might increase because we're going to see rooms coming out of the market and very much likely to be constrained competitor environment for room growth. Actually, as you know from history, some of our best investments have taken place with highest returns, have taken place in a period of constrained competitor set and this sort of environment. Albeit not quite on this scale, as you might imagine.
We're sort of looking more near and midterm here and saying, broadly speaking, we're looking at the next three or four years, or two or three years with what we've got in 2021 to deal with in terms of the pandemic and hopefully the end of that period, and then the recovery period thereafter. We're perfectly comfortable with our 13,000 pipeline rooms to build out. We may replace some of that pipeline as it comes out, but we're not anticipating doubling the pipeline during this period. We do want to invest in some optimization activity in the U.K. Whereas in Germany, of course, it is much more about pure growth because we'll have about 70 hotels in our open and pipeline as a result of this latest transaction, which is a great place to be, given we went from a standing start a few years ago to that.
Obviously, we think there is another long-term potential 60,000 rooms there. There's a long way to go, a long runway for growth to go. We will have to balance our capital and our returns profile in an appropriate way. We always do that with discipline, as you know, and with the right hurdles. That's a sort of near-term issue as opposed to, do you think that there isn't a future runway for the business or further growth should we wish it in the future? I'm sure there is.
Yeah.
That's the answer to the first question. The second question was.
The German conference parks.
yeah. We have one or two hotels in Germany near conferences. The Frankfurt Messe, as you say, that was the first hotel we opened in Germany, not because we picked it from a network perspective, because it was half built, and so we could get a test of Premier Inn open and running quickly, not because we had a particular love of conferences. A large proportion of our estate is not in conference territories using city center, just sort of tier 1, tier 2 city center locations. If we think about Germany's recovery during the summer, we had a very similar sort of recovery to the U.K. in Germany. We had extremely strong occupancy in tourist-type destinations like Hamburg, and low recovery in business traveler locations. There was the same sort of mix that we saw in the U.K.
We don't anticipate that Germany would recover differently post-pandemic, particularly than the U.K. Finally, I think you said, did we cherry-pick? Yes, we cherry-pick. There were 53 hotels. The company owns 53 hotels. We went through a process of picking the ones that we liked, and we started with a bigger list and then knocked off the ones that didn't meet our returns threshold, weren't quite on point for the refurbishment plan, didn't fit in the right tier 1 location that we wanted, et cetera. We ended up with a group of 15 out of the bigger whole.
If it's okay, can I just ask a little follow-up to the last one there? Monique said that the deal looks good compared to what you paid for the Foremost deal. Obviously, you've now written off the purchase price of Foremost, and you've now once again paid for leasehold hotels in Germany. Is there anything we should read from the Foremost impairment into what is the real value of a leasehold property in Germany?
I'll let Nicholas talk about the technical side of the impairment answer. Just on the We've given you a sort of capital number for this transaction. The majority of that is our refurbishment costs. It's quite an interesting process. One is we're taking the lease obligation away from the company that currently has it. We've renegotiated with landlords the lease transaction, and they sign a new lease with Whitbread on our lease terms with the right rental levels that may be different to the old rental levels, but with our covenant. We agree with them what portion of the refurbishment the landlord pays and what we pay.
The majority of the capital spend there is refurbishment costs, which obviously we have to do to have a Premier Inn branded product in the market at the right quality level to build a brand nationally in Germany of quality and high standards. I'm not at all uncomfortable that that isn't a very clear demonstration of the fact that we are seeing constraint in the market and that we can capitalize on that. Nicholas, do you want to deal with the impairment?
On the impairment in Germany, you buy a company at that moment in time. If you look forward with Foremost, we think it's going to be a really valuable part of our shareholder value that we can bring to the whole of our German acquisition overall. We're still hoping it's good. In terms of the goodwill, the goodwill is a reflection of the market volatility and risk out there. It's a market kind of discount rate that we have to use, which has, of course, gone up in this marketplace, and also it reflects the fact that over the next year, 18 months, two years, the cash flow is going to be less than we initially thought it would be. It doesn't necessarily mean that the long-term cash flow value is still there.
It's a moment in time in terms of where that discount rate is and the kind of the next couple of years of kind of cash flow [that April].
Thanks very much.
Thanks, Richard.
Our next question comes from Tim Barrett of Numis. Tim, your line is now open.
Hi, Tim.
Hello. Morning, both of you.
Hi, Tim.
I think I have two things left, please. Firstly, a data question. Apologies because I know you give loads of data points, but can you help us with the jigsaw here? In terms of August, can you say what the food and beverage performance was, just so we can get a view on Eat Out to Help Out? In September, you've had a healthy occupancy pick up, but can you say what total sales were in September, please? The second question was the inevitable COVID one. Tier 3 has come in since you last updated the market. As far as I can tell, it does limit mobility because people aren't meant to move in and out of travel in and out of tier 3 regions. What are you seeing in those areas where you have tier 3 exposure?
It sounds like you won't close hotels, but can you just confirm that as well, what your response is? Thank you.
Yeah. Let me start while Nicholas just thinks about what stats we do or don't want to disclose and will and won't disclose on stats. Let's just deal with the sort of lockdown question. We've got some hotels that are closed in what is the Welsh devolved nation restrictions, and we've got nearly 40 hotels in Wales that are actually closed because that is the legal position in Wales for them. You're right that in none of the tiers at present are we required to close our hotels in England and Scotland. We haven't, but they are subject to restrictions. If you take our estate, we've got nearly 440, including the 40 in Wales, that are under some form of local or national restriction.
Even those that are not, obviously trading is impacted when people don't move from areas that are under restriction to areas that are not. Of course, the whole thing is going to impact us. Yes, you're quite right. We are expecting not to hold up the occupancy levels that we had in September. We're seeing those drop. October's dropped to about 50%, just maybe top 40%, 50% occupancy in October. As the restrictions bite and we add places to them during November and December, we'd expect that to drop further.
Yes.
In terms of our various scenarios, the thing about running a business in this environment is, a plan is useless. Planning is brilliant. A plan does not work, but planning as a function does. We run all the time a very large number of financial scenarios and operational scenarios, which is quite taxing for the team, but they've got pretty good and agile at running it. We did that all the way through the pandemic from the get-go, back from the end of January onwards in terms of thinking about this.
When we did the scenarios in order to have the rights issue, and we looked at our reasonable best and worst cases in rights issue time, we were cognizant of the fact that things were likely to go in waves, and that as the R rate came down and we unlocked the country in July and August, that the R rate would go back up and the likelihood would be that we would have local or indeed a second national lockdown at some stage. We have planned on that basis from a financial perspective and an operational perspective. We've got quite good at opening and closing and managing restrictions. Yes, of course it will impact, and of course, we will see lower occupancies as we go through it, and that may last until probably the springtime.
During the winter months, there'll be a higher requirement for the government to keep the virus under control because the highest use of the NHS and critical beds is during the winter for non-COVID cases generally.
Yes.
As you get into the spring and people get outside again and treatments and vaccines become more of a reality, then that's when you start to expect to see some relief.
I think a lot in your question was you asked about F&B in August. We're not going to give specific F&B numbers just for a month, Tim, I'm afraid. We did say in our trading statement a few weeks ago that the kind of accommodation and F&B was down about 38% in August overall. I think you were asking us what the total sales were for September. Again, we probably won't give the actual numbers, but what we have said is the occupancy in September was 58%, and rate was about 20%-25% down year-on-year.
Yeah, thanks. I was looking for the equivalent to the 38.5% really, but would one to just assume that momentum was similar to the occupancy trend, absent food and beverage, I guess?
Yeah. You saw occupancy grew in September from August.
Yeah, F&B will be lower.
Our market share was actually bigger in September than it was in August.
Okay. Thanks, both of you.
Yeah, thank you. Thanks.
Thanks.
Our next question comes from Leo Carrington of Credit Suisse. Leo, your line is now open.
Hi.
Hi, good morning.
Good morning.
I might just ask a follow-up on Germany, please. In terms of as the market recovers in terms of RevPAR in Germany, at what point do you think the Germany estate will positively contribute to your returns? If you don't want to give a precise point of time or number of rooms, in terms of the modeling, would you expect to see a similar kind of operational leverage in the Germany business in the recovery to overall to the U.K.?
Okay. Well, let me hand this to Nicholas for one second. When we assess an addition to our German network, either through a transaction like the one we just talked about, which is a bulk transaction or an individual site organically, it has to pass a returns threshold, and we've often said 10%-14%, it's quite a wide range, but it's a similar returns profile to U.K. capital deployment. That is what we expect over time in those sites and our models. Anything we're doing currently, our models are adjusted for COVID-19 impact and recovery.
Yeah.
We're not assuming that there's a bounce back to pre-COVID levels with any form of immediacy. We've taken down RevPARs, and we've kept them down in the modeling. We make sure that we've got the opportunity to get the right returns profile over time. Nicholas, do you want to say more?
On probably leverage. We've talked in terms of profitability that we expect it to be in profitability by 2022 overall. I think in this environment, we're not going to give specific guidance, but you can expect that to be pushed back a year.
At the moment, I think overall. In terms of the leverage, the U.K.'s got tremendous scale with 800 hotels. Actually, each of the hotels that we've got in Germany is quite significantly bigger than the U.K., about twice the size of the ones we've got in the U.K. We expect similar sorts of leverage to come through once you've kind of cut your before you take your central overheads in. We're also going to leverage in quite significantly off the U.K. We have a lot of the commercial team, pricing team, the web team, are leveraged off the U.K. team as well. You're going to get the benefit of that as well. Is that all right, Leo?
Yes, that's helpful. If I might just ask a quick one on distribution. Commentary in the market has been that distribution mix has moved to OTAs with leisure mix increasing. For you, it looks like direct booking is as strong or stronger than it has been.
Yep.
Any sort of reasons for the sort of change in propensity for people to book direct, and do you think you can hold on?
Yeah, they've always booked direct with us, and they've continued to book direct, and we continue to make sure that that is the preferred option for a guest. Without a doubt, that is helping us over-perform in the market because OTAs generally would be inbound. There hasn't been any inbound.
Yeah.
I think some of the OTAs themselves have announced restructurings, which tells me that they are under pressure, so there must be a sort of huge reduction in their own revenue lines. For us, it's an important differentiating component of our mix and our operational margin by not having to pay commission rates, et cetera. We're very comfortable with where we are. I mean, we are adding to our distribution mix, but the places we're adding are places that don't cannibalize the business we take anyway. When we have guests who would stay with us, they will come to us. Paying an OTA as a middle person in the middle does not help us at all strategically or financially. For things like travel agents for business who have to book through a business travel agent, then that's different. That's not cannibalization.
That we definitely will increase our distribution reach through non-cannibalizing channels.
Definitely, if you go through an OTA, you get a whole lot of kind of names of hotels you don't know. Actually right now, having a hotel you can book that you trust is so important, and that's why people, I think, are coming to us directly more than ever.
Okay. Thank you very much.
Our next question comes from Joe Thomas with HSBC. Joe, your line is now open.
Hi.
Good morning. Just a couple, please. First one, big picture and long term. What are you expecting to happen now to the openings pipeline? Sorry, I am thinking number of rooms in the industry. Are you expecting to see it start to shrink at all? I think the commentary has been that you are expecting it to continue to grow, a bit at a lower rate. Anything you could just give there on your thoughts. Secondly, a bit more detail, the sensitivity, the 1% revenue swing and a GBP 18 million impact on profit. Can you just tell or give us a sense of what the moving parts are within that and as revenues start to recover whether we should expect to see that decline significantly?
Okay, well, let me take the first one up. People will think hard about their current pipeline. If it's almost open, it probably will open into a very difficult market because at a certain point, you're past the point of no return for the investment. If you're a leasehold, if you're doing it through leasehold, the developer will have developed and be on schedule, and actually you'll be unable to withdraw from it. Think about sort of general supply coming into the market. That's particularly difficult because you're dropping supply in a world where, especially if you're a four-star player in the London market, for example, at the moment, that would look very bleak to be opening up growth.
What normally happens in these periods are, therefore, that at the worst point, some supply goes into the market because it's the finishing off of projects which are three-quarters or five-sixths of the way through, and they finish off and drop into the market, which does not help the position for those operators because it drains cash and profitability. People stop, either because they haven't got the capital to put in or they haven't got the cash flow, and they also stop investing, and so you see a slower room growth. You also see supply drop out of the market because people come out of the market either for alternative use or because they frankly go out of business.
Over the course of a period of months and years, you go through a period of quite constrained supply growth in the market and very low investment in the quality of room product, which of course, three or four years later, comes home to roost in the form of higher demand, but without the supply to meet it and/or very poor quality room product that it hasn't kept up with guests' expectations.
If you go back in history, some of our best returns have come from investing in those periods of constraint where asset prices are lower or rents are lower and when nobody else is going to be putting in room growth or investing in the quality of their product. That's why we're quite keen that we continue with, particularly for us, the optimization program, to get some of our Premier Plus rooms further across our 800-hotel estate because their yields, their returns, their occupancy level, and their rates have held up even post-COVID in a much stronger way than they did actually pre-COVID. We are looking at maintaining pipeline, but not necessarily extending it at this stage, but doing some work on investing in optimization in the U.K., whereas in Germany, it will be about growth.
Joe, you asked a question about sensitivity of the 1%, GBP 18 million, what are the moving parts in there? I guess we haven't given that on purpose because there are so many moving parts across the business. What we have said before is if you look at the U.K., it's about 1%, it's about GBP 15 million, then the rest is out in Germany and the restaurants on top of that overall. That's before you take into account the furlough scheme, and the business rates, which we'll have to wait and see how those continue into the new year. Probably won't go into any more detail than that, I'm afraid, Joe.
Cool. Thanks very much.
Thank you.
Our next question comes from Paul Ruddy of Goodbody. Paul, your line is now open.
Hi. Morning, guys. Just one very quick last question. Just on Travelodge and market share gains, is that where you would have picked up market share in August and September and October? Or is it just coming across the market as a whole?
Across the board.
It's across the board, actually. The market, it's kind of interesting, actually, if you put it in this, I think we've gained the most market share. Actually Travelodge probably next, and then you've got the plethora underneath that have actually had even a tougher time than Travelodge overall. That's before you're going to get into the independent markets, who I imagine have had an even worse time overall. It's really across the board.
Thank you.
Our next question comes from Jaafar Mestari of Exane. Jaafar, your line is now open.
Hi. Good morning, everyone.
Hi.
Hi.
Just two related questions for you, please. In terms of acquisition spend, are you able to quantify how much headroom for acquisitions you have within the current financing? I'm asking again because you said previously you wouldn't do anything transformational with that financing, but you could continue to do infill deals. I guess the last infill deal we had in mind at the time was around GBP 300 million, and the ones doing this morning just happens to be much, much smaller. How much in total do you think is doable without acquiring new equity? As a related question, you said, for example, you don't have the bandwidth at the moment to look at things like the Middle East. More generally, what's the universe of opportunistic investments you're looking at in terms of businesses and in terms of geographies?
This is a company that has a history of owning all sorts of leisure assets. You still have almost the two levels of management, Premier Inn management and then Whitbread management. Is there a scenario where in this crisis, you stumble upon another non-accommodation business with attractive long-term features that you like?
Okay. Apologies for sort of potentially being a bit weaselly in the answer is that your questions are highly speculative. I know you know that. It's quite hard actually to give you a specific answer to the question. We're not politicians, so we do actually normally like to answer the question we've been asked as opposed to a question we wish we'd been asked. It's incredibly difficult to answer your question. Let me frame that in that we've got a really strong balance sheet. We have a strong unencumbered asset back, which allows us funding flexibility. We've got a really strong business. We're a number one brand. We've got a direct distribution platform that is sort of unrivaled across the globe, and we're brilliant operationally, and we own and manage. We're in a really good place.
Financially, we feel that we did the right thing by raising equity earlier in this crisis, and that's going to stand us in good stead. We've got good liquidity, we've got good facilities, and we've got good access to funding. From that perspective, we have a lot of flexibility. We also, however, are in the middle of a pandemic where the outcome of it is yet unknown, and so we're managing the uncertainty of navigating our way through all of this. We do think about the business in those two ways, managing the current situation and positively positioning ourselves to extend our market leadership afterwards because we think that we will be a sector winner. We're not immune in the short term, and the market outlook is difficult.
That's why we've been protecting the business and managing our cash wisely and managing the operating environment, which is tough. We have a strong and experienced management team that are doing that really well, and I can't thank them enough for that. We do think that overall, where I think you're going to is that not only the hotel sector will be significantly changed and the competitive landscape will be materially changed, but also adjacent industries probably similarly so, and Whitbread does have a long history of hospitality. So with all of that sort of significant constraint in investment and acceleration of structural decline and/or consolidation opportunities, of course, we believe that we will have a good role to play in the future in that activity, but we're unable to confirm right now what that's going to look like.
That we're trying to think about running the business with both horizons in mind, and that's why you saw, kind of rather strangely, that we've executed our first transaction for growth in Germany at the same time as we are really rather tightly managing a constrained environment. We are thinking about both of those time horizons and managing to getting our shareholders the best possible returns that we can with the capital that we've raised.
Thank you. That makes a lot of sense. I think I'll leave it to that, but this is maybe as just a sort of follow-up, something of the sale of the foremost portfolios, which was in the hundreds rather than in the dozens.
Yeah. Don't forget, the foremost portfolio, however, was only 19 hotels, and we've just acquired 15. It's not at a similar scale, but of course the landscape's changed, hasn't it? The competitive and asset price landscape have unrecognizably changed than pre-COVID-19. That's why we think there will be more opportunities, not less, going forward for the strongest players with the best brands.
All right. Makes sense. Thank you very much.
Yeah.
Thanks, Jaafar.
Thank you. I think we might, Adam, need to be on the last question if there is one. We may have come to a natural end, but if we haven't, perhaps we are into last question.
We have no further questions at present, so you may go ahead.
Perfect. We did come to a natural end. In that case, can I just thank everybody for their time this morning and just to say, if you have follow-up questions, both Nicholas and I and the IR team, Paul and Amit and Annie are here to help. Feel free to get in touch, and we can answer anything specific that you have in mind.
Good. Thank you.
Thanks. Have a great day, everyone.
Thank you.
Ladies and gentlemen, this concludes today's call. Thank you very much for joining. You may now disconnect your lines.