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West Midlands hotel operator Travelodge share mid year financial results

London City Travelodge

Highlights – six months ended 30 June 2019

  • Total revenue up 0% to £337.3m (2018: £318.2m)
  • 2019 H1 RevPAR() up 0.6% to £38.78 (2018: £38.57)
  • RevPAR growth 6pts ahead of competitive segment ()
  • Occupancy(1) up 2.4pts to 77.9%
  • Average room rate(1) down (2.5)% at £49.78 (2018: £51.06)
  • 10 new hotels opened in the period
  • H1 2019 EBITDA() £149.6m (under IFRS16)
  • H1 2019 EBITDA (adjusted)() up £1.1m to £44.7m
  • Cash of £85.0m at 30 June 2019
  • ‘SuperRooms’ now available in 50 hotels across the UK
  • First ‘Travelodge Plus’ hotels trading strongly
  • Record 325 TripAdvisor Certificates of Excellence – 101 more than prior year
  • Network now stands at 584 hotels/44,514 rooms (up 4%)()
  • Full £440m bond refinancing completed extending facilities to 2025

Peter Gowers, Travelodge Chief Executive commented: “It’s quite a tough market out there, but Travelodge has continued to outperform despite the challenging conditions.  We’ve been investing in greater choice for customers while maintaining our reputation for low prices, helping us attract more and more people looking to make their travel money go further in these uncertain times.”

Peter continued: “Against the backdrop of Brexit uncertainty and a slowing economy, there are clearly some challenging trends to deal with. At Travelodge we’re focused on what we can do, which is deliver value to our customers.  We’ve been steadily investing to modernise our hotels, adding SuperRooms across the country and launching the new Travelodge Plus format to offer that little bit more choice, while maintaining low prices to stay true to our roots.  With all the political and economic uncertainty, we naturally remain cautious about the short-term outlook. But in the longer-term, the fundamentals for low-cost hotels remain good, and with our clear brand proposition and strong development pipeline, we are well positioned for the future.”

Summary

Against the backdrop of a challenging political and economic picture, our focus has been on doing all we can to develop our value proposition for customers and maintain our low-cost operational model.

In the first half of the year, total sales were up 6.0%, fuelled by a strong contribution from our recently opened new hotels, including 10 that were opened in the first half.  They also benefited from the encouraging results from our new SuperRooms, which now account for almost 5% of total sales after just two years of operation.

Like for like RevPAR was up 0.6% on the prior year, 2.6pts better than the STR Midscale and Economy Segment as a whole, which was down by 2.0%.  Our effective data analytics and revenue management tools helped us strike a good balance between pricing and occupancy levels, underpinning our growth.

We opened 10 new hotels in the first half of the year, including our latest Travelodge Plus hotel, at Marlow in Buckinghamshire.

In common with the wider retail and hospitality sector, we continued to face significant cost pressures, including the further increase in the National Living Wage from April 2019.  We helped mitigate these pressures with ongoing investments in operational technology, including smart tablets to help manage key processes, and improved automated scheduling for our maintenance team.

These changes helped to deliver EBITDA (adjusted) of £44.7m (2018: £43.6m), a £1.1m increase on the prior year.

We completed a full refinancing of the company in July 2019, extending our facilities to 2025 and bringing down our average cost of debt.

Outlook and Recent Trading 

The UK continues to be in a period of political and economic uncertainty and there are well known cost pressures impacting the wider hospitality and leisure sector. We therefore remain cautious on the short-term outlook.

So far this year the STR MSE segment has seen mixed trading.  Overall, to date, the STR MSE segment RevPAR is down (2.3)%(), with good growth in London and significant declines in RevPAR in the Regions.  In both London and the Regions Travelodge has continued to outperform the segment, driven by our strong price proposition and improved occupancy.

Our new opening programme remains on-track and we expect to open 17 new hotels in 2019, with the remaining new hotels expected to open in the final quarter of the year.

The outcome of the current Brexit discussions and the resulting position after 31 October will clearly have an impact on market conditions in the short-term.

The long-term potential for low-cost hotels remains clear and with our straightforward budget positioning, rising reputation for quality and strong development pipeline, we remain well positioned for the future.

Financial Performance

For the period ended 30 June 2019:

UK like-for-like RevPAR was up 0.6% to £38.78, 2.6pts ahead of the growth rate of the STR MSE segment, which was down 2.0%().  We saw strong growth in UK like-for-like occupancy of 2.4pts to 77.9%, offsetting a decline in UK like-for-like average room rate of 2.5% to £49.78 (2018: £51.06). This was supported by our strong price proposition and new SuperRooms.

The contribution from our maturing new hotels (including the 10 new hotels opened in the period), positive UK like-for-like sales growth, higher food and beverage sales and growth in Spain, resulted in total revenue growth of 6.0% for the period to £337.3m.

This good revenue growth has helped to mitigate the impact of the cost pressures facing the sector as a whole in conjunction with the higher operational costs resulting from our improved occupancy.

This combination of revenue growth and cost increases has resulted in EBITDA (adjusted) increasing by £1.1m to £44.7m (2018: £43.6m).

The business continues to generate strong cash flow with closing cash at the period end of £85.0m.  We also benefit from our long-term facilities including an undrawn £40m RCF.

For the quarter ended 30 June 2019:

UK like-for-like RevPAR was up 0.1% to £43.69, 1.8pts ahead of the growth rate of the STR Midscale and Economy Sector, which was down 1.7% for the same period.

Total revenue growth in the quarter of 6.0% to £192.1m was driven mainly by the contribution from our maturing new hotels opened since the beginning of 2018, together with growth in UK like-for-like RevPAR, food and beverage sales and Spain.

This good revenue growth has helped to mitigate the impact of the cost pressures facing the sector as a whole in conjunction with the higher operational costs resulting from our improved occupancy.

In the quarter, EBITDA (adjusted) was up £1.8m to £43.0m.

Operational Update

We continue to make good progress towards our aim of becoming the favourite hotel for value, by delivering our customers a combination of location, price and quality that suits their travel needs.

Location:

We continue to extend our network and further reposition Travelodge towards more business hubs, key city locations and emerging short-break leisure destinations.

We opened 10 new hotels during the first half of the year, investing right across the UK.  In England, these included our latest new build Travelodge Plus hotel, in Marlow in Buckinghamshire, our first hotel in Bury St Edmunds in Suffolk and our first hotel in the historic centre of Winchester, Hampshire.  In Scotland we opened an additional hotel in Glasgow and in Wales a new seaside location at Rhyl.

By the end of the half year, our network stood at 584 hotels.

We expect to open 17 hotels by the end of the year, creating approximately 300 new jobs.

Price:

Travelodge remains focused on making it affordable to travel in the UK, with a combination of flexible and advance saver rates to suit traveller needs.  We made further investments in our digital channels, and in our predictive data capabilities, to help support the right pricing strategy in each location.   We delivered strong occupancy growth in the first half of the year.

Quality:

We have continued our substantial investment programme to modernise and upgrade our estate, delivering more choice than ever to our customers:

Core Travelodge:

We undertook a £100m modernisation programme to bring all our hotels into the new Travelodge look and feel from 2013 to 2016 alongside the roll-out of separate pull-out beds for children to replace older style sofa beds.

We re-started the normal cyclical upgrade programme again in 2018, and in the first half of 2019 we invested £12m on hotel refits.  Each new refit adds LED lighting to the room, reducing our energy consumption. We are also adding USB ports by the bedside to support phone and tablet charging.  In parallel, we are reinforcing the success of our pull-out beds by upgrading these to a new higher comfort specification.

SuperRooms:

With more and more business travellers choosing Travelodge, we have added an extra choice for those who want just that little bit more comfort.  Our new SuperRooms, in the same manner as ‘premium economy’ airline cabins, offer added amenities – including a coffee pod machine, iron and ironing board and greater refreshment choices.  These have now been rolled out to 50 hotels nationwide and will be added to our new hotels in line with demand.

Travelodge Plus: 

In key city and business locations, we have launched a new Travelodge Plus hotel format.  These hotels feature a more premium look and feel, SuperRooms and a new-look restaurant, with separate zones for working, groups and dining.   Now present in London City, London Waterloo, Gatwick Airport, Brighton, York, Edinburgh and Marlow, these are trading strongly with higher than average quality, RevPAR and food and beverage sales.

Accounting Standards Update 

The group has adopted IFRS16, a new lease accounting standard, from 1 January 2019. The new standard has no economic impact on the business and will not change the way the business is run.

It has, however, had a significant impact on the presentation of the financial statements including reported EBITDA, reported profit before tax and the balance sheet treatment of leasehold obligations.  As at 30 June 2019, the standard increased EBITDA(8) by £104.9m and increased the reported loss for the period (before exceptional items) by £(21.7)m. Non current assets (excluding deferred tax) have increased by £2.4bn, representing the right of use relating to leasehold obligations, and liabilities have increased by £(2.5)bn, representing the discounted value of future lease liabilities.

In implementing IFRS16, the financial statements have been prepared under the modified retrospective approach under which comparative results are not restated.  Accordingly, in order to facilitate comparability to the previously reported results, the financial statements include, where applicable, a reconciliation of the IFRS16 result to the frozen GAAP(9) result.