Whitbread in talks over finance

Staycity Premier Inn Paddington

Whitbread told the market that it was in talks with lenders after closing its hotels, a position it said may have put it in default of its agreements.

The company said that had “successfully navigated numerous turbulent periods during its proud 278-year history”.

Whitbread’s share price rose by 11% on the announcement. Sophie Lund-Yates, equity analyst, Hargreaves Lansdown said: “Provided conditions return to normal relatively soon, we think the group will make it out of the woods. However, a prolonged shutdown may be too much for the group to manage, we will just have to wait and see.”

The group has, in line with the government's recent announcements on social distancing, temporarily closed all pubs and restaurants and has begun the process of closing all Premier Inn hotels in the UK and Germany. The company was in discussions with the UK government regarding the use of some hotels, in locations near hospitals, to support front-line key workers.

Whitbread said that it was possible that closure of hotels and restaurants  - other than those which would stay open to support key workers - could amount to a technical event of default under its banking arrangements and certain other financial obligations and the group was seeking waivers wherever this was “required or prudent”.

The group said that its financial performance for the year ended 27 February was expected to be in-line with expectations, but trading in the period subsequent to the year-end has been “materially adversely impacted by COVID-19”.

The company said: “ The situation is rapidly changing and at this point it is not possible to predict the full extent of the market down-turn and the impact on the business's revenues. Whitbread entered the year with a strong balance sheet and access to significant liquidity. There is material headroom on our funding facilities, and we will be paying all our rent payments this quarter. In addition, the business is backed by a valuable freehold property estate.”

The group had taken a number of measures to cut the outflow of cash, including postponing room refurbishment plans, marketing, non-essential training and staff recruitment and the postponement of the previously-announced incremental investment of £25m. All non-committed development capital expenditure was also cancelled.

It was also planning to place “a significant number” of site teams on a temporary furlough, with all employees remaining on full pay. The group was working through the details of the recently-announced government support package, which should pay up to 80% of the salaries of those furloughed employees.

Whitbread said that it “warmly welcomes the recently announced government support measures for the hospitality industry. In particular, the 12-month business rates relief, which is expected to save the business c.£120m in FY21, and the contribution to salary costs of furloughed employees, the details of which are still being worked through. Both these measures will have a material positive impact on cashflow during the year.”

It added: “The combined strengths of its people, business model and its brands, alongside a strong balance sheet and the decisive action being taken, means Whitbread is well-placed as we face into this uncertain period.”

Lund-Yates said: “It's fortunate that most of Whitbread's hotels are owned rather than leased. That means the group's rent payments are lower than they would otherwise be, although they are still substantial. A sizeable property portfolio means the company can shoulder significant quantities of debt, and it is. At its half year results in October 2019, the group reported debts (including lease obligations) of 2.3 times adjusted operating cash flows.

“After starting out in brewing and pubs way back in 1742, Whitbread has reinvented itself more times than David Bowie. But despite Whitbread making it through both the Napoleonic and World Wars, COVID-19 may well rank among the biggest threats the group has ever faced.”


Insight: As Lund-Yates pointed out, trading was already tough for the discount hotel chain, with fewer visitors despite lower prices. It was having to look to Germany for growth, something which was proving tough and expensive as all the other hotels in Europe piled into the country, in the mainland European region so dominated by Accor’s budget brands.

But expansion is now on the back burner, as Lund-Yates pointed out “we wouldn't be surprised if this was the lowest point for European travel for a generation”.

In this, Whitbread shares its issues with all hotel companies. It is not special. What makes Whitbread special is how wildly dull it has insisted in being in recent years. Really, achingly boring. Eyeballs pulled out rather than think about its business plan.

And how right it has proven to be. Slow and steady may not win the race in Germany, but it has a strong base in the UK filled with prime assets (it was in the process of selling some of its less-prime sites to make it even more so). Its shareholders liked the look of them so much they wanted to sell them off, but it resisted. It was also pressured to fritter away the money raised through the sale of Costa on a striking move in Germany - by this hack, no less - but it resisted. Boring has much to recommend it.