Premier Inn wants to return £2bn in dividends to its shareholders

Premier Inn’s owner has promised to make a “step-change” in the financial performance of its hotel. It announced plans to return over £2 billion (£1.65 billion) to its shareholders within five years, and to increase profits by £300 million.

Whitbread, the company that owns the Beefeater hotel chain, as well as the Brewers Fayre, Table Table and Table Table pub restaurants, has a five-year plan to increase the number of rooms in the UK from 98,000 to 20,000 by 2030, and 20,000 to 98,000 in Germany.

The London-listed firm, which believes it can increase this room count in the UK to 125,000, currently has 86,000 rooms in 855 hotels across the UK, and 10,500 in 59 hotels across Germany.

Dominic Paul, the chief executive of the company, said that the company had accepted offers for 51 of the 126 restaurant it was selling. The company is also converting 112 more restaurants into 3,500 rooms. Planning has already been submitted for one third of these rooms.

The ambitious expansion plans and upgraded cost-saving expectations have given management confidence that it will deliver additional £300m in adjusted pre-tax profits by 2030. Over £2bn in returns will be available to “dividends or share buybacks” and, if appropriate opportunities arise, for additional high-returning investment.

“We’re making excellent progress in our plans, and we are on track to deliver a significant step-change in our performance over the next five year period, which will fund substantial returns to our shareholders,” said Paul (53), who succeeded Alison Brittain last year as chief executive.

“In the UK we have a clear path to extend our leading position on the market and capitalize on the favorable UK supply background.”

The group announced its financial targets alongside the half-year results, which showed flat revenues at £1,57 billion for the six-month period ending August 29, and a 22% drop in profits before tax to £309 millions due to softer demand on the UK hotel market.

Paul stated that Whitbread revenues were over 50% higher than pre-pandemic. The company’s food and drink sales fell by 7 percent due to the disruption caused by the restaurant restructuring.

The occupancy rate for the six-week period ending October 10 was 84,2% despite a softer start in September. Premier Inn revenue per room available, or revpar was £72. This is 4 percent behind the previous year, but still well above pre-pandemic rates.

Whitbread has reported an improvement over the past few weeks, with “a good pick-up” in bookings in October and November. This, along with new commercial initiatives, such as the new reservation system is expected to drive similar sales in the second part of the year. The company will pay an interim dividend per share of 36,4p and launch a new £100 million buyback program.

Samuel Whitbread founded Whitbread in 1742 as a brewer. In 1999, the company sold its beer business. It employs today 38,000 people. It sold its Costa Coffee chains to Coca-Cola at the start of 2019. Morgan Stanley analysts believe that Whitbread’s outlook has improved, and the details of its five-year plan have “eclipsed” any disappointments from the half-year results.

Whitbread topped Wednesday’s FTSE 100 leaderboard, with its shares ending up 186p or 6 percent at £32.58.

Whitbread’s expansion in Germany has been accelerated since the opening of the first Premier Inn hotel in Germany, in Frankfurt, in 2016. The group’s German hotel portfolio has increased to 10,506 rooms across 59 hotels, and another 6,790 are in the pipeline.

The German hotels division reported an increase of 21 percent in revenues in the first six months of the year, as the demand for accommodation increased over the summer due to Euros and several high-profile concerts. Paul stated that the momentum in Germany is building. He added that due to “progressive maturation of our estate”, it will breakeven this year.

The adjusted losses decreased to £9 millions, from £14 in the first quarter. Revpar (revenues per room available) in Germany increased by 15 percent to €61. The management expects Premier Inn’s business to grow “significantly” in revenue and profits by 2030, due to its rapid growth. Paul stated that Premier Inn’s growth in Germany shows how “the brand can travel internationally”.

“We could not make that claim just a few short years ago, because we were so tiny in Germany. But now we have the highest guest ratings in our segment here in Germany.”

Paul acknowledged that while the company’s focus is on the UK and German businesses, the German expansion gave him and his team the confidence that at some point “there is an option to internationalise Premier Inn”.