Premier Inn owner aims to return £2bn to shareholders

The owner of Premier Inn has pledged to deliver a “step change” in its financial performance as it unveiled plans to return more than £2 billion to shareholders over the coming five years and increase its profits by at least £300 million.
As part of a new five-year plan, Whitbread, which owns the hotel chain along with the Beefeater, Brewers Fayre and Table Table pub-restaurants, wants to expand the number of bedrooms it has in the UK to 98,000 by the end of 2030 and to 20,000 in Germany.
The London-listed company, which believes that in the longer term it can increase that room count to 125,000 in the UK and Ireland, has 86,000 rooms across 855 hotels in the UK and 10,500 rooms across 59 hotels in Germany.
The plan also includes asignificant restructuring of its restaurants, which was initiated this year by its chief executive, Dominic Paul, who said the company has accepted offers on 51 of the 126 restaurants it is selling. It is converting another 112 restaurants into 3,500 bedrooms and planning has been submitted for a third of those rooms, the company said.
Its ambitious expansion plans, together with upgraded cost savings expectations, has given management confidence it will deliver an additional £300 million in adjusted pre-tax profit by 2030 and over £2 billion in returns that will be available for “dividends, share buybacks and, if suitable opportunities arise, additional high-returning investments”.
“We are making excellent progress with our plans and over the next five years are set to deliver a step change in our performance which will fund significant returns to shareholders,” said Paul, 53, who replaced Alison Brittain as chief executive last year.
“In the UK, we have a clear pathway to further extend our market-leading position and capitalise on the favourable UK supply backdrop.”
The financial targets were set out alongside the group’s half-year results which showed flat revenues of £1.57 billion in the six months to August 29 and a 22 per cent drop in pre-tax profits to £309 million amid softer demand in the UK hotel market.
“In terms of trading this half was going to be a tougher half,” Paul said, pointing out that Whitbread’s revenues are over 50 per cent bigger than they were pre-pandemic. As the company expected, its food and drinks sales were down 7 per cent due to the disruption of the restaurant restructuring.
Despite a soft start to September, occupancy over the six weeks to October 10 remained strong at 84.2 per cent. Premier Inn’s revenue per available room, or revpar, was £72, 4 per cent behind last year but well ahead of pre-pandemic levels.
Whitbread said it has seen an improvement in recent weeks with a “good pick-up in bookings across October and into November.” This, together with the launch of new commercial initiatives such as a new reservation system, is expected to drive like-for-like sales in the second half of the year.
The company plans to pay an interim dividend of 36.4p per share and will launch a further £100 million buyback of shares.
Whitbread was founded by Samuel Whitbread as a brewery in 1742 but it sold the beer business in 1999. Today it employs 38,000 people. At the beginning of 2019 it sold its Costa Coffee chain to Coca-Cola for £3.9 billion and first entered the German market in 2016.
Analysts at Morgan Stanley believe the outlook is getting more positive for Whitbread, suggesting that details of the five-year plan “eclipses” any disappointment from the half-year numbers.
Whitbread topped the FTSE 100 leaderboard on Wednesday, its shares closing up 186p, or 6 per cent, at £32.58.
Since opening the first Premier Inn in Germany in Frankfurt in 2016, Whitbread has cranked up expansion into the country. The group has grown its German hotel portfolio to 10,506 bedrooms spanning 59 hotels and has another 6,790 rooms in the pipeline.
Its German hotels business reported a 21 per cent increase in revenues to £115 million in the first half of the year as demand grew over the summer months thanks to the Euros and a number of high-profile concerts. “The momentum is really building in Germany,” Paul said, adding that “progressive maturity of our estate” means it is on course to achieve breakeven on a run-rate basis this year.
Adjusted losses narrowed to £9 million, down from £14 million in the first half. German revpar (revenue per available room) rose 15 per cent to €61.
Its barnstorming growth in the country means management, who are striving for Premier Inn to become Germany’s number one hotel brand, expect the business to deliver “significant revenue and profit growth” by 2030.
Paul said that the growth and performance of Premier Inn in Germany demonstrates how the brand “can travel internationally”.
“We couldn’t make that claim a few years ago because we were so small in Germany but now we are seeing the highest guest scores in our segment in Germany.”
While the company is laser-focused on the UK and German business, Paul conceded that the German expansion has given him and his team confidence that, at some point, “there is an opportunity to internationalise Premier Inn even further”.