Whitbread Plc (LON: WTB) have announced a first half drop in pre-tax profit and UK accommodation sales amid a challenging UK leisure and hotel market.
The owners of the Premier Inn franchise speculated about tough political and economic uncertainties driving the drop in profits and sales. Firms such as Marriott (NASDAQ: MAR) and Elegant Hotels (LON: EHG) have merged to stimulate business.
Alison Britain, Chief Executive at the Premier Inn group described the first half performance as ‘resilient’ amid testing times for not just the leisure industry but UK business in general.
She said: “Market conditions in the UK continue to be challenging with business confidence remaining weak and leisure confidence in decline, coinciding with heightened political and economic uncertainty.Whilst the near-term market conditions in the UK remain uncertain, we have confidence in the long-term structural opportunities available in the domestic budget travel markets in the UK and Germany.”
Britain added “Shorter-term trading conditions in the UK regional market have been difficult, particularly in the business segment where we have a higher proportion of our revenue, whilst trading in London remained strong.”
Adjusted profit before tax slipped by 4.1% to £236 million in the first six months of this year compared to the £246 million figure previously mentioned.
Whitbread sold Costa Coffee to Coca Cola (NYSE: KO) last year in a for £3.9 billion, while completing a £2 billion share buyback in July 2019.
Total UK accommodation sales dropped by 0.6% while like for like sales fell 3.6% following tough domestic market conditions.
The group concluded by saying that there is no way to speculate how business and investment will unfold in 2020, such is the uncertainty of both economic and political relations currently.
Russell Pointon, Consumer and Media Director at Edison Group said: “Market conditions in the UK continue to be challenging with business confidence remaining weak and leisure confidence in decline, coinciding with heightened political and economic uncertainty, which has continued into the third quarter of FY20. This has impacted hotel domestic demand, particularly in the regional market, where 80% of Premier Inn hotels are located. There has also been a greater decline in short-lead discretionary bookings, which tend to be at higher price points.”
He added “Guidance given in April 2019 for costs, efficiency savings, investment in Germany and revenue sensitivity remain unchanged but it is difficult to predict how business confidence and business investment will evolve in the second half of FY20 and into FY21 and impact demand for short-stay, domestic travel. Whitbread’s business model has a relatively high degree of operating leverage – with every 1% movement in RevPAR, PBT is impacted by £12-15m.”
Currently, shares of Whitbread Plc are trading at 4,185p per share, seeing a 0.43% fall. 22/10/19 10:23BST.
By Ishen Patel
Source: UK Investor Magazine