Travelodge reports record results for 2022 and encouraging early 2023 trading

Financial Headlines (year ended 31 December 2022, comparison vs 2019)

• Total underlying revenue up 25.0% to £909.9m (2019: £727.9m, 2021: £559.7m)

• Occupancy¹ up 1.0pts to 81.8% (2019: 80.8%, 2021: 62.7%)

• Average room rate¹ up 22.5% at £64.31 (2019: £52.51, 2021: £52.72)

• RevPAR up 23.9% to £52.59 (2019: £42.46, 2021: £33.04)

• RevPAR performance 10.9pts ahead of the competitive segment vs 2019

• EBITDA (adjusted) of £212.9m, up £83.8m (2019: £129.1m, 2021: £81.1m)

• Cash of £154.2m at 31 December 2022

• Over £100m of de-leveraging in the year

• Rating agency upgrades to B3/B-

Other Highlights

• Total network 595 hotels and 45,781 rooms as at 31 December 2022

• Budget-luxe hotel upgrade program is well underway; completed c.14% of the room estate in 2022 and expect to complete a further c. 10% by the end of 2023

• Six hotels opened in 2022,  including one Irish franchise in Dublin

• Targeting c.300 new locations across the UK and expect to open c. 8 new hotels in 2023

• Successful refinancing completed April 2023

Jo Boydell, Travelodge Chief Executive said: “Travelodge delivered an excellent trading performance in 2022, with record profits and revenue growth. The market recovered, with strong demand for events and short staycation breaks throughout the year as well as for essential business travel and we continued to outperform the Midscale and Economy segment.

“We pursue a clearly defined UK growth strategy and are targeting new hotels in 300 locations across the country. We continue to evolve our brand offering and we are making good progress in upgrading our estate to the new premium budget-luxe hotel design that we launched last year. This includes our next generation room concept and a new contemporary look for our Bar Cafes and receptions.  Initial customer and commercial feedback for this new design has been positive. We also launched our sustainability strategy, ‘Better Future’, which sits at the heart of our business.

“Whilst the current macro-economic environment creates some uncertainty, the budget hotel segment has proven resilient as consumers continue to search for great value options within the marketplace – such as those offered by Travelodge.  Looking ahead, we remain confident in the long-term prospects for Travelodge and excited about our future growth opportunities.”

Jo Boydell, Travelodge CEO

Summary

Travelodge has delivered record financial results in 2022, significantly ahead of its previous record year in 2019.  This performance reflected the strength and resilience of the UK budget hotel market which performed strongly in 2022, driven by strong levels of domestic leisure demand and a rapid recovery in ‘blue collar’ business demand, together with our continued outperformance against the MS&E segment.  There are clearly inflationary cost pressures impacting the industry, and Travelodge is not immune, but costs remained well controlled, supported by our industry leading operating cost model and strong supplier relationships.

Trading in quarter one has remained strong, supported by strong leisure and ‘blue collar’ demand, with accommodation revenue approximately 30% ahead of 2022 levels and approximately 40% ahead of 2019 levels.  Travelodge has performed in line with the segment vs 2022, reflecting the very strong London Q1 2022 comparable and the refit of two large Central London hotels.  We have continued to outperform the segment vs 2019.

As previously announced, we were pleased to complete the lease regear with LXI on 27 January, replacing uncapped RPI rent reviews with capped and collared (4% pa and 1% pa) CPI+0.5% based reviews and lease extensions, for 97 of the 122 leases. The remaining leases, subject to obtaining superior landlord consent, are expected to complete in quarter two.

We also successfully completed a refinancing on 28 April 2023, repaying all external debt through the issuance of new Senior Secured Notes, consisting of £330 million Senior Secured Notes due 2028 and €250.0 million Senior Secured Floating Rate Notes due 2028 and refinancing our Revolving Credit and Letter of Credit facilities.

Whilst the current macroeconomic backdrop and cost of living crisis creates some uncertainty, the budget hotel segment has proven resilience and we expect to benefit from a number of positive demand drivers.  This, together with our tight cost control, healthy cash position and strong supplier relations, as well as the recent rating agency upgrades reflecting our improved debt metrics, position Travelodge strongly for the future.

Performance Overview

The UK budget hotel market performed strongly in 2022, with revenue growth vs 2019 ahead of the total UK hotel market, driven by strong levels of domestic leisure demand and a rapid recovery in ‘blue collar’ business demand, more than offsetting the more gradual recovery in ‘white collar’ corporate demand.

Travelodge’s UK like-for-like RevPAR for the year ended 31 December 2022 was up 23.9% on 2019, approximately 10.9pts ahead of the Smith Travel Research (STR) MSE benchmark competitive segment.

Total underlying revenues for the year were up 25.0% on 2019, with the additional benefit of our new hotels.

There are clearly inflationary cost pressures impacting the industry, and Travelodge is not immune, but costs remain well controlled, supported by our industry leading operating cost model and strong supplier relationships.

Travelodge delivered record profits with EBITDA (adjusted) of £212.9m (2019: £129.1m, 2021: £81.1m).

We ended the year with a strong liquidity position, and cash of £154.2m after de-leveraging by over £100m in 2022.  We were also pleased that both Moody’s and S&P upgraded our credit ratings in late 2022 and early 2023 to B3 and B- respectively, reflecting our strong performance and stable outlook.

Financial Performance 

For the year ended 31 December 2022:

Trading in the early weeks of 2022 was impacted by the Omicron work from home guidance in place for most of January.  Following the lifting of this guidance, trading recovered quickly, with revenues exceeding 2019 levels by mid-February.  The recovery continued thereafter, supported by strong leisure and ‘blue collar’ demand and a more gradual recovery in ‘white collar’ demand.  We also benefited from strong event demand, including the Commonwealth Games, the Jubilee and a number of stadium concerts and other sporting events.

For the year, compared to 2019, UK like-for-like RevPAR was up 23.9% to £52.59 (2019: £42.46), with UK like-for-like occupancy up 1.0pts to 81.8%, and UK like-for-like average room rate up 22.5% to £64.31.

Travelodge continued to outperform the competitive segment v 2019, with UK like-for-like performance ahead 10.9pts and outperformance in both London and Regions.

Total underlying revenue for the year of £909.9m was up £182.0m (25.0%) vs 2019 and up £350.2m vs 2021.

EBITDA (adjusted) was a record of £212.9m compared to £129.1m for 2019 and £81.1m for 2021.

Free cash inflow for the year was £167.8m, predominantly driven by the EBITDA (adjusted) profit and working capital inflows, partially offset by capital investment. Working capital benefited from an increase in prepaid rooms and an increase in the VAT creditor, reflecting the trading performance. Net cashflow for the year was an inflow of £11.4m after more than £100m of debt repayments.

For the quarter ended 31 December 2022:

Trading performance remained strong in the final quarter of the year, with all areas ahead of 2019 supported by strong leisure demand, including events and strong levels of demand over New Year’s Eve.  This was further supported by continued good ‘blue collar’ demand and encouraging ‘white-collar’ demand.

For the quarter, compared to 2019, UK like-for-like RevPAR was up 33.2% to £54.93 (2019: £41.23), with UK like-for-like occupancy up 1.7pts to 82.7%, and UK like-for-like average room rate up 30.6% to £66.42.

Travelodge continued to outperform, with UK like-for-like RevPAR performance 11.2pts ahead of the competitive segment vs 2019, with outperformance in both London and the Regions.

Total underlying revenue for the quarter of £240.0m was up £58.2m (32.0%) vs 2019 and up £55.0m vs 2021.

Costs were impacted by inflationary pressures, impacting the industry and Travelodge, but remained well-controlled, supported by our industry leading operating cost model and strong supplier relationships.

EBITDA (adjusted) for the quarter was a record of £48.5m compared to £26.9m for 2019 and £37.4m for 2021.

Liquidity and Financing Update

In 2022 Travelodge generated positive cashflow of £116.6m before the repayment of over £100m of debt.

The £40m RCF was fully repaid in 2022 and remains undrawn and in October 2022 Travelodge repaid the £60m senior secured term loan in full.  In early January 2023, as a result of our strong liquidity position, we de-leveraged by a further £15.8m (nominal) through a managed buy-back program of our floating rate notes, at a small discount to par, that were subsequently cancelled.

Pleasingly, and reflecting the strong trading performance and outlook for Travelodge, both Moody’s and S&P upgraded Travelodge’s credit rating, to B3 stable and B- stable respectively.

We successfully completed a refinancing on 28 April 2023, repaying all external debt through the issuance of new Senior Secured Notes, consisting of £330 million Senior Secured Notes due 2028 and €250.0 million Senior Secured Floating Rate Notes due 2028 and refinancing our Revolving Credit and Letter of Credit facilities.

Other Business Updates

As previously announced, Aidan Connolly joined the business on 3 April 2023 as Travelodge’s Chief Financial Officer.  Aidan brings extensive experience in driving strategic initiatives, business growth, treasury and refinancing activities, risk and diversity in a broad range of sectors and private equity backed businesses, which will be invaluable as we continue to grow and develop the Travelodge business.

Recent Trading 

Trading in the first quarter of 2023 has remained strong with accommodation revenue approximately 30% ahead of 2022 levels and approximately 40% ahead of 2019 levels.  As a reminder the first weeks of 2022 were impacted by the Omicron work from home guidance.  This performance has been driven by strong leisure demand, including events, continued strong ‘blue collar’ demand and improving ‘white collar’ demand, with corporate midweek Central London demand recovering slowest and impacted by the rail strikes.

London and Regional trading performances are both strong and ahead of 2022 levels, with London performance significantly ahead, reflecting the slower recovery experienced in 2022. There are very positive forward booking patterns, but these remain predominantly short-lead, so we still have limited forward visibility.

We have performed in line with the market segment vs 2022, reflecting the very strong London Q1 2022 comps and refits at two large Central London hotels. We have continued to outperform vs 2019.

Strategy and Operational Update

Our purpose is to provide affordable travel for everyone and we continue to make good progress, offering our customers the right balance of location, price and quality to suit their travel needs.

We opened six new hotels in 2022, including our new 350 room Docklands hotel, which has an “Excellent” BREEAM rating and an EPC rating of A.  Our new hotels are a mix of business and leisure focused locations, whether that’s business hubs, key city centre locations or staycation leisure destinations.  By the end of the year, our network stood at 595 hotels.  We aim to continue to extend our network, targeting a further c. 300 locations across the UK over time and we expect to open approximately 80 new hotels over the next five years as market conditions improve.

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.  Our growth is supported by a combination of our leading direct distribution model, continued investment in revenue management capabilities to deliver the right pricing strategy in each location and improvements to the digital platform increasing conversion.  Our business customer proposition has also supported growth, with record sign-ups in 2022.

Travelodge has an industry leading operating model that continues to be optimised, leveraging technology to simplify and automate, for example our robot vacuums enhance cleaning standards, consume less energy and make the jobs of our housekeepers easier.  We have had in-house housekeeping teams for many years helping to support standards.  More recently we in-sourced a further proportion of our maintenance activity, helping to improve efficiency.  The estate is well invested and our refit program is well underway, with the new look and feels rooms, new style bar cafés and enhanced public areas, and is proving very popular with customers.

Our strategy is underpinned by our ‘Better Future’ sustainability strategy, based on three pillars – Inclusive, Caring and Conscious. We published our first sustainability report in early 2022 and have continued to make good progress since then.

Inclusive

Our focus on equality and diversity has helped us to a position where around 65% of our hotel managers are women. We have made good progress with gender balance at senior levels throughout 2022 and we are ahead of the new target of 40% female representation for diversity in senior leadership roles, as set out by the Hampton-Alexander review for FTSE 350 companies.  48% of our Senior Leadership team are women, and 57% of our Operating Board are women, however, we remain focused on gender balance, with further targets in place and we have more work to do on ethnic diversity in Senior Leadership roles.

In 2022 we partnered with Disability Positive, who have helped us review our policies and procedures, the equipment used at our hotels and the way we train our colleagues. In consultation with Disability Positive we revised our Disability Awareness training, which was rolled out to all staff during 2022, and we updated our online booking process to provide guests booking accessible rooms with enhanced hotel information and the ability to select room options most suited to their needs. We also developed a new headboard design for accessible rooms that accommodates both the twin room and double room setup without compromising the customer experience.

We also developed our levelling up impact report in partnership with the Purpose Coalition to support the Government’s Levelling Up agenda and demonstrate our social impact.

Caring

Our number one priority is the health, safety and security of our customers and colleagues, and we continued our track record of strong health and safety audit and training results in 2022.

We launched ‘Better Me Moments’, creating a moment in time where an individual or team, can focus on their physical, emotional, financial and work wellbeing.

We have transitioned our information security framework to the globally recognised National Institute of Standards and Technology (NIST) CyberSecurity framework.  From 2023 this NIST control framework will be externally audited by a specialist agency to provide wider assurance and consistency

In 2022, through our partnership with the British Heart Foundation using their RevivR CPR training tool, we helped train over a 1,000 people, both our customers and colleagues, to complete this life-saving skill.

Conscious

During the year we developed our plan for net zero in respect of direct scope 1 and 2 emissions.  We began to engage with key suppliers on sustainability topics and started a project to measure our scope 3 footprint.

We now have a policy for our new hotel developments to deliver an EPC rating of A and be “BREEAM” rated Very Good, and where possible we will seek to achieve a “BREEAM” rating of Excellent. We also made good progress on our plans to reduce water consumption.

Outlook 

The MSE segment continues to be the strongest performing market segment in the UK hotel market, benefiting from its domestic focus, business/leisure mix and value proposition.

Whilst the current macroeconomic environment is putting pressure on household spending and consumer choices, customers are still choosing to travel, and we expect to benefit from trade down from other hotel segments into the budget hotel segment.

Our refit programme, including the new look room and improved reception and bar cafe, is progressing well with positive commercial and customer impacts.  In 2022 we completed c. 14% of the room estate and expect to complete a further c. 10% by the end of 2023, including two large Central London hotels in Q1 2023.  We are also continuing our ongoing investment in hotel maintenance, health & safety, IT, development and projects, including energy efficiency. Capital expenditure in 2023 is expected to be approximately £90m and will continue to be reviewed in line with trading conditions.

So far this year we have opened a new hotel in Madrid, which is our first new hotel opening in Spain for over ten years and we are exploring opportunities to grow further in the Spanish market.  For the UK and Spain, we expect to open approximately eight new hotels in total in 2023, adversely impacted by a number of factors, including Covid-19 in 2020 and challenging market conditions across the real estate sector.  We expect to return to more normal levels of openings as these factors subside.

Whilst the current macro-economic environment creates uncertainty, the budget hotel segment has proven resilience, performs strongest in tough economic times and we expect the segment to benefit from a number of positive demand drivers including continued staycation demand, trade down to budget hotel operators, changes in working patterns, events and also indirectly from inbound tourism as a result of the weak pound.

With our large and diversified network of hotels, strong brand and direct distribution model, combined with our value proposition, focus on domestic travel and attractive business/leisure mix, as well as our sustainability strategy ‘Better Future’, we are well positioned.  We remain confident in the long-term prospects for budget hotels and excited about the future growth opportunities.