Strengthened quality, business customers and new hotels driving growth
Financial Highlights – 2016
· Total revenue up 6.8% to £597.8m (2015: £559.6m)
· RevPAR(1)up 2.5% to £39.34 (2015: £38.38)
· RevPAR growth 1.2pts ahead ofcompetitive segment(2)
· EBITDA up £5.0m to £110.1m (2015: £105.1m)
Operational Highlights
- Strong growth from business customers – now accounting for >50% of revenues
- Food & beverage sales up 14% driven by our upgraded breakfast offer
- Integration of more than 3,000 formerly outsourced housekeepers now completed
- National living wage introduced for all eligible colleagues including the under 25s
- Strong development momentum - 19 new hotels opened in the year
- Estate now stands at 543 hotels and 40,847 rooms at 31 December 2016
Peter Gowers, Travelodge Chief Executive commented:
“Our 2016 results mark another milestone for Travelodge. We continue to focus on offering great value for money and have seen record growth from business customers, who now account for more than half of our sales. The UK is still short of good quality low-cost hotels and notwithstanding the short-term economic uncertainty, we see considerable further potential to expand our network over the years ahead, and expect to open an average of 20 hotels each year over the next three years.”
Peter continued:
“Clearly the macroeconomic picture remains uncertain and there are increased cost pressures from the national living wage, business rates and other regulated cost increases. However, our growing brand reputation and strong development pipeline position us well to benefit from the opportunities presented by businesses looking to reduce travel costs in uncertain times and leisure travellers opting for staycations as an alternative to higher priced foreign travel.”
Summary
Our aim is to become the favourite hotel for value. We continue to make good progress on our strategy to raise quality levels, increase our share of the business market and deliver excellent value to our customers.
Following the success of our £100m hotel modernisation programme and introduction of our new Travelodgical room, we now have an upgraded, consistent estate across the UK featuring the new Travelodge Dreamer bed and separate beds for children in our family rooms.
In 2016 we launched our new business membership programme, offering small and medium sized businesses dedicated booking tools and account management services. We have strengthened our food offer and now have more than 160 hotels with on-site restaurants, with great value deals for business travellers and a kids-eat-free offer for families. This improvement in quality for both businesses and leisure customers is driving good results
In 2016 Travelodge delivered good revenue growth and market outperformance alongside strong growth in new openings. Revenue growth was principally driven by good like for like RevPAR growth of 2.5%, the contribution from new hotels, improved conversion rates from our upgraded website, continued growth from business customer sales and increased food & beverage sales.
EBITDA was ahead of last year’s record results, with higher sales and cost efficiencies offsetting cost increases, which include a number of regulated cost increases such as the introduction of the national living wage and rent re-sets in connection with our restructuring.
During 2016 we opened 19 new hotels, including sites in London, Glasgow and Milton Keynes, in line with our target for 2016.
Financial Performance
Growing Sales and Outperforming the Market
For the year ended 31 December 2016:
UK like-for-like RevPAR was up 2.5% to £39.34, outperforming the growth rate of the STR Midscale and Economy Sector, which was up 1.4% for the same period.
More widely, the growth rate of the UK hotel market was slower than the prior year, with a weaker London market offset by better regional performance. Against this backdrop, we continued to make progress on our strategy and this resulted in further sales growth and outperformance.
We continue to use effective revenue management to optimise the balance between occupancy and rate growth. As a result UK like-for-like occupancy was down slightly, by 0.5 percentage points, to 76.1% (2015: 76.6%). However, UK like-for-like average room rate was up 3.1% to £51.70 (2015: £50.13), principally driven by continued growth from business customers and improved conversion rates from our upgraded website, supported by effective yield management.
These positive like-for-like sales results, together with a strong contribution from our recently opened and maturing new hotels, resulted in total revenue growth of 6.8% for the year to £597.8m.
In 2016, EBITDA grew by £5.0m to £110.1m (2015: £105.1m). The increase in hotel rents, where strong trading triggered a rent re-set in line with the arrangements made under our 2012 restructuring, together with the impact of the national living wage were more than offset by the total revenue increase noted above and lower marketing costs. Other operating costs remained tightly controlled.
The business continues to generate strong operating cashflow, with a closing cash balance of £73.9m at the end of the year. Following our refinancing in the second quarter we have long-term facilities in place including the benefit of an undrawn £50m revolving credit facility.
Operational Update
Investing in Quality
Following our modernisation programme we have a well invested estate. We expect to continue to invest to maintain the quality of our estate and we have commenced our standard refit cycle in 2017 with an aim to refit the entire estate over a c. 7 year period, together with interim works as appropriate in the heavier use hotels, with flexibility to adjust the phasing of spend depending on market conditions.
We also upgraded our desktop and mobile websites to improve the booking experience and our new breakfast offer has led to record levels of food and beverage sales with annual growth of 14%.
We have continued to invest in upgrading the capabilities of our teams and leaders. Our new Aspire development programme allows colleagues to gain a recognised qualification in hospitality and builds a pipeline of new managers to support our expansion. During the year we also completed the integration of more than 3,000 of our housekeeping colleagues who were previously outsourced contractors. We have now moved all these colleagues to guaranteed minimum hours contracts with Travelodge that fit their circumstances, improving stability and ensuring that we can continue to raise standards. We also took the decision to pay the national living wage to all employees, not just those aged over 25.
Best for Business
During 2016 we strengthened our offer for business customers, launching Travelodge Business, a new account service for small and medium size businesses. This includes access to customised billing and expense management tools via our website, special rates and our business account card, which offers interest free credit provided by a third party credit card partner. Since the launch we have continued to see an increase in sign-ups and activations of business customers.
Development
We continue to broaden our network and make good progress on our development targets. In 2016 we opened 19 new hotels, including new locations in London, Glasgow and Milton Keynes.
We have a strong pipeline and expect to open a similar number per year on average over the next three years, with precise timing dependent on market conditions and planning approvals. While the precise timing of openings may vary depending on construction schedules, we currently expect to open 15 hotels in 2017 and approximately 20-25 in the following year, with a number of these early in 2018.
Recent Trading and Outlook
Overall UK hotel market growth at the beginning of 2017 has been largely driven by the luxury and upscale sectors and the strong performance of London, against weak comparables. The midscale and economy segment, which does not tend to strongly benefit from inbound Asian and U.S. tourists or from large volumes of group demand, has seen more modest growth during its traditionally slowest quarter.
It is still early in the year, and we remain relatively cautious about the immediate outlook, in the context of the prevailing economic uncertainty relating to Brexit and the expected cost pressures, including those from the national living wage, the increase in business rates and other regulated cost increases. However, we remain well positioned to benefit from demand from value conscious consumers and our strong and growing development pipeline.
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