TVL Finance plc
Update for the period ended 27 June 2018 (Unaudited)
Strong revenue growth and outperformance
Highlights: Half Year
• Total revenue up 8.0% to £317.2m (2017: £293.8m)
• 2018 H1 RevPAR up 3.1%[1] to £38.68 (2017: £37.53)
• RevPAR growth 2.7pts ahead of competitive segment[2]
• Occupancy up 2.1pts to 75.6%
• Average room rate maintained at £51.14 (2017: £51.07)
• EBITDA (adjusted) up £1.3m to £43.3m[3]
• Cash of £132.2m at 27 June 2018
• 6 new hotels opened in the period, 3 since period end – in line with expectations
• Estate stood at 564 hotels and 42,620 rooms at 27 June 2018 up 4% on prior year
Peter Gowers, Travelodge Chief Executive commented:
“In the first half of half of the year, Travelodge delivered strong revenue growth and has continued to outperform the midscale and economy market segment. Our focus on location, price and quality is paying off with another period of increased occupancy. We now offer UK travellers more choice than ever, with a modernised core estate, our premium economy ‘SuperRooms’ and our new ‘Travelodge PLUS’ format. The recent opening of our new flagship hotel with 395 rooms in the heart of the City of London is a major milestone, highlighting just how far Travelodge has come since we opened our first small hotel by the roadside in 1985.”
“While the UK continues to face economic uncertainty, demand for budget hotels remains strong and more and more businesses are choosing the budget sector. Although the general economic picture, the impact of new supply growth and clear short-term cost headwinds lead us to remain cautious about the immediate outlook, our strategic focus and growing pipeline will position us well as these pressures abate.”
Summary
We delivered total revenue growth of 8.0% in the first half of the year, with 3.1% like-for-like RevPAR growth and a significant contribution from new hotels opened since 2017.
We have continued to outperform our competitive segment with our revenue growth 2.7pts ahead of the STR MSE segment which reported growth of 0.4%. In addition to strong trading, this included the benefit of rooms closed for refit last year in connection with the roll-out of ‘SuperRooms’.
This good revenue growth has helped to mitigate the impact of the significant cost increases, particularly the National Living Wage and higher operational costs including the impact of occupancy increases. As a result EBITDA of £43.3m was up £1.3m on the prior year.
We opened 6 hotels in the period with a further 3 opened in the current quarter to date including our largest ever new-build hotel at London City.
Recent Trading and Outlook
The UK continues to be in a period of economic uncertainty with the sector facing a number of significant regulatory and inflationary cost pressures.
The second half of the year is typically larger than the first in revenue terms, with the third quarter historically accounting for slightly more of our revenue than any other. The demand for budget hotels remains good and in the early weeks of the third quarter we have seen modestly improved RevPAR growth in the segment, impacted by the good weather, and Travelodge has continued to outperform the segment. However, the significant cost pressures remain and will continue in the short-term.
Our development programme remains on-track and we expect to open 20 new hotels this year.
Overall, we remain cautious on the immediate financial outlook. However, with our rising reputation for quality and strong development pipeline, we remain well positioned once these pressures abate.
Financial Performance
For the period (26 weeks) ended 27 June 2018:
UK like-for-like RevPAR was up 3.1% to £38.68, 2.7pts ahead of the growth rate of the MS&E segment, which was up 0.4% for the same period. In the period our outperformance benefited from the re-opening of one of our London hotels which was temporarily closed in the first half of 2017 alongside the temporary room closures in 2017 as part of our ‘SuperRoom’ refit program.
We continue to use effective revenue management to optimise the balance between occupancy and rate growth. We grew UK like-for-like occupancy by 2.1pts to 75.6%, with UK like-for-like average room rate maintained at £51.14 (2017: £51.07).
The positive like-for-like sales growth, together with good growth in food & beverage sales and the contribution from our maturing new hotels opened since the beginning of 2017, has resulted in total revenue growth of 8.0% for the year to date to £317.2m.
This good revenue growth has helped to mitigate the impact of the significant cost increases, particularly on regulated costs such as the National Living Wage and higher operational costs as a result of the higher occupancy. The period also included a number of one-off cost increases alongside the impact of changes to the legislation regarding payment card charges.
The combination of this good revenue growth and cost increases has resulted in EBITDA increasing by £1.3m to £43.3m (2017: £42.0m).
The business continues to generate strong cashflow with a closing cash balance of £132.2m at the period end. We also benefit from our long-term facilities including an undrawn £50m RCF. We continue to keep our cash position under review.
Operational Update
We continue to make good progress towards our aim of becoming the favourite hotel for value, by delivering our customers a combination of location, price and quality that suits their travel needs.
Location
Travelodge now has 564 hotels across the UK, Ireland and Spain at the period end, with a further 3 openings to date including our new 395 room flagship hotel London City which is located in the City of London.
At this stage in the year, we remain on track to achieve our target of 20 new hotel openings in 2018 with the majority of these hotels expected to open in the fourth quarter of the year.
Price
Our value offers continue to help drive RevPAR with strong occupancy increases and continued outperformance against the midscale and economy segment in the period.
We continue to invest in our website capability with our improved data analytics now enabling targeted customer communications. This helps us better match customer needs with our availability, driving improved conversion and supporting our direct distribution strategy.
Quality
Our reputation for quality continues to grow, maintaining our average 4 star TripAdvisor rating and providing customers with greater choice through the ‘SuperRoom’ roll-out.
In the period we launched our new ‘Travelodge PLUS’ format across 6 hotels, including the new London City hotel. These hotels include new look standard rooms, SuperRooms and a new bar café design.
The programme to upgrade our Wi-Fi product across the network has made good progress with approximately half of our hotels now upgraded offering improved speed and reliability to our customers.
[1] Revenue per available, Average room rate and Occupancy on a UK like-for-like basis
[2] Our competitive segment is the Midscale and Economy Sector of the UK hotel market as reported by Smith Travel Research (STR), an independent hotel research provider, providing aggregate benchmarking information on the UK and other hotel market performance
[3] EBITDA (adjusted) = Earnings before interest, taxes, depreciation and amortisation, and before rent free adjustment and exceptional item