June 18, 2018

Good revenue growth and outperformance from Travelodge

Travelodge has delivered total revenue growth of 6.6% in 2017, with 2.9% like-for-like RevPAR growth and a significant contribution from new hotels opened since 2016.  We once again outperformed the STR MSE segment by 0.7%.

This good revenue growth has helped to mitigate the impact of significant cost increases, particularly on regulated costs such as the National Living Wage and business rates, as well as general cost inflation with our full year EBITDA up £2.3m.

In addition, it opened 15 hotels in 2017 in-line with its target.

This continued good performance has allowed Travelodge to undertake a further re-financing in January 2018, reducing its cost of debt as a result.

Peter Gowers, Travelodge Chief Executive, commented: “Our continued focus on quality and service is delivering good results.  Rising sales from business customers, boosted by our new SuperRooms, helped drive strong sales growth, with like-for-like RevPAR once again ahead of the competitive segment.  This helped mitigate the significant macroeconomic and external cost pressures facing the sector and deliver another year of progress for the business.”

“Over the last four years we have strengthened Travelodge considerably. We have upgraded our estate, opened over 50 new hotels, launched our new SuperRooms and now have more than 170 hotels with on-site bar cafes.  While we are not immune to the cost headwinds facing many UK leisure and hospitality businesses, with strong underlying demand for budget hotels and a healthy secure pipeline of new hotels to open, we will be well positioned once the current cost pressures abate.”

Recent Trading and Outlook

The UK is currently in a period of well understood macroeconomic uncertainty with significant regulatory and other inflationary cost pressures.

Demand for budget hotels has remained positive since the start of the year.  However, the market is up against tough comparables for last year, which included strong inbound travel owing to the weak pound, and it also faces the impact of new supply growth in what is traditionally a low occupancy period.  For the midscale and economy sector, the first few weeks of the year have seen declines in London RevPAR and somewhat flat performance in the Regions, with the overall midscale and economy sector down (0.5)% in the first 7 weeks of the year.  We have continued to outperform our segment and deliver like-for-like RevPAR growth.

In view of the wider economic uncertainty and the well-known cost headwinds, especially those relating to the national living wage, other regulated cost increases and general inflationary pressures, we remain cautious on the immediate outlook.  However once these pressures abate, we are well positioned.

Financial Performance

Growing Sales and Mitigating Cost Pressures

For the year ended 31 December 2017:

UK like-for-like RevPAR was up 2.9% to £40.49, ahead of the growth rate of the STR Midscale and Economy Sector, which was up 2.2% for the same period.

We continue to use effective revenue management to optimise the balance between occupancy and rate growth. We maintained UK like-for-like occupancy at 76.1% and grew UK like-for-like average room rate by 2.8% to £53.19 (2016: £51.75), principally driven by continued growth from business customers and improved conversion rates from our upgraded website, supported by effective yield management.

The positive like-for-like sales growth, together with strong food & beverage sales and the contribution from our maturing new hotels opened since the beginning of 2016, has resulted in total revenue growth of 6.6% for the year to date to £637.1m.

Full year 2017 EBITDA is up £2.3m to £112.4m (2016: £110.1m) with the good revenue growth including strong performance from our Spanish business offsetting a number of regulated cost increases including the National Living Wage and business rates which increased from April.

The business continues to generate strong operating cashflow, with a closing cash balance of £95.0m at the year end.  Following our refinancing in Q2 2017 we have long-term facilities in place including the benefit of an undrawn £50m RCF facility.

For the quarter (13 weeks) ended 31 December 2017:

In the quarter UK like-for-like RevPAR was up 3.7% to £39.52, ahead of the growth rate of the STR Midscale and Economy Sector, which was up 1.1% for the same period.  This reflected good demand growth balanced by supply increases, particularly in London and major regional cities.

These positive like-for-like sales results, together with strong food & beverage sales and the contribution from our maturing new hotels opened since the beginning of 2016, resulted in total revenue growth of 6.1% for the quarter to £158.0m.

The good revenue growth in the quarter helped to offset a number of regulated cost increases including the National Living Wage and business rates and the impact of phasing of new openings, with 7 new hotels opened in the fourth quarter.  However, as previously indicated, EBITDA in the fourth quarter was adversely impacted by the timing of spend on sales and marketing activities, which were phased more evenly in 2017, compared to the first half TV marketing campaign in 2016 and as a result, EBITDA declined by £2.4m to £20.1m (2016: £22.5m).

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

During the year we extended our network with a further 15 hotels, including new sites at London Harrow, Bath City Centre, Redhill Town Centre and Newcastle Quayside.  We now have a wide network, including more than 170 hotels with on-site bar café restaurants, a network that would be the fourth largest hotel chain in the UK if it were a separate brand.  In 2018 we expect to open 20 hotels, including our new 395 room London City hotel in the summer, with a significant proportion of these openings in the fourth quarter.  We have already opened 1 hotel this year in Gravesend.

Price

We continue to drive to be the cheapest of the big competitor brands, with a clear positioning to our customers, while raising our average RevPAR by winning a greater share of business customers, who are more likely to stay in our premium locations and for longer than the average.   We made good progress during the year, again outperforming the midscale and economy segment.

Quality

We continue to invest in upgrading our hotels, launching our new SuperRoom product in early 2017.  We now have 990 SuperRooms across the UK, which feature Lavazza coffee pod machines, Hansgrohe raindance showers, a choice of pillows and other improved facilities.  Early results from this new offer have been encouraging, with an average rate premium of £10-20.

We again upgraded our food and beverage offer during the year, resulting in record sales.  We are also in the process of trialling a new bar café format in a small number of hotels.

We received a record number of TripAdvisor certificates of Excellence in 2017, and an average TripAdvisor rating of 4 stars out of 5.  This continued improvement in quality has been driven by the efforts of our 12,000 strong team, which includes our in-house housekeeping team, supported by investment in standardisation of our ten step proprietary room cleaning process.

We made further improvements to our digital platform in 2017, helping us sustain more than 80% of our bookings being made through Travelodge.co.uk, and more than 89% direct overall, well in excess of the industry norms.