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Hotels suffer from lockdown

Whitbread shares plunge on £1bn cash call to cover losses

Premier Inn

Hotels are taking a big hit from the lockdown

Premier Inn owner Whitbread’s share price nose-dived after it announced a deeply discounted rights issue to raise £1bn to offset expected losses from the coronavirus lockdown.

Shareholders are being offered one new share at 1,500p for every two they already own. Before today’s announcement, these were trading at 2,843p. At 3pm the shares were 13% or 378p lower at 2466p.

Russ Mould at AJ Bell said: “Anyone taking part in Whitbread’s rights issue will need to assume that life returns to normal in the next few years and that there isn’t an earnings nightmare in the near-term.

“The scale of Whitbread’s fundraise would suggest it isn’t taking any chances, despite already having a fairly decent balance sheet. It seems to be taking the view that it is better to have as much money as possible now in case the pandemic goes on for longer than expected.

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“If the world starts to get back on its feet fairly swiftly then Whitbread could be in strong position financially to accelerate its expansion in Germany.”

Whitbread said it expected outflows of £600m, including operating cash outflows of about £80m per month during the period of closure or low occupancy.

The company paid out £100m to refund customer deposits, and there was £130m of capital expenditure on committed projects including the refurbishment of the Germany Foremost hotels acquired this year.

These outflows will also be partially offset by approximately £70m-85m of furlough benefits.

While the business currently has significant liquidity to withstand a prolonged period of materially reduced or no demand, the impact of COVID-19 will have a “significant impact on its profitability, the leverage of the business, and our ability to execute our strategy with confidence”.

Trading in the period subsequent to the year-end has been “materially adversely impacted by COVID-19”.

In the 11-week period to 14 May, total accommodation and food and beverages revenues were down 75% year-on-year. Following the closure of all of its restaurants and the majority of the hotel network total accommodation and F&B revenues were down 99% in the last seven weeks.

“The COVID-19 situation is rapidly changing, and while we were able to reopen 16 hotels in Germany on 11 May 2020, o ur internal scenario planning currently assumes that our UK hotels and restaurants will remain closed, or operating at low levels of occupancy, until September. Demand recovery is then expected to be slow as social distancing restrictions are gradually relaxed.”

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All discretionary P&L spend has been eliminated, including room refurbishment plans, marketing, non-essential training and staff recruitment and the postponement of the previously announced incremental investment of £25m.

The board will not pay a final dividend for the full year FY20 and has suspended future dividend payments until the COVID-19 situation is clearer.

The company will benefit from the Government’s decision to stop the payment of business rates for a 12-month period, which would have cost c.£120m over the year.

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