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Business customers & new hotels driving growth at Travelodge

Travelodge has posted its results for the year ended 31 December 2016, which shows the group is growing sales and outperforming the Market.

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, Travelodge continued to make progress on our strategy and this resulted in further sales growth and outperformance.

The firm continues 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 the group's 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.

The business continues to generate strong operating cashflow, with a closing cash balance of £73.9m at the end of the year.

In 2016, Travelodge opened 19 new hotels, including new locations in London, Glasgow and Milton Keynes. It expects 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.

Chief Executive Peter Gowers (pictured) 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.”

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 US 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 the firm remains 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, it remains well positioned to benefit from demand from value conscious consumers and our strong and growing development pipeline.

Gower concluded, “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.”