August 31, 2017 / 4:40 PM / a year ago

Fitch Affirms Whitbread at 'BBB'; Outlook Stable

(The following statement was released by the rating agency) LONDON, August 31 (Fitch) Fitch Ratings has affirmed Whitbread Plc's Long-Term Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook and Short-Term IDR at 'F2.' Fitch has also affirmed the senior unsecured rating for Whitbread Group Plc at 'BBB'. Whitbread Group Plc is the main entity that issues debt within the group. All bonds have guarantees from Whitbread Plc and main subsidiaries Premier Inn and Costa Limited. The company's 'BBB' rating reflects Whitbread's leading market position in the UK mid-scale budget hotel segment, where it is targeting 85,000 rooms by 2021 through its Premier Inn (PI) brand, and a growing Costa Coffee shop network both in the UK and internationally. The affirmation reflects Fitch's expectation that the company's operating performance will continue to remain positive in the financial year to February 2018 (FY18), despite the challenging UK economic environment, higher operating costs and still high capex. Fitch expects Whitbread's credit metrics to remain steady despite the group's expansion strategy and moderate dividend, leading to our projection of average mid-single-digit negative free cash flow (FCF) margin over the rating horizon that we expect will be funded partly by sale- and-leaseback transactions and debt. KEY RATING DRIVERS Leading UK Hospitality Business: The rating reflects Whitbread's leading position in the less cyclical budget segment of the UK hospitality sector, with its Premier Inn brand. About 75% of the group's operating profit is generated by PI in hotels and restaurants, and 25% by the cash-generative Costa Coffee. Whitbread benefits from a well-invested estate and business customers choosing less expensive hotels. PI enjoys very high direct bookings of 94% and consistently higher occupancy rates (FY17: 80.2%) than the UK hospitality market and its European hotel peers. The rating is however constrained by Whitbread's lack of geographical diversification outside the UK, while the Brexit impact on Whitbread's businesses remains uncertain at this stage. We currently expect increased staffing costs while a protracted period of sterling depreciation could drive further inbound tourism into the UK and increased domestic demand. Selective Expansion Funded by Disposals: Fitch views positively the group's initiatives in funding capex by asset disposals instead of debt since last year. Whitbread plans to sell around GBP150 million for FY18 and Fitch estimates that a portion of gross capex would be funded by further sale-and-leaseback transactions. The group is also withdrawing PI from India and south-east Asian markets to concentrate on expansion in Germany and its JV in the Middle East. Strong Freehold Ownership: PI will remain a majority freehold business which gives the group flexibility to reduce debt and to fund expansion. This is in spite of the planned selective sale-and leaseback transactions. Whitbread's substantial unencumbered property asset base (FY17: GBP3.8-4.7 billion estimated market value, net of GBP0.4billion secured in favour of the pension scheme) continues to support its ratings. Flexibility to Restore Credit Metrics: Management has the flexibility to reduce capex and investments in both PI and Costa through additional sale-and-leasebacks or by pursuing a more conservative dividend policy, should its development programme or weaker trading performance push leverage too close to our negative rating sensitivities. Whitbread has reaffirmed its commitment to its investment-grade rating with an internal leverage target of adjusted net debt/EBITDAR ratio below 3.5x (FY17: 3.2x). Expected Slight Leverage Increases: Whitbread's credit metrics have been resilient through the cycle thanks to a sustained improvement in operating indicators driven by PI's leading market position and the growth at Costa. The group has limited headroom for the current ratings, but Fitch expects only moderate pressure on Whitbread's credit metrics with FFO adjusted net leverage at 3.5x-3.7x in FY18-FY20, due to high expansionary capex, temporary lower profitability for Costa and increased operating leases. Negative FCF: Fitch expects that Whitbread's FCF will remain negative until at least FY20 due to higher capex (average GBP685 million pa over the next three years). This is not a major rating constraint given our expectation of steady operating performance, so long as Whitbread maintains a conservative funding structure. DERIVATION SUMMARY Whitbread's IDR of 'BBB' is positioned in between Marriott International Plc (BBB/Positive) and Accor (BBB-/Rating Watch Evolving). Unlike the pure asset-light model of Marriott and Accor (after the recent separation of HotelInvest), Whitbread has a well-invested estate, holding to the freehold to 64% of its hotels and benefits from a stable contribution from Costa (25% of operating profit). However, it has less geographic and segment diversification than Marriott. Whitbread is much more resilient than Melia and NH Hotel (B/Positive), thanks to PI's leading position in the supportive UK hotel market and PI's less cyclical budget hotel segment with a much higher occupancy rate of 80% last year than Melia and NH at around 68%. KEY ASSUMPTIONS Fitch's expectations are based on the agency's internally produced, conservative rating-case forecasts. They do not represent the forecasts of rated issuers individually or in aggregate. Fitch's key assumptions within the rating case for Whitbread include: PI's segment revenue growth driven by room expansion, more expensive room rates in London and conservative LfL growth ; - PI's expansionary growth in rooms of around 5% p.a. (the UK and international) in FY18-FY21; - Costa's segment revenue growth driven by store expansion, coffee machine expansion (the UK and international) and more modest LfL growth than the past three years; - rents of around GBP300 million in FY18; - lower operating margin for PI of 20bp in FY18; - lower operating margin of Costa 120bp in FY18 per management guidance; - gross capex of GBP700 million in FY18 and average of close to 20% of sales thereafter; - net divestments of around GBP150 million in FY18 as guided by the management, and Fitch's estimation of around GBP100 million in FY19; - cash pension contributions of GBP88 million in FY16, GBP92 million pa for FY18-FY20. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action - Material geographic and product diversification and/or scale of business, along with continuing improvement in trading leading to an EBIT margin sustainably above 20% (FY17: 18.8%) - Lease-adjusted EBITDAR/interest plus rents ratio above 4x (FY17: 3.6x) or FFO fixed charge cover above 3.5x (FY17: 3.0x) - Fitch FFO adjusted net leverage (variable lease adjusted) below 3.0x (FY17: 3.3x) - Sustained positive FCF Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - Deterioration in core businesses or rapid expansion leading to EBIT margin sustainably below 15% - Lease-adjusted EBITDAR/interest plus rents ratio to below 3x or FFO fixed charge cover below 2.5x on a sustained basis - Significantly rising leverage, with Fitch FFO adjusted net leverage (variable lease adjusted) increasing towards 4.0x on a sustained basis LIQUIDITY Adequate Liquidity: Headroom remains adequate but relies heavily on the new GBP950 million revolving credit facility due September 2022. At FYE17 the group had GBP847 million of liquidity, comprising GBP53 million available cash and GBP880 million undrawn under the facility (FYE16: GBP800 million undrawn). Whitbread issued a 10-year GBP200 million US private placement of loan notes in pounds sterling at around 2.6% in March 2017 which demonstrates the group's continuing access to the debt market to refinance maturing debt. FULL LIST OF RATING ACTIONS Whitbread PLC -- Long-Term IDR: affirmed at 'BBB'/Stable; --- Short-Term IDR: affirmed at 'F2'. Whitbread Group PLC -- Senior unsecured rating: affirmed at 'BBB' Contact: Principal Analyst Maggie Cheng, CFA Associate Director +44 203 530 1698 Supervisory Analyst Sophie Coutaux Senior Director +33 1 44 29 91 32 Fitch France S.A.S 60 rue de Monceau 75008 Paris Committee Chair Pablo Mazzini Senior Director +44 203 530 1021 SUMMARY OF FINANCIAL STATEMENTS ADJUSTMENTS -Leases: Fitch adjusts debt amount by adding 7.9x of yearly operating lease expense, including an adjustment for contingent rents in its forecasts (where we apply a haircut of 25%) to reflect the inherent flexibility of these lease arrangements. -Cash: Fitch adjusts available cash at FYE17 by deducting GBP10 million for working-capital requirements. - Fair Value of Debt: Fitch adjusts total financial by deducting GBP53 million for hedging of US private placements to sterling. Media Relations: Adrian Simpson, London, Tel: +44 203 530 1010, Email: Additional information is available on For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable Criteria Corporate Rating Criteria (pub. 07 Aug 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below