Whitbread's share price falls as half-year results fail to impress

 
Oliver Gill
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Whitbread is on an expansion drive across both of its major brands: Premier Inns and Costa coffee

Whitbread's penchant for the finer stuff failed to excite the market as its share price fell nearly three per cent after unveiling its half year numbers.

The figures

Total revenues increased by 8.1 per cent to £1.6bn, although like-for-like growth was up by a more modest 1.9 per cent.

The group's Premier Inn hotel network generated just short of £1bn of revenue, up 1.8 per cent on a like-for-like basis. Costa, its other main division, returned £570m of revenues, up nearly 11 per cent on the previous year.

Profits were a slightly different tale at Costa as they fell four per cent to £64.6m. Premier Inn, however, fared much better, up 8.9 per cent to £271.5m.

Whitbread generated £87m of cash flow before splashing out on expansion, up from £64m last year. It did, however, spend a similar amount to last year – just over £200m – in expanding its operations.

Read more: Whitbread's share price soars on strong sales growth at Costa Coffee

Why its interesting

Whitbread is spending a lot on its hotels. It purchased £24m of freehold properties, spent £126m on what it called "extension construction" to its UK hotels and £26m on hotels in Germany.

On the Costa side of things, it spent £60m, compared with £40m last year.

Much of this went on developing its new roastery and installing 754 new Costa Express machines – perhaps not a surprise for anyone that has recently stopped at a motor service station, garage, supermarket or corner shop and wanted anything other than Costa coffee.

25 October 2016 @ 8:30amWhitbread (WTB)

Costa wants to offer customers a wider choice and has opened 13 "Pronto" concept stores in London as well as taking on the hipsters by opening a "Finer Coffee" concept store in Covent Garden in June. A second upmarket outlet, "championing artisan coffee and an enhanced beverage range", opened in Wandsworth this month.

Read more: Whitbread shares froth up as Costa Coffee sales jump

Most analysts labelled today's results as "strong", which will leave some people scratching their heads at the share price fall. The Costa profit decline, although interesting, is dwarfed by profit growth at its Premier Inns division.

Greg Johnson, an analyst at Shore Capital Markets, said that the Costa performance "reflect[ed] an expected decline in the margin following the phasing of investments and the early introduction of the living wage".

What Whitbread said

Alison Brittain, Whitbread's chief exec, said:

This is another good set of results from Whitbread and we continue to deliver strong growth.

We will be smoothing the phasing of our openings this year and plan to open around 3,700 new UK Premier Inn rooms and 230-250 new coffee shops worldwide.

In our hotels business, we are expanding the network of our new 'hub by Premier Inn' city centre hotels and making progress in consolidating and rejuvenating our restaurant brands.

In Costa we are trialling new 'finer' coffee concepts, introducing a new fresher food range and making good progress rolling out our Costa Pronto and Drive Thru formats.

Whilst it is early in the second half and there is uncertainty in the UK's economic outlook, we expect to deliver in line with full year expectations.

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