Shares slide in Costa owner Whitbread despite profit rise and chief executive "pleased with progress"

Jasper Jolly
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Costa Coffee is one of Whitbread's core brands (Source: Getty)

Costa Coffee and Premier Inn owner Whitbread announced a rise in revenues and underlying profits as management struck a confident tone today on both domestic and international markets.

However, shares in the firm slid by more than five per cent at the time of writing as investors focused on fears over consumer spending at Costa.

The figures

Revenues for the group rose by 7.4 per cent year-on-year in the six months to 31 August, reaching £1.67bn, at the top end of analyst expectations.

Underlying operating profits, not taking into account the effects of acquisitions, rose by 7.1 per cent to £342m, while total operating profits rose by 19.3 per cent.

That drove an earnings per share increase of 7.4 per cent year-on-year.

Capital expenditure rose by £60m, with a return on capital of 15.4 per cent.

Why it's interesting

When Whitbread was founded in 1742 the regional brewer's owners probably would not have anticipated a joint venture in South China. But that is clearly where the action will be in the future for the UK hospitality giant, which has recently moved out of peripheral international operations, including hotels in India and Thailand, and bought out its joint venture partner in South China in a £36m deal.

That will give "full strategic and funding flexibility to unlock Costa's potential in China", Whitbread said.

Yet at home the firm is clearly also on the front foot, with its Premier Inn hotel brand opening 2,000 rooms in the last six months. It also boosted its digital booking tools to bring 95 per cent of customers direct to the firm, cutting out costly middlemen.

The firm will hope that diverse expansion will allow it to weather any lumps in consumer spending over the course of the next two years and beyond – particularly if politics delivers a shock.

What the analysts said

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “There’s clearly plenty of buzz around what Whitbread has to offer. Costa sales are soaring, with the UK only just falling short of double-digit growth this half, and a combination of new rooms and increased prices are fueling growth at Premier Inn.

"Unfortunately rapidly increasing revenues isn’t enough to guarantee chief executive Alison Brittain a good night’s sleep, since the group is also having to cope with a whole raft of cost headwinds, from labour to the cost o’coffee and business rates. The group has done a sterling job of managing those cost pressures in the first half, grinding out efficiencies across both businesses, but they still left Costa profits flat."

What Whitbread said

Alison Brittain, Whitbread chief executive, said: "I am pleased with the progress we have made in executing the plan we set out in November last year.

We have significant structural growth opportunities, in the UK and internationally, and confidence in our plans to capitalise on these opportunities. Despite the well known short-term economic uncertainty, our performance in the first half was good and we expect to meet expectations for the full year.

She added: "Although we remain cautious on the current environment, we are confident that ongoing disciplined allocation of capital and focus on executing our plans will deliver long-term growth in earnings and dividends and a strong return on capital."

In short

Analysts broadly agree with the cautious but confident tone from the hospitality giant, with profit growth continuing but the potential for major upheaval in its main market.

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