Whitbread eyes German expansion for Premier Inn

Costa's success in tapping Britain's coffee shop culture meant the division's profits rose a fifth to 52.4m. Picture: Getty
Costa's success in tapping Britain's coffee shop culture meant the division's profits rose a fifth to 52.4m. Picture: Getty
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WHITBREAD is to trial its Premier Inn model in Germany, as the leisure group revealed yesterday that its hotels arm and Costa coffee chain both went “from strength to strength” in a robust first-half trading performance.

Whitbread, which began life as one of Britain’s best-known brewers in the 18th century, said it had purchased the freehold of a 200-room hotel in Frankfurt to trial its low-cost Premier Inn offering.

“We believe that the German hotel market is attractive for Premier Inn with its large-scale, low level of branded product penetration and relatively similar property market characteristics to the UK,” the company said.

It came as Whitbread posted interim underlying pre-tax profits up 18.5 per cent at £256 million. Revenues rose 13 per cent to £1.3 billion, including same-floorspace sales growth of 9.6 per cent at Premier, and more than 6 per cent at Costa.

“The trading momentum of our strong first-half performance has continued into the first few weeks of the second half and positions [us] well to deliver full-year results in line with expectations,” Whitbread said.

The dividend rises nearly 16 per cent to 25.2p, with analysts saying this only partly addressed concerns about the “yield” at the group, whose shares have surged 11 per cent since the start of 2014.

This compares with a 7 per cent fall in the FTSE 100 index. Whitbread’s shares fell as low as 4,112p yesterday before ending the session down 28p at 4,200p.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said Whitbread had easily shrugged off a difficult economic backdrop.

He said at the core was the “twin irresistible force” of Premier and Costa.

“The negatives around the investment case relate to a fairly anaemic dividend yield despite the [divi] increase, some tough comparatives to follow later in the trading year and a competitive trading environment which will continue fully to test the company’s resolve,” Hunter added.

Whitbread has grown rapidly in recent years into a stock market favourite due to demand from cost-conscious customers for affordable hotels and coffee.

Costa’s expansion and success in tapping Britain’s coffee shop culture meant the division’s profits rose a fifth to £52.4m, while a recovery in the regional hotel market helped Premier achieve a record occupancy rate of 84 per cent.

Whitbread, which also includes Beefeater and Brewers Fayre restaurants in its portfolio of brands, is spending £500m this year on another 4,500 Premier Inn rooms in the UK and 230 Costa stores worldwide.

The investment will keep the company on track to pass its projected milestones, including a total of 75,000 UK rooms by 2018. That compares with 56,019 rooms now, well more than a third greater than any competitor in the hotels industry.