Costa-less Whitbread checks in with lower profits

Premier Inn owner Whitbread has posted lower profits in the first half of the year as it was weighed down by “difficult” UK trading conditions.

The chain runs hundreds of hotels including this one at Edinburgh Park. Picture: Ian Rutherford

The company saw like-for-like UK accommodation sales decline by 3.6 per cent for the six months to September due to weaker sales outside of London.

Whitbread said that market conditions continued to be “challenging” as consumer confidence remained weak amid “heightened political and economic uncertainty”.

The FTSE 100 company said the slump in confidence has continued into the third quarter and that “near-term market conditions in the UK remain uncertain”.

The group is one of the UK's biggest hotel operators. Picture: Ian Rutherford

Adjusted revenue for the half year dipped 0.1 per cent to £1.08 billion, while adjusted pre-tax profit slipped 4.1 per cent to £236 million as margins were squeezed.

Whitbread said profits were dented by weaker domestic hotel demand, particularly in regional areas, where it has 80 per cent of Premier Inn sites. It also noted that it saw a “greater decline” in the number of short-notice bookings, which are typically priced higher.

Balance sheet

Despite this, the company said it “retained a strong balance sheet” as it benefited from the £3.9bn sale of the Costa Coffee chain to Coca-Cola last year.

The company also reported 7.6 per cent growth in London as it benefited from rapid expansion in the UK capital over the past three years. It said it will invest in its hotels by opening more higher-specification Premier Plus rooms, with plans for 2,000 of these by the end of next year.

Whitbread also hailed long-term growth opportunities in the German market, where it has increased its accommodation pipeline by 25 per cent over the past year.

Alison Brittain, chief executive, told investors: “We have delivered a resilient first half-profit performance despite challenging market conditions in the UK.

“Shorter-term trading conditions in the UK regional market have been difficult, particularly in the business segment where we have a higher proportion of our revenue, whilst trading in London remained strong.

“Against this challenging backdrop, we have a number of activities under way which continue to build our brand strength as the UK’s favourite hotel chain.”

An interim dividend of 32.7p per share was declared, unchanged on a year earlier.

Costa buttress

Richard Hunter, head of markets at Interactive Investor, noted: “Now without the significant buttress of the Costa business, Whitbread is finding life tough.

“The majority of the group is now represented by Premier Inn, and therefore largely in the hands of the hotels market.

“As business confidence starts to wane given the uncertain economic outlook in the UK, let alone the possibility of recession, two of the corporate expenditure lines which are traditionally sacrificed first in an effort to curb costs tend to be advertising and business travel. The latter has clear implications for Whitbread.

“The fact remains that following the disposal of the Costa brand, which provided a constant turbocharge to the numbers, Whitbread’s reliance on the hotels market makes the company less diversified and therefore more vulnerable to economic swings.”