Whitbread brews up 55% dividend rise on Costa Coffee boost

LEISURE firm Whitbread served up a 55 per cent leap in the dividend yesterday as it revealed its coffee shop business Costa had shrugged aside the economic downturn to post a 42 per cent rise in half-year profits.

The parent group said Costa Coffee had got a tailwind from putting its coffee machines into hospitals and motorway service stations, as well as accelerating foreign expansion.

Underlying profits at the chain hit £27.8 million in the six months to 1 September after it opened its 2,000th store, including its 100th in China.

The robust performance of Costa –which included a 6.7 per cent like-for-like sales rise – plus a 5.2 per cent sales increase at budget hotel chain Premier Inn, helped Whitbread’s underlying pre-tax profits rise 15 per cent to a shade under £175m. Chairman Anthony Habgood said: “This is a good set of results, demonstrating the strength of our brands in tough market conditions.”

The company aims to double the size of its Costa coffee business in the next five years and increase the number of Premier Inn rooms in the UK by 50 per cent. This will mean 2,500 new jobs by the end of this financial year, it said.

Costa’s performance was boosted by a 44 per cent jump in sales of its “Ice Cold” Costa range, while it has also recently introduced a “Costa Light” offer.

Whitbread acquired Coffee Nation earlier this year, which runs about 900 self-service vending machines in service stations. It is rebranding the machines under the “Costa Express” banner and aims to open 250 new outlets in the second half of its financial year.

Whitbread added that a broader range of room rates helped Premier to attract more business and leisure customers. The number of rooms sold rose 7 per cent to 6.3 million, boosted by the opening of 11 hotels in the period.

The strong performance of Premier and Costa helped to offset a 1.6 per cent sales decline at Whitbread’s pubs restaurants business, which includes Brewers Fayre and Beefeater, as consumers have reined in spending.

Chief executive Andy Harrison said: “The restaurant business is facing a very value-driven customer base and we’re working hard to sharpen up our value proposition. That means looking at the menus as well as promotion.”

Analysts said Premier had performed strongly through the economic downturn, benefiting from business customers – 70 per cent of revenues – trading down from four and five-star hotels. Premier has also been helped by a £29 per room offer wooing leisure customers in off-peak periods.

Revenue per available room (RevPAR) – a key industry measure – rose 4.4 per cent, including 11.4 per cent growth in London and 3 per cent elsewhere.

Whitbread said it would pay an interim dividend of 17.5p per share, up from 11.25p last year and ahead of the City consensus forecast of 16.5p. The company’s shares closed up 8p, or 0.5 per cent, at 1,635p.

Shore Capital analyst Greg Johnson called the results “excellent” and highlighted the “merit” of Whitbread’s strong balance sheet, plus its “excellent track record and growth prospects”.