Coffee and comfort helps to lift profits at Whitbread

Strong growth at '‹Costa Coffee '‹and Premier Inns has boosted profits at Whitbread, which is planning to ramp up expansion of both chains.

Both have benefited from their relatively cheap offering in a market where people are worried about their future finances and the impact of the EU referendum on their personal wealth.

Whitbread said underlying pre-tax profits rose ​12 per cent to £546.3​m in the year to March 3.

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​The group’s new chief executive Alison Brittain said: “Our financial success is based on another year of strong growth in our two leading brands, Premier Inn, the UK’s best economy hotel brand, and Costa, the UK’s favourite coffee shop chain.”

Total revenue rose 12 per cent to £2.9bn while like-for-like sales rose three per cent.

The group has raised its full year dividend by 10 per cent to 90.35p per share.

Talking about trading over the past six weeks, Whitbread said Costa UK has had a good start to the year and Premier Inn is growing share in a flat market.

“We remain confident of making good progress this year,” said Ms Brittain.

“The budget hotel market is continuing to grow as the independent sector declines, and there is an increasing demand for great coffee.

“Whitbread continues to be uniquely positioned to capitalise on both of these growing segments which provides us with confidence that we will achieve our ambitious 2020 milestones of around 85,000 Premier Inn UK rooms and around £2.5bn of systems sales for Costa.”

Costa’s underlying operating profit rose 16 per cent to £153.5m. Total sales also rose 16 per cent, driven by UK like-for-like sales growth of 3 per cent, 197 net new stores worldwide and 924 net new Costa Express machines.

“At Costa, we offer customers a great cup of coffee in a warm and welcoming environment and, with the widest choice of locations, we are responding to increasing customer demand for coffee any time, anywhere,” said Ms Brittain.

Steve Clayton, head of equity research at Hargreaves Lansdown, said: “Costa is busily slaking the nation’s never ending thirst for caffeine - think of it as an investment play on the UK’s long hours work culture.

“Premier Inn is a great product - a clean comfortable room, in a good location at a sensible price. With over 60,000 rooms in the estate, it is the clear market leader in the UK branded budget hotel sector.”

Sales at Premier Inn rose 13 per cent and like-for-like sales were up 4.2 per cent. Total occupancy remained high, finishing the year at 81 per cent.

“We offer customers the widest choice of locations in the UK and the best value for money. This drives brand loyalty and high occupancy of over 80 per cent, meaning that our hotels are regularly full,” said Ms Brittain.

She said there are strong growth opportunities in the hotel market as customers shift from independents to branded hotel chains.

“We expect the UK hotel market to grow from around 700,000 rooms today to around 740,000 rooms in 2020, with branded budget hotels growing from 24 per cent to 29 per cent of the total market.”

Ms Brittain said the regional hotel market offers good growth opportunities, through both existing and new catchment areas.

Whitbread has rejected speculation that the company could sell off Costa Coffee. The chain has grown to over 3,000 outlets across the world, with around 2,000 in the UK.

Ms Brittain said: “We are all very clear that Whitbread has been a great owner of Costa and given that track record and our future plans, there’s no compelling reason to change Costa’s ownership structure at this time.”

She believes that the UK coffee drinking market hasn’t reached its peak.

The UK is fast becoming a nation of coffee connoisseurs and 16 per cent of coffee shop visitors frequented a coffee shop at least once a day in 2015.