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Premier Inn, Costa Coffee boost Whitbread profits

Premier Inn & Costa Coffee logosPremier Inn and Costa Coffee have reportedly given profits at parent company Whitbread a boost. Premier Inn has benefited from an advertising campaign with comedian Lenny Henry, while it opened 1,500 rooms during the first half of the year. Now the hotel chain has 49,020 rooms total and plans to expand to 65,000 rooms by 2016. Apparently Premier Inn was able to pull in an extra £2 million during the Olympics due to a rise in prices – up to £199 per room. All of the chain’s hotels in London were at full occupancy during the Games. Like-for-like sales increased 3.7%.

Whitbread chief executive Andy Harrison says that revpar at Premier Inn grew 2.4% during the period – though it experienced a 3.6% decline in the mid-scale and economy market. The hotel market in London is settling after the Olympics, as expected, and they are waiting for a trend to become more clear. He noted that, during the Games, some of their rivals were charging £400 for a room, but they didn’t want customers to be left “with a bad taste in their mouth”.

Harrison continued that the regional accommodation sector has continued to experience a decline in revpar. Their consumer market context is still broadly flat in general. With these performances, they expect to continue out-performing rivals and estimate like-for-like sales growth to be modest during the second half of the year. He added that they expect total sales to continue growing rapidly and on track toward their five-year milestones. A structural shift toward strong branded hotels is benefitting Premier Inn in the UK.

Costa Coffee has had a great performance as well, opening 141 new shops and experiencing a 30% increase in underlying profits to £36 million. Like-for-like sales were up 6.8% during the period thanks in part to the wet and dreary weather over the summer. Harrison says that growth at Costa Coffee is supported by its leading position in the market and exciting international opportunities. Total sales growth and a clear focus on good financial returns is creating significant value.

Underlying profits across all of Whitbread’s subsidiaries – including Brewers Fayre and Beefeater – jumped 8.5% to £181.3 million. Harrison said the group delivered a strong first six-month performance. Total sales grew 14% to just over £1 billion, and underlying earnings per share grew 13.1% – both of which were given a boost by their out-performance in a widely flat market. Due to these growths and good returns, cash flow from operations increased 11% to £285.3 million. This allowed the company to continue investing in its brands and the breadth and quality of their portfolio, as well as increase their interim dividend 11.4% and finance their organic growth.

Whitbread chairman Anthony Habgood said that the group is continuing its rapid profitable organic growth despite the difficult economic climate. This is because of their unrelenting focus on customers and use of a strong balance sheet to invest in building strong brands, renewing their portfolio and developing their staff.

The group has a workforce of over 40,000 staff at 2,500 locations in the UK alone. Despite its robust performance, shares were down as investors took profits and responded to the warning that growth in hotel sales is due to slow down.

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