Whitbread impresses with interim results as CEO Harrison bows out

Whitbread showered its shareholders with an extra-large interim dividend as chief executive Andy Harrison oversaw his last set of results for the Premier Inns and Costa Coffee owner, serving up first-half results slightly better than forecast.

Group revenue increased 11.3% to £1.44bn in the six months to 27 August, showing group sales slowed slightly in the second quarter after the 11.8% growth in the first, while underlying pre-tax profits rose 13.8% to £291.3m.

Earnings per share at the underlying level, which excluded amortisation, exceptional items and pension finance costs, rose 14% to 127.3p and, in Harrison's goodbye gift, the dividend was frothed up 13.1% to 28.5p per share, for which there was a diverging range of expectations.

The Premier Inn hotel chain suffered in the second quarter, which was largely flagged in a trading update two weeks before the end of the half, but saw sales slow further at the end of the period, with six-month revenue per available room (revpar) of 4.6% and an occupancy rate of 83.7%.

At Costa, total sales grew 16.2% and UK like-for-likes by 4.4%, with an underlying profit growth of 28.4% to £67.3m.

Restaurants made progress in a soft market, with total sales growth of 1.2% and LFL up 0.1%, such that when combined with the hotels business made underlying operating profit growth of 10.8% to £249.4m.

Harrison, who will hand over the tiller to former Lloyds Banking retail chief Alison Brittain, said that in the early weeks of the second half trading momentum "has been consistent with that seen across the first half" and reiterated that the group remains on track to deliver full year results in line with expectations. At the analysts meeting later he revealed that August was "disappointing" but trade picked up in September and October.

There was no change to Whitbread's plans to roll out at least 5,500 new hotel rooms and 220 new Costa stores worldwide by year end, while the company also remains confident it can absorb the £15-20m extra National Living Wage costs over the next five years through efficiencies and price rises.

Brittain joined the company as chief executive designate on 28 September 2015 and will take over as chief executive on 7 December.

Her first set of quarterly results are likely to see Premier Inns boosted by extra demand from the Rugby World Cup.

Brokers bullish

Analysts at Canaccord were particularly impressed by the hotel performance in London, with sales up 20.6%, driven by 21.5% more new supply and "outstanding" 88.9% occupancy and virtually unchanged revpar of -0.1% that was "remarkable in view of the new supply".

They added: "Looking forward, we expect trading to strengthen driven by the recovering UK economy and specifically by the Rugby World Cup this autumn. The share price has weakened on the news of a softer August. We think it’s wrong to extrapolate this into a trend. Comparatives were tough and the tour operators have had an exceptional summer."

Richard Hunter at Hargreaves Lansdown said the results were "another triumph" as continued strong cash generation enables further reinvestment in organic growth, meaning 2018 and 2020 targets are already visible on the horizon.

"Meanwhile, even the rather more anaemic growth in the restaurants business is positively engulfed by the wider strength within hotels. If there is an obvious blot on the landscape in investment terms, Whitbread is not known as a generous dividend play, with the current yield of 1.5% lagging its other obvious attractions, although the policy remains progressive."

Shares in Whitbread were up 2.2% to 4,828p by 1030 BST on Tuesday, their highest point in a month, but still some way shy of their all-time high of 5,440p set in the spring.

Langton Capital agreed that the numbers suggested that the group was delivering on its promises and remained on track to hit its 2018 and 2020 expansion milestones, which would appear to underpin forecasts.

"The group’s targets should be achievable and Whitbread has scalable brands. Nonetheless, there remains little room for error at these levels and the group has to manage its change of CEO before the end of the current financial year. Whitbread has to cope with a resurgent Travelodge and the slowing Chinese economy could impact its Costa roll-out in the Far East."

Analysts meeting

Comments from the analysts' meeting emerged later, including the revelation that AirBnB was having "no impact" on Premier in London.

City worries about China were played down as the company plans to add 50 new Costa outlets in China and Asia this year. The China slowdown "is not helping", management admitted, but Costa is a very small part of the economy and says its success "is in its own hands".

Wages rose by circa 10% in the half, which will impact costs in the second.