LONDON, UK – In a press release issued on Wednesday, Costa’s parent company Whitbread reported a strong UK performance and a step-change in international momentum.
Coffee shop chain Costa focused on increased demand for convenience through active channel shift & continued excellent growth of Costa Express.
Costa South China JV partner acquired, enabling increased target of 1,200 stores by 2022.
Hotel chain Premier Inn recorded in the UK at a consistently good return on capital. The brand also sees Germany expansion materially accelerated with over 30 hotels by 2020.
Increased efficiency savings target from £150 million to £250 million, with £100 million to be delivered over next two years, offsetting known inflation.
Whitbread will pursue a demerger of Costa, providing shareholders with investments in two distinct, focused and market-leading businesses.
Good financial performance in line with expectations
- Strong revenue growth of 6.1% and market share gains in both Premier Inn and Costa
- Disciplined cost management enabling underlying profit growth of 4.5% to £591 million
- Premier Inn underlying operating profit growth to £498 million, Costa increased to £159 million
- Statutory profit before tax growth of 6.4% to £548 million
- Good discretionary free cash flow conversion of 94%, delivering £585 million to reinvest
- Strong balance sheet with net debt† of £833 million and facilities of £1.8 billion
- Return on capital increased 20 bps to 15.4% whilst continuing to grow market share
Alison Brittain, Whitbread Chief Executive Officer, commented:
“Whitbread has produced another strong financial performance this year, with revenue growth of 6.1% to £3,295 million. Disciplined cost management has enabled us to grow underlying profit before tax by 4.5% to £591 million, with statutory profit before tax up 6.4% to £548 million.
We have accelerated delivery momentum in all three of our strategic priorities during the year. In the UK, we have increased revenues, profits, cash flow, dividends and return on capital, notwithstanding challenging market conditions. This growth has been underpinned by disciplined investment in new capacity for both Premier Inn and Costa and a relentless focus on improving the overall experience for our millions of customers. With ongoing growth in coffee consumption and our increasing ability to win market share from the independent hotel sector, we are confident of further growth at a good return on capital in the years ahead.
Internationally, we announced two strategically significant transactions for Premier Inn in Germany and Costa in China. In our first acquisition in Germany, we have agreed to acquire 19 hotels, comprising 3,100 rooms. In addition to our organic pipeline, this will ensure we have at least 31 hotels, comprising 5,720 Premier Inn rooms by 2021. In China, we completed the buy-out of one of our two joint-venture partners. This acquisition provides Costa with full control of stores outside Beijing and allows us to increase our ambition to target 1,200 stores by 2022. These acquisitions provide solid foundations from which both businesses can grow international operations of increasing significance in the years ahead.
In addition to growing our business at a good return on capital, we have also worked hard to generate meaningful savings from our efficiency programme, which have offset the material structural inflation that is impacting the hospitality sector. Our strong execution to date has delivered savings of £105 million, which gives us confidence that we can increase our target from £150 million to £250 million, with £100 million to be delivered over the next two years. These additional efficiencies will help to offset a substantial proportion of anticipated inflationary pressures in the next few years.
We are committed to the attractive longer-term structural opportunities for growth in the hotel and coffee markets, both in the UK and internationally. We are therefore continuing to invest throughout our businesses to ensure we retain brand leadership in the UK, build the foundations for long-term international growth and deliver the modern and efficient processes and technology which the businesses need to thrive in the future.
Given recent economic and industry data, we do remain cautious on the consumer environment, especially on the high street, which we expect to remain challenging in the near term. The combination of our commitment to the investment programme and the current UK consumer environment naturally means our near-term profit growth may be lower than in previous years. However, I am confident that this strategy will deliver long-term sustainable growth in earnings and dividends, combined with good return on capital for years to come.
In addition to delivering our ambitious longer-term growth plan, we remain committed to disciplined allocation of capital, maintaining a strong balance sheet and generating excellent cash flow. As a result, the Board is increasing the full-year dividend in line with earnings growth to 101 pence per share.
Today we have issued a market announcement regarding Whitbread’s Group structure which covered the separation of Premier Inn and Costa through a demerger of Costa.”
Commenting on the demerger of Costa, Alison Brittain, Chief Executive of Whitbread PLC, said:
“Given the progress Whitbread is making, we are confident that both Premier Inn and Costa will soon be businesses of sufficient strength, scale and capability to enable them to thrive as independent companies. The Board, therefore, believes that it is in the best long-term interests of Whitbread’s many stakeholders to separate Premier Inn and Costa, via a demerger of Costa. We have carefully considered the optimal timing and concluded that it will be pursued as fast as practical and appropriate to optimise value for Whitbread’s shareholders and is expected to be completed within 24 months. This will allow both Premier Inn and Costa to maintain momentum, complete critical and complex transformation and infrastructure objectives, and drive international expansion. The management team and I are excited that the strategy we are executing will give us the opportunity to create two high-quality independent businesses that will create long-term value for our stakeholders.
At the point of separation, both businesses will be able to take advantage of the structural growth opportunities available to them in the UK and internationally. Costa will become a listed entity in its own right and the clear market leader in the out-of-home coffee market in the UK. Costa will also be well positioned to build further on its strong international foundations with growth expected in China and Costa Express.
Whitbread will remain the owner and operator of the UK’s most successful hotel business. A key priority will be continuing the development of Premier Inn by creating a business of scale in Germany to replicate the success we have in the UK.”
