Whitbread 'caution' on near-term profits as Brexit looms

Whitbread (Frankfurt: WHF4.F - news) says there is a "degree of caution" in its profit forecasts after reporting flat earnings for the first half of its financial year.

The company, which owns the Premier Inn hotel brand and is in the process of selling Costa coffee to Coca-Cola, maintained its full-year profit guidance but admitted concerns about demand as Brexit looms next March and increased costs for consumers generally.

It said profit before tax was flat at £257m over the six months though Costa earnings, which it listed as a discontinued operation because of the proposed sale, were up 3.5% at £47m.

On an underlying basis, Whitbread said new rooms helped it grow profits by £2.5% to £270m.

However, shares fell by more than 2% in early trading after it cautioned that its expansion would continue to drag on overall profitability.

However, the firm added that continued savings would help offset the investment.

The company's statement said: "Whitbread has significant structural growth opportunities in the UK and internationally with confidence in its plans.

"Investment will continue in order to maintain Premier Inn's competitive advantages and to capitalise on these structural opportunities.

"In FY19 (full year 2019), Premier Inn is expected to open 4,000-4,500 rooms in the UK and Germany, including two hotels comprising 379 rooms in Germany.

"Given the recent economic and political environment, along with inflationary pressures in the consumer sector, there is a degree of caution on demand.

"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, Whitbread is confident that the ongoing efficiency programme can continue to offset a significant proportion of inflation over the short to medium term."

It announced the results 24 hours after revealing plans for a new chain of budget hotels to be called Zip .

The venture aims to reach more price-conscious customers at a time when family budgets continued to be squeezed.

Commenting on the £3.9bn sale of Costa , Whitbread said the timing remained unclear at this stage despite shareholders voting overwhelmingly in favour of the deal earlier this month.

Chief (Taiwan OTC: 3345.TWO - news) executive Alison Brittain said: "We intend to return a significant majority of the net cash proceeds to shareholders, although the exact amount, timing and method will be determined following discussions with stakeholders, including our shareholders, pension fund and debt providers.

"The sale of Costa now requires Coca-Cola to obtain regulatory approval in the EU and China.

"Much work still remains to be done to ensure a smooth and successful separation from Whitbread at completion and during the following transitional service period, which we are confident in our ability to execute efficiently."