Whitbread’s shares fall on soft underlying profits

Shares in FTSE 100 hospitality firm Whitbread (LON:WTB) have fallen by 3.55% to 4,585p (as of 11:25 BST), as pre-tax profits for continuing operations dropped by 39.1% during the 2018 financial year. This does not include the proceeds of the sale of Costa Coffee to Coca Cola for £3.9 billion in January, but management said that UK trading conditions in the leisure industry were currently challenging.

CEO Allison Brittain said: “The last year has been significant for Whitbread, with the sale of Costa to The Coca-Cola Company for £3.9 billion completing on 3 January 2019. We intend to return up to £2.5 billion of the net cash proceeds to shareholders, and we have repositioned Whitbread as a focused hotel business by delivering our three strategic priorities to grow and innovate in the UK; focus on our strengths to grow internationally; and to enhance the capabilities required to support long-term growth.

“During the year Premier Inn UK delivered total accommodation sales growth of 3.5% through further capacity addition. We have grown our UK network to over 76,000 rooms, with around 13,000 rooms in our committed UK pipeline. We announced a new runway of growth to 110,000 rooms at the Capital Markets Day in February and also see potential to extend the estate further with our two format innovations “hub” and “ZIP”. Alongside our 4,008 new room openings this year, we have maintained our high occupancy, with 97% direct bookings, and have delivered a strong return on capital.

“In Germany, we recently opened our second hotel, in Hamburg, and our pipeline is now almost 7,000 rooms, which is over 30% of our total pipeline for Whitbread. Our hotel in Frankfurt continues to perform well and has reached a mature level of market occupancy and average room rate, in line with expectations, whilst outperforming the competitor set on customer feedback scores.

“We have also made excellent progress on our efficiency programme, achieving our initial five-year target of £150 million in just three years mitigating significant inflationary pressure. We still have more work to do and in February we announced a new target of £220 million operating and capital efficiencies, to be delivered over the next three years. Our focus on efficiency remains important as industry cost inflation continues and there are ongoing signs of market weakness across both business and leisure, especially in the UK regions.

“In the fourth quarter, we saw a decline in business and leisure confidence, leading to weaker domestic hotel demand. This weakness has increased into March and April particularly in the regional business market, coinciding with an acute period of political and economic uncertainty in the UK. At this stage in the new financial year it is too early to know how business confidence and its impact on the market will evolve. However, it’s important to note that our strong balance sheet, ongoing efficiency programme and integrated operating model means we are likely to be more resilient in a weaker market than many of our competitors. In addition, our ability and willingness to continue to invest through this period will place us in an advantaged position in the future.

“Therefore, despite the short-term market challenges, our strong competitive position, ongoing disciplined allocation of capital and focus on executing our strategic plan will ensure we continue to win market share from the declining independent hotel sector in the UK and Germany. This will deliver sustainable growth in earnings and dividends, combined with our strong return on capital over the long-term“.