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Whitbread vows Premier Inn will 'stamp across Europe' using Costa proceeds

Oliver Gill
Whitbread warned the company’s near-term profit growth may be lower than previous years - REUTERS

Whitbread is primed to “stamp across Europe”, boss Alison Brittain has insisted, despite suffering a summer slowdown at its main remaining business Premier Inn.

In its first trading update since shocking investors with a £3.9bn deal to sell Costa Coffee to Coca Cola, the FTSE 100 company warned profit growth may be lower due to its investment plans, inflationary pressures in the consumer sector and uncertainties over Brexit.

Whitbread's latest figured showed that half-year revenue rose 2.6pc to £1.1bn on flat profit before tax of £257m.

In a regulatory statement, Ms Brittain warned of “some weakness in consumer demand over the summer”.

But speaking to The Daily Telegraph the Whitbread chief executive said she had hoped to paint a more positive picture of growth and expansion. “I’ve not quite managed to land my messages very well," she admitted.

Premier Inn has a pipeline of 13,000 rooms in the UK, equivalent to three or four years of growth, Ms Brittain explained.

Analysts also highlighted the attractive fundamentals of the German market, which is ripe for expansion of Premier Inn’s low-cost hotel model. Whitbread wants to open 6,000 rooms in the country by 2021, equivalent to almost a third of the company’s pipeline.

“Our chief job is going to be capital allocation,” said Ms Brittain. “We don’t think we have run out of steam in the UK, we have a long way to go. But equally we have got this great new market and we do want to expend capital and time and attention on that market as well.”

Whitbread had previously planned to de-merge Costa following following pressure from activist investors. Ms Brittain said that had the Coca Cola deal not come along, Whitbread would have been forced to choose whether to grow its UK or German business.

The sale of Costa, some of the proceeds of which will be used to pay down debt and extinguish pension liabilities, puts Whitbread in a “hugely more advantaged position”, Ms Brittain said.

She added: “The opportunity to grow that in a new country, to put that platform in another country and beyond that is hugely exciting. It will be great for Premier Inn, a great British business, stamping its feet across Europe.”

Anna Barnfather, a Liberum analyst, cautioned on the German expansion. She said: “While the fundamentals of the German market are attractive, the complexity of property ownership structures has hampered the pace of roll out with incremental leases being slow to negotiate and there is a risk that Whitbread is forced to pay significant ‘strategic’ premiums to gain critical mass.”

Markets.com chief market analyst Neil Wilson said: “Building new hotels is not cheap. As a result management says the company’s near-term profit growth may be lower than in previous years.

"This makes disciplined allocation of capital a must, particularly in Germany where the growth story now rests. Given the saturation of the UK market, growth in the domestic market will be more marginal than Germany, where the budget branded hotel market is far less mature.”

Whitbread shares fell 2.4pc in afternoon trade to £43.56.