Whitbread has been undergoing a big shake-up following major disposals, including the sale in July of 239 pub restaurants to Mitchells & Butlers for £497m. Also in July, it sold its 50% stake in Pizza Hut for £112m, taking total net proceeds from the two disposals to £596m.
Today Whitbread announced it will be returning £350m of the net proceeds from the disposals but this is well below the minimum £500m analysts had been expecting. The group says it will also be injecting a further £50m into the pension fund where the deficit at the end of August stood at £288m.
Presumably by way of explanation for the lower than expected return, Whitbread adds that 'developing an appropriate medium term financing structure remains a priority for the group'.
Looking at the interim numbers, profits before tax and exceptionals from continuing operations for the period rose 20.8% to £109.8m. Sales on the same basis rose 8.6% to £696.5m, with like for likes up a good 2.6%.
The interim dividend has been hiked 10.2% to 8.10p from 7.35p last time.
The good interim performance was aided by another strong showing by the Premier Travel Inn hotel chain, which managed to increase operating profits by 17.4% from £71.8m to £84.3m. Revenue per available Premier room grew by 3.6% to £38.42 and over the period, 1,312 new rooms and 11 new hotels were opened.
Whitbread says Premier continues to have the highest occupancy levels of any national brand hotel chain in the UK with occupancy at 80%. Its aggressive expansion is taking place alongside a strategy of building up the hotel chain's presence alongside existing pub restaurant sites.
In the retained pub restaurants estate, sales growth remained negative during the period, with like for likes down 1.2%. A new management team for the business however appears to be slowly turning the business round, thanks in part to revamped menus, and the rate of sales decline has been easing recently.
The David Lloyd fitness club business continues to make good progress with its ongoing turnaround, and managed to improve like for likes by 2.2%. Membership levels are being maintained and the total now stands at 375,000, its highest ever level ever.
The Costa Coffee business, meanwhile, put in strong performance, with UK like for likes up a hefty 6% and profits advanced by 32.6% to £5.7m. The performance was supported by the opening of 85 new stores over the period.
Next month Costa will open its 500th store in the UK. It is on track to open around 200 new stores by the full year with around 100 in the UK and 100 internationally.
Whitbread also announced today that Costa will be expanding into Eastern Europe on the back of new franchise agreements in Poland, Romania and Bulgaria.
On outlook, the group is confident of making further progress in the second half. It assured that it is on target to deliver the £25m cost savings announced last year and work is substantially complete to identify further savings.
The lower than expected return to shareholders is clearly a disappointment but at the operational level Whitbread is making good progress, with Premier Travel and, increasingly, Costa providing solid support while the pub restaurants business is sorted out. It all augurs well for the full year outturn.
The good trading interim performance and confident outlook helped Whitbread Plc shares rise 35p or 2.6% to 1386p by late morning. That gives a forward 2007 PER of 24, falling to 17.4 in 2008. The prospective yield is 2.1%.
