Costa Coffee profits rise again

Britain's seemingly insatiable appetite for coffee helped Costa owner Whitbread beat City forecasts for annual profits.

Profits at the coffee chain's 1,755 shops in the UK and Ireland rose by 22% to £110m with revenue at stores open a year or longer up 5.7%.

Costa opened 177 branches in Britain last year and served 400m cups of coffee. The chain's worldwide sales were £1.2bn. Sales are on course for a target of £2bn by 2018 as it targets 2,200 UK stores and expands abroad.

Costa opened a net 73 new shops in China last year, giving it 326 stores in 30 cities with more openings on the way in the world's most populous nation.

Harrison said: "In China we are seeing growth of the coffee shop culture. Starbucks are growing in China in the same way we are. The Chinese really have a taste for western coffee shops."

Whitbread said it was also planning to expand its Costa business in France after four stores – opened last year in Paris – performed well.

Costa's booming sales helped Whitbread's underlying group pretax profits rise by 16.5% to £412m in the year ended 27 February – beating analysts' forecasts of £402m.

Profits at hotels and restaurants, including Beefeater and Brewers Fayre, rose by 11% to £348m, helped by a sales rise of 13% at the Premier Inn hotel chain.

Harrison said the London economy was "going from strength to strength", adding: "There are signs of an improved consumer trend outside the M25 but it's very early days."

He said the firm would open extra hotels this year and that there would be more refurbishment of Premier Inn rooms, including upgrading WiFi and installing air conditioning.

The company increased its annual dividend by 19.9% to 68.8p, in line with the rise in profit after tax, which was boosted by the government's staged reductions in corporation tax.

Harrison said: "We delivered double-digit growth throughout the teeth of the recession and we continue to do that now the economy is on a more positive note. After tax profit is up 20%; the dividend is up 20%."

He said the dividend would keep increasing with profit after tax but that Whitbread had no plans to use share buybacks or a special dividend to return more cash to shareholders.

"Our cash flow allows us to reinvest in the business. To a very large extent, we are a growth story. The largest part of our shareholder return is coming from growth in the share price rather than growth in the dividend," said Harrison.

Whitbread shares have risen 58% this year, outstripping by far the overall 4% rise in the FTSE 100 index. By mid-morning on Monday the shares were up 0.8% at £40.93.

Richard Hunter, head of equities at stockbrokers Hargreaves Lansdown, said: "Investors have come to expect much of Whitbread and these numbers do not disappoint.

"Less positively, the dividend yield remains anaemic given the current interest rate environment, while costs have been under pressure and this may increase further given the underlying price rises for the likes of coffee."

Whitbread's forecast dividend yield for this year is 1.7%, compared with 5.2% for Vodafone.