Costa Coffee owner sees profits rise, but warns of increased costs

Costa Coffee owner sees profits rise, but warns of increased costs

Costa Coffee and Premier Inn owner Whitbread unveiled a hike in half-year profits but warned it will face up to an extra £20m a year in staff costs from impliementing the new UK living wage.

The group, which is one of the UK's biggest employers with around 48,000 staff, said it had already increased pay for baristas in its Costa Coffee chain by around 10% this month to take pay above the incoming UK living wage.

This will cost it around £5m over the second half of its financial year, while wider wage hikes across the group to meet the new minimum pay rules and its own pay plans will add £15m to £20m a year to annual costs.

The group said it cannot rule out price rises as it looks to offset the higher wage bill, but stressed it hoped to make savings in other ways, such as through moves to improve productivity across the business, including better staff rostering.

Outgoing chief executive Andy Harrison insisted the group wants to maintain a "good value proposition".

Its first-half results showed a 13.8% jump in underlying pre-tax profits to £291.3m for the six months to August 27 after seeing robust sales growth across its Premier Inn hotel and Costa chains.

From next April, firms will have to pay all workers aged over 25 at least £7.20 an hour - up from the current national minimum wage of £6.50 - and this will rise to £9 an hour by 2020.

Whitbread said: "This increase is one of the inflationary factors which Whitbread manages every year.

"We can continue to mitigate this cost inflation over time through a combination of economies of scale as we grow, procurement benefits and investment in training and systems to deliver increases in productivity and efficiency, whilst offering our customers outstanding value for money."

Shares in the firm lifted 2% after its profits haul beat market expectations.

Whitbread said its Costa chain saw like-for-like sales rise 4.4%, with a 5% hike in its Premier Inn business.

Growth was less impressive in its restaurants arm, which includes brands such as Beefeater, Brewers Fayre, Table Table and Taybarns, with like-for-like sales edging 0.1% higher.

But Whitbread said this was "progress in a soft market".

Richard Hunter, head of equities at Hargreaves Lansdown, said: "The latest set of numbers from Whitbread are another triumph, propelled by the ongoing expansion within its two flagship businesses in the form of Premier Inn and Costa."

The figures come at the end of a successful tenure for Mr Harrison, who is handing over the reins to successor Alison Brittain in December.

The former Lloyds Banking Group's retail chief joined as chief executive designate on September 28, becoming the group's first female chief executive.

She takes up her full role on December 7.

Chairman Richard Baker praised Mr Harrison's "outstanding contribution".

He added: "Andy joined a good company five years ago and, when he leaves us in a few weeks, he will leave it an even better company, with excellent foundations for future profitable growth."

Whitbread first warned last month that it may have to make "selective" price increases to offset the national living wage costs.

While it said "we are longstanding supporters" of real pay increases for staff, it has courted controversy in the past with bumper pay deals for bosses that have far outstripped salary increases among its workforce.

Mr Harrison saw his potential pay package soar to £6.8m in the 2013/14 financial year after cashing in a multimillion-pound share award made as part of a "golden hello" when he joined the company in 2010.

In the last financial year, Mr Harrison picked up £4.6m in pay and bonuses.

Even with this and other long-term share awards stripped out, his pay rose by 4.9% in 2014/15, compared with 3.2% for Whitbread's employees.

The group outlined in its latest half-year report aims for "pay progression", which will include more than £12m a year invested in training and around 500 new first-time management jobs created this year.

Whitbread also aims to boost its workforce by 15,000 over the next five years, including 6,000 apprenticeships, as it looks to grow Costa and Premier Inn.

It plans to add another 5,500 rooms across the budget Premier Inn hotel chain and open around 220 new Costa stores worldwide this year, with a target for around 2,500 Costa shops in the UK by 2020, up from 1,999 currently.

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