January 18, 2018 / 7:24 AM / a year ago

Whitbread leaves break-up of business on the table

(Reuters) - Whitbread (WTB.L) said it had an open mind about its future structure on Thursday after pressure from an activist investor to consider splitting its Costa Coffee business from its hotel and restaurant operations.

A cup of espresso is pictured on a table at a branch of Costa Coffee near Manchester, Britain May 5, 2017. REUTERS/Phil Noble

Reuters reported late on Wednesday that investor Sachem Head, which disclosed a 3.4 percent stake in Whitbread last month, was pushing the FTSE 100 company to consider a break-up, according to two people familiar with the matter.

In response, Whitbread Chief Executive Alison Brittain said the board continuously looked at how the group is organised.

“We remain entirely open-minded about the structure of the business and are fully committed to reviewing it on a regular basis at the board level,” Brittain told reporters.

Whitbread shares traded 1.9 percent higher at 1045 GMT as the break-up speculation overshadowed a trading statement that illustrated the pressures it faces in its home market.

Sachem Head sees a break-up as a way to boost the value of Whitbread’s individual businesses.

In a note published earlier in January, Barclays analysts wrote that Whitbread had a good track record of divesting businesses however the last significant disposal was 10 years ago. It added it sees the most obvious step, if any, as a sale of Costa.

The Premier Inn and restaurants business generated operating profit of 468 million pounds in 2016-17 on revenue of 1.9 billion pounds. Costa made 158 million pounds from 1.2 billion pounds of revenue.


Whitbread blamed a tough British high street environment for a slip in Costa Coffee sales, while like-for-like sales across the group rose only marginally in the third quarter.

Costa’s comparable UK sales declined 0.1 percent in the 13 weeks ended Nov. 30, the latest sign of pressure on the UK high street after a string of weak trading updates from retailers.

“We do expect the tough UK high street environment and inflation in our sector to continue to pose challenges in the year ahead,” Brittain said in a statement.

Whitbread, which began life as a brewer more than 275 years ago, said it was trying newer blends of coffee and food options in response.

Comparable sales growth in the UK at Premier Inn, which has over 65,000 rooms in the country, increased 0.5 percent in the third quarter. Across the group as a whole, there was a 0.3 percent rise in UK comparable sales.

Whitbread said there were signs of weakness in the hotel market, most notably in London, with both occupancy and average room rates declining year-on-year.

FILE PHOTO: Signage for Premier Inn is seen on the outside of one of their hotels in London, Britain, March 30, 2016. REUTERS/Toby Melville/File Photo/File Photo

Like-for-like sales fell 5.6 percent for the third quarter for its London hotels, with comparable RevPAR — a key industry metric — down 5.8 percent.

Premier Inn — which has a lot of exposure to the London market — has had to cope with a slowdown in the capital, blamed in part on a series of attacks by militants last year.

The business also faces competition from online holiday rental startups such as Airbnb.

Additional reporting by Radhika Rukmangadhan; Editing by Bernard Orr/Alistair Smout and Keith Weir

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