Pressure of competition puts heat on Whitbread

SHARES in Whitbread, the brewing to leisure group, fell yesterday in the wake of a cautious trading statement, taking the shine off a 12 per cent rise in its full-year profits.

In the year to the end of February, the group reported profits before tax and exceptional items of pounds 354.8m, up from pounds 316.5m. Brokers had forecast profits of between pounds 348m and pounds 360m.

However, the group's shares were off 2 per cent or 30p at 1,060p, while shares in its rival Bass fell 34p to 1082p.

Merrill Lynch analyst Philip Hawkins said: "We have put in a small downgrade for the first time in several years, in the region of 1 to 2 per cent. The period of upgrades for Whitbread has come to an end for the time being.

"It's mainly because returns at the tail end of the estate are under pressure, which is dragging down the overall number. It shows things are very competitive, especially in London."

Whitbread shares have outperformed the brewing sector by some 20 per cent over five years. There are mounting concerns in the investment community that the high levels of corporate expenditure on managed pubs has become harder to recover given the number of new and aggressive competitors coupled with the risk of a downturn in consumer spending.

Analysts estimate the industry spent pounds 800m to pounds 1bn last year on buying new sites or refurbishing existing pubs. It is estimated that more than half of this went into food pubs.

The group plans to spend about pounds 460m in the coming year, a similar amount to last year, with most of the investment concentrated on the group's managed pub estate. Whitbread's 1,700 managed pub estate includes Brewers Fayre and Hogshead.

The company said it would continue to shed pubs and off-licences that underperformed at a similar rate over the coming year. It sold some 500 outlets to realise pounds 144m in the year.

All of the group's divisions grew profits in the year. Beer improved trading profit 12 per cent to pounds 44.6m, although total sales were lower due to falling sales of cider, wine, spirits and flavoured alcoholic drinks. Its premium lager Stella Artois increased sales by 27 per cent.

Investment column, page 26