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Costa Coffee grew revenues by 9.1% in the first half to £622m but significant increases in labour costs, business rates and foreign exchange impacts on coffee imports hit profits.

Interim results from owner Whitbread (WTB) this morning revealed that Costa in the UK increased revenue by 8.3% to £542m, driven by the addition of 108 net new stores, and the continued strong performance of Costa Express, which grew revenues by 17.7% to £98m. Costa added 767 net new Express machines in the period.

UK equity stores showed like for like sales growth of 0.6% in the period, down from 2.3%, with sales growth driven by 230 new equity and franchised stores (net 205) taking its UK store estate to 2,326 outlets.

However, Costa UK underlying operating profit declined by 4.6% to £61m due to rising costs of labour and the weakness of the point. These costs were somewhat offset by efficiency savings, which delivered a benefit of 150 basis points to underlying margins.

The contribution from Costa’s international operations grew to £4m during the half (up from £1m in the first half last year), following the completion of the exit of operations in France and improvements in China.

Statutory profit before tax for Costa fell 9.8% to £59m from £65m.

Overall, including Whitbread’s Premier Inn hotel business, the group showed revenue growth of 7.4% and market share gains in both its businesses.

Disciplined cost management enabling underlying profit growth of 6.7% to £328m.

CEO Alison Brittain commented: “I am pleased with the progress we have made in executing the plan we set out in November last year, with earnings per share up 7.4% in the half and return on capital of 15.4%.

“Our plan is based on growing in our core UK markets; focusing on structural growth opportunities for Premier Inn in Germany, Costa in China and Costa Express; and strengthening our capabilities and efficiency to deliver these attractive opportunities.”

“Despite the well known short-term economic uncertainty, our performance in the first half was good and we expect to meet expectations for the full year. Although we remain cautious on the current environment, we are confident that ongoing disciplined allocation of capital and focus on executing our plans will deliver long-term growth in earnings and dividends and a strong return on capital.”

Morning update

Private label household goods manufacturer McBride (MCB) has updated the market on trading ahead of its AGM later this morning.

It stated: “At this early stage of the year the board is comfortable that the business remains on track to deliver its full year expectations.”

As previously indicated, McBride expects the current year financial performance to be weighted towards the second half of the year as increases in revenues from its “grow” strategy begin to benefit the business.

During the first quarter revenues were 6.7% lower at constant currency than the prior year. Household division sales were 5.1% lower, primarily as a result of the impact of the loss of a key contract at the end of the last financial year in Germany and weak underlying demand in France.

However it has since recovered the loss of the German business and UK and Spain have secured contract wins and have solid growth prospects ahead.

In the Personal Care & Aerosols division sales were 12.4% lower than last year with half of this decline associated with the exit last year of non-profit making contracts as part of actions to consolidate manufacturing into fewer locations.

CEO Rik De Vos said: “The Group is making good progress on its growth initiatives, including the completion of the Danlind acquisition, while ongoing activity to deliver on our targeted opportunities mean we remain on track to see growth in our Household business as expected this financial year.”

Elsewhere this morning, spirits group Distil (DIS) has announced its interim results for the six months ended 30th September 2017.

Sales increased by 22.8% to £818k and gross profit was up 22.1% to £459k.

Distil’s brands showed further year-on-year sales and volume growth during the period, supported by additional investment in marketing and promotion - with Redleg Spiced rum and Blackwoods Gin “performing strongly across all formats”.

Overall volume growth at over 41% compared to revenue growth of 23% reflected a steady increase since the early part of the year in licensed sales, particularly in Eastern Europe and duty free, together with a change in product and market mix across the portfolio during the period.

The strengthening performance of these brands together with continued tight control of overhead costs enabled a 68% reduction in operating losses during the period.

Operating losses reduced to £21k from £66k in the same period last year, despite investment in brand marketing and promotion increasing by 36.3% to £199k.

Don Goulding, executive chairman, commented: “We continued to deliver strong year-on-year growth across our brand portfolio in the six months to 30th September 2017 despite lapping prior year pipeline fill in major retailers.

“During this period we increased our brand marketing investment to extend our reach directly with consumers at festivals and at the point of sale. Importantly we increased marketing funds to cover development costs of our new Blackwood’s vintage and new packaging across the Blackwoods Gin and Vodka range for launch in Q4 of our fiscal year.

“We are pleased to report that our key brands have outperformed each of their respective categories overall during the period.”

On the markets this morning, the FTSE 100 has opened the day little changed again, edging up to 7,528.7pts.

Whitbread’s shares have plunged 4.2% in early trading to 3,776p after its fall in profits. Similarly McBride is down 3% to 223.8p after its downbeat opening to the year, while Distil is down 8.8% to 2.8p.

Real Good Food has recovered some of the ground it lost yesterday, bouncing back by 4.6% to 23p. FeverTree (FEVR) is also up 2.4% to 2,145.3p and Nichols (NCLS), is up 2% to 1,740.7p.

Early fallers include Greencore (GNC), down 1% to 192.3p, Just Eat (JE), down 0.9% to 710.5p and Sainsbury’s (SBRY), down 0.8% to 244.5p.

Yesterday in the City

The FTSE 100 was almost unchanged yesterday at 7,524.5pts.

It was not such a stable day for Real Good Food (RGD), which announced yet another profits warning – this time indicating it will fall to a loss in the current financial year. The food group fell another 15.4% back to 22p yesterday.

Elsewhere, it was a slow start to the week for the supermarkets. Morrisons (MRW) was one of the FTSE 100’s bigger fallers, dropping 1.3% to 232.2p yesterday, while Tesco (TSCO) and Sainsbury’s (SBRY) were also down by 0.7% to 187.5p and 0.5% to 246.4p respectively.

Other significant fallers included Unilever (ULVR), down 1% to 4,121p, WH Smith (SMWH), down 0.9% to 2,032p and Fever-Tree (FEVR), down 1.6% to 2,095p.

Elsewhere, Crawshaw Group (CRAW) fell 7.8% to 14.8p, Hotel Chocolat (HOTC), was down 3% to 320p, Greene King (GNK) fell 2.1% to 531p and Nichols (NCLS) was down 2% to 1,706p.

The day’s risers included SSP Group (SSPG), up 2.3% to 580p, TATE & Lyle (TATE), up 2.1% to 645.5p, Associated British Foods (ABF), up 1.4% to 3,371p, Just Eat (JE), up 2.7% to 717p and McColl’s (MCLS), up 2% to 1,706p.

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