(Reuters) - Whitbread will buy back an extra 2 billion pounds ($2.58 billion) of shares using proceeds from its Costa Coffee sale and aims to double the long-term network potential at its hotels business to more than 170,000 rooms in Britain and overseas.
The group, which gave details of its plans at a Capital Markets Day on Wednesday, completed the $5.1 billion sale of Costa Coffee last month, has shifted the company’s focus almost entirely to hotels, which includes the Premier Inn brand in Britain.
Whitbread put the potential total for the number of rooms in Britain at 110,000 in the long term from an existing portfolio of 74,000 rooms.
Investors have been looking for signs of an aggressive growth plan, with Whitbread flush with cash from the Costa sale. Analysts had long felt the coffee chain was dragging down Whitbread’s overall business.
“Following the sale of Costa for 3.9 billion pounds, there will be capital which is surplus to Whitbread’s ability to invest at a strong return on capital in the near term,” it said.
Whitbread is also looking to expand hotels in Germany to at least 60,000 rooms via investment in freehold and leasehold properties, combined with acquisitions. It predicted a profit from its German operations in fiscal year 2022.
As well as increasing its international presence, the company is targeting the UK budget hotel market with “Zip” rooms that start from 19 pounds to try to boost revenue in its home market, where consumer spending has come under pressure because of uncertainty created by Britain’s exit from the European Union.
(Graphic: Premier Inn Sales - tmsnrt.rs/2BxvLtK)
The FTSE 100 company, which said it had already saved 150 million pounds in the last three years, also promised investors a further 220 million pound in cost savings over the next three years.
Whitbread began an initial share buyback program of up to 500 million pounds last month following the Costa deal.
(Graphic: Whitbread rides on Costa sale high - tmsnrt.rs/2ByX1bz)
Whitbread’s shares rose nearly 15 percent in 2018. They were 2.4 percent higher at 4,882 pence at 1447 GMT.
After the Costa sale, Whitbread’s business in Britain includes its Premier Inn hotel business and a handful of restaurant chains including Beefeater, Thyme, Table Table and Brewers Fayre.
Reporting by Sangameswaran S and Noor Zainab Hussain in Bengaluru; Editing by Sai Sachin Ravikumar and Jane Merriman