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Whitbread 'cautious' despite Premier Inn and Costa Coffee profits rise

Costa Coffee owner Whitbread has cheered a jump in annual profit, but said it remains "cautious" amid forecasts for a tougher year ahead.

The group reported a 6.2% rise in underlying pre-tax profits in the 52 weeks to March 2 to £565.2 million, while total revenue increased by 8.2% to £3.1 billion.

It comes as its Premier Inn and restaurants business chalked up a 7.4% rise in full-year underlying operating profit to £468 million, while the Costa unit saw a 5.3% rise to £158 million.

However, chief executive Alison Brittain said the company is steadying itself for the months ahead.

It comes as retailers start to prepare for a pullback in consumer spending due to rising inflation, caused by the post-Brexit vote collapse of the pound.

"Whilst we are only seven weeks into our new financial year, Premier Inn has had a good start to the year and Costa has also seen positive like-for-like sales growth, although we remain cautious and expect a tougher consumer environment than last year," said Ms Brittain.

UK inflation has risen to 2.3%, but forecasts by the Bank of England expect that number to rise to 2.7% by the end of 2017, before peaking at 2.8% in the first half of 2018 and easing to 2.4% by 2019.

It comes as businesses start to pass on rising costs caused by the weaker pound following currency fluctuations in the wake of the Brexit vote, which has made imports more expensive.

If inflation continues to outpace wage growth, experts say consumers are likely to become more cautious about splashing out on leisure and other non-essential items.

In its trading update, Whitbread's directors said they will continue to monitor the "risk of a wider macro-economic effect as a result of the UK leaving the EU, including foreign exchange and interest rate fluctuations."

But Ms Brittain said Whitbread will still be able to deliver "another year of good progress, in line with overall expectations", as it pushes ahead with a £150 million cost efficiency programme first announced in November.

Whitbread shares plunged 6% to the bottom of the FTSE 100 after the release of the company's results.

Russ Mould, investment director at AJ Bell, explained that investors were "focused on the cost headwinds that lie ahead".

"The National Living Wage, business rates, commodity price inflation and foreign exchange rates are set to outweigh the benefits from the group's cost efficiency programme and continue to squeeze margins at both its Costa Coffee and Premier Inn arms."

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