Business review

Costa

Costa delivered an encouraging performance in a difficult market. Total revenues were up by 22.0% at £263.8 million and total profit up 9.1% at £22.7 million (2007/08: £20.8 million), as customers continued to respond well to our focus on delivering excellent coffee, served by trained baristas in a warm and welcoming environment. Costa saw strong sales growth across all its business streams, with sales in UK equity stores up by 21.0%, UK wholesale and franchise sales up 14.9% and international sales up 65.9%.

In the last year, transaction volumes in the like for like estate increased by 0.8%, whilst food capture remained high at 42.5%.

Our focus for Costa in 2008/09 was to continue growing in all markets. In the year 296 net new stores were opened, bringing the total of UK and international stores to 1,288.

Many of our new UK stores replaced existing unbranded or lower quality suppliers, or brought Costa to new markets. For example, Costa now has the largest coffee shop presence in motorway service areas. The strength of our brand is further demonstrated by our ability to create partnerships with other major retailers such as Tesco, where Costa now has 72 stores. Stores were also opened on major high streets, in flagship shopping centres and in provincial towns. In addition, in March 2009 we signed an agreement with Hilton Hotel Corporation (HHC) to supply coffee to 60 of its hotels in the UK.

As with all our estate, we continually refresh and refurbish existing stores, and open new units with a distinctive, refreshed look. There are two key drivers for this; to modernise the look and feel of the brand and to create even more comfortable, relaxing environments for Costa customers - making their coffee shop experience even better. Two thirds of our UK stores have either undergone this refurbishment or have been opened in the new brand style.

Costa still has significant opportunity to expand, although we will be doing so at a more measured pace. We will open around 100 stores in the UK, focusing on towns, cities and 'trade zones' where we are not present or are under-represented.

Costa is now the second-largest international coffee shop brand with 407 stores in 24 countries. 110 new stores (net) were added in the year: 23 new joint venture outlets and 87 new franchise stores. We anticipate that around 100 stores will be opened in international markets in 2009/10.