LONDON (ShareCast) - Whitbread (LSE: WTB.L - news) reported a 10.4% drop in first half pre-tax profits but said it is now seeing an improving trend at its budget hotel chain Premier Inn.

The group, which also owns the Costa Coffee chain, saw profit before tax and exceptional items fall to £110.5m in the six month ended 27 August compared with £123.3m last time. Total revenue was up 3.1% to £703.3m.

Broker Charles Stanley expected interim pre-tax profits of £110m on revenue of £698m (£682m). That was below Panmure Gordon's estimates of profit before tax of £113.8m on sales of £698.6m.

Total sales at Premier Inn increased by 0.4% to £312.1m with like for like sales down by 7.5%. The Costa Coffee chain remained the brightest spot in the Whitbread portfolio. Total revenues were up by 20.6% at £155.4m and pre-exceptional operating profit up 72.6% at £12.6m.

The interim dividend has been maintained at 9.65p.

The group said the momentum seen in the second quarter has continued in the nine weeks since 13 August. Costa has traded strongly and there has been a robust performance in the group's pub restaurants. There is an improving trend now evident at Premier Inn, it added.

'Encouraging progress has been made, which has continued into the second half of the year. Whitbread's value for money brands have considerable appeal for today's price conscious customers,' said chief executive Alan Parker.

'We remain confident about the outturn for the year, subject to any marked deterioration in the economic environment.'