Whitbread plc

Alison Brittain – Chief Executive Officer Nicholas Cadbury – Group Finance Director Dominic Paul – Managing Director, Costa Louise Smalley – Group HR Director

Vicki Stern – Barclays Jamie Rollo – Morgan Stanley Geoff d’Halluin – Deutsche Bank Jeffrey Harwood – Stifel Tim Ramskill – Credit Suisse Angus Tweedie – Merrill Lynch Rachel Fox – Goodbody Richard Clarke – Bernstein Monique Pollard – Citi

Good morning, everybody. Welcome to Whitbread's Full Year Results Presentation, and hello as well to everybody who is listening through our webcast today.

I'm joined by Nicholas Cadbury and also members of the Whitbread executive committee, Louise Smalley, Simon Jones, Dominic Paul, Nigel Jones, Mark Anderson, Chris Borne and our Chairman, on the front-row, Adam Crozier. I'll take you through some of the highlights of the results at first and then I'll hand over to Nicholas to explain our financial performance in more detail and then as always I’ll come back with a more detailed update on strategic progress and then we will take your questions as usual.

And this morning, we are covering a number of topics as you probably all know already. We'll be covering the results themselves, the strategic progress we've made and an important update on the structure of Whitbread.

So as I've discussed in previous results days, we have a three – a very clear three point plan for the business strategy and that is to access the attractive structural opportunities for both Premier Inn and Costa and enabled by our market-leading bands, high quality teams and our disciplined financial and capital management. We still think there is a long runway of growth in the UK for Premier Inn and we see a potential for over 100,000 rooms over the longer term.

And in Costa, there is also opportunity to grow to over 3,000 sites, which we will deliver to customers increasing number of formats to suite the ever changing habits of the UK consumer and that’s especially their increasing need for access to quality coffee in a convenient way. The strong momentum of Costa Express in the UK, of course, highlights that particular tend and provides us with another profitable way to increase our share of coffee consumption wherever our customers are.

Internationally, we continue to see high the attractive market opportunities in Germany for Premier Inn and in China for Costa. We’re investing more in these markets to ensure that we capture that both organically and by acquisitions.

This year we completed two important transactions. In our first acquisition in Germany, we have agreed to acquire 19 hotels comprising 3,100 rooms in addition to our organic pipeline that will mean we'll have at least 31 hotels comprising 5,700 rooms for Premier Inn and virtually all of them opening by 2020.

In Chin, we completed the buyout of one of our two joint venture partners. The acquisition provides Costa with full control over its business outside Beijing and allows us to increase our ambition to target 1200 stores by 2021.

Both transactions provide solid foundations from which to rebalance Whitbread as a truly international business in the years ahead. We're also becoming more proactive in our approach to express partnerships as we build a broader international business there to.

We've been working hard to generate further savings through our cost efficiency program and we know that's increasingly important as cost structures in our industry remain challenging. Our strong execution over the last two years means we've already delivered 105 million of savings and that has offset the material structural inflation that's impacting the hospitality sector and it's giving us confidence to accelerate our ambition and we intend to increase our target savings from 150 million to 250 million and make sure that at least 100 million of that is achieved over the next two years.

We’ll continue to invest for the long-term in the business with a focus on enhancing our digital skills and fine tuning our procurement supply chain and property capabilities. We will continue to be a force for good in the way we interact with our teams and have a positive impact on the communities where we operate.

This morning I'm very pleased to announce our commitment to creating two high quality independent companies through our plan to separate Premier Inn and Costa via a demerger of Costa. Whitbread is in an enviable position of having two fabulous quality businesses, which are both leaders in their markets both deliver attractive returns and have significant long-term structural growth opportunities.

As you know from previous presentations, we've kept the strategy and structure of the group under regular and rigorous review over the last 2.5 years. And as I've often mentioned, we've done that in an open minded way accepting the philosophical position that at the right point in time a separation would enhance focus and create long-term value.

Our strategy of growth and innovation in the UK building a platform for each business to have an international structural opportunity and improving the infrastructure to give a modern efficient platform for growth of our all fundamental to delivering two businesses of sufficient strength, capability and potential to thrive independently. We've made tremendous progress in the delivery of our UK strategy in both Premier Inn and Costa and we've recently delivered that step change in international development with those significant acquisitions.

We've also made considerable momentum in the delivery of a quite complex and challenging multi-year transformation program and that's delivering improvements in our core operational capability, the complete overhaul of our technology platform and providing significant structural efficiency for the future. And as a result of all that good progress that we've made so far more were even more confident in our plans now to complete those programs and deliver them.

Further progress on completing some critical elements will leave both Premier Inn and Costa in a strong position to thrive as fully valued separate entities and well positioned to take advantage of the structural growth available in their respective markets both in the UK and internationally. We're committed to completing the demerger of Costa as fast as is practical and appropriate and we aim to optimize value for shareholders.

Having carefully considered the optimal timing, we anticipate that this should be completed within twenty four months and I'll provide a little bit more color on that later this morning and of course we'll keep you regularly updated on our progress as part of our standard financial reporting signs – cycle. And as an aside we really are very excited about this opportunity that we're announcing today.

This separation has been talked about for an awfully long time and we have been building the foundations to allow both businesses to be fantastic in their own right and to compete in their own way. And being part of the team that we’ll unleash the potential of those two businesses in the market and allow them to be fully valued by the market, I think it’s a great ambition for all of our team were very committed.

Right back to back to normal side; in addition to working to our long-term strategic aims, we also delivered strong financial results this year. Premier Inn continues to grow at pace to over 72,000 UK rooms, strong revenue and profit growth and consistently good return on capital.

We've recently been voted, which best UK hotel for the third year running. Costa has also maintained its number one position in the market voted the UK’s favorite coffee shop for the eighth consecutive year and with a larger Delta to our competitors.

And in 2017, we delivered good revenue growth and excellent return on capital. Good performances by both businesses have meant – the group underlying profits grew by 4.5% to £591 million and return on capital remained high increasing to 15.4%.

We also generated ₤585 million of discretionary free cash flow during the year, which gives us the flexibility to continue to invest in the attractive opportunities available in both Premier Inn and Costa. And of course our discretionary cash flow, is also used to fund our dividend, which we've increased this year by 5.6% to ₤1.01 per share.

Before I hand over to Nicholas to provide an update on the numbers, I just wanted to spend a second thanking my teams for the hard work that they've put in to achieve great progress on the results and great progress on the strategic agenda. Having such a committed and talented team across the group is a real significant competitive advantage both for our UK and international businesses.

Nicholas?

Thank you, Alison. Good morning everyone.

I'm pleased to present another good set of full year results. Revenue for the group was up over 6% to ₤3.3 billion with our disciplined approach to cost management delivering profits on expectations of ₤591 million up 4.5%.

We remain highly cash generative and converted almost all of our underlying profit into a discretionary free cash flow of ₤585 million. This enables us to invest in our growth strategy and strengthen our brands, which in turn is delivering strong return on capital of 15.4%, which is a good premium to our cost of capital.

We also finished the year with a strong balance. Our adjusted leverage ratio was 2.9 times providing us with flexibility for further UK and international growth opportunities.

On this slide we show the strength of Premier Inn, which continues to grow capacity and gain market share. Revenue grew by just over 5% to over ₤2 billion.

At the bottom of the page you can see that this was made up of 7% growth from hotel accommodation sales and 2.5% from food and beverage. Just to note that our food and beverage sales now includes the F&B sales in both our integrated hotel restaurants and in our joint sites.

And you can see a full comparison of the data in our supplementary information on the website. The 7% hotel accommodation sales growth came from a combination of the 2.2% like-for -like sales increase as we benefited from our extension program and around 5% from 4,000 rooms that we've opened across the UK this year.

We gained share in both London and the regions. In London, where the market was quite volatile, we still grew sales by 9% and in the region grew sales by just under 7%.

In the second half of the year, total sales growth slowed in line with a softer mid-scale and economy hotel market particularly in London. Comparatives, were tougher with the second half year of last year benefiting from the high inbound tourism of the stronger pound.

This was compounded by an increase in supply again mainly in London. However, in the half we still grew sales by 7% in London and just over 5% in the region and we expect supply growth to moderate towards the end of this year.

Underlying profit for the year increased by 6.5% to ₤498 million supported by good sales growth and our ongoing focus on the efficiency program, along with the successful exit of our hotels in India and South East Asia, which eliminated our losses. This good profit growth ensured we maintained a strong return on capital at 13.5% up 40 basis points.

This is a particularly good achievement as we continue to add significant capacity, which as you know takes time to mature. Turning to Costa, sales growth was strong up 7.5% to almost $1.3 billion and operating profit was up marginally to ₤159 million reflecting the investments, we're making and in line with previous margin guidance.

Return on capital remained incredibly strong at 46% ahead of guidance, which I will come back later. Looking at the UK.

We were pleased with our total sales increasing by 7.3%. We continue to offer customers more outlets, in which to purchase a Costa Coffee.

A new retail chains or channels and offering greater convenience through Costa Express whose sales were up 18% year-on-year. We maintain positive like-for-like growth in the UK of just over 1% benefiting from the strong performance in Express.

In our equity stores, like-for-like sales were down 0.4%, ahead of the decline in the retail market foot flow primarily as a result, of the increase in our average transaction spend. The UK's profits were marginally down year-on-year at one ₤151 million.

Our UK profit benefited from the good returns in new stores and the exceptional growth at Express. The success of the first year of Costa’s efficiency program also enabled us to offset most of the considerable inflation.

However to give Costa long-term earnings growth as we've previously discussed, we're in the middle of our investment phase building technology and digital platforms our product innovation capabilities and our marketing presence. This is accounted for most of our previous margin guidance and an additional ₤10 million of incremental investment in the UK.

Turning to our international business profits were up from ₤4 million to ₤8 million reflecting a good performance in Poland and our franchise businesses across Europe as well as removal of losses as we exited our equity business in France. In China, we were pleased that we continued our positive like-for-like momentum we opened 79 new stores and closed 39 stores in none core cities.

Losses in China has remained stable at approximately ₤5 million. This slide shows the margin progression of both businesses, which is slightly ahead of guidance on the left Premier Inn increased margins by 30 basis points to 24.8%.

Our efficiency gains were once again significant and help to offset the sector headwinds we face from business rates labor and import inflation. We also benefited from the good like-for-like and new capacity growth as well as the positive impact from closing our operations in India and Southeast Asia.

Costa on the right. So margins declined by 80 basis points.

Once again the initiation of our cost efficiency programme largely offsetting the well publicized industry headwinds and we maintained our investment program, which is building a better business over the longer-term. Whitbread is highly cash generative.

Our business model support good working capital management and we focus on deploying our maintenance capital as effectively as possible. This is enabled us to convert 94% of our operating profit into ₤585 million of discretionary free cash flow during the year.

This is used to fund our growth CapEx of ₤400 million, as well as our pension contributions and our dividends. Turning to capital investment, maintenance and product improvement capital was ₤180 million in Premier Inn and ₤40 million in Costa.

This reflects the ongoing investments we're making in our critical IT transformation program and the continued importance placed on maintaining the quality of our hotels and store estates that make our brand so strong. In Premier Inn UK, we invested GBP227 million building new hotels and extending existing hotels, contributing to over GBP 500 million invested over the last two years, which would deliver above 13% return on capital once mature.

In Germany, we've invested GBP 100 million of CapEx over the last two years, building our organic pipeline to 11 hotels, laying the foundations for long-term profitable growth. We expect hotels in Germany to deliver close to U.K.

returns over the longer term. However, they will be lower in the medium term due to the higher number of hotels in construction as well as the slow maturity as we are building a business scale.

With our excellent returns and Costa, we invested GBP 47 million growing our store network, GBP 35 million in buying out a joint venture partner in South China and GBP 22 million to grow over Express network. Return on capital, as you know, is one of the most important metrics for our business.

And we take an active and detailed approach to ensuring every one of our investments meet their strict investment hurdles. Over the last five years, Whitbread has maintain a strong and consistent level of return of capital of over 15%, while at the same time, increasing the amount of invested capital by more than 40%.

Premier Inn has increased return on capital by 40 basis points this year to 13.4% despite dilution from the capital in new hotel projects not just opened, and new capacity not yet fully matured. This builds our long-term return performance whilst growing a room capacity is growing by 34% over the last five years.

Similarly, Costa has achieved excellent returns. A little higher than we had anticipated as some of this year's refurbishments, along with the total replacement programs, financed into this current year.

We still expect returns to normalize to around 40% over the long-term as we catch up with some under-invested parts of the business. We continue to maintain a disciplined approach to capital management and allocation.

We work within a leverage framework of less than 3.5 times to debt to EBITDA, and we finished the year with leverage 2.9x with net debt of $832 million. This gives us a good headroom for the consideration on the German acquisition, which we agreed in February, which isn't paid for until the deal completes in 2020 as well as the ability to take advantage of further investment opportunities both in the UK and Germany as they arise.

Looking at this financial year, firstly in Premier Inn. We're only six weeks into the new year and the early Easter has distorted the year-on-year performance.

However, it's very early stage. Although London market still appears to be quite soft, overall forward bookings are on plan.

We will open 4,000 to 4,500 new rooms in the UK and Germany, including at least three hotels in Germany. Turning to Costa, in the UK, we're confident in the new capacity we're adding in both the stores and the express and the UK and this should help to offset investments we're making in the continuation of our IT program and the step up in the refurbished number of stores we do this year.

The continuation of our efficiency program also will help to offset our inflation. However, we are cautious on the consumer outlook especially on the High Street, and we expect the more recent retail trends to continue this year.

In Costa International, China and express will grow at a faster pace, supported by a step up in P&L investment of about GBP 5 million in each of these businesses. In China, we'll open around 100 stores both equity and franchise, and continue to close stores in noncore cities.

And in Express, we'll grow at about 1,300 machines globally with an increasing percentage of this coming from our international markets. I'll now hand back to Allison, who'll provide a full strategic update to the Group.

Thank you.

Thanks, Nicholas. I'd like now to focus on the three properties that have underpinned our long-term strategy; to grow and innovate in the UK, to focus in our strengths to grow internationally and to build the capability and infrastructure to support long-term growth.

This slide demonstrates the amount of progress we've made last year to deliver on each aspect of the strategic plan and it highlights some of the more operational metrics we're focused on. We’re pleased to note that we always attempt to cover them all and will discover a couple of them.

Our strong network planning capabilities enable us to continue to grow Premier Inn Costa Estates at pace in the UK, while ongoing improvements in out digital capability enhances the customer experience. Internationally, we're leveraging our UK strengths to build great brands in new markets, in Germany our Frankfurt hotel continues to receive extremely high chip advisers scores and it's appealing to the domestic German guests.

That's crucial as we build our network and aim to become a large-scale domestic brand in Germany. Costa in China is gaining momentum as we add more stores in our latest investable format and close some underperforming stores with sub-rate returns.

And in the Costa Express, it's expanding into more countries where we're looking for suitable partners in attractive markets. Behind the scenes, we've completed 15 major IT projects and have 17 more underway and that puts us well on the way to delivering the efficient scalable platform that both businesses need to support future growth.

We've achieved an impressive GBP 105 million cumulative savings through our efficiency program, and we'll be extending over future targets due to that success. So as you can see, many of the plans laid out when I started out the journey to Whitbread have taken shape, and we now have three clear routes to international growth; Premier Inn in Germany; Costa and China; and Costa Express further field.

This growth will continue to underpinned by the capabilities we've been developing in technology, procurement, supply chain and property. And we're not going to see through each aspects of the three-point plan terms of, starting with Premier Inn's growth and innovation in the UK.

As you can see from this slide, we continue to have a structural growth available in the UK as the hotel market continues to see a gradual reduction in the market share held by independents. And we continue to win customers through the addition of attractive new capacity.

We're able to win customers because of our unique combination of high quality and excellent value for money in convenient locations across the UK. Having each one of these factors working together encourages our customers to book directly with us, and we continue to refine our direct booking tools to make this as frictionless as possible and have actively reduce our reliance on travel agents to gain a material cost advantage with our direct booking levels now standing at 97%.

At the same time we continue to grow capacity ahead of the market, whilst maintaining high occupancy, achieving a consistently high return on capital over 13%. Looking in more detail, how we optimize of the estate.

We analyze supply and demand at postcode level and it's only at that local level that we can really accurately select the very best location and the size of each hotel. Not only have we added far more rooms, far in excess, in fact, than our nearest three peers combined, but we we’ve also increased occupancy, increased the proportion of customers booking directly, increased our customer feedback scores and maintained our return on capital on a much greater capital base.

Going forward, we continue to see more white space for Premier Inn to expand. About 70% of our committed pipeline out to 2020 is going into catchments where we currently have little or no presence today.

And the remaining 30% with high capacity, our catchment such as London or city centers where there is high customer demand. The right hand side of this slide presents a recent example of how our network planning model works and how we think about our capacity growth over the long-term.

This is Slough. In Slough, we now have four hotels open and trading, Bankside and Tower Bridge have been opened for a number of years.

The Tate Modern and Borough High Street opened in 2013 and 2017, respectively. The pink line shows the RevPAR trajectory of Bankside and Tower Bridge, the older hotels.

The purple line shows the RevPAR of Tate Modern and the blue line shows Borough High Street, the most recent opening. As you can see, the existing hotel saw small RevPAR when the Tate Modern opened in 2013 and that recovered over the next two years.

Taking a long-term catchment level approach has enabled us to look past the short-term decline in performance of the two existing hotels, prioritize a rapid maturity of the Tate Modern hotel and follow that with rapid maturity for Borough High Street. And crucially therefore, we've doubled our total cluster accommodation sales over the last eight years as shown by the gray bars.

This is just one example of many similar catchments in the UK where we focus on our longer term view of the opportunity we increase capacity, total sales and maintain our current level of returns. Building up digital capability is vital to our strategy and long-term sustainable growth, and once again, we've made really good progress this year.

Our user-friendly website ensures customers use premierinn.com as a first port of call when they're searching for their hotel in the UK. And that's why we've been able to secure over 85% of bookings directed to digital channel with another 10% coming through other direct channels such as our call center or our group bookings team.

Overall, we ended the year with 97% of bookings directly through one of our own channels. We also used a small number of third parties to complement our own reservation systems on certain nights in certain hotels where we know we may have lower occupancy levels.

We've been focusing on lowering our marketing costs and while some cost fluctuate with specific campaigns, overall we have seen our spend full and that's despite an industry trend of paying high cost commissions. As you can see, our marketing cost per room nights sold has decreased as we reduced reliance on OTA's and optimized our marketing activity.

One of the main contributors to our high percentage of direct bookings and our ability to lower marketing costs has been the introduction of our new Business Booker platform. This has significantly improved the booking experience for corporate clients.

The added benefit of the platform provides includes exclusive rights and spend controls and it makes larger accounts more likely to book repeatedly with Premier Inn rather than using a range of other hotels. Maintaining consistent quality across the state is one of the fundamental building blocks of Premier Inn's proposition.

And recently, we've taken a more analytical approach to deliver the best quality rooms by focusing more specifically on what’s important to the guest. This way we've managed to optimize room refurbishment and reduce the costs of the refurbishment by about a third, but crucially, have impact on customer scores, which continue to see the same uplift as we saw from the previous higher cost refurbishments.

The optimize refurbishments can obviously be done in shorter time scale, and we can, therefore, deliver more rooms in our latest format to a higher proportion of our guests much more quickly. As you can see from the right-hand side of the slide, our hard work is paying off.

We remain unique in our ability to offer customers both quality and value for money, which in turn drives loyalty, occupancy and the broad appeal we command in the market far beyond our peers. I'm turning now to Costa.

In terms of Costa and the growth in innovation in the UK, this chart shows a familiar story of coffee market growth, which is forecast to grow by 10% per annum until 2022. Costa's focus on high quality coffee and our number one market position provides us with a strong opportunity to continue to grow our network through new stores, more customer express machines and by offering product innovation.

Just like Premier Inn, our network plan is very granular and focuses on maximizing our sales at a catchment level. We are serving coffee through increasingly diversified range of channels as we drive our development to the places of high convenience such as travel or drive-through, where two-thirds of our new pipeline is focused.

We take our coffee credentials very seriously as quality of coffee along with convenience remain the customers' highest priority. Along with our focus on being the forefront of coffee innovation, we're also putting investment into our food offer, which I'll talk about later, and our store environment, where we serve our customers continues to be important to 60% of customers chose to eat or drink in our stores.

And so that comfortable and welcoming store design is crucial to our high brand stores and customer loyalty. So on the network, we take a flexible holistic and very proactive approach to network planning.

Our leases in Costa are typically for 10 years with a five-year break clause, which gives us options for ongoing churn or the re-gearing of leases. That enables us to focus our new store pipeline on channels that are growing like concession, drive-thrus, transport, locations and retail parks.

We have a flexible approach to the Costa format, which we can deploy in different locations, a core format where customers are enjoying the coffee in-store or Pronto in drive-through, where they are on the move. Costa’s low capital requirements combined with fast store maturity and consistently high returns gives us options on how we grow the estate and you can see on the right-hand side of this chart, the mix of channels will change over the next few years, but importantly, keep delivering high return on capital.

We’ve highlighted here the relative growth rates and return on capital at the channels available to us. The vast majority of our stores in the UK are above our high threshold for return on capital and only a very small number are loss making.

This is partly due to the active management of the tail, which we’ve pursued over the last three years. And here is an equivalent of Premier Inn catchment example.

Here we have an illustration of a holistic view of network planning which reinforces why it's not only rational to continue to add capacity but also financially rewarding despite any short-term impact it might have on like-for-like. This is Banbury and it shows how we manage each catchment and hopefully shows that although traditional retail is challenging that structural growth of coffee presents greater opportunities for further growth and good returns.

In red, you can see that we already have a high street store, a store in the retail park in the next concession and we have recently opened a good drive-thru. We also have around nine express machines in convenience stores and petrol stations.

The high street store is declining by about 3% to 4% a year and will probably continue to do so. However, we've nearly doubled the sales and profit in this town over the last three years, and we've maintained returns in the town, it’s over 50%.

Shown in green, you can see we’re now targeting other high-growth destinations around the railway station, concession in a hotel, numerous additional express opportunities in convenience stores and the hospital and local college. As well as focusing on store growth, we've been very busy when it comes to improving the product offer.

A number of new products have been launched, and we now have an active pipeline of innovative coffees arriving in our stores. Following the rollout of in-store equipment last year, we produced a new breakfast food range in May, which included our fantastic bacon rolls and much improved porridge, and that was followed in the summer and autumn by an improved range of lunch items including salads and hot food boxes.

We've just launched our very first lunch bundle, priced at GBP4.95 for a sandwich crisps or fruit and a coffee. As you can see from the graph, our customers are enjoying the new food offerings with food capture rate responding to launches and delivering a sustained uplift compared to last year.

We do have a lot more to do to enhance the customer proposition, but early signs have been positive and we are full on exciting plan for the new financial year. Our focus will be on further expansion of the food and beverage range, offering more bundles and a range of value product as well as more premium options.

We've also made good progress with our digital capabilities, both customer-facing and behind-the-scenes. This year we saw the implementation of a new workforce planning system, a new loyalty platform and that's enabled us to integrate our Clubcard loyalty program with our latest by mobile app.

Crucially, the implementation of our tills is almost complete – is complete. There were two left yesterday and they've been done today.

So the tills program is complete and that's enabling us to extend the trial of click and collect and make that operationally efficient for our stores. And we're also trying loyalty in Costa Express machines, where if you buy a coffee in the Express machine you will collect points on your app and they will be redeemed in store, so a method of transitioning customers.

Costa Express, as we've mentioned it, is a very exciting part of the business with attractive economics and a huge potential for growth. The machines themselves provide the customer with an unrivaled on-the-go product using the same quality coffee and fresh milk that we use in our stores.

Each machine is connected to the central office through in-house telemetry systems. And then if something goes wrong we know straight away that it's not right and we can fix it.

The modular design of the components means we can address issues immediately on site and making sure that the machines stay working with very minimal fuss. The economic model is attractive for both us and our partners.

We achieve above 35% return on our portion of the revenue and the strength of our brands ensures that our partners benefit from high number of cups that they sell a day. We’re proactively expanding the base of partners in the UK as well as the locations we operate from with a lot more opportunities for expansion both in the UK and internationally.

And on the subject of international, let's turn to our international focus. The German market for branded budget hotels is structurally attractive for us.

We're committed to the long-term opportunity and are confident that we can replicate the success that we've had in the UK. In February we announced our first acquisition in Germany, which is a step change in our ability to reach critical mass sooner.

Our acquisition comprises 19 hotels in prime locations, which together with our own organic pipeline will deliver over 30 hotels crucially across 15 cities in the next two years. Returns will be lower than in the UK initially as Nicholas mentioned, with our organic pipelines expected to reach near UK returns at maturity, and acquisitions which we used to build scale slightly lower returns expected, but still above the cost of capital.

The transaction itself is conditional on obtaining consent from landlords to rerun the hotels on the terminations of the franchise agreements for the current franchise. But the acquisition is on track and it will deliver a result that's in excess of our cost of capital and the earnings enhancing the year after completion.

As Nicholas noted, we are also opening three new hotels of our own this year in Munich, Hamburg and Leipzig. And the rest of our committed pipeline is shown on the map in the back.

Turning to Costa, we've also made progress in China through the improvements in our own proposition as well as the strategic transaction. We are pleased with the store level economics of our new stores where we focused on all aspects of the offer including the design of the store, the product offer, the local marketing and we are delivering now superior sales and profit growth.

To complement this in October, we completed the buyout of the 49% share in the South China joint venture that has been held by Yueda. Whilst this partnership was essential at the first phase of Costa’s development in China, full control now labels a greater level of focus on improving the proposition, reshaping the network, and full control is already enabled us to enter into new partnerships, which would not previously have been possible.

For example, we've entered into a franchise agreement with the Chinese cinema operator Wanda and we already have opened 18 stores in cinemas so far. The improving performance of our new stores as well as the benefits from full control in South China operations has given us much more confidence and we've increased our future store target to 1,200 by 2021.

And this will include organic store growth across a diverse set of channels as well as new franchise partner agreements. Turning now to building capabilities, in 2016 Whitbread began a five-year program to generate a GBP150 million of efficiency savings, which were – that help mitigate the inflationary cost pressures which we could see emerging in the sector.

The program has already delivered GBP105 million of savings with a combination of structural reorganization, store insight efficiency, procurement and supply chain savings. One example detailed on the right-hand side is the consolidation of our milk suppliers into a new five-year agreement.

We've removed third-party outsourcing of transport and logistics and created a new direct delivery system to all our sites in the UK. That's enabled us to save around GBP4 million and optimize our delivery schedules and loads.

The next phase of activity will involve further benefits from procurement and evolving our supply chains in Premier Inn and Costa using Whitbread’s core capability to deliver it. Whitbread progress so far and our confidence in the next phase of activity has enabled us to increase our ambition from GBP150 million to GBP250 million of savings.

And we're committed to GBP100 million of those savings coming in the next two years to offset a substantial proportion of the inflationary pressures over the coming months. This is the intentionally busy slide.

And it demonstrates the rather substantial amount of work and investment. Whitbread has put into improving the technology and behind-the-scenes infrastructure for Premier Inn and Costa.

This program spans our customer-facing systems, our internal support systems and our infrastructure replacement, and it's been achieved by a support team which is shared by both brands. We've made a lot of progress most notably in our new website and new management systems in Premier Inn, and new till and plus system and loyalty platform in Costa.

But as you can see from the slide, we're well underway with a number of other areas of activity. Our focus over the next 24 months will be completing a number of the major and complex projects, will enhance our customer experience through new systems such as Amadeus and Premier Inn, implementing finance and procurement system into Costa and implementing new HR and payroll systems for both businesses, which will cover 52,000 people.

I think you’ll agree that once these important steps have been taken, both businesses will be in a great position with modern and efficient infrastructure and technology supporting their structural growth opportunities in the UK and internationally. I’ve mentioned very briefly property.

Our property expertise, which we have covered a number of times, is – remains an important driver of success for both Premier Inn and Costa. Freehold property provides more flexibility to Premier Inn in selecting optimal side with encouragement and the property ownership provides control over the development of the hotel initially and how it’s maintained and extended over time.

Freehold ownership reduces earnings volatility through the cycle. And although, we occasionally choose to deliver value through sales and lease work forward from the transaction if we are confident that we’ve maximize the potential development of our freehold side.

In addition, our asset-backed balance sheeting shows that we have a strong covenant, which means we are more often than not the preferred hotel or coffee shop tenant when approaching potential landlords. As well as being focused on remaining a growing and profitable business, we’re also committed to being a responsible organization and our Force for Good program is based on what’s important to our teams, to our communities and to our environment.

We continue to have a successful apprenticeship program and consistently rank as a great place to work for our team members. We continue to support Great Ormond Street Hospital and Premier Inn & Restaurants and education for children in coffee growing areas through the Costa Foundation.

We have always being committed to treating the environment in which we operate with respect and we’ve been particularly proud of our achievements this year. Notably, we have just announced an industry-leading cup recycling initiative, which is targeting to recycle 500 million cups per annum by 2020, making us effectively cup neutral, that is making sure we recycle as many cups as we produce.

And now, I’m going to turn to how we intend to structure our business to ensure both Premier Inn and Costa are in the best position to optimize value for our many stakeholders. As we’ve discussed at previous presentations, over the last 2.5 years, the board and I have regularly and rigorously reviewed both the strategy and the structure of the group.

This has been especially important recently given the volatile consumer and political environment that we’ve been operating in. We’ve remained open-minded in our reviews and for some time have been philosophically aligned to an ultimate outcome, which would mean that at the right time both businesses would be best served by operating independently as focused market-leading businesses.

Our strategy for both businesses to innovate and grow in the U.K, develop scalable and credible international growth opportunities and overhaul the capabilities in technologies to deliver that modern platform that’s efficient to support long-term sustainable growth. And the delivery in the context of that strategy, the delivery of the credible international structural growth opportunity has been a particularly important element this year to ensure future growth and value creation for shareholders.

Given the progress we’ve made to date, and the momentum in the plan that we have, we’ve been in for a more confident that we will complete complex multi-chart – multiyear transformational plan. And in doing so, we will ensure that both businesses are sufficiently well developed and well positioned to take advantage of the structural growth opportunities available to them in the UK and now internationally and have the core capabilities to thrive as independent companies.

Costa will become a listed entity in its own right and the clear market leader in the art of home coffee market in the UK. Costa will also be well positioned to further build on its strong international foundations with growth expected in China and Costa Express.

Whitbread will remain the owner operator of the UK’s most successful hotel business. A key priority will be continuing the development of Premier Inn by creating a business of scale in Germany to replicate the success that we’ve had in the UK.

Alongside our transformation agenda, Nicholas, the executive team and I, are excited and committed to delivering the separation of the business through the demerger of Costa, which we believe will create further value for our shareholders. The separation will provide shareholders with investments in two distinct market-leading businesses, allow the businesses to accelerate UK and international growth from a position of strength and will ensure that both businesses are able to be fully valued by the market.

Announcing our plan today gives clarity, not just to our shareholders, but to our teams, our suppliers and others stakeholders in our strategic directions and how we’ll deliver it. We very carefully considered the optimal timing for a demerger of Costa, and we’ve concluded that it should be pursued as fast as its practical and appropriate to optimize value for Whitbread shareholders.

And we certainly expect that to be able to complete within 24 months. The timeframe we’ve chosen will allow both Premier Inn and Costa to maintain momentum in revenue and efficiency activities to ensure both businesses can capture the benefits are separate entities.

Complete critical IT programs to deliver modern stable technology platforms at the point of separation, continue to drive our international expansion and to ensure an appropriate financial and governance structure in place. This will put each business in a strong position to create further value for shareholders, as separate entities whilst reducing downside risk and disruptions.

Regular updates on progress will be given as part of Whitbread’s standard financial reporting cycle. And finally to summarize, it’s clear we have two incredible businesses.

Both Premier Inn and Costa are leading brands in the respective markets in terms of scale and customer preference. Each business is the largest you can network by a comfortable margin and we still see supportive structural tailwinds and a significant runway of growth for both in the UK.

Both businesses have maintained high return on capital, at the same time is adding significant capacity. Our strategic opportunities going forward when include international growth markets where we believe we can replicate the success we’ve had in the UK.

This year, we started to spill substantial momentum with the acquisition in Germany and in China and Express is going from strength to strength. Both businesses will benefit from modern technology and infrastructure, together with upgraded operational capability and significant levels of efficiency.

Further delivery of our strategy over the next few months will ensure that Premier Inn and Costa are in a strong position to continue their success as separate entities. We’re excited to be delivering two high-quality focused businesses of scale with enormous strength and potential that will deliver great opportunities for our teams and significant long-term value for our shareholders.

Thank you very much for attention and – to go through that. And then Nicholas and I are very, very happy indeed answer any questions that you have.

And lots of hands of going up and I’m looking at Vicki, so why don’t we start there? And then I suggest we will wave – Mexican wave that way.

Morning. Vicki Stern from Barclays.

Just firstly on the demerger process, when exactly would you expect to start the process of demerger itself? Is that after the implementation of the projects you described and what is the timeframe of that?

How long would you expect the actual demerger process itself to take? And what are the sort of key complexities that we should be thinking about and that whether it’s around pension, lease renegotiations, et cetera.

And then just secondly, more broadly on Costa, does it have to be demerger, what are your views on the potential sales of Costa rather than a demerger? Have you actually had an expression of interest so far on sort of formal offer or there’s anything, certainly strategic interest.

And if you were to sell Costa, what would be the most attractive use of those proceeds?

Right. That was three for sure.

That was definitey four.

That will so be but to answer that question anyway. And so first, I think, let’s start with how – what’s the timeframe, how we’re going to do it?

we’ll be parallel tracking. So we – let’s just be clear, when you think about where we’ve been and where we’ve come from.

We’ve had a clear strategy. You’ve all followed it for the last 2.5 years, well probably two years actually, from a capital market downwards.

About delivering the UK continued supremacy along with an international platform and in the modern set of IT capabilities. That program is in train at the moment delivered a lot, we’re very confident that we’ve got sufficient momentum now to deliver what is now required, but is left of it by the timeframe we’ve outlined, so in the first half of 2020.

And we would expect, therefore, to parallel track a program of work to get ourselves ready for demerger at that point, not start the parallel – not start the process from that point and ended for it go on. And it isn’t an easy – it will take a while.

It’s not an easy business to separate as has been suggested. We have a number of things to think through.

And when you think about it, actually let’s take a bigger picture issue in terms of timeframe for the demerger, there are many that have ever been down, I think, under 12 months, but most of them are substantially longer than that. Notwithstanding that, we will have a number of issues that are personal to us.

We have an infrastructure that supports Whitbread across both businesses and we’ll need to deal with that. We have a pension fund where we’ve just under train review with GBP 300 million deficit and we have a program and plan with our trustees to deal with the over the next four or five years, we’ll need to negotiate that.

We keep all of our funding activity in our bonds are on the Whitbread level so we will need to be negotiate how we proceed with that. So we’ve got about 1,000 people I think working in shared services across IT and procurement and infrastructure as well as the group.

And we’ll have governance to deal with in terms of the appointment of boards and management teams et cetera. So like all separations, there’s a lot of work to do.

But we will be doing it alongside the current core transformation plant.

Yes. I mean, couple of things already pull out why that within 24 months quicker.

I guess, is some examples on that. We talked today about an increasing the efficiency program an extra GBP 100 million to get out over the next two years.

We’ve got about GBP 100 million with inflation coming our way over the next two years. It’s really important we off set that and actually we’re working really hard with our supply chain and our procurement, both with all of our suppliers.

We’ve got about 2,000 suppliers to try and get that efficiency for them and for us. The last thing we need to do now is really distract those teams, is actually rather then get those efficiencies, we need to actually work, how do we separate those contract between the two businesses.

We’ve also got really quite significant kind of IT programs going on that involves, you’ve show some examples today, we have a platforms some of our infrastructure both our finance system in Costa, which put them in a much, much better place when better place when they do separate and give better insights into the company. We’re also – will be performing our HR systems will, which paid 50,000 team members, which again much better insight into how our teams performance and how their engagement as well.

And to do those and finish those, it will put the businesses in much, much stronger position than if we kind of do that. If you were to tell the IT team today that actually they’re got to do those and they’ve got to separate the business, that would kind of unnecessary risk in the business at the same time as well.

And in the last point, it terms of some of the digital activity which you saw, the they can collect, getting willing to express machines, which is really exciting for those for Costa. As we’ve delivered by the Whitbread group at the moment.

And actually the idea actually back to trying to tear those teams apart in the same time as delivering that. I think will lose shareholder kind of value in the long-term as well.

So that’s really kind of white so important to kind of get that timeframe on that.

When you say that in parallel, the prices will want in parallel, so aspects which were touch those teams wouldn’t kickoff today. But one of the pieces that they kickoff today.

Yes, we do all the planning and preparation. And we do quite a lot the technical work for in implementation near to the end of the period.

And the last question is, of course, yes, we think that the merger of Costa is the best opportunity for us to create value for shareholders, and we think to distinct investment opportunities will create market value. And we think we’re going to launch both businesses in a state following the completion of these critical programs that Nicholas has just talked through.

In a way which will allow for long-term structural growth of those two businesses and create shareholder return for those businesses. And we don’t comment on any of the speculation.

Jamie?

Thanks. Jamie Rollo from Morgan Stanley.

The first question is just on trading at Costa in Q4. Could you just drill down a bit into that, someone is 3% high street – sorry, equity store like-for-like drop.

None of the initiatives on foods or tax seem to be coming through yet. So could you give us a feeling for sort of like-for-like by food and coffee or High Street versus Non-high Street?

Just give us a feeling of underlying momentum perhaps? Secondly, on Costa China, I think you sort of lost GBP 5 million then GBP 5 million to go in this year.

So when does that region start to breakeven? And then finally, on the German deal, I think it was around sort of GBP 250 million or so, I’m not sure you could confirm that, but it’s also lease holder, and in the UK I think you make GBP 3,000 or GBP 4,000 of profit per room and you paid about GBP 80,000 of rooms, so how do you get to your cost of capital for the German acquisition?

Thank you.

So just in Costa in Q4 we had – if you look at Costa overall, in the retail side, we’re talking specifically, we had good growth in express. But in retail, we were like-for-like minus 1.8% in the quarter.

If you look at where the High Street – traditional High Street foot flow was in the UK that quarter was roughly about minus 4%. It’s got even worse in March, but I think kind of Easter in the kind snow has kind of distracted from that.

The thing I would encourage you to think about that that’s where the UK food flows is at the moment. So if you start with 3% to 4% that people pass from the door.

We think, we’d actually do a quite a good job in Q4, I think that kind of minus 1.8% and that was an mixture of a number of things. There was a little bit of pricing in there as well soon before we did put price up anniversary halfway through the quarter, but it was about probably have the difference and the other half is from the foot capture rate and some of the premunition coffee that we have overall.

They were positive, yes. Just in terms of Costa China, yes we’ve talked about by 2021, we should be that will be making profits in those markets.

We talked about – We have been making were GBP 25 million internationally – profit internationally about half of that will coming from China, and we’re sticking with our guidance at the overall.

In China as from a trading perspective breaks even but we invest. It’s not – if you’re out of the store that we don’t break even, but then we are putting investment into new stores and actually we’re ratcheting up the number of new stores that we’re opening this year and next year.

And that investment is incremental investment is going into China.

And your last point was on Germany. So the amount you quoted is roughly about right in terms of what people pay for the sort of hotel rooms overall.

That good sites an their good locations and you got a benefit from the deal because it – they should be profitable hotels as well. But also what you get a benefit as JVs gives their network scale.

So by the time we open it actually will be able to accelerate your own hotels, 11 pipelines and be on that as well at a faster rate from that as well. And with both of those together, we think you get above our cost of capital.

He got up, let’s go with the front two rows and then will go backwards from there.

Good morning. Geoff d’Halluin, Deutsche Bank.

Three questions please. The first quarter regarding your savings of GBP 100 million, could you give us a breakdown between Costa and Premier Inn, please?

Secondly, how is the start to the year for the UK in those markets, especially for Premier Inn. And maybe if we can have source between London and outside of London.

And thirdly, could you share with us your tools on five or seven years back for the Premier Inn, so we’ve seen you’ve done a few deals over the last few years. What’s short and medium term please?

Cost savings, we said GBP 100 million over the two years – for the next two years, it’s actually weighted towards this year. We’ve got what you said actually we’ve said will offset most of the inflation we’ve got this year.

This year we’ve got two years of big inflation, one last year and this year particularly in Premier Inn, because this with regard thereto your business rates go up by about GBP 10 million to GBP 15 million of each year. So these are two bigger, so actually GBP 100 million is weighted about GBP 70 million into this coverage.

And in terms of the split actually it was one of the slide you you’ve got about GBP 50 million worth of inflation in Premier Inn and you got about GBP 20 million of inflation in Costa overall.

In terms of forwarding looking, yes, its quite hard to read this year because of the changes in the timing of Easter. It’s been early.

We’ve had snow as well but you would love seen in some of the market starts. But broadly speaking, Premier Inn is what we expected to be we’ve gone quite comfortable with the forward-looking position for that.

And whilst the restaurant business was hit by the snow in the month that is recovered as well and we are therefore, tracking in future months where we think that should be.

You asked about some your comment on London? London software.

Yes, in terms of London, I think the thing to bear in mind capacity we will was put in the market over the last 24 months and that’s actually particularly in the last 12 months. If you look at our total growth in London during the years about 9% and market like-for-like I think we were around 1%, we’re about minus 1%.

Actually you saw in the southern case today, what you’re seeing in those London markets is when we put the capacity into the London market its maturing very rapidly and what we do is we can figure the pricing system to drive total sales to protect the like-for-like sales we put that capacity in. And actually we’re quite comfortable with the overall sales growth and the maturation of that new capacity.

And as it matures, you should see the like-for-like improving and unwind. In terms of the overall market, I think over the medium term, I’ll be very positive about London.

The inbound marketing in particular into London has been very strong for a number of years. And I expect that to continue as frankly the global economy performing pretty strongly, but also you’ll be seeing Asian markets in particular I think the inbound markets from those countries will start to accelerate over the medium-term.

Short-term, it’s a more difficult markets read. I’m sort of – as sort of say very cautiously the stage in terms of the next sort of 12 to 18 months.

And maybe you Dominic you might a few words about how we have grown into the New Year for Costa? We know food full is down, but I think we’re achieving better than you would expect given the food for London price.

Yes. I mean, I think we’ve said, we’re cautious about the overall environment in the UK.

But I think we’re seeing positive signs of the initiatives that we’ve put into place. We have lapped price rise, as Nicholas said.

We've made a conscious decision not to take price at the moment, because we think the value players becoming increasingly important in the UK market, hence over inside the value of the breakfast meal and the lunch deal. And I think that's one of the things that's particularly sporting our overall sales growth.

So when we look at the UK growth that we have and the express grow together, we continue to drive strong overall sales growth. And I think that supporting us very strong position in the marketplace.

Last question was on sale and leaseback, we will do about GBP 50 million to GBP 150 million worth of sales leasebacks given where our leverage is actually the timing of the payment of our German acquisition going for another two years as we point towards the end – bottom end of that range.

And then to the end.

Good morning, thank you. Three questions if I possibly can.

You talked historically about the synergies that you had between owning the two businesses and you've talked about creating market value from largely attributable to a multiple. But what are the dis-synergies, you expecting in the replacement cost you referred to that.

So if you can give any guide on deferred model what incremental cost we would have to put in? On Germany, you've talked about the distribution, which you are doing still without OTA.

If we look at any other distribution of any other hotel, they don't do that. And I know you've been understand because of your skill.

But in Germany is difficult to understand that. So could you talk about what you're doing or all the other hotels rubbish?

Or you doing something particularly different? And then on the Costa demerger, could you talk about how the trading environment comes in to any timing clearly it's more difficult to put a multiple business minus 2% like-for-likes.

But how would that change in environment change?

Okay. So yes you're right.

We have a thin corporate layer and a number of the roles in a thin corporate layer would be to replicate when each business unit from tax where we have General Counsel, we have one Investor Relations team and each business is going to need some of that. And when we split our core IT procurement supply chain functions then there will be some additional roles needing to be created to each business.

And therefore, there will be a cost implication for doing that. And equally, there will be a cost implication of hiring advisors and dealing with the legality of all of this as we go through it.

And we're not got a quantum to disclose today, but it's in the low tens of millions, not in the hundreds of millions, just give you a sense of that. The second question was Germany, we've only had one hotel opened in Germany over the last two years.

And so we've managed to build that in line with the maturity profile we're happy with without using OTAs. And we've done that through hard work sweat and shoe leather, getting around to particularly well located, if you've been to the Frankfurt hotel, it’s near to Messe and getting around some of the businesses at the Messe to use them as the routes to fitting the hotel.

There hotels we’re acquiring use OTAs, and we will need to decide as we step up a number of hotels whether or not we wish to move to part or all our business being on OTA. But what we can only do make a decision one way.

So we can start with not and if you can achieve it on our own, move to OTA. What we can't do is go in with the OTA and then weighing ourselves of it.

At least not until we've got a very large network in the country, and therefore, well-known brand, which is the how Premier Inn manages to do it, combination of Premier Inn's brand strength in the UK and its network and the fact that you have a better rate on our own website rather than anywhere else drives traffic directly to us and we need to build that. We're very – at least one of the reasons why we're so keen to have a platform of over 30 hotels, if not higher, in 15 or more cities, because at that point you can start having a relationship with corporate who will book their teams into your hotels through the corporate booking tool that we've developed in the UK will be available in Germany, whereas you've only in a couple of cities they really can't use you in that way.

So the real test of our ability to manage our indirect booking will come once we have that significant platform of hotels to work with.

And your last question is about kind of trading environment to that timing as well and it will look at what the timing in the marketplace as well. But this about how you get focus into both of the businesses end of the trading is stuff actually might even be more focused so that's good.

And the second thing is that by giving investors choice as well. So maybe different choices as well.

Can we move to the end and then go back one? Sorry, Jeffrey.

All right. Going back and ask two things.

Could you split the CapEx between the two business with the GBP 600 million to GBP 700 million guidance. Obviously, you can in lower this year, but we have that split?

And one of the reasons for asking is thinking about intragroup financing as it's existed. And if you could say where the pension funding might come from going forward that would be useful.

And then the last thing would be the Q4 questions around RevPAR and similar to the Costa question. There have been something I think from you guys that it might get better in Q4 and it hasn't moved much?

Well, some of these things we will work through as we go through working through. And we will give you on some of these items, regular updates as you go on.

For example, on our pension fund. I don't think it's appropriate to start speculating on how that might land before we have spoken to our pension fund trustees and start the debate.

So if you don't buy it, other than that we've got a good relationship with a trust is that we have a deficit plan already in place having just been reestablished. We'll then take that forward and we'll let you know how that goes.

The other issues CapEx.

CapEx is GBP 150 million for Costa and rest of year. Yes, RevPAR.

I think, we kind of set up in January so that ticked up from Q3 actually it was quite. It was little bit tougher than we thought after – rest Q4, it’s bit better than Q3 overall.

I like fairly flat across the quarter, our RevPAR was down about 1.1%. I think kind of looking into the current year what we said is you can trading is we're kind of – we're on plan at the moment where we think we are.

Okay. Then next you already have – Jeffrey do we have everything.

Yes, Jeffrey Harwood from Stifel. Two questions.

First of all on the demerger, my obviously investment sentiments towards Costa. great rates of Costa of what they used to be.

You used the word optimize value. Is it possible that value could be optimized through selling Costa?

Is that something that you'll look at or maybe that's part of the plan? And then secondly, do you have any thoughts on the capital structure of the two companies?

In relation to the first, we're focused on what we've announced today, which is delivering a successful demerger of Costa to give to independent companies to investors to choose and have a focused investment and everything else is speculation. In relation to the capital.

Capital we're go back to you on that.

We're going Tim, and then will bring in that.

Good morning. Tim Ramskill from Credit Suisse.

Three questions please. Just in terms of the overall kind of series of actions you're taking within Costa and obviously one of the previous question kind of alluded to how much is working thus far.

Where would you sort of frame you are in the overall process at the shopping list of things you want to achieve? How much more is still to be to delivered, and we therefore, yet to see the benefits of?

Secondly, the comments around the returns within Costa. I think firstly, obviously the numbers are reported most probably back to people might have expected.

Nicholas I think your comments a bit more optimistic on where you see the setting medium term. But obviously got international business will return the lower so why wouldn't necessarily definitively expect them to sort of drift out from year if you just talk me through this of the thought process there?

And then final question is around all the IT sort of project that's been taken place. To what extent they kind of driver of the savings that are still coming?

And again is there a kind of facing between what's been achieved or the IT side and what we're actually seeing in efficiencies?

Okay. Dominic will answer that in the right order.

So Costa is got lost still to do and has done a lot. So we've made enormous progress, they've built an enormous amount of momentum in the team.

So if you think about there was like in the food and beverage innovations, from a standing start, we have a pipeline of innovation coming through on coffee and a pipeline of innovation coming through on food and both of those will help. We also have worked on what we think the new store format should look like and we will be investing in the store formats as we go through both the throughput increase and also for look and feel.

So just on the sort of customer side, we then move into the digital enhancements. And again, lots of momentum there with the delivery of the new app and the delivery of a new loyalty platform, which is then linked.

The next bigger and with the customer tells of having this completed the next big item, tick item that is click and collect and rolling over express loyalty. So they are in trial.

They're quite hard to operationalize and until you get them to tell you can develop them. But they should be transaction enhancing activities and the customer – very customer friendly activities.

And then from an infrastructure perspective, again, a lot of words has gone in and some of the core infrastructure like workforce planning has gone in, but couple of big ticket items that are in progress that are dealt with sort of on a groupwide basis would be the finance platform and the procurement – the linked procurement platform will be going into Costa out over the course of the next 12 months. We did the premier in transition this year and we're using the same shared resources to deliver the platform with the same supplier into Costa and HR payroll systems, which are pretty antiquated, will be platform from for both business again over the next 12 months.

So that's a sort of flavor of the big ticket items I think they're coming through the cost of business.

Yes. A lot of the IT program as well is also kind of focused about how you drive revenue growth as well.

So a lot of if you look at – it's about – it gives you efficiencies, but actually what you're doing and premier reporting Amadeus in booking system, which will give customers grater flexibility about how they book. And in Costa lot of it is about digital in terms of the platform we speak about is about earlier.

You asked about return on capital, which is 46%. We've always said that, that is high and as want to invest back into the business, it is fairly light capital light business.

We've got about GBP 350 million of capital invested in Costa, this is only about 10% of the overall Whitbread asset base overall. So small movements in your kind of investment capital have quite a big impact on the.

We haven't done the refurbishment's replant to do this year but we will be doing it this year and as we said before.

Captures the negative events

9:40 in this morning we did finish for the last tell us a little bit late, so the CapEx goes live this year as well and that is bring down our CapEx over the small impact to quite significantly

And then as we roll forward, some of the benefits of the some of the activity we're now putting in will of course accrue to the independent companies post demerger. So, for example, Amadeus and Premier Inn is definitely a program, which will allow the creation of a lot of value and revenue by being able to offer room types in a different way and price differently for them, which is something we cannot do today.

So and develop loyalty program in terms of how people want to stay with us, which we don't have to do. So that won't be in scope of the next 24 months.

That will the procurement benefit of the finest products platform Costa will come later and as it's been lost as a new entity. But securing the platform before launch will drive its long-term value and that's why we're keen to make sure we choose an optimum time to give both businesses the best platform on which to launch from.

Would you mind a quick follow up?

Obviously not because you've turned you off.

Value deals.

It’s all about doing bundle value deals, it’s all about, we can price differently, we have options on pricing by location, should we choose to option them. And that’s the -- we do today.

We have from some of our function as partners will price differently particularly motivate service stations, and which is the best example of that. But that’s a franchise within our own business we’ve got auctions.

But largely, things like -- we have not ever been able to do bundling before really.

So if you go into cost as today, which I high recommend you do, if a full plus 95, you can get a coffee and drink and snacks, the other kind of things we have been able to do up today.

Right, I’m herring a little bit.

Hi. Sorry, this is Angus from Merrill Lynch.

Three more questions on Costa. Firstly, could you discuss about now they’ve got new hotels in place would you consider looking at regional pricing, another initiatives around that stride like-for-like.

Secondly, Costa express the like-for-like in fourth quarter it’s quite a bit softer than we’ve seen any of the last two years is the process today it seems to ignore for full trends, how should be thinking like going forward is that something geographic in it. And then on the redefinition of like-for-likes that you’ve put out today, compare to…

Giving you all the stuff, so we’re not trying to move in a way that isn’t going to allow you the transparency in it.

So my understand is you basically waiting to the stools mature before you include that.

No.

Just to be very clear, what like-for-like used to be based on the store had to be open for a full financial year before it came into it. So it that hotel or store to be 23 months before came in.

What we’re doing now is saying actually just which is in line with rest of retail actually what we’re doing is it, what seems it comes 12 months old, it goes into like-for-like.

We did it. We didn’t in an odd way.

We’ve moved to the way that everybody else does it, so when you are not comparing with everybody else. You’ll be comparing the way that they do it with the way we do it, which is on 12 month anniversary you go into like-for-like, so the first year the store of a hotel doesn’t – does not sit in like-for-like and after a year it will move into like-for-like.

It hardly moves the dollar tool.

But the pricing if I cover the pricing question and Dominic you might want to say something about it, we’re very interested in our pricing options for the future. And bundling being our first foray into sort of slightly more dynamic pricing, and we’ve done a lot of work on why we want to go.

And I have some prejudice, still we will play the pricing card you’ve seen as play the pricing card, but I have some prejudice for not being the first lever that we that we look to prolong that we look for efficiency savings elsewhere, particularly environment whether consumers watching their spending and we have value operators as well as core coffee competitors, and they’ve moved their pricing up, but we haven’t. So at the moment we are staying.

We’ve done a little bit pricing in London that’s different that’s the first regional pricing we’ve done. Do you want to say just a little bit more Dominic?

No, I mean just I suppose to add to that what you say. Remember the bulk, the epicenter of cost is business is not here in London, it’s outside the M25 that’s where we make the vast majority of our profits, and that’s a very different environment to actually having this conversation right in the Central London.

So exactly as Alison said, we have taken some price this year in London and travel areas, so train stations and airports example, because they’re the least price sensitive. We haven’t taken price outside London, because actually think the value players important however we have done, is introduce new products, which enables customer to premiumize, so coconut is a good example, so we’re now selling coconut coffees that’s an extra 40 pay on your coffee.

But we’re not increasing the base price of the coffee, because we think the value angle is good and that’s why we continue to increase market share in a tough market creasing market share and we’re increasing sales quite significantly.

Okay, right. Moving rapidly on to the next slide.

So we say ladies first. And I don’t know it take control of that microphone straight from the lady to your right, when she’s finished asking her question.

Good morning guys Rachel Fox from Goodbody. Could you quantify and split the cost headwinds in each of the respective businesses for this year, and then looking at the cost savings what has been the single biggest cost saving of the program so far and just maybe an estimate of how much that is being.

And then just finally, on the store openings for cost of this year, how many of those are going to be equity stores?

So all the quote, the quote was all equity stores, the store openings, they’re all equity we cover the store openings first.

Is about 100 store openings in the UK and majority will be equity probably, 70-30 probably in terms of that going to break. In terms of the cost savings is looking forward as it within this year, the cost savings about the break up to looking forwards as the detail.

[Question Inaudible]

It’s been…

It is real raft of activity, it covered all aspects of the business. So we’ve had some structural organizational change.

We’ve had some workforce initiatives for efficiency we’ve had procurement savings, we’ve got start of significant supply chain savings, so it really has been an absolute raft of activity that is that driven the total out and that’s the same going forward, it’s a rail where we start to focus more on some of our supply chain and procurement activity because the supply chain work has been bubbling and getting the mentor over the last year and will start delivering more as we move forward.

I think got to given a lot of the parts of the business this is from a standing start, it’s been a phenomenal achievement, I think to offset inflation in this environment actually very good.

[Question Inaudible]

Cost settlement between two business for the next.

So yes, I think it was laid out in the presentation as well, so it’s always the same as inflation in premier it’s about $15 million, which includes that second year of business rates going up about $15 million and it cost its about $20 million.

Hi, Richard Clarke, Bernstein. Three questions I want to come back to the merger mania that’s, okay.

Don’t you see within your three questions.

Hi, Richard Clarke, Bernstein. I have three questions.

I’m going to come back to the demerger, mainly that’s okay.

We will see within your three questions.

Yes. It will be, yeah.

Fair enough. That’s only captured in that.

And the two years out in Verizon…

Or ask me on the content…

Okay. The two-year time – probably the first one, the two-year time at Verizon, you’ve said that why you want to do it.

If it’s not acceptable for your shareholders and particularly, some of the more local shareholders, can you accelerate it? Will you accelerate it if your shareholders want you to do it quick out?

And then the second question is sort of the demerger was maybe, Part 1 of what we’ve heard from these new shareholders you’ve got in terms of that plan and Part 2 was they believe their awesome operational pricing other improvements that maybe, can be made. Any comments you can make there about what else you might enact from influence from the shareholders coming through.

And then thirdly, given the Whitbread will beat premier inn and restaurants going forward. What kind of holds your commitment to Costa, I know you’ve got the plan and I’m not suggesting it like over, is there anything actually kind of practical in terms of will Whitbread retain its staking Costa beyond the demerger?

Will you appoint a new CEO within that two years to run Costa alongside you’re running the premier Inn side and will you be remunerated in some way for spinning Costa of that adhesive multiple?

You rushed the question; Ithink that was three.

Yeah.

I think that was about 15. So, let’s start with the date – let’s start with the demerger structure.

The date is not envisaged, where you relocate the stake in constant point of demergers is, envisaged that you will be run as an independent separate entity and it will have its own listing, its own management team and its own board. There will be a cross position between the two.

If there’s any change to that position as we work through the detail, we’ll let you know, but we’re not envisaging it. And yes, both businesses will need their own boards, their own management teams, their own infrastructure, their own capability and we would expect to build that over the course of the next two years and work that through as we go.

It will be Part 2 of the demerger as well, I mean in terms of kind of the initiatives, I think we would be doing it, getting out with our strategy, which is the Part 1 actually of what we’re doing and I think that’s the main focus at the moment. And we haven’t – in terms of you can’t speculate about things we don’t know about as well in terms of that.

And in terms of the two-year timeline, we said we’re going to get – we’re getting over there as fast in practical as appropriate as well, and I think we’ve kind of described a normal demerger takes 12 months and then the things we’ve got on top of that and then the things we might risk for the long-term value if you don’t get on with that by accelerating it. So…

We think we’re very confident that we’ve given an enormous amount of thought and consideration in order to put both companies in the best possible position to thrive in the future as individual entities. Not – it’s pretty quick actually if you look again, I would look at the market and I think all the companies I’ve seen demerge in the past, most of them don’t do it in a heartbeat, that’s for sure.

I can’t remember everything less than a year, but most of them are two years or so. That for us, the time scale to deliver on the transformation plan that we’ve already sat on the road to deliver, will we believe optimized value for shareholders, both current shareholders and the future shareholders of the two businesses.

And we think it will give an optimal position for the separation.

We have time for one more…

Yes. We’ve not had this as the last question…

Okay.

All three…

All three as we received, sounded.

I really got two questions actually, this is Monique form Citi. The first one just on the CapEx, the CapEx this year came in a fair bit lower than the guidance, is that timing and I know you mentioned the cost of refurbishments coming in a little bit more into this year than last year, but is there anything else specific to flag as to why that might be the case and whether you could see – and to deliver in terms of the CapEx number going forward?

And then secondly, just on the guidance we were given. So the potential of the near-term profit is lower, particularly when we think about Costa going forward than it has been, I mean obviously, Costa this year 0.6% earnings growth.

So is that potential that we see earnings decline in Costa of this year, and hence margin decline?

So with the first few questions on capital, yes, in Costa particularly, we did a lot of traveling for the future store and what we didn’t want to do is keep refurbishing in the own style whilst we knew we were developing a new style of store that would have a better efficiency and throughput and a better look and feel for the customers. So we didn’t do as much of the refitting last year as we would – we’ve planned to.

But this year, we would want to make up for that and deliver what we did last year in year – this year to try to do more, because still was – it’s like the fourth road bridge, you do need to keep bouncing. You need stores to be kept up today.

So we don’t want them to lag a three or five-year renewal program that we should have in the business.

Yeah. That was also a slightly high mix of leasehold that is freeheld in terms of...

Which is sort of kind of – just is what’s on the market what comes and how we trade.

Yeah. It’s quite a big swinging factor as well.

Yeah.

Just in terms of kind of Costa profit you’re asking, I mean I’d just go back to kind of look and give you is the guidance that was on my schedule, which is really just if you think about it a capacity we’re adding in stores in express will help offset the investments we are making and the efficiencies will offset the inflation. You’ll just have to kind of work out where you think kind of like-for-like would be and we’ve kind of given you guidance.

So actually, we think the market – the whole market of retail will continue to be fairly tough of that as well, and then of course, at the International, China and Express investments.

Yeah. Two $5 million incremental investments in those businesses, which we delayed, really have fantastic long-term growth potential.

But you do have to put money in first to get it out. So to do international express, you need development teams on the ground and you need usually to buy in contracts in the first year and that’s outlying in year one, which comes through, and so years three or four like to that, you can recoup it.

So you should be modeling the incremental investment for both churn around and customer experience.

And on that note, I think we will finish as we bang on 11. If anybody has got any questions that couldn’t ask, we’ve probably got 5 to 10 minutes, but we are wondering at, please do ask.

Great, thank you.

Thank you everybody.