Whitbread plc

Richard Baker - Chairman Alison Brittain - Chief Executive Officer Nicholas Cadbury - Chief Financial Officer

Vicki Stern - Barclays Jamie Rollo - Morgan Stanley Richard Clarke - Bernstein Tim Barrett - Numis Lena Thakkar - HSBC Tim Ramskill - Crédit Suisse Alex Brignall - Redburn

I think we're all set everybody. Good morning everyone and thank you very much for coming to join us this morning.

This is what Whitbread's 275th anniversary and the Board and I are in a privileged position to be part of such a Great British Company. The results we're reporting on today show good revenue and profit growth combined with a strong return on capital.

This performance underlines our Board's confidence and we have approved an increase in the interim dividend to 31.4p. Now two years ago we welcomed us into it Whitbread who began to set the agenda for the next period of Whitbread's long history.

With a new executive team in place we've delivered a significant amount in a short period of time including redefining our plans for Premier Inn and Costa in the UK which put the customer at the focal point, an overhaul of our strategy for international expansion and an enhanced focus on our internal capabilities to ensure we have the skills necessary to deliver on our ambitions plans. Now during the last year we've also enhanced and broadened the skills and experience of our board in advance of [indiscernible] retirement from the board in September after more than six years of service.

We welcomed Adam Crozier in April 2017. Adam subsequently became our Senior Independent Director in September and Adam as you may well know is a highly skilled executive having been the Chief Executive of ITV, the Royal Mail, the Football Association and Saatchi and Saatchi.

Also in January this year, Deanna Oppenheimer joined the Board as Chair of Remuneration. Deanna had an illustrious career in financial services and currently serves on the Boards of Tesco, World Pay and AXA.

Also in January, David Atkins joined the Board to strengthen our property expertise as many of you know David is currently Chief Executive of Hammerson Plc and just stepping back just to complete the renewal picture for you last year we also welcomed Chris Kennedy who was previously Chief Financial Officer at ARM and prior to that Group Finance Director at easyJet. Chris also now serves as the chair of the audit committee.

Now these enhancements to the Board ensure we have the appropriate skills and capabilities to support Whitbread through the current challenges in our markets but the exciting opportunities to grow in the years ahead. Alison and Nicholas will now take you through our recent performance in more detail and give you an update on our strategic progress.

Thank you very much.

Thank you, Richard. Good morning everyone and welcome also to those who are listening on the webcast this morning.

First of all I'm pleased to be talking to you again this morning about another good set of results but before we review the first half performance, I thought I would briefly reflect on the last 18 months and that's how long it's been since I first sort of in front of you first shared my initial thoughts about the strength of Whitbread, the growth opportunities that I could see and it was the first time I had outlined the plan to deliver them and you recall at the time I talked about Whitbread strong fundamentals including attractive structural opportunities in the UK and internationally for both Premier Inn and Costa along with our ability to access those opportunities with our market leading brands and our disciplined financial and capital management. I will then outline the importance of executing a clear and ambitious multi-year plan which focused on our strengths and included the development and delivery of new innovation new technology and capability to underpin our growth.

18 months ago I also spoke to you about the environment that we were operating in and the fact that it was constantly evolving and boy I certainly wasn't wrong there. The online travel agents and disrupters like Airbnb continue to grow customers rightly expect an increase in level of service and great value for money, cost structures in the industry are shifted with the introduction of national living wage and increases in business rates and return to inflation and competition for talented people has stepped up and indeed may increase further as migration patterns begin to change and all of that has happened against a backdrop of immense political and economic change.

So that said that's exactly as I described 18 months ago and the changes that we have seen over the last 18 months in our operating environment have simply reinforced the importance and increased the relevance of the strategy for growth that I laid out 18 months ago. So we will continue to grow in the UK and will innovate to stay number one in our markets.

We have I think a coherent international strategy that matches our strengths to material structural growth opportunities for Premier Inn in Germany, for Costa in China and for Costa Express thus giving as much more confidence in building our international business. To deliver this growth we are building capabilities in infrastructure in areas such as supply chain procurement property, digital and technology and we're leveraging Whitbread size and capability in these areas to allow us to place an even greater reliance on our efficiency program going forward.

The focused delivery of this strategy and the plan will allow us to continue to deliver growth in earnings and dividends and deliver a strong return on capital. So how we doing well, we've delivered a significant amount of strategic activity against that plan so far and there's a real sense of momentum and pace in the business.

We've opened more than 10,000 premier in rooms in the UK over the last two years and notwithstanding the scale of that new capacity our hotels are maturing faster, our occupancy continues to be an industry leading levels and we've actually increased the proportion of customers booking directly with us to 95%. In Costa we've improved the store network plan to focus more on growth channels such as travel locations and drive throughs.

Last year we delivered ovens and microwaves to facilitate new food and now we've moved forward and launched new food ranges for breakfast and lunch and that's delivered from a standing start having had no product development in the pipeline. I'm particularly pleased with the progress we've made internationally, we've quietly and efficiently and slightly ahead of our expectations on cost completed the exit of the non-core operations of Costa in France and Premier Inn in Singapore, Thailand Indonesia and India.

This will allow us to focus on international growth in Premier Inn in Germany, Costa in China and Costa Express where we believe that we have the strength and capability to unlock the structural growth opportunity available. Costa already has a large international footprint, largely through its franchise operations in around 30 countries.

However China presents a significant equity growth opportunity as the China coffee market is expected to grow to very rapid pace for many years to come. You will see to that seen that two weeks ago we announced the buyout of our joint venture South China joint venture partner that's easy to say.

We announced the buyout of our joint venture partner partly in South China and that provides us with full flexibility and control to develop the business. We now are optimistic about increasing the scale of our ambition in this fast growing market.

There's also a highly attractive opportunity to build Premier Inn in Germany. We have extended our secure pipeline in Germany now to nine hotels in addition to Frankfurt and Frankfurt continues to perform well.

We will also continue to look for opportunities to accelerate growth through growing concern acquisitions. Costa Express has got great potential to leverage the UK investment in a superior coffee product, an excellent technology platform to expand internationally.

We've begun trialing in Europe, in the Middle East and more recently in Malaysia which is in particular performing well. We've made important strides in improving our internal capabilities.

Our executive team has gone through a period of transition but is now complete with the recent arrival of Nigel Jones, our new group Transformation Director. Nigel will lead the charge in transforming our businesses so that we have a leaner and more efficient cost structures.

Initially this will focus on shared services such as supply chain and procurement where you leverage Whitbread scale to achieve savings. Our teams have already been very active and it's pleasing that we've delivered about 60 million of savings over the past two years through a range of initiatives.

We're confident in achieving our 150 million target and increasingly optimistic that we'll be able to increase our efficiency objectives in the near future. Our property expertise is critical to ensure we have the right hotels and coffee shops in the right locations, freehold property investment and development is very profitable and it provides greater control over quality through the lifecycle of the hotel and enables financial flexibility.

Over the last two years we've recycled some of our capital into new high returning opportunities by executing 340 million of signed and lease back transactions, this demonstrates our ability to create value for shareholders through proper development and our strong covenant in the market. And finally our investment in technology has also progressed and we've completed the delivery of a number of substantial programs such as the premierinn.com website, the business booking tool and automated trading engine in Premiere Inn along with re-platforming our finance system and loyalty scheme on to a new infrastructure.

So in addition to the significant progress with our strategy, we also continue to deliver good financial results. Premier Inn including restaurants and F&B has grown revenues by over 6% to almost 1.1 billion in the first half with profits growing at a faster rate of almost 9% to just under 300 million.

I'm pleased that Premiere Inn remains the number one hotel brand in the UK and that's not just simply in terms of scale but in terms of value for money with a unique mix of high quality and attractive rooms at competitive prices. Costa has grown revenue by more than 9% to over 600 million in the first half with profits remaining flat at 65 million.

We've guided previously on Costa's operating margin decline given the level of industry cost pressures and the improvements we believe are necessary to ensure Costa's long term success in the UK and internationally. At a group level this is resulted in profits growing by 6.7% to 328 million in the first half.

We've increased our return on capital to 15.4% and we've converted 86% of our profits into discretionary cash flow of 293 million. Our discretionary cash flow is important as it provides flexibility to continue investing in new hotels, new stores and new machines that deliver strong returns well in excess of our cost of capital.

Our discretionary cash flows are also used to fund our dividend payments which as Richard has said are increasing by 5% to 31.4p per share. Market conditions in recent months have been subject to much commentary and are well-understood however we are still confident of meeting expectations for the full year.

Before I hand over to Nicholas to provide an update on the numbers I want to just take a moment to thank my teams for the significant strategic progress we've made over the last 18 months having such committed and talented team is a vital strength as we continue to grow and develop our business.

Thank you, Alison and good morning everybody. Before I take you through the performance in the first half a quick word on the presentation, at the key night amongst you which I know is all of you will notice we have made a few changes to formats and disclosures this time around.

To appease those of you with modeling concerns we've provided a supplementary pack with the usual disclosures and have not removed any standard data. This is in hard copies for those of you in the room and available as a spreadsheet download through the Investor Relations section of our website.

I'm pleased to report good revenue growth in both Premier Inn and Costa which combined to increase our group revenue by 7.4% to almost 1.7 billion. Our underlying operating profit also increased by just over 7% to 342 million, an underlying profit before tax increased to 328 million.

We are highly cash generative generating 293 million of discretionary cash being cash flow before growth CapEx dividends and pension contribution and this cash generation allowed us to invest 269 million of capital to grow and enhance our business which in turn delivered strong returns on capital of 15.4%. On this slide we share the performance of Premier Inn and restaurants, Premier Inn restaurants revenue growth in the UK was up 6.4% to 1.1 billion in the first half.

This revenue growth was driven by good performance in Premiere Inn up 8.3% with like for like sales including extensions up 3.6%, and new hotels contributing 4.7% of growth. Revenue like for like was up 1.1% in restaurants overall just ahead of the market.

Underlying operating profit in Premier Inn restaurants increased at a faster rate of almost 9% to 295 million benefiting from the progress we have made on our efficiency program and also the waiting of our investments into the second half of the year. We have been working hard over the last year to complete the exit and disposal of Premier Inn hotels and management agreements in India, Thailand Indonesia and Singapore.

This helps reduce the loss from Premier Inn international to £2 million during the half. Following the good performance in the half and the phasing of capital investments return on capital increased 40 basis points to 13.4%.

Turning to Costa, Costa also grew revenue at a fast pace during the half increasing 9.1% to 622 million. This was a combination of good growth in our international businesses and over 200 new stores and 1300 new Costa Express machines added in the UK over the last 12 months.

The like for like sales growth of UK equity owned stores was supported by our initiatives and remained positive in the half at north 0.6%. We returned to positive like for like in China and Cost Express UK grew strongly up 18% to almost £100 million of sales in the half.

In-line with margin guidance at the year-end results in April, the investments we're making resulted in underlying profit remaining flat at £65 million during the half with a return of capital remaining very strong at 40%. Looking at our margin progression, our cost efficiency program is helping to offset sector headwinds.

Premier Inn's underlying operating margin on the left improved by 60 basis points to 28.1%, this was a combination of the volume growth benefit and our efficiency programs in green which together to have an improvement of almost 340 basis points. This improvement was necessary given the well-known inflationary pressures faced by the hospitality industry which impacted margins by around 260 basis points, a significant proportion of which are set to continue.

The timing of and Premier Inn's investments are more weighted to the second half and as such we still expect underlying operating margins to be broadly flat to slightly down for the full year. In Costa on the right the underlying operating margin declined by 90 basis points in-line with our previous guidance.

Volume benefits and our efficiency program again in green delivered a similar improvement to Premier Inn at approximately 260 basis points and inflationary pressures including commodity and FX also impacted margins by approximately 180 basis points. However in Costa there has been significant amount of strategic and operational activity in the half to improve the overall customer experience which Alison will take us through shortly.

These investments impacted margins by 170 basis points in the half. Our operating model and internal focus enables our businesses to generate robust cash flows.

During the half we converted over 85% of underlying profit to 293 million of discretionary free cash flow available to invest return to shareholders in dividends and to fulfil our pension contributions. In addition to this we generated 86 million of cash from exiting our international hotel businesses and from forward funding transactions in a hotel property development in London.

This cash ensured we could invest almost £180 million in compelling coffee shop, hotels and Costa Express machines that should deliver strong returns on capital in the future. Going into our investments in more detail our maintenance capital investment of £72 million in Premier Inn and £18 million in Costa includes the upkeep of our hotels and coffee shops and also includes the refurbishment of our hotels into the latest format rooms and upgrades our IT and digital infrastructure, a key component of our longer term efficiency program.

During the half in Premier Inn we invested 122 million in building new and extending existing hotels contributing to £600 invested over the last two years. New hotels take between one and three years to reach full maturity and fully mature hotels by delivering above 13% return on capital.

We continue to invest to build our organic property pipeline in Germany with 20 million invested in the half. This brings the total investment over the last two years to almost 110 million.

We expect hotels in Germany to take a little longer to mature and the initial hotels will have a slightly lower return in the UK until we are able to build a business of scale. Investments in new Costa stores and new Costa Express machines remained consistent at 37 million in the half.

We've invested over 130 million over the last two years with new stores machines taking one to three years to mature and fully mature stores and Costa Express machines both delivering a strong return on capital of over 30%. Given the scale of our long term addition [ph] and capital requirements we remain disciplined in our allocation of capital to ensure returns can be maintained over the long term and our cost of capital is optimized.

Given the strong cash flow during the last 12 months and the timing of our investment net debt has reduced to 852 million. This reduction was offset by an increase in our lease liabilities as we look to expand further in London and town centers which necessarily requires a more lease holder weighted pipeline.

As a result our lease adjusted debt remained broadly flat. Our balance sheet remained strong which is a key attribute of Whitbread's.

Our leverage metrics are in an appropriate position with adjusted debt to EBITDA of three times and net debt to EBITDA of one times. Our balance sheet strength is fully underpinned by our freehold property estate, whilst they are attractive financial benefits freehold property also provides us with superior site selection and development potential and enables us to control the quality of our hotel through the lifecycle.

As set out in our property strategy last year we will also continue to explore moderate levels of sale and leaseback transactions on our freehold property. This is to maintain our liquidity, provide funds for reinvestment and good returns and help sets future rental yield and expectations.

As many of you know return on capital is a key measure against we judge our performance. We have a rigorous approach to capital expenditure approval and post capital investment appraisal which feeds back into our approval process.

This has enabled us to maintain the strong return on capital at an over 15% against a growing capital base that has increased by approximately 15% since the end of the 2013 financial year. Also given the level of recent investments in expanding our business, return on capital is diluted by both the impact of recent investments that are not yet fully mature and freehold property that has not yet been bought in to use.

At the end of the half we had just over £250 million of freehold property on the balance sheet which is not yet in use. This alone diluted return on capital in Premier Inn and at a group level by approximately 130 basis points.

As is very well known the economic outlook remains uncertainty and we remain cautious about the consumer environment, despite this at this early stage in the second half and with the support of our efficiency program we expect to meet overall expectations for the full year and therefore have no change to our Whitbread guidance. We are on track also to deliver approximately 4200 new hotel rooms, 230 to 250 new Costa stores and approximately 1200 Costa Express machines.

I will now hand you back to Alison will provide a full update on our progress. Thank you.

Thanks, Nicholas. And I'd like to focus now on our three strategic priorities to grow and innovate in the UK, to focus on our strengths, to grow internationally and to build the capability and infrastructure to support long term growth.

Our plans for growth and innovation in the UK for both Premier Inn and Costa are underpinned by attractive structural dynamics in both the hotel and coffee markets. In the hotel sector we've seen a gradual reduction in the market share held by independents and this is likely to be exacerbated by the rising costs in the hospitality sector following the introduction of national living wage, increases in business rates and general inflation combined with the growing strength of and reliance on the travel agents to drive occupancy.

As a share of Independence has been eroded the share of budget branded operators including Premier Inn has increased and we expect that trend to continue. Premier Inn has a unique business model providing an unmatched combination of high quality and excellent value for money.

This combination has enabled Premier Inn to grow faster than the market through ongoing expansion whilst at the same time holding occupancy in direct booking at industry leading levels. Meanwhile for Costa the coffee market in the UK is expected to continue growing through both an increase in the overall coffee consumption per head and an increase in spend per cup as customers demand for high quality and new coffee innovation increases.

Costa's focus on high quality coffee and our number one market position provides us with a strong opportunity to continue to grow through new stores more Costa Express machines and offering product innovation through our network. As I just touched upon Premier Inn has a unique business model which delivers high quality, consistent experience and excellent value for money.

The starting point for this is the strong network, our customers know that through our nationwide network of over 770 hotels there's likely to be a Premier Inn in a convenient location. Our combined freehold and long lease holder state along with our owner managed model ensures that we can control the consistent quality of our hotels and we now have about 85% of our hotel rooms in the latest ID3 and ID4 formats.

We're very much focused on delivering this high quality and consistent experience at attractive price points which encourages our guests to come and stay with us again in the future. We measure our customer's perception of value for money to ensure that we have the right balance our high occupancy of over 80% and our excellent YouGov survey results suggest that we have the balance just about right at the moment.

Our convenient locations consistent high quality and great value for money leads our customers to book directly with us. We continuously refine our direct booking tools to make this as frictionless as possible and that includes enhancing premierinn.com, our business booking tool and our automated pricing engine.

Reducing our reliance on travel and other booking agents provides a material cost advantage. We utilize this cost advantage to invest back into improvements in quality and consistency and our direct bookings now stands at 95%.

Having all of these factors working together is the key to successful ongoing expansion at an attractive return on capital. As I mentioned a moment ago providing a frictionless booking experience is essential in order for us to maintain our high direct distribution.

We recently launched our Business Booker tool approximately a quarter of Premier Inn's revenue is derived from larger accounts, customers and our new tool provides corporate bookers with a faster process, gives our most loyal customers exclusive rates and provides a greater level of insight both for them and for us. We launched our automated trading engine last year which adjust pricing and availability in near real time to maximize our occupancy and rate, utilizing this engine is an iterative process with ongoing refinements to the rules and the data feeds that drive it.

The more experience we have the further we can refine the engine and manage the yield. We continually seek to improve the experience booking flow and visibility of premierinn.com, recently this is included refinements to improve load times and provide more relevant information which ultimately increases our conversion rate and lowers our average customer acquisition cost.

We've also made progress simplifying the F&B offer in our hotels. We've completed the upgrade of all Beefeater restaurants to the new Orange Cow format which helps provide a consistent experience across the network.

Our new bar and block format continues to perform well and it shows we have a portfolio that enables us to have the right F&B offer for city center hotels. Many of you will have visited or hopefully even been an overnight guest in one of our eight hub hotels.

This innovative format continues to perform well with all hubs scoring at least 4.5 stars on TripAdvisor and the more recent additions maturing at a fast rate. Concerns about the long term resilience of high streets in the UK have been well documented recently.

Shorter concerns are linked to the recent squeeze on consumer disposable income and consumer confidence whilst long term concerns are linked to the ever growing importance of online shopping and how this impacts on leisure time therefore I thought it would be useful to provide a little more color on the shape of our UK network. Of our 1325 total equity stores just under 450 are in traditional high street locations and the further 216 are in shopping centers.

However it's a little too simplistic to suggest that all high streets in the UK are in decline for those of you who venture out to sea you'll find a real mix some high streets are struggling whilst others are thriving often with an increase in leisure activity. So a flexible and proactive approach to network planning is critical to ongoing success.

Our leases for Costa are typically for 10 years with a five year break clause which provides options for ongoing active churn or the regearing of leases. Our high return on capital of 40% demonstrates that these traditional channels are still highly profitable and cash generative with only a very short tail of poor performing stores and we anticipate actively managing that small tail.

This flexible and proactive approach to network planning also means we can focus our new store pipeline on channels that are growing such as concession, drive throughs, transport locations and retail parks. In fact 2/3rds of our new stores will be in these channels.

We also have a flexible approach to the Costa format that we can deploy in these different locations, our core Costa format works well for locations where the majority of our customers want to sit down and enjoy their coffee in store, our Costa Pronto format works well in high throughput locations such as train stations and our drive through format is proving very popular as they cater for commuters during the week but also their close or within retail parts of many cases for family shopping at the weekend. And finally of course we have our Costa Express machines which worked fantastically in petrol stations and convenience stores.

Costa is a clear market leader in terms of size and quality but there are some key areas we are focused on to drive growth in the UK. I'm particularly pleased with the amounts of activity underway to invest in the customer and to ensure that we remain the nation's favourite coffee shop.

Great quality coffee has come to the heart of our offer and we've established an innovation unit to develop a pipeline of new products, over the summer we served cold brew coffee in over 230 stores and launched a new range of frostino drinks in all stores. Many of you've been to our new roastery which provides capacity to introduce new blends such as our old Paradise Street Single origin blend.

We have a good pipeline of new coffees to come over the next few months I've tried virtually all of them and I'm very excited about their broad consumer appeal. We recognized that our food offer wasn't good enough to support our strong coffee credentials and following the rollout of new in-store equipment last year we launched a new breakfast range in May this year which included a fantastic bacon roll and a much improved porridge.

Early results are encouraging and we've seen like for like volumes in food and breakfast time grow by 9% in the first half. We followed this up with an improved range of salads over the summer and more recently with a new hot lunch offer launched in September including the current customer favourite Mac & Cheese.

We're still in the early stages of development but I'm pleased with the progress we've made in a short period of time and we're looking forward to the ongoing introduction of more options in the future. In terms of our digital improvements we have a plan to turn our legacy technological deficit into a digital advantage in both our customer facing technology and in the behind the scenes platforms.

During the half year we've completed the migration of Costa Club loyalty from a very limited legacy platform to a new system. This new loyalty system is an enabler of the improvements we intend to make to the overall offer in the digital loyalty experience including a better mobile app featuring new products and promotions and click and collect functionality.

Click and collect is operationally dependent on the roll out of a new tills and due to the legacy state of our systems this rollout has been difficult but it is expected to complete in the middle of next year. The level of change we've delivered has been possible through significant improvements and the capabilities of the team in Costa.

We have a new product innovation team, we strengthened the capabilities of our category management and operations teams. We have provided enhanced training to over a 1000 store managers and have developed a digital team from a standing start.

With a lot more work to do to bring Costa to where we wanted but we're well underway with the plan and I'm pleased with the pace of activity so far. Costa expresses an often overlooked part of the business both in terms of the UK and international opportunities but it's a real gem for us.

The starting point is the technology in our machines which provides a superior product for customers and a superior experience for our partners with fresh milk and fresh coffee the drinks are of high quality, all of the machines are connected through an enhanced telemetry system that ensures that we know what's happening where and when. If something isn't quite right with our machines we're on top of it right away.

The modular design of components means we address any issues immediately onsite ensuring the machines are working with minimal fuss. The economic model is very attractive to both us and our partners and we're proactively expanding the base of our partners in the UK for example we've recently agreed a new partnership with Morrison's.

Further afield we've recently begun trials in Malaysia following successful launches in Poland, Ireland and in the Middle East later it's proved to be particularly interesting following the introduction of an ice machine co-located with our Costa Express machine, Malaysian customers are now enjoying a very convenient and delicious iced Costa coffee drink. When I spoke to you 18 months ago I said that we needed to focus on our strengths to grow internationally, an important aspect of this was to identify the key markets that were structurally attractive and where our model would fit well.

The German hotel market to me presented the most structurally attractive opportunity, the market is 35% larger than the UK in terms of the number of rooms but the budget branded sector is significantly less mature. There's no clear market leader in Germany which is quite unusual.

Given the great a regional dispersion of industry in commerce in Germany compared to the UK there's also a higher degree of business travel particularly domestic short stay. The scale of the market, the relative immaturity and the types of customer in travel mission we believe present a highly compelling opportunity for Premier Inn.

In order to focus on Premier Inn in Germany we have now exited all of our non-core international operations which were proving to be a distraction and where we didn't believe the potential for the business of sufficient scale. These exit included the hotels in India, Thailand, Singapore and Indonesia.

Our Premier Inn Hotel in Frankfurt continues to perform well consistently being ranked the top hotel on TripAdvisor. Our occupancy continues to increase and we've not utilized any travel agents so far.

However this is of course just one hotel. The map here shows the sites we have now secured with purple dots in Hamburg, Dusseldorf, Stuttgart, Freiberg [indiscernible].

The next phase of our organic development is to expand our presence in these cities and to target further cities. We now have a strong local team in place to identify and develop hotels in this catchment.

This level of organic development does of course take a number of years and so we will continue to explore all other opportunities to accelerate further and faster. Turning now to Costa, during the last 18 months we've completed the exit of our non-core equity operation in France whilst turning around Costa in Poland which is now growing at an encouraging level.

In China many of you will have seen that we announced the acquisition of the remaining 49% in our joint venture in Southern China for £35 million. This is an important step for us, it provides more flexibility and control as we build our capability and redefine our network plans.

It's also a clear indication of our confidence in the opportunity and our ability to execute against it. China represents an attractive opportunity to Costa to grow its profitable equity business outside of the UK, the overall Chinese Coffee market is expected to grow at a rapid pace and this will be driven principally by coffee adoption in the growing middle classes that's expected to reach 550 million people by 2022 with more than 50% of those people being in Tier 1 and Tier 2 cities.

We are of course not the first coffee business to recognize this. Starbucks began their expansion in China 10 years earlier than Costa and have proved that a profitable coffee shop business of scale is possible.

We are focused on becoming the clear number two in this very attractive market. In November last year we set out our plans in a little more detail to improve our Costa business in China and to expand further.

At the heart of these improvements was the creation of a winning customer proposition tailored to local preferences that provides an investible model at unit store level. We have tested a range of actions including a new store format the trial of which is performing well with good uplift in sales.

This has given us greater confidence in our ability to succeed in this high growth market. Brand perception is also critical particularly when you're competing against a dominant incumbent.

We've introduced local area marketing and are focusing on a smaller number of key target cities. In this regard we're making significant changes to our network plan which will be a name through the buyout of our South China joint venture.

Our focus has shifted towards getting a broader and deeper presence in the Tier 1 and Tier 2 cities and to withdraw from less attractive cities in the short term. We have already closed 15 underperforming stores.

I'm also pleased with our new partnership with Wanda which will see Costa stores in their cinemas this represents a large pipeline with the first 20 stores due to open by the end of the year. And finally innovation in coffees equally as important in China with cold brew nitro and pour over ranges all launched.

Meanwhile our digital development is progressing well with mobile payments and loyalty integrated into the popular WeChat and Alipay platforms. So you will hopefully appreciate the level of activity under way in both Premier Inn and Costa both at home and further afield.

This activity can only be delivered through a focus on internal capability development. When I first spoke to you 18 months ago I addressed the need to enhance and improve our infrastructure and the capabilities that we have in some key areas.

Whilst this is a multi-year plan I'm pleased with our progress which is already delivering tangible business benefits. This begins with our senior team, as I mentioned earlier we now have completed our executive team, unstructured the business to support the execution of our strategy.

Property expertise is an important driver of success for both Premier Inn and Costa, site selection and development is a key determinant of success at a customer catchment level and freehold property is a vital aspect of this. Freehold property provides more flexibility to Premier Inn in selecting an optimal site, property ownership then provides control over the development of the hotel initially and how the hotel is maintained or extended over time.

In addition our asset backed balance sheet ensures we have a strong covenant which means that we are more often than not the preferred hotel or coffee shop tenant when approaching potential landlords. Freehold ownership also reduces earnings volatility through the cycle, in fact you may recall that a number of our peers struggled with lease commitments during 2008 and 2009.

For these reasons and more we plan to remain a majority freehold. However we are confident when we are confident we've maximized the potential development of a freehold property site we may deliver value through sell and lease back or by forward funding transactions.

Last year we completed 290 million of such transactions in the first half of this year we've completed the forward funding of our new hub development and insured it providing over 50 million of cash which is reinvested back into new high returning opportunities. Our shared digital teams are making important inroads into modernizing our legacy systems and providing market leading innovative tools.

I've already touched on digital innovation such as the automated trading engine, the business booker tool and improvements to premierinn.com all of which were delivered by our new in-house teams. We've also achieved an important milestone of replacing our core finance systems in Premiere Inn, this has been delivered on time and successfully and work will now begin to extend that into Costa.

These finance systems reduce manual work arounds and provide enhanced performance insight which in turns helps us control costs and improve efficiency. This increased investment in people technology and property is made possible through the efficiency program that we have underway.

Over the last two years we've delivered around 60 million of savings, these have been achieved by focusing on improvements in our end to end value chain including sourcing, product specification, supply chain and in-store and in-hotel execution. We're confident of reaching a 150 million target and increasingly optimistic about delivering incremental value in the Costa deficiency program.

We're of course focused on being a growing profitable business that delivers an attractive return on capital and we also recognize that Whitbread is celebrating its 275th birthday this year. Whitbread has been a commercially successful British company whilst at the same time being a caring and responsible organization.

This year we refreshed our approach to being a force for good, our program is based on what's important to our people, to our customers and our communities. We're consistently recognized as being a great place to work through feedback from our teams and the external surveys.

This is due to a number of factors which include attractive career development and training opportunities and pay structures that reward merit and ability. The Costa foundation celebrates its 10th anniversary this year and during that time it has helped fund education for over 60,000 children in coffee growing areas around the world.

We're excited to see the progress of construction of the new Premier Inn clinical building at Great Ormond Street Hospital which has been made possible by fundraising activities of our Premier Inn team members. This facility is due to open to patients in November which rather aptly coincides with our 275th anniversary.

Coffee Cup recycling has been gaining traction following our commitment to recycle not only our own cups but anybody else's as well and we've also been instrumental in signing a deal with Ace to recycle through local authority waste systems. So I'd like to end where I began this morning by reaffirming the importance of our three point strategic plan and our progress against it.

Despite shorter term concerns over the strength of the UK consumer confidence and trading conditions in the hotel market there are compelling long term structural growth opportunities for both Premier Inn and Costa in the UK. Through our strong balance sheet good cash generation and disciplined focus on capital allocation we have the ability to invest in these opportunities ahead of our competitors.

We're on track to deliver 85,000 Premier Inn rooms in the UK with high occupancy and maintaining our strong return on capital and beyond this we see scope for at least 100,000 rooms. Costa can grow to more than 3000 outlets with a strong return on capital and reshaping its network to match the changing use of leisure time and computer patterns.

We're also now more confident than ever of the options we have to grow internationally. We've accelerated the organic development of Premier Inn in Germany and we're exploring other opportunities to accelerate further in order to build a business of scale in this highly attractive market with long term growth potential.

Costa in China is showing good signs of improvement in the buyout of our South China joint venture partners provides of the more flexibility in control to accelerate growth plans in the future and the growth of Costa Express has much further to go in the UK as we explore new channels and we're only just getting started with this rollout internationally. Meanwhile behind the scenes we've made significant progress in improving our technology and capability to deliver the plan and creating efficiency savings to fund the development.

For 275 years Whitbread has looked after the interests of its shareholders and its broader stakeholder communities. I'm confident that the plan we have laid out and the progress we've made so far will ensure continued growth in earnings and dividends over the long term whilst maintaining our strong return on capital, in essence delivering long term sustainable value for shareholders whilst continuing to be a great business for our customers, employees, pensioners and communities.

On that note I'll close and I'm sure that you will have at least three questions each for Nicholas, and Richard and I. So over to you.

It's Vicki Stern from Barclays. Just first question, obviously like for likes slowed the exception of restaurants Q2 and Q1 and certainly on the hotel piece we've seen industry data get a little softer recently as well, can you just talk about the potential to either accelerate the cost savings and/or how you think about altering the sort of phasing of investments going forward.

The second question just relates to that medium term margin guidance I think is for beyond this year flattish how do we think about going into next year to sort of given some of the topline challenges but obviously the cost efficiency is coming through in the investments and then just final question on Costa, you talked about on the challenge is obviously there's some macro high street structural points but also can you talk a little bit about the competition backdrop particularly those are different categories that are coffee focused, food focused and the independents and generally how you feeling about the different competitive threats? Thanks.

Okay, so we're going to have to orchestrate this for the three question approach. So and hopefully somebody else had some of those questions and they've just not went off.

In terms of phasing and the market and how we might think about investment efficiency and an ongoing investment. We're in a good space, it's a start of a 10 because we've got a flexible business from the perspective of the fact that we throw off an awful lot of cash and we choose to recycle that into investments either in growth or in maintenance and we can make choices around how when we do that.

We have got structural cost challenges in operating as headwinds but we fortunately got out of the traps quite early with an efficiency program which is a multi-year efficiency program and some of it was dependent on skills being built and time passing before we could execute against some of that cost saving. So a good example of that was the fact that our supply chain would not come out for renegotiation until the end of '17 and '18 but we needed to be in a position to be able to properly negotiate with our supply chain providers when that contract came to an end which is imminently so that cost saving would be one of the ones which went out into the 2018 category.

So we've got a situation where we've got cost headwinds and issues which may or may not arise with consumer confidence which we're watching and bit volatile and it's not easy to predict. We've got an efficiency program which we have enormous confidence in and we think that we will be able to generate additional initiatives and that at some point we will be able to quantify those and share them which will offset some of the headwind and we have an investment program which we're very committed to because we think for the long term for both these businesses given they are in structural growth and given we are market leading that we ought to be able to capture the value of available by making those investments but with some flexibility about how when we do that.

Yes, the second question is about margins. I think we have been clear about this year's margins which we kind of reconfirmed the data we gave in April so we said that Costa would be down about a 120 basis points we stick with that and Premier Inn would be about flat to just down marginally, so I will stick with that as well.

I think you can see we're innovating faster and I think Alison said we got the cost efficiency program which will go a long way offsetting a lot of that headwinds we've got in the years to come. But I think kind of given the economic outlook and the political outlook and I think the volatility I think we're not the only ones at the moment who are not giving longer term margin guidance at the moment and we will stick with that at the moment.

And in terms of the competitive landscape I'm particularly thinking about I think it was levelled largely here at high streets rather than the hotel business although you may want to talk about hotels as well. Of course everyone is facing into the same pressures so we're by no means alone and you will have seen some of the results of fast casual dining and/or other high street outlets who are similarly being challenged by the structural headwind.

So I think a couple of that points to make on that number one is in these times the market leading brands and the strongest companies tend to survive well and do well in challenging environments and those headwinds tend to hit hardest those that are weaker financially or structurally unsound. So it's a broad generalization but it's a key point.

Secondly, we've built into the way that we think about managing our estate and network team that is now engrossed in ensuring flexibility of our network plan, ensuring that we churn the right places and go and stay in those that are vibrant and move into high growth areas so from that perspective we feel pretty confident that we've got to reverse a robust and quite flexible model that underpins the business and we're investing in the right things. So we're investing in things that are meaningful to customers, we're investing in the quality of the innovation in coffee as people you know proceed to premiumization we are better able to bring that premiumization to the whole country rather than small pockets where coffee aficionados might play.

We're investing in food which we think is an important part of a relationship that people have with us from a day part perspective where later we are investing in digital to ensure that we've got the right loyalty schemes and apps and that we can then roll out the next wave which we will be click and collect and ordering of coffee. So we think we've got a really good plan, it's a multiyear plant some of the legacy infrastructure like the tills, like the finance platform will take you know two to three years to replace over that period but we're pretty confident of our ability to deliver that through our Whitbread IT teams and to use Whitbread scale to leverage significantly more efficiency savings than Costa which historically have considered it was able to do.

Jamie Rollo from Morgan Stanley. Three questions again please.

The first I'm just on Costa's second quarter like for likes it's the first quarter we've really been able to see hopefully the food innovation coming through it's not evident from the numbers is that because it's really just started or is that coffee is going backwards and if you could talk about when we think we might see the food sales delivering now that will be helpful. Secondly on revpar in the second quarter again and it's not an area we would like to focus on but that gap between you in the segment seems have opened up again to about two percentage points it had been closing in the first quarter if you could just talk a bit about that and finally you have given us again in the supplementary slides the revpar encatchment areas where you've seen the capacity growth up 3.3, I'm just wondering is my math correct that revpar in areas where you did see capacity growth was only down a percent which seems to be a lot better than the 4% drop you had in the last financial year and also looks like you saw about 20% capacity growth in those catchment areas.

So is that a right way for us to think about you got 20% more rooms in those areas for only revpar down one is that the right through trade-off? Thank you.

Okay. So starting with food sales, yes it is early.

We are new to this particular innovation and we had put what was a brilliant I think breakfast proposition in the stores earlier in the air with a great promotion sitting behind it and we saw some really good uplift on breakfast food performance. So we saw I think I mentioned in the presentation there about 9% increase in food penetration in breakfast and then we've launched really literally only in the last month or so the hot food and again unit sales wise we have been in the early weeks routinely running out of some of the food, so Mac & Cheese being the most popular dish in the whole of the moment I think, just flying off the shelve and so we are seeing food capture rates actually ticking up which we haven't for I mean - we had a good food capture rate, a good stable food capture right historically and that but that has been absolutely consistent as a rate and this is the first time we've seen several percentage points increase in the food capture rate which you expect.

Before Nicholas goes on to, so broadly speaking, I guess the short answer is it's really early. But don't forget you have to re-teach customers that they can come at lunch time, they don't instantly know that those that regulars do because they see it immediately but those that have wouldn't come to Costa because they know that Costa hasn't historically done a lunch off or had fresh salads on offer or any healthy eating options.

We will need to be retrained in some ways or told and communicated with and that will take some time for that business to grow but we're very confident in the early results being on point for customers in terms of taste and although Nicholas will probably get into some detail on the revpar the things we always keep going back to with Premier Inn is nobody does it better, that's a song in there we could sing that, maybe another day. Nobody does it like else so they really don't and therefore we are really focused on making sure that when we grow that it's at the right returns and that we grow because we are full and therefore the best way to drive increased profit is to grow and that that growth is delivered in catchments and locations that are finally honed so that we know the return on capital will be right and when we do open that space that we fill it quickly and then grow the rate over time and when you've added 10,000 rooms versus a competitor that has added four rooms then you're going to get a different way of thinking about your business.

So we don't talk much about revpar other than we're trying to do a later market analysis just to keep ourselves sane, but what we focus on is is are we able to fill the new rooms - it is still a vibrant business model that is giving us the profitable return and the profitable growth over time and then that funds and you can extrapolate forward to further growth thereafter. So total accommodation sales growth is enormously important to us and like for like accommodation sales we do talk a lot about as well.

The revpar about the kind of the gap between us and the market in Q1 and Q2 the point was made that the budget, and the [indiscernible] has gone from plus four to above plus three from Q1 to Q2. I think and ours has gone from plus 2.9 to about 1.8 at the time.

I think the key thing is one is we have opened 2000 rooms in the first half of this year and I can't in my time here I don't think we have ever opened 2000 rooms.

Yes, because if you remember one of the things 18 months ago that we were commenting on was how backend skewed our right wing was always were and we had that horrendous 3000 rooms in the final quarter and 2000 rooms in the last month and we talked about having to rephase this is the result of that rephasing is half our rooms our opening in the first half and half our rooms will open in the second half of the new capacity. So that has changed the shape of things a little.

Yes, and I think if you look at our total growth we're still growing about 8% in the second half so we had about 2000 mature rooms in there [indiscernible]. The second thing I just say just on kind of the look at the mid-scale economy if you look at our nearest and dearest competitor actually you saw that they underperformed the market as well and I think you are probably getting a skewing a mid-scale economy from those who that are kind of those which the international brands which are benefiting from those inbound as well.

So I just want to say that. On your third question which was about where we have added capacity and I'll come back and I'll check your math Jamie [ph] but I'm sure you're right.

The point was made that on the schedule [ph] where we haven't added capacity we are growing roughly in-line with the total market and that equates to about 65% of our estate. So it's 35% added capacity and we've grown overall sales by about 6% from new capacity which means that in that 35% we've added 20% new capacity so that is right Jamie.

So we're getting 20% more capacity at the same time we are only diluting revpar in that area by roughly about 1% overall. So you are roughly direction is right so that's adding huge amounts of capacity and diluting revpar by the material out and giving really good you know that I think underlying that while we're pleased if you look at the chart we had up - I had up just delivering that kind of consistent return on capital despite as I think we've had added about 30% new space over the last 2.5 years as well.

[Indiscernible] from Citi, just three questions for me the first is on the maintenance CapEx so that's reduced 27 million this half versus this half last year, is that just a timing thing or is there going to be going forward a slight reduction in that maintenance capital expenditure and secondly just on the high street stay obviously growing faster in the other parts of the portfolio for Costa are you still seeing 5% net growth there, within that is there still a significant amount of portfolio restructuring i.e. is there still some closures along with the openings and then finally just on the current trading for Costa we touched on the food likely picking up but are there any other reasons to expect current trading going forward being particularly different from what we've seen in the second quarter.

So just about kind of make such [ph] capital it is just a phasing and I talk just in terms of some of the margin play as well that you will see in the second half and some of that is the maintenance coming in and the depreciation associated with that as well and we've also gone life within that maintenance some of our IT spend, we have got live with some of our IT platforms come around about the first half as well. So you're right it's phasing.

On the Costa [indiscernible], on Costa stores and reformatting again we benefit from having flexibility and whilst historically we haven't churned the estate or done anything really except grow we now got a team that's enormously focused on not only their new growth network plan which is as you saw leaning very heavily onto high growth areas but also looking at how to optimize the core estate. We don't have a big tail of unprofitable stores and certainly from a cash profit perspective you know virtually none it's very low and so there's often the reason - you know there's often not a big churn to be hard from actually stopping and paying out at least you would wait till a churn point in order to then make a decision on whether or not you moved the store, got out of it, renegotiated the lease, got a lower rental which would change the profitability of the store or all of those things.

So I think we are just actively managing that and are not expecting any sort of big huge restructuring provision if that's the heart of the question then we will be doing on an ongoing basis BAU basis.

And then current trade as you know we are not commenting current trading, although hopefully what you have seen is we're innovating faster wherever we're doing things it's giving us a positive momentum but we just can't predict what's going to happen to how many people are going to get on the high street this year.

Richard Clarke from Bernstein, I try not to ask about current trading but I will ask about - you've got a 180 basis points uplift from unit growth in like for like in Premier Inn, can you split that down between what benefits you get from unit growth and how much you need the like for like to keep that number positive and then you both mentioned a little bit about maybe cost headwinds getting worse? Any idea of sort of scale of that we've heard some of your tangential peers talk about the [indiscernible] attacks coming in and wage inflation getting worse and would you expect that 260 basis points to go to a certain number and would you have enough cost efficiencies to offset that and then in terms of pricing in Costa we've seen Starbucks increase their coffee prices but you haven't increased your prices on your core products, is that something you look to do in H2 or are you happy to let that gap widen up and make it up in other products.

Thank you.

So just in terms of the 180 basis points in green on that margin progression we had a 180 basis point upside in Premier Inn because of volume and like [indiscernible] and like for like. We don't split that's not how we run the business, not how we run our margins, we're investing in the hold estate not just like for like and then used space as well so we don't - we won't split it down there overall and again we're driving our margin against a whole - total sales rather than individual like for like.

And I think the headwinds are worse so apologies if I made that the case here, I think quite a lot of them are no, but for example national living wage changes each year and goes up so it's not - the headwind is worse from a recipients perspective but we know what it is and we know what that it's likely to move over time what that's like through the cost space. Rates have just been changed and therefore they aren't going to be too much further change and then there will be a question mark over how much inflation in input prices will there be or how much food inflation will there will be which again will be something which is movable but again within a reasonably tight range.

So I don't think it's an issue of cost that we're unaware of escalating or being out of control I think we are quite carefully plotting what we think that trajectory looks like and then we are looking at being very sensible about leveraging as much of Whitbread scale as we can through procurement, supply chain and technology to ensure that Costa gets the highest level of efficiency gain it can and as a safe from a standing start this year with Costa's first ever efficiency program has made a really good progress in the first year but we're expecting more as the next couple of years unfold and we will be working that through. And then what was the final question?

Pricing, on pricing and my stock answer to this is yes we do mean to be fair [indiscernible] they have a very strong sort of crunch that is their price and it's the same in the U.S. They have constant price increase each year it's not the first lever that we would pull, it is a lever that's available, there are other competitors that we look at rather than just the [indiscernible] but in some areas we also think about some of our other players on more regional high streets and we try and what we'd like to be is as competitive and as higher value for money offer as we can.

We're not precluded from making price changes in any way. I think I would rather we were more sophisticated at it than we've historically been which has been a bit of a blunt expense on to the standard cup and certainly I know Dominic is thinking about how we bundle pricing for lunch and breakfast deals etcetera which is a much more innovative and flexible way of changing price than a standard expense on a cup but the options available to us are limitless and whether we'll take them or not we will decide as we move through the year.

Tim Barrett from Numis. Can I ask about the 60 million efficiency so far?

I think you only launched the program last November and it was going to be a five year program, so are you still thinking it will be evenly A certain. Number and ask about that the sixty million efficiency so far that you only launched the program last November and it was going to be a five year program so you still thinking it will be evenly weighted out or will be weighted out five years or is it just coming through faster and will be very useful also to know exactly what it was if it wasn't supply chain and logistics, a few examples and just a quick question on cost international it looks to me swung by about 50 basis points on the divisional margin and can you help us whoever came through on that page 10?

So I will do efficiency and then you do cost model, on the efficiency program yes we did call it two years in to the program and the teams have done a great job of delivering substantial savings probably the highest number through procurement rather through than anything on supply chain and logistics itself because that required additional work and infrastructure to be put in before we could leverage that and IT systems changes have gone in and various other things so there's been a whole package of programs including simple things like how we deal with our laundry and linen through to how we have the best and fastest route for our housekeeper to clean our room through to putting force into managing the number of staff in along with when the customers are in. So we've put in workforce planning tools into our sites in restaurants and in Costa.

So there's been a whole plethora of initiatives that have underpinned the good work including just jolly good housekeeping, I don't mean that Premier Inn housekeeping I mean self-help housekeeping and in thinking structurally about how we make cost discipline part of our DNA and how we make efficiency part of the way that we run the business which has included for example changing that heart beat model which you would all have seen over many years to include every day efficiency as a core part of the model that we operate to and that includes the way people are incentivized and paid etcetera. So there's been a raft of things but we have more to go, so it is a multi-year program and having made such good progress and having made good progress in some of the underpinning we will look at whether or not we have a faster roll or indeed some incremental efficiency commitments that we might want to make over the course of the next few months.

We're optimistic to put it that way.

A quick question on your point on page 10 but Costa International moved forward in terms of its profitability about £4 million and that was two things that might happen if one is exciting France equity stores fast that we had anticipated but still they are with franchise and the second thing is we've had a better performance in China that we had expected, what I would just kind of say about China now that we have bought a 100% of the business though is we may decide to invest faster in that business to get a longer-term growth going.

Lena Thakkar from HSBC, just a couple questions on Costa, please. Alison you talked about the pricing and perhaps using slightly less blunt techniques going forward.

What should we infer from that? Have you seen some sort of volume drops on the back of your prices over the last couple of years?

No. We have not.

It's not been it's not been like that at all, actually it's been entirely muted the response to our price rise so far. So we made two each year in the last two years substantial price rise 10p each on a range on drinks and we have seen a modest impact on transactions but certainly within the range of exactly that we've modeled ahead of making the change.

So it's not been elastic.

And then just on Costa, again, what exactly has happened with the till rollout that's made so difficult? And do you feel that it has hampered your sales growth in anyway?

No. It's not anything to sales.

It is - and it's not - and we haven't anticipated completing it by the time we're talking today. So it's not - we're talking about completing it by the middle of next year, which is slightly longer time horizon than we had anticipated, but it's not years too late.

It's very difficult, not just because the old platform is as well totally naked [ph] it's also because it's connected then to another series of naked bits of infrastructure, particularly things like ordering systems and so we have had to work quite hard to get everything disentangled from each other and then workout how to reattach things and what other things will have to be upgraded at the same time as the till platform has been upgraded. And that's proven to be a little bit complicated and there have been various other technical and supply issues, which have got in the way, but it hasn't stood in the way of any particular sales activity over the longer-term, though, it gives us great functionality.

So we've for example, click and collect has dependency on that till rollout to first to be operational. So we do want that to - that piece of work to be completed, and we want the infrastructure in the stores to be flexible and capable of landing in the future, but it's not like we don't take mobile payments, we do take mobile payments.

It's not like we don't use our loyalty the till point we do use it whether it's on the phone or the card we use that at the till point at present, but for future growth, we think we could allot we would have better functionality from a new till system. And that will go for pricing actually as well.

We could be more flexible on pricing should we wish to be.

Okay. And one just final one on Costa China if I may, now that you had a chance to sort of clean up that business and reshape the strategy.

Do you feel that you'll been in a position to give some sort of profitability target at any point in the future?

Yes, we have.

I think last year, we already talked about kind of international £25 million to £30 million about half of that coming from China about in 2020, that's what we said.

But certainly post our acquisition, we're broadly looking now at what we do with China, and what acceleration options there might be, so that could change and we might, therefore, in the future come back with something different, but the current guidance is the £25 million to £30 million, half of which is in China by 2020, which is unchanged.

[Indiscernible], just two questions in Costa for me. I know you've talked about this in response to Tim's question, and talked upon improve labor scheduling and cost etcetera but just on the cost efficiency in Costa, has there been a material reduction in the level of run rate, FTEs in Costa in the period and secondly, I know you've reiterated guidance for store roll-out this year, but do you still expect 70% of those stores as you indicated, I may have missed that apologizes if I did.

And though, we haven't see material FTE reductions in the business is the first question

Completely in the stores.

No. He meant in stores, are we cutting labor in the stores as a quick way to drive efficiency?

No.

Yes, and still about 70% of the stores in the UK. Yes.

Tim Ramskill from Crédit Suisse. A couple of questions sort of about the kind of long-term structure of the group, I completely get the points about the benefits of having property if at any stage you feel that's not reflecting the share price does that become a discussion point for the board or do you see that's completely irrelevant?

We have a proper when I first arrived I said we've a regular but somebody pointed out that regular can be once every decade so I know what to say, we have a regular and annual minimum discussion at board about what we think is the right structure of the group and that isn't a sort of light 5-minute conversation. It's a proper strategy agenda item that Richard shares for the board and we think about where we're today, what we think the plans look like and what we think the opportunities are for the long-term in terms of our plans and how we can unlock value for shareholders.

So we're enormously open-minded in that discussion. And at the moment, our view is that from a cost structure perspective that we are mid-through a multi-year plan, which Whitbread is delivering using a strength and leveraging its capability and we think that that will deliver great value to shareholders over the course of the next 2 to 3 years.

And in China, that we're unlocking an opportunity in China, that's a sort of 20-year to 30-year growth opportunity, again which will provide great value to the shareholders. And on the property side, we think very hard about how we manage our property and how we demonstrate the value that which we delivered to the group by being the first choice of being able to choose a location based on either leasehold or freehold and being able to use development profit and yes, we think very deeply about the question you've just asked.

And then my second question is around labor. I think last year, FY '17, the sort of the total employee based within the group increased fairly modestly a couple of percent, certainly much low than we've seen in the past.

I know in previous question just asked about at the store level or at the hotel level labor, but how do you think about leveraging your people above the store level and thoughts about those numbers going forward? And just very quickly on a similar topic.

You mentioned kind of potential migration changes influencing sort of labor cost. Just wonder if you're seeing any implications of anything like that thus far?

You're right last year, the FTE and the group as a whole increase less than the sales and the capacity and we would like to be at it again. What we're doing there is reinvesting, there are certain areas that we're reinvesting back into, such as supply chain, such as procurement, IT, digital being particular, which we think will give you longer-term efficiencies right the way through the group.

So it's not going to be straight-line efficiency as well overall, it's going to be you have to invest to get some of the kind of efficiency for longer-term overall.

We did work hard last year on structuring our head office and that was in fact pretty thorough piece of work on what you would denominated as bounds [indiscernible] work to make sure that we had a structure in head office functions that was fit for purpose and allowed us to create new teams like innovation teams or digital teams that didn't exist before and because we were able to restructure in other areas. So I think we made good progress in getting fit as a head office and certainly, the Premier Inn team also worked hard on their structures above site level in sort of operational management and that's undoubtedly, always an opportunity to revisit all of those things every year or so.

On migrating, no, we don't see anything yet, but we're quite conscious of the fact that with 20% of our workforces EU nationals we're pleased first of all with the fact that there has been announcement that protects their rights. Some will make them potentially continue to be a stable workforce for us because it's only 20%, it's an important 20% and we're very focused at looking at our broad array of talent objectives to make sure that we can still attract people to work for us and should we need to replace some of that 20% of our workforce.

If this ends up as a talent war, we undoubtedly win and I say that, not unlikely just because we are a very large organization that's very well-respected, we have absolutely astounding people credentials with huge engagement. We have retention rates, which are increasing, our attrition is reducing and has been for the last two years and we target that as a key KPI in all of our businesses as we would rather keep our well-trained people than churn them.

And we have great career access for people either straight from school or as at any level really where we offer people really good training and development and career opportunities, including taking some very early responsibility. You can have quite young people running a coffee shop or a hotel or a restaurant in our business if they've shown the potential, and we put them through our training.

And we have an efficiency program, which is helping us offset wage inflation if we had to pay bit more and then crucially, we've paid for progression. So we try and get people off National Living Wage and through the pay scales by adding skills to that skill base and that's very attractive and it's been part of our retention improvement.

So all of that package together makes us quite a good employer, we're eight best company to work for according to the Sunday Times there's not many hospitality companies for and certainly not small independents fall into that category. But from an industry perspective, it would be better if we had a better free flow of labor and a flexible labor pool, we are at the lowest level of unemployment in this country for 40 years and therefore, maintaining a free and flexible pool of labor would be helpful for the whole industry.

We have probably got time for one another question.

It's Alex Brignall from Redburn. I'm sorry none of my questions have been knocked off maybe there is 2.5, the first one is on Costa.

You talked about improving like-for-like and maybe coming through later on in the coming quarters. Can you talk about what that does for margins, I should think they have a lower gross margin for [indiscernible] for a cup of coffee, so how that comes through?

And then on German Premier - I'm astonished no one has talked about, you talked about the lower return on capital at this scale. Is there a number that you could give which would get you to a comparable return on capital for the UK in terms of number of hotels?

And then on the distribution, you're not using your OTAs but you have a dedicated sales force so how do you kind of grow into that? And is there any argument for using OTAs in the early stages of your growth just to maybe aware of your product?

Thank you.

We didn't talk about improving like-for-like year. We've just giving some positive momentum on like-for-like.

So overall and you're right what we do through deals it's lower margin percentage, but I guess, what we're looking at is actually the [indiscernible] margin that we're driving overall and I just kind of reiterate the margin guidance we have given is comfortable for this year overall. In terms of hotels, I think at the early days when you're doing probably upto 20 hotels, you're probably looking around about 10% plus kind of return on capital that you're looking at the moment and it's not until you get to probably above 20 or 30 that you start be looking back at UK returns overall.

Do you want to mention OTAs in Germany?

Yes, and OTAs, we've been quite careful with [indiscernible] any one hotel to see what we can build through our own devices rather than turning a tap on which is awfully hard to turned off once you've turned on and knowing that at some point, we could choose is with our gift to turn on the OTAs and whilst we're progressing nicely with Frankfurt, there isn't currently a need to turn on an the OTA. In the event that we are at a significant scale and we've got a lot of new earnings, we may choose to think about how we do a deal and which inventory we would want to put onto an online [Technical Difficulty] So we - although we prefer to build in the direct booking way, we wouldn't shy away from using OTA if it allowed us to mature our business in Germany at the right point in time but at the minute there is no need to.

Okay. Great.

Thank you very much. Thank you, everybody.

Thank you.