·   Revenue increased 2.6% to £1,079 million, reflecting continued capacity addition

·   Total UK accommodation sales growth of 4.8% and like-for-like accommodation sales growth of 0.2% impacted by weaker consumer demand

·   Underlying profit before tax increased in-line with sales by 2.5% to £270 million, supported by tight cost control and the benefit of the ongoing efficiency programme

·   Costa is now reported as a discontinued operation, statutory profit for the period increased 3.5% to £47 million

·   Strong cash generation with discretionary free cash flow at £283 million

·   Strong balance sheet with net debt of £881 million and committed debt facilities of £1.8 billion

·   Statutory profit before tax was maintained at £257 million

·   Return on capital held broadly flat at 12.4% despite pace and timing of new capacity

Alison Brittain, Whitbread Chief Executive Officer, commented:

“The highlight of the first half was the announcement of our agreement for the sale of Costa to The Coca-Cola Company for £3.9 billion, which received the overwhelming approval of our shareholders in October. We intend to return a significant majority of the net cash proceeds to shareholders, although the exact amount, timing and method will be determined following discussions with stakeholders, including our shareholders, pension fund and debt providers. The sale of Costa now requires Coca-Cola to obtain regulatory approval in the EU and China. Much work still remains to be done to ensure a smooth and successful separation from Whitbread at completion and during the following transitional service period, which we are confident in our ability to execute efficiently.

Following the sale of Costa, Whitbread will be a focused hotel business with operations in the UK, Germany and the Middle East. In the first half of the year, Premier Inn delivered total UK accommodation sales growth of 4.8%. Although we have seen some weakness in consumer demand over the summer, we have made further encouraging progress with our efficiency programme, ensuring we remain on track with our plans for the current year.

We have grown the UK network to over 74,000 rooms, with a further 13,000 rooms in our pipeline and we have potential to further extend our growth runway in the UK to 100,000 rooms and beyond. Alongside this material addition of new capacity, we have maintained our leading occupancy rate increased the rate of customers booking with us directly and delivered a strong return on capital. In terms of innovation, we have recently announced the trial of a new format in the UK, “Zip by Premier Inn”, which will open in the first quarter of 2019. In Germany, our pipeline is now close to 6,000 rooms, equivalent to 30% of our total pipeline for Premier Inn.

We are now looking forward to dedicating our focus to the significant structural growth opportunities available to Premier Inn in the UK and internationally. We will be holding an investor day in February to give an update on our ambitious plans to access these attractive opportunities. We will provide further detail on how we will enhance our investment in our unique, integrated operating model, which will enable us to maintain our market-leading position and access attractive growth opportunities. We will also discuss the optimal capital structure and property strategy to support our growth plans. Ongoing disciplined execution of our plan will continue to deliver sustainable shareholder value through growth in earning and a strong return on capital.”

Strategic update |  A focused, fully integrated hotel business

Sale of Costa to The Coca-Cola Company for £3.9 billion

On 31 August 2018, Whitbread announced it had entered into an agreement for the sale of Costa Limited (“Costa”), one of the world's leading coffee brands, to The Coca-Cola Company (“Coca-Cola”), for an enterprise value of £3.9 billion (the “Transaction”). The Transaction is a Class 1 transaction for Whitbread under the Listing Rules and was therefore conditional upon the approval of shareholders. A General Meeting of shareholders was held on 10 October 2018 and the resolution to approve the Transaction was successfully passed with 99.3% in favour.

The Transaction is now conditional on Coca-Cola obtaining two anti-trust regulatory approvals in the EU and China. These anti-trust clearances and completion of the Transaction are expected to occur in the first half of 2019, at which time Whitbread will receive the proceeds of £3.8 billion net of tax, other transaction costs and separation costs, estimated to be approximately £100 million.

The Whitbread Board intends to return a significant majority of the net cash proceeds to shareholders, unless more value creating opportunities arise and subject to prevailing market conditions.  Net cash proceeds will also be used to reduce the Group's borrowings and the Group's pension fund deficit. A reduction in the Group's indebtedness will provide headroom for further expansion of Premier Inn in the UK and internationally. Discussions with pension trustees and other relevant stakeholders are being conducted and an update on the amount and method to return proceeds will be provided in due course.

Whitbread focusing as the operator of Premier Inn in the UK and internationally

Following completion of the Transaction, Whitbread will be a focused hotel business with over 76,000 rooms in over 800 hotels in the UK, Germany and the Middle East, operating under the Premier Inn brand, with a committed pipeline of almost 20,000 rooms. Whitbread will also retain its 49% investment in Pure, a London-based healthy-eating quick service restaurant business with 15 stores.

Whitbread's strategic priorities will remain consistent with its existing strategy of:

1.  continuing to innovate and grow Premier Inn in the core UK business;

2.  focusing on Premier Inn's strengths to grow at scale internationally; and

3.  enhancing the capabilities of Whitbread to support long-term growth.

Full Year 2019 Outlook

Whitbread has significant structural growth opportunities in the UK and internationally with confidence in its plans. Investment will continue in order to maintain Premier Inn's competitive advantages and to capitalise on these structural opportunities. In FY19, Premier Inn is expected to open 4,000-4,500 rooms in the UK and Germany, including two hotels comprising 379 rooms in Germany.

Given the recent economic and political environment, along with inflationary pressures in the consumer sector, there is a degree of caution on demand. The combination of our commitment to the investment programme and the current UK consumer environment naturally means our near-term profit growth may be lower than in previous years. However, Whitbread is confident that the ongoing efficiency programme can continue to offset a significant proportion of inflation over the short to medium term.

Ongoing disciplined allocation of capital and focus on executing Whitbread's plans will continue to win market share from the declining independent hotel sector in the UK and Germany, which will deliver sustainable growth in earnings and dividends and a strong return on capital over the long-term.