Whitbread has confirmed this morning that the Costa coffee chain will be spun off from the business within the next two years.
The announcement was made alongside the company's annual results in which it reported a 6.1% increase in turnover to £3.3b, alongside a 4.5% rise in underlying pre-tax profit to £591m.
Premier Inn, which saw a slow-down in the increase the second half of the year in like for like sales to 2.2% from a rise of 3.6% in the first six months, enjoyed underlying operating profit growth to £498m. Meanwhile, Costa had a stronger second half to the year, with like for like sales up by 1.2% compared to a rise of 0.6% in the first half. Costa's underlying profits increased to £159m.
After adding 13,700 new rooms for Premier Inn in the UK over the last three years, Whitbread now has a pipeline of more than 14,700.
This followed on from the move in December 2017 by American investment company Sachem Head to secure a 3.4% stake in Whitbread. While Sachem Head had remained quiet about its intentions, Elliot Advisors demanded that Whitbread spin off Costa.
Alison Brittain, chief executive of Whitbread, said that it was now in the best interest of Whitbread's stakeholders to separate Premier Inn and Costa and create "two high-quality" independent businesses.
"Given the progress Whitbread is making, we are confident that both Premier Inn and Costa will soon be businesses of sufficient strength, scale and capability to enable them to thrive as independent companies.
"We have carefully considered the optimal timing and concluded that it will be pursued as fast as practical and appropriate to optimise value for Whitbread's shareholders and is expected to be completed within 24 months. This will allow both Premier Inn and Costa to maintain momentum, complete critical and complex transformation and infrastructure objectives, and drive international expansion.
"At the point of separation, both businesses will be able to take advantage of the structural growth opportunities available to them in the UK and internationally. Costa will become a listed entity in its own right and the clear market leader in the out-of-home coffee market in the UK."
Folowing the demerger, Whitbread will remain the owner and operator of the Premier, the UK's largest company with more than 770 properties. A key area for future growth of the business is expected to take place in Germany.