Whitbread Aktie

Hello, everyone, and welcome to Whitbread's FY '27 Interim Results. My name is Lydia, and I'll be your operator today. [Operator Instructions] I'll now hand you over to Dominic Paul, Chief Executive Officer, to begin. Please go ahead.

Thank you, Lydia. Good morning, everyone, and thank you for joining the call for our FY '27 interim results. I'm joined by Hemant Patel, our Group CFO, and we look forward to answering your questions shortly. Hopefully, you've been through our release and have had a chance to listen to our results presentation this morning. Before we open up the call for Q&A, I thought I would pull out a few key points.

Starting with our first half results. In the U.K., we have delivered a strong trading performance with accommodation sales growth up 3% versus last year, and we have increased our outperformance versus the market. With the delivery of GBP 39 million of efficiencies and AGP-related reductions in our cost base, U.K. operating costs were flat versus last year despite industry-wide inflationary pressures, including the unexpected hike in business rates. As a result, U.K. EBITDA was up 1%, demonstrating the strength of our model.

In Germany, we opened 1,800 rooms and delivered double-digit accommodation sales growth that was ahead of the wider market, which was back versus last year. Despite the majority of the previously guided one-off impact falling in the first half, Germany EBITDA still increased by 10%.

Now turning to current trading. First, in the U.K., our strong trading momentum has continued during the first 5 weeks with total accommodation sales up 4.5% and RevPAR up 3.2%, and we continued to outperform the market. Food and beverage sales were down 37%, in line with our expectations with the closure of all remaining branded restaurants in September. And in Germany, we delivered total accommodation sales growth of 31% and RevPAR growth of 10%, and we outperformed the market. We are confident in driving a positive second half performance in Germany and remain on course to deliver profitability this year.

Alongside our strong trading momentum, we have achieved a lot in the first half, and we have laid the foundations for the delivery of our 5-year plan that will deliver higher margins, cash flow and returns and generate GBP 2 billion of cash flow available for shareholders by FY '31. We have made excellent strategic progress against each of the key initiatives and our Accelerating Growth Plan is transforming our business. Our dynamic approach to capital allocation is key to the delivery of our plans, ensuring that we will always deliver an attractive spread of return over our cost of capital, and we are targeting at least 15% returns on all of our growth investment.

So in summary, we're trading strongly with market outperformance in both the U.K. and Germany, and our forward booked position is ahead of last year. We are executing at pace, delivering the tangible results and increasing momentum across all areas of our business. As a result, we remain confident in the full year outlook and the delivery of our 5-year plan.

Finally, you will have seen today that we have written to all shareholders recommending them to vote against the resolution proposing the election of the Corvex nominee to the Whitbread Board. Our position is simple. We've got the right plan. The plan is already in flight and gaining momentum, and our business has a highly experienced and strong Board. Corvex's agenda will significantly distract us from delivering our plan, and we believe these distractions will be to the detriment of shareholders.

Now we do have a lot of people on our call today. So before I move to Q&A, in the interest of time, could I ask you to keep to a maximum of 2 each. With that, I'll now hand back to Lydia to host the Q&A. Thank you, Lydia.

[Operator Instructions] Our first question today comes from Jamie Rollo with Morgan Stanley.

The first question is just on costs. You generated about two-thirds of the GBP 60 million efficiencies in the first half. You've beaten your efficiency targets for each of the last 2 years. Do you think there's upside to that GBP 60 million number? And is there any early steer on FY '28 costs, particularly on the energy side?

And then the other question on disposal proceeds. Clearly, you've maintained your target for GBP 450 million to GBP 500 million, which leaves quite a lot of wood to be chopped in the second half of the year. Could you just give us a flavor for where your confidence comes from in meeting that number? I see you've given a couple of sale and leaseback yield examples, but just talk about demand for sale and leasebacks given the current gilt environment and sort of timing of that second half disposal process.

Thanks, Jamie. Let me answer the first part to it, and then I'll hand over to Hemant. I mean, on the efficiency numbers, of course, you're absolutely right, GBP 39 million delivered in the first half, full year target of GBP 60 million. We've got a really strong track record of delivering efficiencies. It's one of the key pillars of our plan, GBP 250 million worth of efficiencies over the next 5 years. And we are increasingly confident about our ability to drive material cost efficiencies.

And I think we did very well to get ahead of that when we announced our updated efficiency plan a couple of years ago. So as you know, we do have a track record of delivering our efficiency numbers. We're very confident of hitting that GBP 60 million, and we will continue to stay focused on driving continued efficiencies. What I think is really important is we're making -- this is not blunt cost cutting. We're making really smart decisions about rewiring and adjusting our business to make it as efficient as possible. And technology is also really helping us in that area. So it's going to be one of the key drivers of the plan. We feel very good about the efficiency plans we've got moving forward.

In terms of sale and leaseback, I mean, the short answer is we feel confident in our position on getting to the guided number for this year. Hemant can add a bit of color to that.

Yes. I mean on efficiency, Jamie, you're right. We've delivered two-thirds of the program so far this year. A lot of that has so far this first half. A lot of that's come from initiatives that landed last year, so completely transforming our food and beverage supply chain, our labor forecasting, the way we support customers in our contact center, et cetera. So we're seeing the benefits of all that come through.

We've got many more initiatives this year, as Dom has talked about, including how the check-in process, front desk and a digital journey for guests. All of that is coming through. We're still expecting GBP 60 million. It isn't easy. It's great that we've been able to beat our targets in the past, but it's not something we should take for granted, and we're working hard to get to the GBP 60 million this year. I'm happy with the phasing of the plan this year. It's great to get ahead of it, but GBP 60 million is still our expected target.

We're not giving guidance on next year yet. We're fully hedged this year on energy, well hedged next year. So I'm happy with where we are. But in January, when we get to our Q3 results, we'll give you a lot more detail on inflation next year and our efficiency targets as well to have a much better understanding of the program and also the contracts that we have signed for next year. And then just building a little bit more on the disposal proceeds. You're right, there's a lot we still need to deliver. We're still actually confident of the GBP 450 million to GBP 500 million for the full year.

We've delivered GBP 20-odd million in the first half, actually GBP 30 million since then, since the balance sheet date as well as selling 57 restaurants and another hotel as well. The vast majority of our target, we are in discussion on and well proceeded with. So we're feeling very confident. We're obviously very aware of the fact that gilt rates are elevated and might well remain so. What we won't do is do a deal where we don't think is the right -- gives the right balance of shareholder value.

What we're trying to do here is recycle capital at kind of 4% to 5% cap rates into 15% returning programs like the Accelerating Growth Plan. That's the intention of this. What we won't do is do that blindly. We'll be able to manage how we engage disposal proceeds, but also how we end up spending capital if necessary. So we'll watch that. But at the moment, we're still very confident with the GBP 450 million to GBP 500 million.

Our next question comes from Leo Carrington with Citi.

Firstly, can I just ask on the Germany pipeline? It's much reduced partly with the openings in H1. I think this puts your open and pipeline rooms around the 5-year target. Is this where you might stop with growth in Germany? Is this where the scale could be appropriate? Or do we expect more thereafter?

And then secondly, on top of the activist, a few comments. I guess you've alluded to this, but what is actually wrong about or what element of the activist plan would be distracting? Is there something that they're specifically looking for which you've already taken off the table in arriving at this new 5-year plan?

Thanks, Leo. Two really good questions. So let me talk a little bit about the capital allocation plan that we've got and why we're so confident in it. So if you look at the capital that we are going to spend within the 5-year plan, it's actually focused on 3 key areas, the growth capital. So the significant area is accelerating growth plan. And that is truly transformative for our business, removing the drag of unprofitable or less profitable restaurants, replacing them with high-returning extension rooms.

It's really accretive for our business, and it simplifies our business. So back to Jamie's question earlier about efficiencies, having a focused hotel group that is simpler and higher returning becomes a much more efficient and profitable business is one of the pillars of the 5-year plan we've got. The next area is U.K. new room growth. Now we've already taken a number of sites out of the U.K. pipeline. We took GBP 500 million worth of growth CapEx out of the U.K. And remember, we'd also slimmed the pipeline down during COVID.

That gives us high confidence that the sites that we're investing moving forward in this 5-year plan will be north of 15% returns. And we've got data to support that. The hotels that we've opened over the past few years are already generating circa 13.5% return. They're not fully mature yet. So we have high confidence that those sites, the sites we are investing in and opening in exclusive catchment areas where there isn't cannibalization and are overall very accretive to both our returns and profitability.

The third area then for the growth capital is Germany. And actually, if you look at Germany, we've taken GBP 500 million out of growth capital for Germany during the 5 years, which leaves GBP 200 million, GBP 100 million of which will be spent this year. So over the remaining 4 years, we're effectively only spending GBP 100 million worth of growth capital in Germany. The good news is that capital is really focused on the high-returning areas from all of the lessons that we've learned in being in Germany for the last 10 years and specifically over the past few years.

So then where we end up with Germany actually is a business of scale. So as of today, we're having this call, we've got 75 hotels open in Germany. So we are creating -- we've already created a business of scale. That means we're getting efficiencies. Moving forward, investing in sites where we have high confidence will generate accretive returns moving to a tenant or leasehold model. You put all of that together, investing in sites where we get north of 15%, recycling capital at a significantly lower rate than that.

That's one of the drivers for the significant cash flow creation, shareholder returns creation and an increase in margins and returns. So you're right, the Germany pipeline has come down somewhat. We've guided to 18,000 rooms by the end of full year '31, but it's a higher returning, more profitable business. And the data points to support the delivery of that are clear to see in the results today, see the momentum from both the sales point of view, but actually results point of view in Germany supports that.

So that's kind of your first question. And the second question was activist and Corvex. So really interesting, isn't it? I mean we got hammered in the U.K. budget last year on the back of being hammered on the budget before, so the year before. So we had a GBP 60-odd million increase in employment costs, primarily driven by national insurance. And then the budget last year, frankly, the government appeared to have made a mistake and hit the hotel business rates particularly hard. So that's GBP 160 million worth of extra costs that came through in that budget over what now is the next 2 years.

And we have 2 ways of reacting to that. You kind of continue with the plan we had, and we adjust our plan quite dramatically in order to actually more than offset those increased costs and deliver materially higher margins returns over the next 5 years. And obviously, that's exactly what we did. And we spent multiple months doing a very detailed piece of work literally straight after the budget last year, supported and guided by a world-class Board and 3 global investment banks.

And we came up with what we believe is a very strong plan, which we outlined in April, which will not only more than offset the increase in these costs, it will strengthen our position in both the U.K. and Germany to drive material increases in margins and returns. So we've got a very strong plan. The announcement today, you can see we've got real momentum building in the delivery of that plan. We are literally kicking off every single area of the 5-year plan in terms of delivery. And we have a world-class Board, and we have further strengthened our Board over the last 12 months with a number of really positive additions to our Board.

In parallel to that, we have had noise from Corvex. So earlier in the year, they announced that we should do a strategic review. But we already said we would do a strategic review, which we outlined in April. At a similar time, they said that we should put the company up for sale, which is a bit ironic. We're a public company. Obviously, a public company always has to be open for a sale. And then more recently, Corvex has come out and said actually, they don't think we should put the company up for sell, but we should do a strategic review and that we should give them a Board seat.

And when we step back and we look at the plan that we've got, which is going to deliver material increase in returns for shareholders, the momentum we've got and the fact that we have a world-class Board, we cannot see that giving a Board seat to an activist investor that appears to be changing their mind and that the Board nominee doesn't appear to offer any material accretive skill set to our Board can be the right thing to do. So our message today is unanimous from the Board, which is we've got the right plan.

We've got momentum in delivering the plan. We've got a world-class Board. In terms of distraction, yes, going back over a business review, which we've already done in enormous detail, following the agenda for one shareholder, not all shareholders, yes, that would be distracting. And that risks the delivery of the plan. And let's be completely clear, we're here to deliver the plan, and we're here to deliver significant increases in returns for our shareholders. We're confident of being able to do that, and we don't need distraction.

Our next question is from Jaina Mistry with Barclays.

Congratulations on the results. Two questions. First one, I wanted to ask about your Q2 RevPAR outperformance in the U.K. because I think it's the strongest that it's been in a very long time, 270 bps. What's driving this? Do you see this as a sustainable run rate? I'm just -- I'm conscious that in your current trading, it's narrowed slightly to 100 bps. So just walk us through what's driving it and how we should think about H2 there?

And then question number two, could you remind us how hedged you are on utilities for FY '27 and FY '28?

Thanks, Jaina. Yes, I mean, we're really pleased and proud of the results that we've announced today because we think it really shows the strength of the plan that we've got, but also the execution of that. And of course, the RevPAR performance is one of the key ways of measuring that. And you're absolutely right in Q2, our outperformance versus the market widened. I mean this does ebb and flow. And of course, it's -- we're not in control of what our competitors do. We're in control of what we do.

So it's quite hard to call what will happen to that outperformance other than the fact that we're very confident that we will continue to outperform the market. What really drove it in Q2? I think there are a few things going on. So we're seeing a lot of dislocation in the U.K. market at the moment. These cost increases that we've been talking about, the business rates and the national insurance. This is an industry-wide issue. Of course, this is not just us. I think we have been particularly rapid at coming up with a plan that will mitigate those cost increases and frankly, better at doing that than our competitors.

And we're seeing the industry generally going through a period where they're struggling with cost increases. So you can see -- you'll have seen in the STR data for the independent sector, the numbers are not encouraging for the independent sector. We think that's going to hasten the decline of the independent sector. You can see that's creating very beautiful supply growth for the U.K. And Travelodge, you will have seen from their numbers are also going through a tough patch at the moment. So I think there are a few things happening.

The first thing is with every set of industry challenges, it creates opportunity, and we've grabbed that opportunity. We've grabbed that opportunity to really solidify our position in the U.K. market. Our commercial trading engine is doing exceptionally well, the strength of our brand, our revenue management. And it shows that we've got strong pricing power, which is a combination of strength of brand, consistency of experience and we believe the best global revenue management system. You put those things together. And by the way, increasing focus on ancillary revenues, and you can see how we can deliver an outperformance.

And then behind the scenes, the efficiencies that we're driving, the simplification in our business, the ability to invest in technology that's going to drive competitive market performance, that is fortressing our business versus the competitive set, and we believe sets us up exceptionally well to deliver a very strong performance over the coming years. So it's a mixture of the industry going through a fairly tough time and our performance and the focus on our performance, I think, being really, really strong. And then from an inflation point of view, a hedging point of view, I'll hand over to Hemant.

Yes, Jaina, I mean it's pretty simple. We're fully hedged this year. And we haven't given any guidance yet, and we'll give some more guidance in January for next year. But at this stage, I'd say I'm very comfortable. We're well hedged next year. So I'm comfortable with the positioning. Obviously, very aware of what's happening with utility, gas and electricity pricing, and we'll monitor that carefully, and we'll make sure that we hedge appropriately.

Our next question is from Tim Barrett with Deutsche Numis.

I just had a question -- first question actually also about the RevPAR trend. What wasn't brought out in that answer was London, and it looks like you were close to 5% in Q2, which is kind of the inverse of what we're seeing in the STR data. So just really wondering what's going on in London and sustainability there.

Question two, apologies for mentioning the government again. But since we all spoke, the visitor levy has come out. And I just want to just get to your understanding of that. It feels like it's potentially uncapped. People I talked to think it could be around 5% on average. Do you think you have the pricing power to pass that on in due course?

Thanks, Tim. A couple of things on London. So as I think you know, we under-index in London in terms of sites and when we look at our kind of national footprint. And London is a fantastic market for us. There are the recent openings that we've done have been particularly strong, give us high confidence that the new sites are going to deliver north of 15%. So when you look at our performance in London, you have to remember we're under-indexing there.

I also think London is one of those markets where there's always strong underlying demand. I mean you'll see London at the moment, lots of business travelers, both within the U.K. coming to London, but also coming from overseas. And of course, there's always a strong amount of tourist travel coming into London as well. You put those things together and the fact that we under-index, it means we can strongly outperform the market. The new sites that we've got coming on, this is a great example of the level of detail, obviously, that we go through on a site-by-site basis.

And the new sites that we've got opening up in London, prime locations in areas where we're under-indexed and we have high confidence we can deliver very accretive returns for the group. So that's the fundamental reason for our performance in London. And then when you talk about the visitor levy, of course, we're not in favor of the visitor levy. We've made that clear to the government. A couple of things. One, if it comes into effect, it will be 2028. We believe it will be capped, although initially, they said it was capped. There was then some rolling back from that.

We do already have visitor levy in a number of areas. Scotland would be one of those things. We were very quick to get ahead of this. So we made system changes to ensure that the price is shown separately to the customer when they come to checkout, which means we pass all of that cost along. So if we look at the visitor levy, no, we're not in favor of it. It's another tax for U.K. consumers. Yes, we've set our business up to be able to pass on that cost. We also think we've got more pricing power than our competitors. And actually, we'll probably hit them harder overall. But we're already set up to show to customers that is a separate cost.

Yes. And then just a couple of points to add to that. On your first question on London, we did put some supply, as Dominic says, the market also put some supply. And what we were able to do there because of our commercial engine pricing power is take significantly more rate. So it's a very rate outperformance to the market. We outperformed the market by something like 7% in that quarter. Rate driven because of our commercial engine, we took so much more rate than the rest of the competition.

And the other point on the visitor levy, as Dominic said, we've seen -- we're seeing this in [ Manchester and Liverpool ]. We've got good evidence to say we're able to pass that and pass the price on based on our performance. Again, one of the benefits of our strong commercial engine, our really excellent pricing system and our scale means we've been able to do that really well.

Our next question is from Kate Xiao with Bank of America.

I wanted to ask you about rooms growth, U.K. network expansion. Obviously, you have a 1,000 room guidance, but that's growth. If I look at what you did in the first half, the new openings are on track, but you also closed slightly more than that. I guess any thoughts on your U.K. net rooms growth? Anything you can share there would be helpful.

The second question is kind of related. Obviously, you showed in your presentation deck, Slide 9, your U.K. average ROCE has improved to 13%, but that's still below the 15%, which is the hurdle you have for your incremental CapEx. I was just wondering if that means you would look to close a bit more of the U.K. existing network as a result of that.

Thanks, Kate. Let me answer the second part of the question, and then I'll hand over to Hemant to answer the first part of the question. I mean if you look at U.K. returns, we are highly confident of driving a 500 basis point increase in returns. And that is because we're fundamentally improving the quality of our business. So let me give you an example, Accelerating Growth Plan. We're removing the drag of the unprofitable or less profitable restaurants and replacing them with highly profitable extension rooms.

That's a material driver of improved returns for our business. That site that was previously had the drag of restaurants attached to it becomes a much more profitable, efficient site, and that drives up significant improvements in returns. We're also improving the overall quality of our estate. You're right, there's always some churn that we do where we move out generally smaller subscale type hotels. And then we replace them with newer, more modern, more efficient, larger footprint hotels that have a much higher return on capital and a much higher profitability.

So the -- and then we've got Germany, which is moving from a headwind where we've been losing money over the past few years to now a profitable business that is going to increase that profit over the next few years. We then, of course, got our commercial engine driving strong RevPAR and overall sales growth and then really underpinned by a really strong best in global class efficiency engine. So we're improving the quality of our business and then making material strategic improvements to our business that drive this 500 basis points return.

And that's what gives us so much confidence. And actually, we think makes us quite an unusual U.K. business that it is improving -- we are improving the quality of the underlying business so much over the next 4.5 years. And that's really what gives us both the confidence in driving returns, but also explains why the returns are increasing so much. In terms of room growth...

Yes. I mean, nothing changed in terms of where we're going to get to this plan. We've got 96,000 rooms where we're expecting to get to in the U.K. with the reduced pipeline that we've been discussing. That's made up of these higher returning hotels, particularly focused on London and the Southeast where our market share is much lower, as Dominic just talked about. It's made up of rooms from AGP -- the AGP program, extension rooms.

It's also, as we guided in the net, out of about 1,500 room exits as well as part of the 5-year plan, where the AGP are closing -- we're extending also taking some rooms out, obviously, it's part of that program, but we've netted that off to give you that in terms of the impact of that and the guidance. Also some low-returning sites, as Dominic talked about. We don't tend to model those low returning sites. When we take a site out -- it tends to be sites where we're able to migrate most of the trade.

And therefore, actually the profitability impact of closing some of these smaller hotels is negligible. So we don't need to model that, which is why we give you the gross room additions. But this year, we're still going to get to 1,000 underlying rooms plus 750 rooms for the Accelerating Growth Plan.

The next question is from Richard Clarke with Bernstein.

I guess one thing that's not been mentioned today is your 2 purchases of the Future Inns in Bristol and Plymouth. Is that a broader trend that there may be some opportunistic opportunities to buy in some freehold sites, either your own or ones from third parties given the state of the U.K. market, the rate environment, et cetera?

And then second question, on Slide 26, I think you've got a new definition of ROCE called capitalized lease ROCE in footnote 2. Just wondering how are you capitalizing lease in that definition? And is that the ROCE that you're using for the 15% target on future development? Or is it your other ROCE, which is stripped out the capitalized leases?

Thanks, Richard. Let me answer your first question, and then I'll hand over to Hemant. I mean, we are -- we're very, very specific about any new site that we sign off. As I said, post-COVID, we did a [ trawl ] through our pipeline and removed any sites that we felt weren't going to deliver increased returns. Then when we have the increase in business rates, we did that process again as part of the business review that we did at the end of last year, which we announced in April, where we took out quite significant GBP 500 million worth of growth capital in the U.K. to ensure that the sites that we were opening in the future, we were absolutely confident we're going to deliver accretive north of 15% returns.

We're generally quite cautious about doing conversions. We like -- we generally like new build because we can make that site super efficient and get scale at the site that drives some cost efficiencies, but also and therefore, the profitability returns on that site. But occasionally, conversions do come up, which are really interesting and those 2 sites fell into that category. It gives us an opportunity effectively to open hotels very quickly after purchasing, spend relatively little -- relatively minimal CapEx on those sites and have an immediately profitable and high returning site. So occasionally, those kind of things come up, but we reject many, many more than that we accept because we are returns focused, and we have a very high bar for these sites.

Your question on capitalized lease. This is a definition we use internally in our investment appraisal process that allows us to compare leasehold acquisitions with freehold acquisitions. Obviously, cash flows are very different for those types -- for each type and the accounting is very different. But we need to make sure that when we are taking a new lease on, we're looking at it to make sure it's adding shareholder value. We think about the rent cover. So the [indiscernible] rent cover to make sure we've got a strong cover there and it's adding value overall and to make sure these not too expensive.

We also then look at it as if it were an investment upfront, so we capitalize the lease and we, therefore, very prudently trying to get leasehold sites the equivalent of this 15% return on capital that we were looking for the freehold sites as well. So this is just an internal definition that we're using as part of our investment appraisal process. Our overall ROCE calculation is much simpler than that. It's a pre-IFRS 16 view of the world and lets the -- follows the cash flows effectively. So this is prudent. I guess what I'm trying to say is our investment appraisal process is very, very prudent, and it should drive higher returns on capital than we would -- we're targeting internally for shareholders.

And our last question today comes from Jaafar Mestari with BNP Paribas.

I have 2, if that's all right. The first one, just on your exits from branded restaurants. Some of the press reports on recent disposals get a bit confusing, an operator like Common Table taking on 57 of your exited restaurants. They're also buying a hotel in the package and then they're talking about rethinking the right menus for hotel guests and building new things together. So I'm aware there's different buckets in AGP. But could you maybe explain some of these edge cases? I thought the main model was closing down the restaurants, converting whatever space you can to high returns rooms and then opening your own more efficient integrated restaurants within the remaining space. Is that still the main model?

And then on cost phasing, you've talked about cost efficiencies being 2/3, 1/3 between H1 and H2. So that's helped a little bit. Could you help us understand the potential phasing on some of the other costs? So top of my mind, the GBP 10 million rebranding cost in Germany. Was that all in H1? There's a GBP 40 million disruption from the accelerated AGP in the U.K. Is that, on the other hand, mostly going to be in H2? Lease cost increases with the transactions being back-end loaded, will lease costs increase more in H2 than H1? Just trying to understand if H1 was a little bit helped by those phasing items, please.

Thanks, Jaafar. Let me answer the first question about AGP and then Hemant will answer probably some of your second question, but I might have to take it offline to help you through that. So on the first question, a really good question on Accelerating Growth Plan. It's a very, very good data point and evidence of our returns-led focus overall as a business. So if I step back from Accelerating Growth Plan, I talk about what we've done. So we have circa 430 branded restaurants, just about okay pre-COVID, but clearly, as a group, a headwind to us as a group coming out of COVID and therefore, loss-making.

We looked at every single site in excruciating detail. And our findings was that roughly half of those sites, it made huge financial sense to build extensions. These are sites which have very high occupancy, particularly during the week, driving high RevPAR and the accretion of adding extension rooms to that hotel at the same time as removing the drag of branded restaurant literally transformed the economics of that site. At the same time as we're doing that to that site, building the extension room. So we've already got over 50 of these sites now open. So we've got good data to support the fact they're performing well.

At the same time as building extensions, we built an integrated food and beverage area. Guests really like that proposition. It basically serves breakfast and dinner. It's a tailored menu for our hotel guests, super efficient for us to deliver, but guests like it. So this is a perfect example of a strategic shift that is better for our guests and better for our shareholders. So very exciting. There was another group of sites serving 200s where when we looked at it, we could build extension rooms on those sites. But actually, we wouldn't get a strong enough return on capital.

And that's either because the catchment area wouldn't really support a significant size extension or would only be full at certain times of the year like the summer. So we've taken a very returns-led approach and said in those sites, we're not going to build extension. We don't get a strong enough return on capital. We're going to sell the restaurant to someone else who can operate that restaurant. And one of the announcements or deals that we did over the past few months was selling 57 of those branded restaurants to a new operator.

This is fantastic news. It means that the majority of those sites are going to be operated by another restaurant operator. They will be serving a dinner menu for the local community, but also for our guests. At the same time, we will build a small and highly efficient breakfast room in our hotel to ensure that we always future-proof that hotel for offering a breakfast for our hotel guests. We know how important that is, and it drives RevPAR growth. So the end position on those sites is you end up with our hotel with a superefficient breakfast room delivering the breakfast the guests want, and then a pub next door operated by someone else that can offer dinner for our guests or for the local community.

That's a really nice model and it's a lot better for us than us operating that restaurant ourselves. Now there is time taken to build those breakfast rooms. So in the intervening period, we have a contract with that operator to serve breakfast for our guests for an interim period. But then moving forward, we end up with a highly profitable hotel because we removed the drag of the unprofitable restaurant, a breakfast proposition absolutely secured for our guests, driving high guest satisfaction. And then a local pub next door serving a decent evening meal for our guests and the local community. It is a really good outcome and solution for us. And I think that the pace that we're executing AGP is frankly phenomenal. It's a complicated program. It is the most transformative program, and we're making really good progress. Thank you, Jaafar and then...

On cost saving, Jaafar. I mean you've identified most of the kind of key factors. The cost saving program, the efficiency program is probably the biggest one. Yes, GBP 40 million year-on-year effect in the first half of the year, GBP 20 million in the second half of the year. And that's because I said lots of the delivery in the first half has come from programs that started last year, in fact, we pulled forward last year to get more of those cost savings in earlier. Clearly, they build into the base of the cost base permanently going forward, but the year-on-year phasing is, as you said.

AGP is quite lumpy. There is the first phase that we've been working through. And then the second phase obviously has a big impact as we start closing restaurants before we fully take the cost out. We saw some of that impact in Q2. We'll see a lot of that in Q3, but then we'll see the cost coming out in Q4. And then lease costs, will be more back-end weighted right at the end of the year. Obviously, the lease costs will start to come up a little bit. Happy to take you offline. Dominic can help you offline with that in a bit more detail.

I think the biggest thing is the overall efficiency number, as we said. So there's a little bit of kind of like front half phasing benefit from that. But I think we've got a clear understanding where we think consensus land based on discussions that we have with you and your colleagues.

And as you probably saw in our presentation, this year is a year of heavy lifting, particularly on AGP, where we start seeing the benefits come through quite clearly next year. So let me just sum -- I think that was the last question, let me just summarize where we are. We have a great plan. It's going to deliver material increases in margins returns and GBP 2 billion for shareholders by full year -- by 2031.

We've got momentum in delivering the plan, and you can see that from our results today. And we've got a world-class Board focused on delivery of this plan for all shareholders. So I really appreciate all of your time today. Thank you for the questions. I'm sure we'll have some follow-up questions, but we appreciate the time, and thank you for joining.

Thank you very much. This concludes our call today. Thank you for joining. You may now disconnect your lines.

Good morning, everyone. I'm Dominic Paul, Group CEO, and I'd like to welcome you to Whitbread's 2027 Interim Results Presentation. Today's presentation will take place by remote webcast, followed by a live Q&A session at 9:15 a.m. U.K. time, and Hemant Patel, our Group CFO, and I will be happy to answer your questions. Details of how to join the call can be found on our website.

I'm going to start with a summary of the excellent progress we have made during the first half. I'll then hand over to Hemant, who will take you through our results in more detail. I'll then come back to explain why we are confident that our 5-year plan will transform us into an even stronger, high returning business.

Let me remind you of the plan that we laid out in April. Faced with significant external headwinds, we completed a forensic comprehensive business review that considered all options to maximize value for shareholders.

The conclusion was that for our business, our integrated model is the right one and with some improvement, it will maximize value creation. Those improvements are embedded within our new 5-year plan that will deliver higher margins, cash flow and returns as highlighted on this slide.

Our dynamic approach to capital allocation is key, ensuring that we will always deliver an attractive spread of return over our cost of capital. As part of our business and strategic review, we have reduced and reallocated capital spend to prioritize the highest returning opportunities by the Accelerating Growth Plan that will see us replace lower returning branded restaurants with a more efficient integrated offering and higher returning extension, further improving the experience for our guests and driving high returns for our shareholders.

Despite the upfront investment and impact on short-term earnings, it will drive a step change in margins and returns and complete our transition to a more efficient pure-play hotel business.

At the same time, we are continuing to invest in our existing estate and technology to drive RevPARs and cost efficiencies. By recycling a proportion of our freehold property, we can fund all of our high-returning growth investment, which will drive attractive returns for shareholders and significantly reduce our capital intensity. As I will come on to, we are highly disciplined in our execution, which is underpinning our strong operating performance, and we will generate GBP 2 billion of cash flow available for shareholders by full year '31.

Today, you're going to hear the following key messages from this presentation. We are trading strongly and have widened our outperformance versus the market in both the U.K. and Germany. This is a critical year for our Accelerating Growth Plan, and we are progressing rapidly with our transformation into a higher-margin pure-play hotel business. We are executing at pace, delivering tangible results and increasing momentum across all areas of our business. As a result, we remain confident in the full year outlook and the delivery of our 5-year plan.

Turning to our financial performance in the first half. In the U.K., we've delivered strong accommodation sales growth, both in absolute terms and versus the mid-scale and economy market. And in Germany, we delivered double-digit accommodation sales growth, which is well ahead of the wider market that was back versus last year. The strength of our model and continued focus on driving cost efficiencies meant that our U.K. cost base was in line with last year despite industry-wide inflationary pressures, including the unexpected hike in business rates.

This all meant that group EBITDA was up 1% year-on-year and return on capital employed increased by 60 basis points to 10.9%, reflecting our positive trading performance and the fact we've been exiting lower returning sites, including branded restaurants. Whilst the shape of our plan meant that earnings per share declined by 6%, we are executing well and have declared an interim dividend in line with last year of 36.4p per share, reflecting our confidence that we are on track to deliver as planned.

Finally, a few words on the excellent progress we have made in the first half against each element of our 5-year plan. In response to the business rate increase, we have reduced and reallocated capital in the U.K. to the highest returning opportunities, and we are on track to open 1,000 new rooms this year. Our Accelerating Growth Plan is transforming our business. We are progressing rapidly with disposals ahead of plan and the closure of all remaining branded restaurants, which is a fantastic operational achievement. We also remain on track to open 750 new extension rooms this year.

As I've mentioned, we are trading strongly in the U.K. and at the same time, continuing to drive material cost efficiencies. We're also making great progress in Germany and remain on track to deliver a second year of profitability this year.

Finally, on property and capital allocation, we assess and reassess every investment carefully to ensure we drive the highest returns. In line with our expectations, we have raised over GBP 50 million in property-related disposals in the year-to-date, and we are on course to realize between GBP 450 million and GBP 500 million by the year-end. In summary, we have got increasing momentum. We are trading strongly, and we look forward with confidence. I will now hand over to Hemant, who will take you through our first half performance in more detail.

Thanks, Dominic, and good morning, everyone. I'll start with a summary of the group's financial performance before covering the U.K. and Germany in a bit more detail. The group delivered another strong trading performance with positive growth versus the market in both the U.K. and Germany, mitigated by an expected reduction in U.K. food and beverage revenues as a result of the Accelerating Growth Plan. Overall, group revenues were up 2% year-on-year. The delivery of GBP 39 million of efficiencies and AGP-related reductions in our cost base helped offset significant inflationary pressures, including U.K. business rates.

As a result, EBITDAR increased by 1% to GBP 608 million.

Having returned GBP 102 million to shareholders, higher interest and lease costs meant that adjusted profit before tax was GBP 287 million. Adjusting items increased to GBP 178 million, the vast majority of which are noncash and predominantly relate to the AGP and our decision to exit a number of lower returning sites as part of our 5-year plan. As a result, statutory profit before tax was GBP 109 million. Gross CapEx reduced to GBP 280 million, and we received GBP 21 million from disposals in line with our expectations. You'll have seen that since the period end, we've received further proceeds and remain confident in recycling GBP 450 million to GBP 500 million as planned this year.

Group ROCE improved to 10.9%, reflecting the exit from lower returning branded restaurants as well as fair value adjustments to assets held for sale. Our balance sheet remains strong, whilst lease adjusted leverage increased slightly to 3.4x, this reflects our investment in the AGP remains within our investment-grade threshold of 3.5x.

I'll now run through the drivers behind our performance, starting with the U.K. Accommodation sales increased by 3%, reflecting strong trading momentum and a progressive increase in our outperformance versus the market. The decline in food and beverage sales was expected from the impact of AGP with the result that statutory revenue was in line with last year.

Operating costs were flat versus last year, which is an excellent result given the significant inflationary pressures we're seeing as an industry. The net result was that U.K. EBITDA increased to GBP 588 million and adjusted profit before tax was GBP 313 million. Our exit from lower returning branded restaurants meant that U.K. ROCE increased to 13% versus just under 12% a year ago. Our U.K. business is trading well. And as I'll come on to, this has continued into the current trading period. Occupancy levels remained high at 81% for the half, stepping up in the second quarter, reflecting good demand over the summer months.

The combination of our brand strength and best-in-class trading engine meant that we were able to increase average room rate by 2% to GBP 87 resulting in a 2% increase in RevPAR and a 3% increase in accommodation sales to GBP 1.1 billion. We made excellent progress over the past few years and have extended our outperformance versus the market.

In the half, we delivered a RevPAR premium of nearly GBP 8, up from GBP 2 pre-pandemic whilst growing our market share. This demonstrates the power of our vertically integrated model, the strength of our brand and the impact of our best-in-class commercial program. Together, these are giving us real edge in generating sustained outperformance versus the market and increasing our market share.

Now on to Germany. We've had another strong trading performance in Germany. Our opening of 10 hotels together with the increased maturity of our estate helped to drive accommodation sales that were up by 18%. In line with our previous guidance, we're expecting GBP 10 million of one-off impacts this year relating primarily to the conversion of recently acquired hotels. Despite the majority of this impact falling in the first half, EBITDA still increased by 10%. The resulting adjusted loss before tax was in line with expectations, and we remain on track to more than offset this loss in half 2 to deliver our second consecutive year of profitability in FY '27.

As Dominic will come on to, we've got good momentum, and we're confident in being able to deliver a further step-up in performance into FY '28 in line with our previous guidance. As for German trading performance, whilst the market has picked up in more recent periods, it was back year-on-year in the first half. We opened 1,800 rooms in the period, and so it was pleasing that our RevPAR growth remained in line with last year and 1% ahead of the market.

Our cohort of 17 more established hotels delivered 2% RevPAR growth in local currency, ahead of both our total estate and the wider market, reinforcing the point that these hotels are not yet mature, giving us real confidence that their performance can and will grow further.

Now on to group cash flow. The power of our vertically integrated model meant that despite inflationary pressures, we delivered adjusted operating cash flow of GBP 389 million. Gross CapEx was GBP 280 million. Loss of AGP disposals meant the proceeds were lower than last year was in good levels of interest, remain on track to realize GBP 450 million to GBP 500 million by the end of the year.

And we returned GBP 102 million to shareholders and we will maintain a strong balance sheet with net debt of GBP 663; million, lease adjusted leverage of 3.4x, in line with our expectations. there are just a brief word on current trading. We see step-up in trading. During the first 5 weeks in the third quarter in both the U.K. and Germany. In the U.K., accommodation sales were up 4% and RevPAR growth was up by 3% versus last year and will continue to outperform the market on both metrics, delivering a healthy RevPAR premium. F&B sales were down in line with our expectation, reflecting the closure of all remaining branded restaurants in September.

In Germany, total accommodation sales and total estate RevPAR were also up strongly and well ahead of the wider market.

Whilst comparators become more challenging in the second half, this strong trading momentum and our positive forward book position will give us real confidence in the full year outlook. Turning now to capital allocation. Our disciplined and dynamic approach to capital allocation is central to our strategy. And with an ever-changing environment, it is really important that we remain dynamic and adapt our plans so that we continue to deliver attractive returns across all of our capital programs.

At the core of our framework and over the life of the 5-year plan, we're committed to maintaining our investment-grade credit rating and keeping lease adjusted leverage at or below 3.5x. This drives significant commercial and financial benefits for the group. As outlined in April, we materially reduced growth CapEx versus our previous plan and will fund growth CapEx over the 5-year plan by recycling more of our freeholds into attractive high-returning opportunities.

When we step up in business rates, we'd increase our hurdle rates with growth investment and are targeting incremental returns at least 15%, thereby ensuring a healthy spread over our weighted average cost of capital. By continuing to manage our non-expansionary CapEx carefully, we ensure that we both protect and extend our market-leading position.

Our policy to grow dividends are in line with earnings. However, given our confidence in delivering the plan, we declared an interim dividend of 36.4p in line with last year. We also have a clear track record of returning capital to shareholders via buybacks when appropriate and expect to generate GBP 2 billion of free cash flow available for shareholders returns by full year '31.

This slide highlights our expected growth investment and non-expansionary CapEx over the 5-year plan. Having reviewed every kind of spend in the business, we're committing growth capital to areas that are targeted to drive highly attractive returns for shareholders.

First the accelerating growth plan which is our highest returning opportunity with returns on capital employed at least 15% to 20%. Second we'd focus on assuring that our new room growth at the U.K. would deliver return of capital employed of at least 15%.

This is not growth for its own sake but a refined and refocused plan to reflect current conditions. I have confidence in our reduced and reprioritized U.K. growth program because the pipeline is predominantly focused on low market share areas in London and in Southeast. And our last 4 years of openings are already delivering 13.5% returns despite not yet being at full maturity. And third, having reduced our pipeline and refocused on proven formats, the new rooms we plan to open in Germany would deliver returns on capital employed of at least 15%. Each of these areas would deliver a healthy margin over our WACC and funding cost, helping to increase margins, cash flow and returns.

By funding this growth capital through the recycling of GBP 1.5 billion of property at attractive cap rates and reinvesting in higher returning projects like the AGP, we are unlocking significant value for shareholders.

As I've already mentioned, by continuing to invest in our physical estate as well as technology, we'll continue to drive RevPAR as well as cost efficiencies. By reducing total net CapEx to GBP 200 million to GBP 250 million per annum down from GBP 500 million per annum previously, we'll ensure that more of our operating cash flow is available for shareholder returns.

With that, I'll now hand back to Dominic, who will update you on the excellent progress we're making across each element of our 5-year plan.

Thank you, Hemant. As I mentioned earlier, back in April, we announced the outcome of our comprehensive business and strategic review and the steps we are taking to offset significant external headwinds and drive a compelling increase in margins, cash flow and returns. I just want to spend a few moments reminding you of the key conclusions and outcomes of the review. The key driver for the review was that we have been hit by GBP 160 million of incremental costs following the hike in employment costs and an increase in business rates. To give you a sense of the materiality, together, these 2 factors were equivalent to 1/3 of our full year 2025 profit before tax.

Our business review was forensic and was led by the Board with extensive advice from 3 of the world's leading investment banks. We consider the short-term and long-term implications as well as the feasibility of making any fundamental change to our business. At every stage, we remain clear about the primary objective, which is to maximize total shareholder returns over the medium and longer term. With a clear set of objectives, the review reassessed all of our capital investment plans, reexamined all areas of our cost base to identify where we might improve margins, considered all potential options for Germany including an exit, quantified the benefits and risks of alternative business models and considered a range of alternative capital structures to see if additional value could be released.

Our conclusions and key actions are summarized on the next slide. First, having looked at all alternative models, the vertically integrated model delivers the highest medium and long-term value creation and maximizes return for shareholders. We do recognize that different models can work at different stages of maturity. But for our business, an integrated model maximizes value creation and with some material changes, we can deliver higher returns.

Second, in response to a high cost environment, we have raised our hurdle rates and reduced and reallocated capital expenditure to the highest returning opportunities, including the Accelerating Growth Plan. As a result, we have rationalized our portfolio by removing current and future assets that no longer meet our increased hurdle rates.

Third, we considered a broad range of strategic options for Germany, but none of them were attractive given the scale of potential we see for our business there. With fundamental changes to our approach, we are at an inflection point and have a clear plan to accelerate cash flow and returns.

Finally, a strong asset-backed balance sheet is a source of competitive advantage and therefore, central to us driving value from our vertically integrated model. However, we can continue to maintain these advantages, but with less freehold property than we do today. And by recycling more of our assets into high-returning projects, we can and will create additional value for shareholders.

These actions are embedded within the 5-year plan with clear targets for full year '31 as outlined on this slide. We have made great progress against each of these elements in the first half, and I'll now take you through each of these in more detail.

Starting with the progress we are making to extend our market-leading position in the U.K., supply backdrop remains favorable. There was limited new supply and the structural decline of the independents continues with lower levels of new hotel construction. Our analysis shows that we expect hotel room supply to remain well below pre-pandemic levels until at least 2028. I should also add that our analysis does not yet reflect the impacts of business rates and so could prove to be conservative.

Having rationalized our pipeline to ensure that we continue to generate a healthy spread of returns above our weighted average cost of capital, we are focused on the highest returning opportunities that will support like-for-like sales, reduce capital intensity and deliver returns of over 15%. The chart on the left shows the makeup of our committed pipeline.

As you can see, it is heavily weighted towards large sites in London, a significant number of which will be Hub hotels that as I will come on to, are performing strongly and generating high returns. On the right-hand side is a case study of our Paddington catchment where our sites that are not yet mature are already generating double-digit returns and are expected to deliver over 15% return on capital employed at maturity.

And we are really excited about our Hub brand. It is achieving high levels of occupancy that together with its efficient operating model are driving attractive returns in prime city center locations. Focused commercial plan is accelerating our performance, driving strong RevPAR growth and market outperformance in both London and Edinburgh.

By full year '31, we expect to have 5,000 rooms open and revenues of over GBP 200 million with further profitable growth potential thereafter. Turning now to our Accelerating Growth Plan, one of the most significant and transformational parts of our 5-year plan that will further improve the experience for our guests and drive higher returns for our shareholders.

Having extended the original Accelerating Growth Plan to include all remaining branded restaurants, this will simplify our supply chain, increase the consistency of our food and beverage offer and add highly profitable extension rooms, which is our most efficient way to deliver high returning growth. The plan will deliver GBP 100 million of incremental profit by FY '31, and with expected returns of between 15% and 20%, it is clear why the Accelerating Growth Plan is our #1 priority in terms of capital allocation. And this is a critical year for the Accelerating Growth Plan, and we have made excellent progress in transitioning affected sites.

In September, we closed all remaining branded restaurants and switched over to our more tailored food and beverage menu with no guest disruption, meaning that we have removed all 430 branded restaurants over the past 24 months, which is a fantastic operational achievement. At the same time, we are well ahead of our planned disposals. We have sold over 170 branded restaurants and have received credible offers for the majority of the remaining sites. This leaves only 21 sites that are still being marketed out of the total of the 240 that we started with, and we are confident in exiting these as planned.

We're also adding new extension rooms with planning applications and construction underway. With around 850 of these rooms already open, we are on track to have 1/3 of all planned extension rooms open by the end of this financial year. And finally, on the right-hand side of the slide, you can see that our completed sites are performing strongly with a clear uplift in accommodation sales versus pre-AGP. Our guest scores have also increased, reflecting the appeal of the new integrated food and beverage format.

Turning now to our commercial program. We are the clear market leader in the U.K. The combination of our key commercial initiatives and high-quality great value proposition is underpinning our increased outperformance.

I'll now spend a few minutes talking about the initiatives driving our performance and how we plan to unlock even more value. We have market-leading brand awareness of over 90%, and our new media campaign is driving increases in both consideration and purchase intent. By optimizing our business-to-business proposition, we are driving increased revenues, capturing incremental international demand through the selective use of online travel agents. In parallel, we're continuing to [ enhance ] each stage of the customer journey, providing guests with a more seamless experience and at the same time, driving commercial and operational benefits.

Our proprietary trading engine is a key strategic advantage for us, optimizing pricing at scale to maximize revenues, and it is contributing to our market outperformance. But what really excites us is the prospect that we can go even further. Through the use of AI, we will be able to make faster, more granular decisions that will drive growth in room and ancillary revenues, and early results of several technology-related tools that are positive and will unlock significant potential for revenue growth. Whilst we cannot predict market RevPAR growth, we are confident that through these initiatives, we can drive positive sales momentum and outperform the market.

Turning now to our highly successful efficiency program. Having delivered GBP 39 million of savings in the first half, we remain on track to deliver GBP 60 million of savings in financial year '27. And over the life of our 5-year plan, we will deliver a cumulative GBP 250 million of savings. Technology is a key enabler, unlocking further operational savings across our hotels and support center. We're introducing more real-time and automation tools in housekeeping to increase labor efficiency. And with more AI-driven decision-making, we will further automate tasks for our teams.

Now on to Germany. We spent some time back in April explaining how we have fundamentally changed our approach in Germany. Drawing upon our experience and with several hotels already delivering double-digit returns, we are clear on what works and what doesn't work. By focusing on proven formats, optimizing our estate and reducing capital spend with future expansion through new leaseholds or the recycling of existing freeholds, we will maximize returns. On the right-hand side of this slide, we have set out our planned trajectory to full year '31. We expect to become cash flow positive in full year '29 with our total estate delivering 13% to 15% return on capital employed by financial year '31. Beyond this, total estate returns will continue to increase, creating significant value for the group.

Having reassessed our portfolio to focus on proven formats, we have reduced our committed pipeline materially since the year-end. We opened nearly 1,800 rooms in the first half and the performance of these room openings is giving us real confidence that the changes we have made to our strategy are working.

By segmenting the estate into smaller cohorts based on year of opening, you can see that this year's openings are delivering higher RevPAR versus the market and more quickly than previous cohorts. And having transformed our commercial strategy over the past few years, we are continuing to grow brand awareness and enhance the customer journey with improvements to our app and the launch of digital keys. We are also driving incremental demand by broadening our distribution. We are confident we can continue to drive further RevPAR growth and outperform the wider market in Germany.

Hemant has already taken you through our capital allocation framework, but I wanted to spend a few moments reminding you of our property strategy. There are significant commercial and financial benefits from our flexible property approach that are listed on the left-hand side of the slide. We segment our estate into 5 distinct categories depending on the hotel assets maturity. As a site moves through to further development or yield potential, we look to recycle the asset and reinvest the proceeds to drive even higher returns. And as the Accelerating Growth Plan completes, the pool of sites available for recycling will naturally increase.

As Hemant talked about earlier, freehold recycling is an important enabler of our plans, and we expect to recycle GBP 1.5 billion of property by full year '31 through a combination of disposals and sale and leasebacks. Having already completed sale and leasebacks at attractive cap rates over the last 12 months, we are seeing good levels of interest and are confident in recycling GBP 450 million to GBP 500 million of property this financial year. Whilst the group will continue to own a substantial amount of freehold, the execution of our plan will reduce the proportion held from around 50% of sites today to around 40% by full year '31. We will still, therefore, own a significant amount of property and continue to benefit from all of the advantages of freehold ownership.

By funding our growth capital through the recycling of GBP 1.5 billion of property and reinvesting in high-returning projects like the Accelerating Growth Plan, we are unlocking significant value for shareholders.

I'm now going to close with a brief summary. What you've heard today is a set of very clear messages. Our comprehensive business and strategic review considered all options to maximize value for shareholders. We have materially adapted our capital expenditure plans based on higher hurdle rates, and we have a compelling and deliverable plan to drive significant returns. We are executing that plan at pace and are making excellent strategic progress. And our disciplined execution is driving our strong operating performance, and we are focusing on delivering our 5-year plan.

As you know, Corvex is asking shareholders for a board seat. But despite myself, Hemant and our Chair, having had a significant number of meetings with them over the past 18 months, Corvex has not been explicit regarding any plan to drive medium and long-term value for shareholders.

Our Board believes unanimously that the Corvex nominee will bring no additional or complementary skills or relevant experience that would add value to the workings of the Board. Corvex's agenda will significantly distract us from delivering our plan, and we believe these distractions will be to the detriment of shareholders. We have, therefore, today written to shareholders with more details and recommending them to vote against the resolution proposing the election of the Corvex nominee to the Whitbread Board.

Thank you for joining us this morning. Hemant and I will host the Q&A session starting at 9:15 a.m. U.K. time, and we look forward to taking your questions then. You will be able to find the details of how to join the call on our website.

Hello, everybody, and welcome to the Whitbread FY '27 Q1 Trading Update. My name is Elliott, and I'll be coordinating your call today. [Operator Instructions]

I would now like to hand over to Dominic Paul, Chief Executive Officer. Please go ahead.

Good morning, everyone. Thank you for joining the call for our Q1 trading update. I'm joined today by Hemant Patel, our Group CFO, and we look forward to answering your questions shortly. Hopefully, you've had a chance to read the Q1 release, which we published this morning. I'm going to start with a very brief overview for those who haven't seen it, and then we'll open up the call for Q&A.

It's been a strong start to the year. In the U.K., trading has been positive with total accommodation sales up 3% and RevPAR up 2% versus last year. Reflecting the strength of our brand commercial program, we increased our outperformance versus the market on both accommodation sales and RevPAR growth, delivering a healthy RevPAR premium.

In Germany, we continue to make good progress and significantly outperformed the wider market, which has been softer due to a lower number of high-impact events this year. Total accommodation sales grew by 16%, driven by the opening of 6 leasehold hotels in the period and the benefit of our commercial initiatives. While visibility remains limited, our forward book position in both the U.K. and Germany is ahead of last year, supported by strong leisure bookings, and we remain confident in the full year outlook.

Before moving to Q&A, I wanted to just say a few words on our new 5-year plan. As a reminder, on the 30th of April just 6 weeks ago, following a comprehensive review of all options to maximize value creation, we outlined our plans that will accelerate our strategy, enhance the quality of our business and deliver significant value for shareholders. We are executing each of our key initiatives at pace, and our plan will increase margins and returns, reduce capital intensity by GBP 1 billion and generate GBP 2 billion of free cash flow available for shareholder returns by full year '31. Now as you probably know, we have our AGM today, so we only have half an hour this morning for questions. Given it's only been a few weeks since our last update, can I please ask you to limit yourselves to just two questions. Thank you.

I'll now hand back to Elliott to host the Q&A.

[Operator Instructions] First question comes from Estelle Weingrod with JPMorgan.

Just two questions. I wanted to ask on cost inflation in the U.K. and Germany. I mean, since you presented at the end of April, just wanted to check if there was anything worth flagging more recently that makes you think your guidance is, I don't know, perhaps too conservative. And I have just another question on, I mean, the environment. I mean, given how things are looking and airline tickets not getting any cheaper, I guess, any signs of increased staycation in the U.K. this summer that could further support trading momentum?

Thanks, Estelle. Let me take the second part of your question, and then I'll hand back to -- I'll hand over to Hemant about the cost inflation. I mean, as you can see, we've had a strong start to the year, healthy demand in the U.K., and we're outperforming the market [indiscernible] strongly. It's interesting. It's a mix of leisure and business demand. So we're seeing good leisure demand, but also seeing good business demand as well. And obviously, business demand generally comes in much later.

We're in a good position for this summer. We're booked ahead of where we were last year. And should more people stay in the U.K. this summer, we -- will be well placed to maximize revenue from that. I think you're right about airline prices. They are high for this summer. Quite a bit of capacity has come out. So if more people do choose to stay in the U.K., I think we're well placed for that. And obviously, you have the same kind of situation in Germany as well, the airline prices there out of Germany also is similarly high.

I think we've done -- shown a really strong track record of maximizing revenue where demand is strong, and we're very focused on that as we lead into the summer. But overall, we're feeling good about the year ahead. And from a cost inflation point of view, nothing to call out specifically, we're well hedged for this year, but just hand over to Hemant.

Yes. So Estelle, yes, no change to the guidance at this stage. We previously guided to a range of 6.5% to 7.5% on our gross cost inflation. That included GBP 35 million of impact, obviously, from business rates as we talked about earlier this year. So net inflation, therefore, net of the GBP 60 million of cost efficiencies, which, again, we're on target for, ends up in kind of 3% to 4% range at the top end of that range. It's early, I think, at this stage. As Dominic mentioned, we're fully hedged -- substantially hedged on the U.K. and Germany in terms of utilities for this year, so there's no change there and it's a bit early, obviously.

We'll see what happens if -- with this change in the status of the war, how that continues, whether price -- oil prices remain at lower rates going forward, whether that has an impact, knock-on impact on F&B inflation in particular. But at this stage, we're not changing our guidance. We'll update at the half year.

We now turn to Jaina Mistry with Barclays.

Two questions from me as well. I noticed you put a line in around business rates, and I wondered if you could just update us on your thoughts and whether there's any incremental confidence on, whether there could be changes to policy coming up and any time lines on when you expect to hear an update from the government there? And then the second question is around the AGP. Can you update us on how many sites you've exited and also kind of the phasing of AGP progress over the year?

Yes. Thanks, Jaina. Nice to hear from you. On business rates, as we spoke about 6 weeks ago at the Capital Markets Day, that's a significant part of the inflation that we're facing over the next few years. We've had a really strong example to give the government of what happens when there are significant tax increases like business rates because it's been one of the drivers of announcing our extended Accelerating Growth Plan. And that obviously -- we're in the process of consultation at the moment with our people, but that's very likely to result in quite significant job losses.

And I think the government understands that the implication of increased taxation does need companies to take tough commercial decisions. And we've been at the forefront, I'd say, of showing them that and working hand in glove with U.K. Hospitality on that point as well. Whether that means the government ends up adjusting their business rate plans, particularly for '27 and '28, it's hard to know, and time will tell. But we've been very clear in messaging that to the government, showing them the implications of policies like this and we will continue to do that.

If the business rates situation doesn't change, we've laid out a really clear 5-year plan that more than mitigates the increases in business rates, leading to a focused hotel business, significantly increased returns and profitability over the next few years. So even if the business rate situation stays as it is, we have laid out a super strong plan that's going to see significantly increased profits and returns. And should the government adjust their position, then that will be very welcome upside to us as a business. But the short answer is we continue to push the government hard on understanding the implications for -- from decisions like the business rates.

From the Accelerating Growth program, I'll hand over to Hemant, but let me just say a couple of points overall. I mean we are very pleased with the progress of the first phase of accelerating growth. We've now got 66 of the new food and beverage spaces open. We signaled 6 weeks ago on the number of properties that we've exchanged on. We're making good progress in that area. And the guest feedback from the new space is very strong. And financially, this is categorically transformative for us. We can see that very clearly as the new extension rooms are now coming online.

We've got circa 600 extension rooms open. The revenue performance from those extension room, remember, it's one of our highest returning ways of adding rooms is adding extension rooms are coming in well. And the guest feedback both from the extension rooms, but also from the new food and beverage space is really strong. So we feel super comfortable that this extended Accelerating Growth program, the Phase 2 is categorically the right direction for us to be going as a business and genuinely transforms our return on investment and profitability over the next few years.

Yes. And Jaina, there's not much to add there because as Dominic says, we are still in consultation with our team members. So we haven't enacted anything yet until that phase goes through, so at the moment still proposed change. In terms of the first phase of the program, as Dominic mentioned, we have -- and we mentioned at the Capital Markets Day, we've sold 51 of those restaurants. We've got another 60 sites that are under offer with agreed terms, rather, subject to conditions at this stage. With the extended program, we would -- we would add another 197 branded restaurants overall and 110 of those we would be looking to sell. But that will happen then over the next 2 years.

In terms of the revenue impact, from the phasing of the revenue impact, it will build over to the end of this summer where we'll get to more of a steady state in terms of that revenue impact. But we'll update more at the half year once if we go to consultation in that proposal.

But the plans are coming together really well, and we're feeling good about progress.

We now turn to Richard Clarke with Bernstein.

I guess two questions from me. And first of all, I guess, if I look at your comps, statistically, they get about 5% harder from Q1 to Q3, that's in the U.K. Are you sort of confidence that there's been a shift in seasonality that those comps won't matter and you can maintain the current sort of trading pace through the next couple of quarters?

And then secondly, I guess one of your shareholders reacted fairly aggressively against your 5-year plan and wrote a letter suggesting you should stop all CapEx and put the business up for sale and otherwise would nominate a new slate of directors. Given it's your AGM today, just your response to that letter. Are there any director nominations that you're seeing? And any changes you're making or any discussions you're having in relation to that letter?

Richard, thanks. So let me take the trading question first. I mean, last summer, we also had relatively higher comps to lap and we ended up having a good summer. As we said in the release, we're feeling good about our booked position for this summer. We're ahead of where we were last year. The events calendar does shift around a bit. So it will be -- you'll see slightly bumpy STR data probably reminder, where we're comfortably outperforming the market and feel good about being able to continue that.

But there are events coming up as well for this Harry Styles, for example, has just started. Bad Bunny, who I'm sure, Richard, you are both aware of and enjoy, will be kicking off shortly. And then there's the other point about just general demand in the U.K. feeling pretty positive. So we're a relatively late booking business. We don't guide on it. But as we stand here today, we're feeling good about the position that we're in.

To your point about the activist investor feedback that we had a few weeks ago about the 5-year plan. I mean, obviously, we spent a lot of time with our shareholders, both before we outlined the 5-year plan and post that and generally really supportive from our shareholders, very understanding of the fact that there have been some macroeconomic shocks, particularly on business rates and some of the other increase, but also I think very pleased that we are taking pretty radical action in terms of extending our accelerating growth program to become a focused hotel business, reducing our growth CapEx overall, recycling more of our freehold property to fund future growth and really quite rapidly adjusting the German plan, becoming more leasehold moving forward, driving higher returns, becoming free cash flow positive by full year '29. So a very strong set of actions to drive very material increases in profits and returns.

Obviously, this year is a challenging year because extending our accelerating growth program means we have to go a bit backwards in order to go significantly forward. But investors with a medium-term time frame, our understanding of that do believe we're making the right kind of decisions. And actually, if you look at what the activist investor Corvex laid out, we agree on the key point, which is that extending the accelerating growth program is the right thing to do. Now that is one of the big drivers of our capital expenditure actually over the next few years. So it's good that we're aligned on that.

In terms of reducing U.K. CapEx further, we think the plan we've laid out is the right plan. I mean we are focused very much on opening hotels, which are going to be very high returning. A lot of our future growth as we laid out, is coming in London, where currently we're under index. You'll have seen in the numbers we outlined today, London continues to do really well. So we feel very positive about adding this capacity in London. And stopping that kind of investment would not be the right thing to do. These hotels are generally profitable from day 1 and drive very high returns. So we're very comfortable about investing that money in the U.K.

And in terms of Germany, we've laid out a plan, which is quite significantly changed from the original plan for Germany. And again, that's going to drive returns and profitability in that market. So of course, there are elements with the plan that people agree with and elements they don't. But fundamentally, what we're really confident in is the plan that we've laid out is going to drive very significantly increased returns and profitability over the medium term of the business. And it's important that we both keep reinforcing that, but also show the momentum that we're building in the business.

And although it's only the first quarter, this first quarter points to that. I think it's our third consecutive quarter of RevPAR growth and it shows the momentum building both in terms of the underlying trading driven by our commercial program, the progress we're making on accelerating growth and the progress we're making in Germany overall. So we're very focused on delivering that plan, we're making good progress.

We now turn to Tim Barrett with Deutsche Bank.

First question was actually on London and a lot of the outperformance for the group has come there. Can you just talk a bit about how you're achieving that? And I suppose just to get an idea of the sustainability? And then secondly, on Germany, if I'm right, constant currency RevPAR went a little bit backwards. It feels that you're going to need RevPAR growth for the year to offset that GBP 10 million of recent additions -- costs. How do you feel about that at this stage?

Yes. Thanks, Tim. So let me take the second part of the question first on Germany. I mean the first quarter for Germany overall as a market, there were quite significantly fewer events. Remember, it's a very event-driven market. Music, business fairs. It's a very, very kind of idiosyncratic element of the German market and being able to trade events well is a critical part of driving revenue and occupancy in that market.

The events calendar in quarter 1 was certainly softer than last year. But the events calendar moving forward gets richer. And we've got really good at trading events. We've completely adjusted our commercial strategy for trading events, and we're seeing really good evidence of that. And one of the ways you can see that is our overall market outperformance is significantly growing in Germany. So the year looking forward has got more events. So overall, actually, we're feeling good about Germany. And the new leasehold hotels that we've just opened are actually trading very well already and building very strong momentum in them. So overall, we feel good about the position that we've got in Germany.

To answer your question about London, I mean, we felt very positive about London for a while. And I think I've said that on pretty much every call that we've had. London is just this amazing market of a lot of domestic demand, both leisure and business and a lot of inbound demand. And the gift that we've got is we are under-indexed in London, which is why a lot of our future growth comes from London. The reason this is such good news for us is the London hotels are generally the most profitable. They have the highest RevPAR and very strong average room rate and very strong accommodation and therefore, high RevPAR.

So the fact that we're under-indexed in London is a gift for us and we're taking advantage of that. The commercial strategy we've got from London is very clear. It's mixed up. It's made up of a strong mix of maximizing leisure demand at certain periods on weekends, for example, and holiday times in London, all pricing strategies to support that, really harvesting the business demand. Midweek demand in London is very strong. And then also maximizing events demand as well. We see a lot of that. And then adding in on top of that, getting more to the inbound market, which is a great opportunity for us. So overall, we don't think this is a flash in the pan, the London performance. We've seen a strong London market for quite a while now. We under-indexed there. A lot of our growth is coming in London. This will be a really good tailwind for us as we execute the plan.

We now turn to Jarrod Castle with UBS.

I was just asking, do you have any comments in terms of the market as it currently stands in terms of recycling hotels, at what demand is when you put your hotels up for disposal or sale and leaseback at the moment? And then any comments on kind of tourist taxes? I see some kind of mayors are already pushing things through if there's been any impact on your business. But yes, just any views on that?

Yes. Thanks, Jarrod. I mean the sale and leaseback market for us has been strong actually, and we're seeing that continue. I mean it's one of the key benefits that we've got as a business. We got a strong balance sheet. We've got excellent covenants. Investors like hotels, particularly hotels that are -- belong to a business with an extraordinarily strong brand, very strong market position and a strong financial covenant. So we're seeing that market continue.

I think there are reasons to believe over the next few years that, that market will probably get stronger as interest rates potentially go down. But actually, we're seeing a good market for that, and we can be particularly and choosy about the deals that we do. And it's one of the reasons why we feel positive about the plan that we've got to recycle some of that freehold property into the higher returning growth.

Yes. And I would say, Jarrod, that we're really happy with the guidance we gave for this year. It's GBP 1.5 billion of capital recycling over the next 5 years. We will manage that carefully and make sure we're getting the right pricing. We have different types of assets, different types of buyers. We're matching those very carefully. As Dominic says, the strength of our covenant means we'll get the best possible pricing. So we're very happy with that.

And then on the tourist taxes, I mean, no one likes higher and more taxes, do they. We've worked very closely with U.K. hospitality. You might have seen some of the particular social media that they've been doing on that. They called it holiday tax. And there is certainly kind of quite strong consumer support for the pushback on those tourist taxes. You're right that they are already in place in a number of cities like Edinburgh, for example.

We're better placed than most. We got ahead of this a little while ago from a technical point of view, which means we can show the tax listed separately from a financial point of view. And so while no one wants more taxes and more tourist taxes, I think we're better placed than most to deal with that. And the strength of our brand helps us offset those things. Remember, this is something that will affect all businesses in a similar way. So we're not fans of it, but we are well placed to set ourselves up to deal with it if it spreads into further cities, and we believe better placed than a number of our competitors.

We now turn to Alex Brignall with Rothschild.

Just one in the interest of time. Obviously, Fitch downgraded the rating after the full years. Did you get sort of feedback from them on your plan? Obviously, a big driver of the increased capital generation is shifting from sort of owned assets to long-term liability leases. So has there been any pushback on that from them?

Thanks, Alex. Yes, we've been on -- we would get a BBB flat with a negative watch through pretty much all of last year. The -- we obviously engaged with Fitch and we've been talking to them as we developed our 5-year plan. What's encouraging is although we were downgraded to BBB negative, it's stable. And they're very much emphasized that actually that they were -- they understood the plan that we had and we expressed our confidence. They've modeled it in a -- obviously prudent because they're a credit rating agency that's [indiscernible] but in the way that we would expect to. And the assignment of -- the assignment of Stable is a kind of sign that actually they understand the plan. So actually, again, I think we feel pretty confident in terms of where we are in terms of leverage, how that will manage going forward and getting rating agencies' view of our plan going forward.

And our final question today comes from Kate Xiao with Bank of America.

I just have one left on cost inflation. We've heard recently from some catering companies about on this front and their perspective is because of the supply chain and how oil price inflation flows through the agricultural supply chain, it's more likely to have an inflationary impact into the second half of this calendar year because of the, I guess, the transmission -- the timing of the transmission. I was just wondering if this is something you see as well. Maybe it's more stable currently, but there might be a knock-on effect into the second half of the year.

Kate, thanks for the question.

Yes, Paul, I'll take that. So yes, I mean, that was the -- when we guided at the full year results to this year, we talked about being at the top end of our gross inflation range. We said 6.5% to 7.5%, we think it be at the top end of that because of the impact of the war, including the knock-on impact on fertilizer prices and food and beverage inflation. So I guess we've taken account of that. So we were expecting it to remain high through this year. If obviously it falls away, and we expect --, I mean, we see it fall away, we would let the half year results we guide at that stage. But yes, this is -- that's not a further risk to the guidance we've given. Potentially, it will have an upside depending on what does happen, but we've assumed a prudent case.

Thank you. It also reinforces the importance of our overall efficiency program that we've got that we outlined, remember, GBP 250 million of efficiencies over the next 5 years. We're very glad that we got well ahead of that program a few years ago that helps offset some of these inflationary pressures that are being seen. It also reinforces the strategic shift that we're making. Remember, as we move into a Phase 2 of AGP, we have much lower exposure to food and beverage inflation moving forward. In a typical branded restaurant in the evening, 70% of the guests -- 70% of the customers are not guests at the hotel.

Moving forward, we'll have integrated food and beverage areas where the guests in the food and beverage areas are just our hotel guests. That means we have a lower exposure to things like food and beverage inflation moving forward as we go through the plan. It's one of the drivers of becoming higher profit, higher-margin business and one of the benefits of becoming a focused hotel company.

I think we're probably on time. Really appreciate everybody being succinct with their questions. Thank you very much. As you've seen today, we've made a really strong start to the year, and we feel really good about the momentum that we're building overall. So thank you for your time. We do appreciate it. Any follow-up questions you've got, you know where we are. We'll be happy to help. Thank you.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.

Good morning, everyone. I'm Dominic Paul, Group Chief Executive. This is an important day for Whitbread, and we appreciate you joining us today in person, but also for those of you who've joined us online. I'd also like to welcome a number of my fellow ExCo colleagues and Board members who are here today and our Chair, Christine Hodgson. Alongside our full year results, we've made an important announcement today setting out our new 5-year plan.

We've been looking hard at our business with a completely open mind and have considered all options to accelerate our strategy and deliver increased margins and returns. Our new 5-year plan is bold, ambitious and deliverable, and we're excited to introduce it to you today. This is the agenda for today. I'm going to start with a brief summary of our performance in financial year 2026 and then provide an overview of the steps we're going to take before Hemant takes you through the full year results in more detail.

I will then set out the drivers for our business review, our conclusions and the actions we will take as part of our new 5-year plan that will maximize total shareholder returns over both the medium and the longer term. You will then hear from a number of my ExCo colleagues who will take you through each element of our new plan, providing more detail on the key drivers for each one. We will then have a short 15-minute break before Hemant covers capital allocation, financials and guidance before I wrap things up, and then we can go into Q&A. I'll start with a few moments on last year's results.

There's a lot to be proud of in these results, and we delivered a positive performance that was achieved despite significant external headwinds in the shape of substantial cost increases in the U.K. We've been able to deliver this performance, thanks to the power of our vertically integrated model, the strength of our brand and the impact of our commercial initiatives, highlighting the quality and the resilience of our business. After a challenging first quarter, U.K. market RevPAR returned to growth during the summer, and we continue to outperform the wider market.

Our Accelerating Growth Plan is on track as we replace lower returning branded restaurants with a more efficient integrated offering and higher returning extension rooms. And as you'll hear shortly, we are proposing to build on this further. In response to higher-than-expected inflationary pressures, our teams have worked hard to deliver accelerated efficiencies during the year. In Germany, we reached a really important milestone, achieving profitability for the first time, reflecting the strong momentum and continued progress we are making. And last, but certainly not least, we returned over GBP 400 million to shareholders through a combination of dividends and share buybacks.

And today, we are announcing our new 5-year plan. This is an important moment in Whitbread's 280-year history and marks some significant changes that we are making to the business, changes that will make us even better and more profitable business, delivering stronger returns for our shareholders over the medium and longer term. It's a bold plan, and we are highly confident in our ability to execute it.

This plan delivers strong profitable growth, and we will continue to take advantage of constrained supply to further strengthen our position in both of our core markets. By increasing our focus on the highest returning projects like extending our Accelerating Growth Plan in the U.K., driving more efficiencies and by focusing on our most successful formats in Germany, we will also grow our margins and our returns. We're going to be more aggressive in working our assets harder and reducing our capital intensity by over GBP 1 billion. And by recycling more of our freehold property, we can increase our group return on capital by 500 basis points, a result that will generate GBP 2 billion worth of free cash flow for shareholders by financial year '31.

We've already made excellent progress in the transformation of Whitbread despite some significant external headwinds outside of our control, and I'm really excited by what's coming next. Our new 5-year plan is a step change for Whitbread and completes our journey to becoming a 100% pure-play hotel business. We will go further and faster to deliver a great experience for our guests and high-quality growth, margins and returns for our shareholders. I'll come back later to go through the outcome of our business review and our future plans. But first, I'm going to hand over to Hemant, who will take you through the full year results in a bit more detail. Over to you, Hemant.

Thanks, Dominic. Right. Good morning, everyone. I'm Hemant Patel, I'm Chief Financial Officer of Whitbread. I've been so for just over 4 years. I'll start with a summary of the group's financial performance before covering the U.K. and Germany in a bit more detail. A robust recovery in U.K. accommodation sales in the second half and positive momentum in Germany, offset by expected lower food and beverage revenues as a result of the Accelerating Growth Plan resulted in flat group revenues year-on-year. Better-than-expected cost efficiencies and reductions in our cost base due to the AGP helped mitigate significant cost pressures, including above inflationary increases in national living wage, national insurance and food and beverage. As a result, operating costs fell by 2%, supporting a 4% increase in EBITDA to GBP 1.1 billion.

Having returned GBP 419 million to shareholders in the year, higher interest costs meant that adjusted profit before tax was flat year-on-year at GBP 483 million.

Adjusting items increased to GBP 185 million, majority of which are noncash and related to our Accelerating Growth Plan, meaning statutory profit before tax was GBP 298 million. Our vertically integrated model continues to generate significant operating cash flow, and we were able to add to this with GBP 313 million of property-related disposals, helping to fund our investment in higher returning growth opportunities such as our Accelerating Growth Plan. We have a strong balance sheet with lease-adjusted leverage of 3.3x, which remains within our investment-grade threshold of 3.5x.

I'll now run through the drivers behind this performance, starting with the U.K. Whilst accommodation sales increased by 1%, reflecting a strong recovery from the second quarter and continued outperformance versus the market, lower food and beverage as a result of the Accelerating Growth Plan meant that total U.K. statutory revenue was down 1% year-on-year.

We delivered significant efficiencies, which helped drive a 2% increase in EBITDA, just over GBP 1 billion, and U.K. adjusted profit before tax was GBP 499 million. Our occupancy levels remained high, stepping up in the second quarter as we saw a return to market growth, supported by strong demand over the summer months, reaching 79% for the year. Average room rate increased by 3% to GBP 82, driven by the strength of our commercial initiatives and trading strategies. Both RevPAR and revenue were up 1%, with accommodation sales at GBP 2 billion. Thanks to our brand strength, trading expertise and the benefit of several commercial initiatives, we outperformed the market on both RevPAR and accommodation sales growth and are continuing to command a healthy RevPAR premium of nearly GBP 6.

This positive performance has continued into the current trading period, and we continue to outperform the market with an increased RevPAR premium to the mid-scale and economy market of nearly GBP 7. Now on to Germany. Reaching profitability in Germany for the first time represents an important milestone for the group with segment adjusted profit before tax of GBP 2 million. Our performance reflects the momentum and continued progress we are making in this large and exciting market. Revenues were up 13%, driven by the increasing maturity of our estate, further improvements to our trading strategies, broadening our distribution and increasing food and beverage sales. Operating costs for the year increased to GBP 177 million, reflecting our network expansion and cost inflation. However, with strong revenue growth, EBITDA increased by 28% to GBP 85 million. Our cohort of more established hotels is continuing to mature and is a key driver of our overall performance.

Local site profits increased to GBP 20 million in the year, up from GBP 16 million a year ago. As Erik will come on to later, we are now clear on what works really well and what doesn't in Germany and expect our most established cohort to reach double-digit returns this year and by full year '31, the entire network will be delivering double-digit returns. We continue to outperform the rest of the German mid-scale economy market. As you can see, both our more established cohort and our network as a whole are outperforming the market in terms of RevPAR growth. Our cohort of more established hotels grew RevPAR by 6% in local currency, ahead of our total estate, reinforcing the point that it is not yet mature and giving us real confidence that it can and will grow further. Finally, turning now to group cash flow.

Our vertically integrated model and strong market position meant that we delivered adjusted operating cash flow of over GBP 700 million, helping to fund both our ongoing program of investment in future growth and shareholder returns. During the year, we continued to invest in high-returning growth opportunities with the result that gross CapEx spend was higher than last year at GBP 697 million. To fund this and other high-returning growth opportunities, we recycled GBP 313 million of proceeds from property-related disposals, resulting in net CapEx of GBP 384 million below our previous guidance. As a result, total cash flow before shareholder returns was just over GBP 200 million. And having returned GBP 419 million to shareholders via dividends and share buybacks, we maintained a strong balance sheet with net debt of GBP 709 million and lease adjusted leverage of 3.3x. I'll now hand back to Dominic, who will provide an overview of the outcome of our business review and new 5-year plan.

Thank you, Hemant. These chairs are quite awkward to get out of. Just warning everybody. Our new 5-year plan is a result of our detailed business review that was led by the Board with extensive advice from external advisers, including three of the world's leading investment banks. As I'll come on to, we are making some significant changes to our business and our approach, changes that will deliver a step change in our margins and accelerate returns for our shareholders. With clearly defined levers, our plan will generate GBP 275 million of incremental profit contribution by February '31 from initiatives that are all within our control, more than offsetting the unexpected impact of business rates and higher employment costs.

We will extend our Accelerating Growth Plan that will see us exit all branded restaurants and drive an increase in U.K. margins and returns. We'll increase our cost efficiency program to GBP 250 million. We're going to reduce our capital intensity by cutting gross CapEx from GBP 3.5 billion to GBP 2.5 billion. And by recycling more of our freehold property, we will reduce net CapEx by more than GBP 1 billion. This will reduce our freehold percentage from around 50% today to operate within a range of between 30% to 40%, supporting our strategic objective of maintaining a strong investment-grade balance sheet.

We will accelerate our performance in Germany that will turn cash flow positive in full year '29 and reach double-digit returns by full year '31. Together, these steps will increase group ROCE by 500 basis points, and the result will generate GBP 2 billion of free cash flow available for shareholder returns. Retaining the status quo was never the starting point. Instead, we reviewed all strategic options and in great detail to ensure we maximize value for shareholders. Our conclusion is that versus all of the other options, the plan we are announcing today generates the most value over the medium and longer term.

I will now take you through the steps we are taking, providing you with some of the context for our decision-making. First, to update you on our execution of the previous 5-year plan announced back in October '24. We have been making excellent progress on each of the core elements of our previous plan, as highlighted on this slide. Our Accelerating Growth Plan and efficiency savings really stand out given their scale and impact. But we have also continued to optimize our U.K. portfolio, reach profitability in Germany and realized over GBP 300 million of property-related disposals on attractive terms.

Each of these achievements have only been possible because of our vertically integrated approach and our strong property-backed balance sheet. I'd also highlight our commitment to shareholders as we have returned over GBP 400 million via dividends and share buybacks despite what has been a challenging business environment over the past 18 months. Now this slide highlights two of the external challenges faced since announcing our previous 5-year plan. I mean, it's fair to say that the last two U.K. budgets have not been kind to the hospitality sector. First, in October '24, the government introduced above inflation increases in labor costs, together with a material increase in employee national insurance contributions. With over 30,000 team members in the U.K., these were significant for our business.

This was followed by a major increase in business rates in the November '25 budget. And taken together, these factors have hit the whole hospitality industry hard. For us and before mitigation, they are expected to reduce future profits by around GBP 160 million. Now the scale of these changes were not expected by the sector, and we are working hard to ensure that the consequences of that impact is clearly understood at the highest levels of government.

But our culture and our mindset mean we always challenge ourselves to adapt and improve when faced with such challenges. At the same time, there is no getting away from the fact that the market has continued to apply a meaningful discount to our inherent value. As a result, and prompted by the impact of business rates as part of our review, it's right that we look hard at all of the options available to maximize value creation over the medium and the long term, and that's what we've been doing since the end of November last year. This really has been a rigorous process. And as a Board, we've approached all options with an open mind. And our review asked a number of key questions. What steps should we take to drive profitable growth? How can we offset these unexpected headwinds to increase U.K. margins and returns?

We believe Germany could be a significant driver of value for the group, but how can we accelerate our Germany performance? What else can we do to increase total shareholder returns? And how do we ensure that we maintain high resilience through the cycle. To answer these questions, we reviewed in detail how we can improve margins to become even more efficient. We reviewed all of our future capital spend and how that was being allocated in light of unexpected external headwinds. We reviewed our capital structure and whether it was optimized to maximize value. We reviewed what options there might be to drive more value from our German business. And given the significant changes to the external fiscal and operating environment, might other business models deliver more value over the medium and longer term. Our review has been forensic. We've considered the short-term and the long-term implications as well as the feasibility of making any fundamental change to our business.

At every stage, we remained clear about the primary objective, which is to maximize total shareholder returns over both the medium and the long term. Now there are a number of different business models being deployed by hotel businesses around the world, and many have been hugely successful. While each model have their differences, essentially, they are made up of different combinations of the three core elements of the hotel value chain: operations, brand and distribution and property. We have spent many months examining each of the combinations in great detail and assess each one against a number of criteria. Most importantly, what is the potential for value creation over the medium and longer term? Will the models enable us to deliver attractive levels of growth? Does it allow us to control operations at site and the customer experience? What are the capital requirements? What are the implications for leverage and therefore, financial risk through the cycle and in uncertain times? And how long would a transition to such a model take and how much disruption would it cause to the business? Having studied all of the various models through this lens, the available alternative of Whitbread essentially fell into two broad options, either separating the brand or separating the property from our operations.

Separating the brand can either mean becoming a franchisor or a franchisee. Our focused geographic and segment exposure as well as our relatively small scale in global terms limits our ability to deliver attractive returns as a franchisor, meaning it would take many years of further expansion to reach the required scale to do that. Thus, becoming a franchisee where we sell the brand and continue with an operational and property ownership structure broadly similar to today would be the only practical option here. Similarly, we looked at options to separate the property from the operations on both a rental basis and full trading basis. And the only practical option available is selling all the real estate to becoming 100% all leased operating company. This page looks at the two extremes of selling the brand or selling the real estate in a little more detail. Firstly, as a franchisee, Whitbread would become a pure operator with a mix of freehold and leasehold property as we do now, but we would have to pay for things like marketing and other fees for services provided by the new brand owner.

In other words, we would look very similar to how we look now, but minus the brand. Selling the brand with reduced control over the Premier Inn product, which scores highly with our guests and contributes to high RevPARs and could also involve restrictions and controls in the future, which could impact our future operating business.

In order to extract more value from a sale than continue to own the brand, you need to believe that the purchaser is able to market and distribute rooms better than Premier Inn does today, i.e., generate higher RevPAR and higher sales. Now we already operate at very high levels of occupancy with a market-leading position and consistent outperformance relative to the rest of the mid-scale and economy market. And without the brand, we believe it would be much more difficult to grow. Finally, whilst the Premier Inn brand is a valuable asset, it is likely to only represent a relatively small part of the group's overall value. As a result, whilst realizing value in the short term, by impacting the longer-term prospects of the operating company that remains, there is a high risk that this would outweigh any short-term benefit from having sold the brand in the first place.

The second option would be to separate the operations and real estate into an OpCo/PropCo structure and selling the real estate to become a 100% leasehold business. Now these structures have worked for a number of groups around the world. So why not Whitbread? Well, first, our flexible approach to property is critical for our ability to grow in the U.K. Today, we have full flexibility to secure the best sites in the best locations, a combination that has given us a competitive edge and secured our market-leading position in the U.K. market. Second, it would reduce operational control at site, impacting our ability to develop sites such as through the AGP program or to extract development profits.

Third, being an all-lease business would result in much higher operating leverage in a cyclical industry. It would also result in higher lease adjusted leverage, which would not be consistent with maintaining an investment-grade credit rating without holding cash on the balance sheet. And as we've said before, our strong balance sheet is a source of competitive advantage, both commercially and financially. So in summary, while selling the brand and/or the real estate could realize some value in the short term, both routes would damage the medium- and long-term growth potential and value creation offered by a vertically integrated model, and so we're not going to maximize total shareholder returns at Whitbread. We do recognize, however, that different models can work at different stages of maturity. And as we always do, we will keep an open mind and continue to reassess the alternatives. However, our review has concluded that for our business right now, an integrated model is the best for medium- and long-term value creation.

And with some changes, we can deliver even better returns. Now as I've just concluded, the integrated model drives significant competitive advantage, and it's the right one for us today. And I'll now expand a bit more on that on this slide. Being integrated allows us to be a best-in-class operator, delivering a high-quality and consistent product at scale. We have significant control over the quality and the consistency of our product, and we keep a tight control of our costs. Both are critical for long-term success as a budget hotel operator and have been the driving force behind our journey to become the U.K.'s leading hotel business. An integrated model means we can build and develop a strong commercial program, delivering high pricing discipline and best-in-class revenue management. This is evidenced by our continued outperformance and the scale of our RevPAR premium versus the rest of the market. And the strength of our brand means we have the highest brand awareness and our sales are largely direct in the U.K., resulting in low distribution costs and extensive customer reach.

Premier Inn has an unrivaled 12% market share in the U.K., which is the largest of any hotel brand in any market in the world. We couldn't achieve that without the business model we have. And in a market where supply remains constrained, we see significant potential to increase this further using our flexible approach to property and by optimizing our estate, opportunities that just aren't possible with other models. Finally and really importantly, our balance sheet strength is a source of significant competitive advantage, providing us with resilience through the cycle and real commercial edge as a strong financial covenant means we are a more attractive financial partner than our competitors. Our scale, brand footprint and operating model are difficult to replicate, creating a clear moat around our business, one that we are determined to exploit further. However, despite all of these positives, we do recognize that our capital intensity is a drag on free cash flow and returns.

So whilst maintaining an integrated model, can we optimize our approach by taking some of the best parts of the alternative models to reduce our capital intensity, increase cash flow and drive higher returns. The answer is yes. And so as part of our new 5-year plan, we are taking the following actions. We see significant potential to extend our position in the U.K. and take advantage of the favorable supply environment, but we can do this whilst using less capital.

By focusing growth into our highest returning projects, we will deliver significant incremental profit over the life of the plan. Following the success of the Accelerating Growth Plan over the last 24 months, we are extending the plan to cover all remaining 197 branded restaurants, a process that will see Whitbread becoming a pure-play hotel business and deliver significant increase in margins for our business. This proposal is, of course, subject to consultation with our teams. And whilst moderating our pace of U.K. expansion over the next 5 years, we are focusing on our highest returning projects with key growth opportunities, including London and our hub brand, which have huge potential, and we will talk more about later. We will also open high-returning extension rooms through the Accelerating Growth Plan.

At the same time, and with our significant property expertise, we are continuing to optimize our estate, which will see us exit lower returning sites and more marginal pipeline projects. The net result of these changes will see us reach 96,000 rooms open by February '31. By reducing capital intensity and delivering on AGP and our cost efficiency program, we will increase U.K. margins and increase returns substantially by February '31. Second, our vertically integrated model and scale mean that driving like-for-like sales and managing our cost base are important drivers of our performance.

A key enabler is the increasing use of technology and AI within our business. Drawing on our unrivaled bank of customer data, we will further optimize our pricing and maximize revenues across every single site night. We're, of course, not immune from the impact of wider market dynamics, and Joe Garrood, our Chief Commercial Officer, is going to take you through the initiatives that will drive our business forward and keep us ahead of our competitors. Now we have a great track record of delivering material cost savings. And having assessed all of our initiatives, we are today increasing and extending our largest ever efficiency program to deliver GBP 250 million of efficiencies by February '31. Third, we have made great progress in Germany and have grown substantially since first entering the market in 2016 to become a business of real scale. Our product is very popular with guests. We are increasing our brand awareness and market share and some of our more established sites, whilst not yet fully mature, are already highly profitable and delivering double-digit returns. Over the past few years, we have fundamentally changed our approach in Germany, but we do acknowledge that it has taken a long time to reach profitability, and we are still not at our target levels of return. As Erik will explain shortly, we now have a model that works, and we are clear on how we can accelerate our financial performance and take full advantage of what is a significant opportunity for the group, one that we are very well placed to exploit.

Whilst we considered a broad range of alternative options for Germany, none of them were attractive given the scale of potential we see for our business there. By focusing on proven growth formats and locations, optimizing our estate and reducing capital spend, looking to fund future expansion through new leaseholds or the recycling of existing freeholds, we will maximize medium- and long-term returns in Germany. With significant potential and despite a reduced pipeline versus our previous plan, we still expect to grow our open estate by more than 50% over the next 5 years to 18,000 rooms. The changes we are making in Germany will see us accelerate free cash flow to become cash flow positive in full year '29 and deliver double-digit returns by financial year '31.

And finally, we will continue to benefit from the significant advantages from owning freehold real estate and maintaining our investment-grade credit rating, but we can still do so by owning less freehold property and by deploying less capital. Our refocused plans in both the U.K. and Germany will drive higher margins and returns. We will reduce gross CapEx by GBP 1 billion and recycle GBP 1.5 billion of freehold property, reducing our freehold mix to between 30% to 40% and reducing our capital intensity so that over the life of the plan, our net annual CapEx reduces to between GBP 200 million and GBP 250 million per annum, an overall reduction of more than GBP 1 billion versus our previous plan. This will drive a marked increase in return on capital whilst also maintaining investment grade. Each of the actions I've just spoken about are embedded within our new 5-year plan as set out on this slide.

This is a bold and achievable plan centered on those things that we can control and each element of the plan has near and medium-term milestones attached to them. This is an evolution rather than a revolution and for a very good reason. This is a business which consistently outperforms its market, has an unrivaled brand and market position and a strong platform for growth. By accelerating our strategy and capitalizing on our existing strengths, we will maximize value for shareholders. I've talked through the actions we are taking, and we are setting clear deliverables for the end of the plan. By February '31, we will complete our transition to becoming a pure-play hotel business. By pulling three growth levers, we will deliver a total incremental PBT contribution of GBP 275 million, more than offsetting the impact of business rates and higher employment costs. We will also deliver GBP 250 million of efficiencies, building on our strong track record of cost savings, reduce gross capital spend by GBP 1 billion and net CapEx by more than GBP 1 billion recycle as we recycle more of our freehold property.

We will drive a 500 basis point increase in group return on capital. We're going to reduce our freehold mix to operate within a range of 30% to 40% from around 50% now and generate GBP 2 billion of free cash flow available for shareholders. This plan will drive the best returns for our shareholders and is one that we are really looking forward to executing. You're now going to hear from my fellow ExCo members, Mark, Simon, Joe, Hemant and Erik, who will each talk you through the element of the plan that they are leading in more detail. First up is Mark Anderson to take you through U.K. network expansion. Over to you, Mark. managed.

Thank you. Good morning, everyone. My name is Mark Anderson. I'm the Managing Director of Property and International. I look after all of the commercial real estate at Whitbread. I've spent over 30 years in property, the last 20 of which have been with Whitbread. I also look after our procurement and supply chain division, and I lead our Premier Inn business in the Middle East. I'm going to spend a few minutes explaining the market opportunity to grow Premier Inn and Hub in the U.K. and Ireland, how we optimize that opportunity by catchment area, where we see the greatest opportunities for high returning growth and how we actively then manage our portfolio, including exiting lower returning assets that no longer meet our hurdle rates. I'll start with a brief update on the structure of the U.K. hotel market and how we're taking advantage of the favorable supply backdrop. As you can see from the left side of this slide, supply growth over the past decade has been very low with total room supply broadly unchanged. However, supply dynamics within the market are more complex with independent hotels remaining in structural decline, while branded hotels have continued to take share. Premier Inn has remained the fastest-growing hotel brand in the U.K., adding nearly 22,000 bedrooms across the past decade.

We believe that the macroeconomic headwinds will only compound the effect on the independent sector and will continue to result in a benign outlook for supply growth. High interest rates, a lack of developer funding, combined with cost inflation have also resulted in a much lower level of U.K. hotel construction for new hotels than historically in similar cycles.

Our updated analysis suggests that total hotel room supply in the U.K. will not get back to pre-pandemic levels until 2028 at the earliest. Furthermore, our analysis doesn't yet fully reflect the impact of the business rates change and so could prove to be conservative with more smaller independent hotels unable to adapt and ultimately closing and exiting from the market. Against this backdrop, we see significant opportunity for profitable growth in the U.K. However, given the headwinds that Dominic talked about, we've raised our bar on all future development projects. We've increased our focus on the highest returning opportunities and therefore, refined our future portfolio and pipeline with the result that we've reduced our group net CapEx by over GBP 1 billion. Active management of our portfolio is also essential to maximize returns and improve our estate as we look to exit lower returning sites and recycle the capital into higher returning projects like our accelerated growth program.

Because we are vertically integrated and capture most of the value chain, we invest time and rigor to determine the exact room opportunity in each catchment area for both Premier Inn and Hub. We break the U.K. market down into over 1,700 catchments to assess their local supply and demand dynamics that we then use to identify the best locations as well as the optimal size and property for each new property.

This identifies the total room opportunity in each catchment for us without diluting our current performance and ultimately gives us a guide on the future room potential for the U.K. As part of this process, we also decide which sites to extend, which sites we need to exit to improve the performance and the efficiency of the catchment overall. Our rigorous post-investment review process ensures that those that do meet our requirements go on to deliver as planned. We're only able to drive incremental value like this because of our high freehold ownership and because our strong balance sheet ensures that we're the #1 preferred tenant for hotel landlords in the U.K. On this slide, you can see three examples of how we maximize returns from a particular catchment by actively managing our estate. In this case, Manchester, where we have several hotels.

Our Deansgate property at the top was performing really well, but we'd identified a better, high-returning site elsewhere in the city. We then work with a local third-party developer to convert the property into student accommodation and offices, which resulted in us extracting over GBP 40 million of proceeds from the sale of the site. Over the past 3 years, we've generated over GBP 120 million from similar deals, and we see an opportunity to generate over GBP 150 million from similar deals over the next 3 to 4 years. The second example here is our Center West property, where this leased hotel needed remedial works, which were preventing the owner from selling the building to an institutional investor. So we bought the hotel of them at a really good price, completed the work ourselves, then sold and leased the hotel back on new preferred terms for us and taking a healthy property profit in the process. Finally, at our Northern Quarter site, we're completing a forward funding transaction where we bought the site, obtained planning consent for a new hotel. And as the hotel is nearing completion, we then sell to an investor who funds all of our costs, and we have entered into a favorable lease agreement that only starts when the hotel opens, which again reduces our capital employed and drives total returns even higher.

Turning now to some of our key opportunities that we think will drive high returning growth as part of our plan. We see huge potential to continue to deliver fantastic returns in London. Despite us having grown strongly in recent years, Premier Inn still has a relatively small proportion of the overall London market. As a global city with strong demand from both business and leisure guests, London delivers high RevPARs and returns for both Premier Inn and Hub, which is why over 40% of our current pipeline is planned in the capital. The majority of these are also in Central London, where average RevPARs are over 20% higher than London as a whole. The table on the right illustrates the average revenues, costs and profit per room for one of our Premier Inn hotels in London. Both freehold and leasehold hotels on a capitalized lease basis deliver highly attractive returns on capital. Another exciting opportunity is our hub brand, which opened initially in 2014 to open up access to new city center sites, and we now have 19 fantastic hotels open across prime locations in London and Edinburgh.

As Joe will talk to you about later, there are several differences between Hub and our main Premier Inn brand. Firstly, our standard Hub bedroom is 8 to 9 square meters smaller than a Premier Inn room. This means that we can accommodate 60% to 70% more rooms to Hub than for a Premier Inn in the same building envelope, allowing us to generate high profits and returns in catchments that would otherwise be inaccessible for us. Secondly, Hub's strong modern design allows us to target a distinct part of the market who are often different customers to Premier Inn.

This means that we can locate our hub hotels close to Premier Inns with minimal cannibalization of existing revenues. Also, the use of clever design and technology has resulted in a lean operating model that drives higher margins and enables strong overall economics. Hub is generating great returns of around 15% and typically outperforms Premier Inn in the same catchment. This is down to higher room density per square foot, supporting higher profit per room, a lean operating model and by accessing catchments that would otherwise be inaccessible to us, capturing new incremental demand for the group. We currently have just over 2,000 rooms in our pipeline for Hub, giving us a clear pathway to 5,000 open rooms by financial year '31.

But we think we can go much further, including the potential to add hub hotels in Ireland, other U.K. regional cities as well as in Germany, where we've now acquired our first site for Hub in Berlin. The third and final part of our portfolio optimization process is the proactive way that we manage our property estate. Whilst this is something that we've always done, the headwinds that Dominic talked about mean we're being even more aggressive to ensure that we continue to deliver attractive long-term returns on capital.

Following the material increase in business rates, we've already removed several sites from our pipeline where it's now clear that they will not achieve our target hurdle rates. This includes, for example, here on the slide, a former retail store we acquired in Dorchester, where despite securing planning consent for conversion, the site is no longer viable following the increase in business rates, and so we're going to sell it. We take a forensic approach when we're assessing our new sites, and we're reviewing the potential exit from several open but subscale lower returning hotels, a process that will allow us to recycle capital into higher returning projects like our Accelerating Growth Plan.

This ability to optimize our estate is only possible because of our model and our scale and the fact that we own a significant amount of our property. The chart on the left of this slide shows the returns that we're getting from both our mature sites as well as those that have opened more recently. As you can see, our more recent openings, which are not yet mature, are already delivering very similar returns, and this will only continue to increase. The chart on the right gives you the makeup of our committed pipeline. As you can see, it's heavily weighted towards large freehold sites in London, a significant number of which will be hub hotels, which, as I've said, are already driving really attractive levels of return.

As a result, the impact of these new openings on our financial performance is going to be highly accretive and will drive higher returns over the life of our 5-year plan. Over the next 5 years, through our committed pipeline plus AGP extension rooms, less proposed exits will reach a total network of around 96,000 rooms in the U.K. and Ireland. Our committed pipeline of 8,000 rooms will deliver an incremental profit contribution of GBP 110 million by February '31. Whilst this implies a higher profit per room than our network today, as I highlighted on the previous slide, the weighting of our pipeline means we expect the profit per room to be well above average. We continue to see significant growth potential beyond February '31. The pace at which we move towards our long-term potential of 125,000 rooms for the U.K. and Ireland, a 45% increase versus our estate today will be driven entirely by the availability of attractive sites and the levels of return that they can generate. I'll now hand over to Simon, who's going to tell you about our exciting Accelerating Growth Plan.

Thanks, Mark. Good morning, everyone. My name is Simon Ewins. I run all of Whitbread's Hotel and Restaurant operations across the U.K. and Ireland. I've worked in Whitbread for just over 20 years, fulfilling a number of field-based and central roles, and I've run the Premier Inn operation for the last 11 years. Now as Dominic mentioned earlier, the extension of our AGP Accelerating Growth [ Plan ] program to include all remaining restaurants will improve the guest experience we deliver. And it will result in us becoming a more profitable, higher returning pure-play hotel business. In addition, it will increase the consistency of our food and beverage offering across all of our sites and add highly profitable hotel extensions, which is our most efficient way to deliver room growth.

But first, and maybe for those that are less familiar with our history, as a former brewer and large pub business in the U.K., we started Premier Inn almost 40 years ago by building budget hotels next door to our freehold pubs. The Premier Inn provided the bedrooms and the pub restaurant, the F&B. And therefore, F&B has always been a key part of the Premier Inn guest experience, and we know that it's one of the top reasons that our customers choose us over our competitors. More recently and prior to AGP, a number of our hotels served F&B guests using a branded restaurant located next door to the hotel, with approximately 75% of those customers being non-hotel guests.

However, a significant number of our hotel guests were served using an integrated restaurant located inside our larger city center hotels. And this integrated format has been specifically designed and optimized over the years to meet the needs of our guests and is well liked given its more tailored offering. And this format also benefits us as it is more efficient and higher returning.

Now since the pandemic, our U.K. hotel performance has obviously gone from strength to strength. However, our branded restaurants have faced material challenge with significant inflation impacting both site level and wider business unit profitability. And alongside this, operating 6 different brands also adds significant complexity to our operating model. And this means that there's a degree of inconsistency of experience for our hotel guests, too, who also really like the integrated offer. But finally, many of our branded restaurants are in need of investment.

But when we reflect on the lower financial returns generated from a restaurant refurbishment when compared with the returns generated with the equivalent capital invested in our hotel estate, this really is an unattractive option for us. So the previously announced AGP program was our solution to address this. It's our biggest ever development program and replaces a number of lower returning branded restaurants with a more efficient and tailored F&B offering as well as unlocking the addition of highly profitable hotel rooms.

So today, we're announcing the proposed extension of this plan to now include all remaining branded restaurants, further improving the experience for our guests and driving higher financial returns for our shareholders. As a reminder, our Accelerating Growth Plan is our highest returning growth opportunity in the U.K. and with a rapid payback on investment, it is our #1 priority in terms of capital allocation. And as you heard from Mark, it is because we own the freehold that we can more easily develop our sites and drive higher returns by removing those low-returning restaurants and replacing them with more efficient integrated offerings. It is worth noting that the average margin across our 500 integrated sites is around 10 percentage points higher than it is for sites served with branded restaurant. AGP is also very low risk.

It's a capital-efficient way of delivering room growth. We can add high returning rooms, critically including more Premier Plus rooms, which our guests hugely like and drive very strong returns. And we can do this without additional land or lease costs in locations with proven demand, meaning that we're confident in increasing catchment revenues and delivering an uplift in returns. On the right-hand side of this slide, you can see the impact of the change on our Margate hotel. Prior to AGP, this site was already at very high occupancy, but the neighboring branded restaurant was loss-making and acted as a drag on the site level returns. And by converting the loss-making branded restaurant into a 36-bedroom extension, of which 15 rooms are Premier Plus, as well as adding an integrated F&B offering, we're able to deliver an uplift to site level profitability, driving incremental return on capital of 18%. And having been completed now for 12 months, Margate is driving both commercial benefits and improvements in guest scores.

The extension rooms are performing strongly, and the chart on the left shows a clear uplift in accommodation sales once complete, with an increase of over 30% in revenues versus pre-AGP. At the same time, reflecting the appeal of the new integrated F&B offer, guest satisfaction has significantly increased with scores of approximately 20 percentage points versus pre-AGP.

This really highlights the benefits to our guest proposition. And whilst this is just one site, we are also starting to see real commercial benefits and improved guest scores across our other completed sites. Now we've learned lots over the last 24 months about what works, and we've made a number of improvements that are ensuring we deliver the best commercial performance and the best guest experience. And we've moved quickly over the last 2 years with around 70% of planning applications already approved. And we have completed or are on site at 40% of sites with approximately 600 new extension rooms already opened.

And we've opened 80 new integrated restaurants that are helping to drive improved financial performance and we're in progress on all remaining sites. We've also made good progress in our planned exit from sites earmarked for sale, having now sold 51 sites, and we've also agreed terms on the majority of remaining sites. So given this positive progress, we are proposing to extend our previous plan to now include all 197 remaining branded restaurants, replacing them with a more efficient integrated solution and adding more high-returning extension rooms.

This plan is, of course, subject to consultation with our teams. Once complete, we will have exited from all branded restaurants to become a pure-play hotel business. And this will simplify our operating model significantly, driving large overhead savings whilst delivering an improved and more consistent guest experience.

One very small example of this is that we'll be able to reduce our current number of menus from around 20 to just 3, much simpler, well liked by our guests and better for our financial performance. This slide summarizes the expected impacts of our total Accelerating Growth Plan. We will open a total of 3,000 new highly profitable extension rooms over the next 5 years, in addition to the 600 rooms we've already opened at the end of financial year '26. Our original AGP is on track and will deliver incremental profit benefit in FY '27. However, there will be a short-term reduction to U.K. profits in FY '27 of around GBP 40 million as we transition the remaining branded restaurants, resulting in a net reduction to U.K. profits of around GBP 10 million. In financial year '28, the total program is expected to deliver GBP 30 million to GBP 40 million of incremental profit before tax, and this will continue to increase as we open more extension rooms and exit from loss-making restaurants, reaching around GBP 100 million of incremental profit by February '31.

Total spend on the extended project, excluding any proceeds from the sale of branded restaurants, will now increase to around GBP 660 million. All of this investment will be funded through the reallocation of our existing CapEx program and the recycling of freehold property. And with a total expected return on capital employed of between 15% and 20%, it is clear why the extension of the AGP program is our #1 priority in terms of capital allocation. So in summary, by financial year '31, this plan will see us become a pure-play hotel business.

It will see us drive an excellent experience for our guests and drive higher returns for our shareholders. I'm now going to hand you over to Joe, who will take you through our commercial program.

Thanks, Simon. Good morning, everyone. I'm Joe Garrood, Chief Commercial Officer. I joined Whitbread 2.5 years ago and have over 20 years' experience in consumer and digital businesses, most recently as Chief Commercial Officer of Pure Gym, the U.K.'s leading fitness chain. It's great to be here to share our commercial plan, why our proposition model are best-in-class. As Dominic said, guests rate our U.K. proposition ahead of every major competitor on both quality and value.

Quality means a warm welcome, great night sleep and brilliant breakfast and dinner delivered across our 850 U.K. hotels in the best locations. We provide great value for money for our guests, evidenced by our high value for money scores and an average price of just over GBP 80 versus the wider hotel market at around GBP 123. We serve U.K. based leisure and business missions with revenue split 50-50. Across both SMEs and large corporates, we have a healthy balance. Our vertical integration drives strong RevPAR through 4 components: a distinctive brand with market-leading awareness of over 90%, driving 95% direct bookings. This gives us pricing and inventory control and structurally lower acquisition costs with selective third-party use unlocking profitable incremental demand.

Best-in-class conversion via full funnel digital marketing, an optimized online journey and proprietary revenue management system, driving occupancy of around 80% alongside consistent rate growth; direct guest relationships, creating rich first-party data to target offers and incentives, growing repeat purchase and loyalty.

And control of the proposition, so we roll out improvements at pace, protect consistency and scale revenue initiatives like [ Ring of the View ]. This model underpins our continued RevPAR premium versus the mid-scale and economy market in the U.K. and many of the aspects are also live in Germany, helping us drive RevPAR growth there. We are the clear market leader, but are certainly not complacent and see more opportunity to grow our outperformance by evolving brand, marketing and distribution to unlock incremental demand profitably and at low cost, converting that demand by digital and revenue management optimization and growing ancillary and upgrade revenues. investing to maintain and evolve our guest proposition, protecting the consistency that underpins our brand and accelerating Hub through awareness, proposition development and trading leaders. Through Hub, we believe we can widen consumer appeal and unlock new locations in the U.K. and beyond. Now we've repositioned Premier Inn with a stronger, fresher, more distinctive identity grounded in guest insight. I'm now going to pass over to Lenny Henry to explain.

[Presentation]

So as you can see, this platform reinforces our proposition and consistency. You know what you're getting with Premier Inn. The brand is leveraged by a full funnel strategy to create demand and bookings at low cost. Since the March relaunch, we've reached over 30 million people across broad media mix, leaning further into digital and social channels like TikTok to turn reach into demand and bookings. We're using AI to optimize and test channels that drive direct traffic at lower cost. For example, paid brand search, around 20% of direct digital revenue has delivered more lowest cost clicks, materially improving efficiency. On distribution, we're expanding our audience while staying disciplined on acquisition cost and profitability.

B2B is central to this. We launched Premier Inn business, bringing business book and business account together to simplify booking, payment and spend management. And with deeper travel management company partnerships, we're growing across corporates of all sizes. And while most bookings are direct and our base is predominantly domestic, we are broadening demand profitably through carefully selected inbound-only online travel agents. With these new international partners, rooms sold grew by over 100% in H1, rising to over 300% in H2 with increased demand for our sites, this is helping us to drive yields and there's scope to further optimize. Our model very effectively converts demand into bookings, revenues and repeat stays. We're optimizing digital channels where small changes can have a big impact. For example, highlighting popular hotels has had a positive impact on site conversion.

With most guests booking direct, our first-party data advantage means we can target -- we can better target customers with offers, building repeat bookings and growing loyalty. Best-in-class revenue management is a key strategic advantage for us and another major benefit of our integrated model. We've built a proprietary automated pricing engine bespoke to our estate, demand profile and operating model, giving flexibility, control and competitive edge across the U.K. and Germany. It's powered by an algorithm trained on large data sets run by a lean, highly skilled central team, optimizing pricing at scale across the estate and informing decision-making in marketing and distribution. Let me illustrate using the example week from FY '26. Months out, our data signaled robust occupancy, so pricing was set to optimize rate.

As the week approach, the tech monitored by the team repriced many times a day to balance occupancy and rate. The result, high occupancy and rate growth, resulting in RevPAR up 4%, outperforming the market by 1.5 percentage points. This automated process runs across all sites and stay dates with prices refreshed multiple times a day, meaning hundreds of millions of changes each year. The system is central to our market outperformance of 1.1% in FY '26. And further application of AI will only improve speed and impact. Room upgrades are a meaningful growth driver. For example, we now have over 7,000 Premier Plus rooms, offering enhanced room at an average premium of GBP 12 to GBP 14. We are rolling out quickly, especially through AGP, where Premier Plus accounts for half of all rooms added. Premier Plus revenues grew by over 10% in FY '26 with plenty more runway.

Ancillary revenues are another major opportunity and performing well. Our beds are so loved by guests that many want one at home and bed retail revenues were up 25% year-on-year. We're optimizing these ancillary revenues while developing new ones, such as opening up our digital screens in hotels to advertisers and expanding our provision of electric vehicle charging. In parallel, we're investing to protect guest scores and sustain brand strength in 2 particular areas. First, refurbishing rooms and upgrading beds, which are critical to giving our guests a great night's sleep. Our latest room format drives strong guest scores and is also faster to clean for our teams. And rolling out our latest food and beverage concept, including across all ADB sites, this proposition achieves higher guest scores and spend per sleeper. We're doing this efficiently. Value engineering, our latest room format, reduced fit-out costs per room by over 40% while maintaining strong guest scores. We intend for our digital experience to be as valued by guests as the welcome, bed and breakfast while unlocking revenue and lowering cost. And this short video briefly shows what it looks like for guest arrival.

[Presentation]

So guests get more choice and convenience, and we create upsell opportunities while driving real revenue efficiency, which Hemant will cover later. This will provide further competitive edge. We have the most extensive kiosk provision of any U.K. hotel operator, and we're the first major U.K. chain to roll out digital keys embedded in the mobile wallet at scale. Finally, we have bold plans to grow Hub, a brand with great potential. Hub reaches underserved segments like international tourists, widening our addressable customer base to open up new sources of demand. The proposition comprises compact rooms with smart features located in the heart of the city, all powered by a slick digital journey. Once discovered, it resonates strongly and outperforms the wider competition. Simply put, guests love Hub. Performance has been impressive. Our 19 open sites across London and Edinburgh generate high returns with scope to roll out across the U.K. and in European cities like Berlin, where we secured our first site. We can accelerate Hub commercial performance through brand, marketing and trading optimization. We're investing to drive awareness and demand while selectively broadening distribution to expand our reach, particularly for international visitors. We believe Hub can achieve RevPAR parity with Premier Inn with a dedicated team now trading the estate. In parallel, we're developing new room types and rates to grow ARR and sharpening merchandising and photography to showcase the product online. By increasing focus, momentum has really begun to build. Take Edinburgh, where pre-optimization, we traded in line with market, but since we've seen a step change in our revenues. This strengthens our confidence to roll out beyond the U.K., beyond London across the U.K. and in Germany.

So to wrap up, the market has been challenging, but our commercial model and actions have strengthened and extended our performance. Our highly skilled teams are pulling all levers to adapt. Near-term visibility is limited, but our booked position into the summer is positive. We're confident in what we can control, a strong proposition, a powerful direct model and a clear plan driving positive like-for-like sales momentum, sustaining market outperformance and unlocking more value over time. That gives you a sense of how we're driving revenues.

I'll now pass over to Hemant, who's going to share the secret behind our efficiency program.

Thanks very much, Joe. No videos in my -- I'm afraid it would cost too much. I am now going to talk to you about our highly successful efficiency plan, something in which I take real pride and which reinforces our position as a world-class operator, underpinning our low-cost value for money proposition. I often get asked how we keep making efficiencies in our business year in, year out. Surely, we'll run out of ways to save without impacting the guest proposition. I even get challenged that we can only do so because we must be highly inefficient in the first place. The reality is we are in a unique position operating over 90,000 rooms across the U.K. and Germany, which allows us to have an always-on cost reduction program that other hotel operators cannot replicate. Our level of day-to-day activity and therefore, scope to reduce cost is enormous. We service over 15 million rooms every year, each one taking approximately on average, 23 minutes and 53 seconds to clean. We launder 135 million items of linen and serve 20 million breakfasts per annum, all of which means we have a substantial operating cost base of GBP 1.7 billion. This creates opportunity, but it's our integrated model that allows us to drive significant and sustainable cost savings, operating a lean and agile cost model, which makes it very hard for others to compete with us. Driving efficiencies is deeply embedded in our business culture, part of how we do business every day, and we're continuously finding new ways of working that help us to drive material savings without impacting our guest experience.

As I said before, there isn't one silver bullet that drives our efficiency program. It's a large number of smaller initiatives that add up to a material cost saving. In 2023, we undertook a detailed review of our cost base to set up the next 5 years of our efficiency plan. We analyzed every single cost line in the business, establish every cost driver and benchmark best practice across multiple industries. From that, we derived a long list of potential programs and prioritize them based on cost and disruption to implement, long-term cash benefit and guest impact. This is what has allowed us to continue to stress our efficiency targets over the past few years and will allow us to do so for the next few years as we continue to update this work.

Additionally, the high inflation we've seen over the past 3 years creates opportunity to take even more cost out of the business. We regularly reassess our cost-saving initiatives and projects that were not previously feasible can become viable when rising costs justify investment or because developing technology or evolving processes are able to unlock further savings. With a strong track record of unlocking material efficiencies through multiple initiatives across all areas of our business, helping to offset inflation across our U.K. cost base.

In financial year '26, thanks to the innovation of our teams, we were able to accelerate some of our initiatives and delivered better-than-expected cost efficiencies of GBP 83 million. Vitally, we did this without compromising the guest experience. And as you can see, we maintained consistently high guest scores whilst also driving a real step-up in savings. You can see here just a couple of examples of how we've achieved record levels of efficiencies over the last financial year. In the first half of '25, '26, we transformed our food and beverage distribution, hugely simplifying our supply model that is now better tailored to our needs, but crucially is also driving significant product cost and distribution savings as well as operational benefits. We did this seamlessly with no interruption to our product availability on site. We also launched AI-enabled guest support, reducing inbound call traffic with 1 million fewer calls to our hotels and contact center in just over 6 months. This not only improves the guest experience, but also frees up our team's time for more rewarding and value-adding work.

Looking ahead, over the next few years, we'll continue to use technology to deliver benefits for our guests and drive further operational efficiencies across our hotels and support center. In the future, we'll have a more seamless digital journey for guests whilst further automating low-value tasks for our hotel teams and support functions, underpinned by more AI-driven decision-making. This will enhance the guest experience to the incremental revenue opportunities, more empowered teams and increase cost efficiencies.

Improvements to our digital journey are already driving efficiency in our operating model. As Joe has already outlined, we're in the process of transforming the guest check-in experience across our hotels. By having guests check in online and via self-service kiosks, we're simplifying and speeding up the arrival process, improving their experience whilst releasing our teams to complete other tasks. With over 90,000 door locks now upgraded in the U.K., we are beginning the rollout of digital wallet mobile room keys this year, further streamlining the guest journey with early trials already receiving a positive response.

Technology will also help us unlock future savings in the day-to-day running of the business across operations, housekeeping and food and beverage. We're introducing more real-time tools and automation in housekeeping to increase efficiencies. In food and beverage, a new end-to-end technology platform will enhance operational control and unlock future revenue and margin opportunities. Taken together, these technology-driven cost initiatives are expected to deliver material cumulative cost savings by financial year '31. We're really proud of our reputation as a low-cost, high value for money operator, but we can go further and see significant opportunity to drive more costs out of the business in response to high levels of inflation whilst maintaining the guest experience. Having already accelerated savings into financial year '26, we've again reviewed our initiatives and are today increasing and extending our largest ever cost efficiency program. Over the life of the new 5-year plan, we'll deliver a cumulative GBP 250 million of cost savings from FY '27 to FY '31. This is a material step up because it represents an increased proportion of our total cost base that will, of course, reduce as we execute our accelerating growth plan. Thank you. And I'll now hand over to Eric to provide an update on our progress in Germany and an outline of our exciting ambitions there.

Thank you, Hemant. I'm Eric Friemuth, CEO of the Premier in Germany business. I joined Whitbread just over 2 years ago from TUI, where I led the group's hotels and resorts as well as the marketing and sales functions. I bring more than 20 years in marketing and sales, including serving as Chief Marketing Officer at Vodafone. We've made excellent progress in Germany and have transformed the business over the last 3 years. We now have a model that works, and our overall level of returns are masking that some of our sites, whilst not yet mature, have already reached double-digit return on capital, proving that our model can, and is working. Whilst we have a fantastic product, we are not yet where we need to be. And so we are making some significant changes to our approach. Changes that will accelerate cash flow and returns. I'm going to start with a short video that brings to life the journey we've been on as a business, and the progress we've made so far.

[Presentation]

Yes, we are excited about Germany, and it remains a significant growth opportunity for the group. The investment case is highly attractive with a large fragmented market where no brand has more than 3% share. And as in the U.K., the independent sector is a long-term decline. Germany has a large short-stay domestic market with a balance of business and leisure demand. It is also one of the world's largest trade fair markets, meaning that event nights are a key feature accounting for over 20% of revenues. Our journey to profitability has taken longer than expected. Whilst external factors have had an impact, some of our past decisions have also contributed to our performance, and we've learned a lot over the last 10 years. However, over the last 3 years, we have completely transformed our business and are confident that our model will drive growth and deliver attractive long-term returns. We now have a much clearer understanding of what works in Germany, meaning we have been able to accelerate the maturity of newer openings and reduce the cost of converting sites to Premier Inn, 2 important drivers of strong financial returns.

Secondly, we now have a senior leadership team based in Germany and have really tailored our product to the German guest, optimizing our proposition and approach. And finally, we have transformed our commercial strategy, operating now a multichannel approach with dedicated event pricing strategies that are having a significant and positive impact on our commercial performance. We have hit profitability in financial year 2026, which is a key milestone. And our focus now is on accelerating cash flows and returns, all underpinned by our refined model, which is working well.

And our new cohorts prove this by segmenting the estate into smaller cohorts based on year of opening, you can see that our new openings are delivering higher levels of RevPAR and more quickly than previous cohorts. This gives us real confidence that we are translating our learnings into positive trading performance and better financial results. And our cohort of more established hotels is performing very strongly, underpinning our confidence in our opportunity in Germany. On the left-hand side, you can see that RevPAR and profit per room are continuing to grow. On the right-hand side, the chart shows the return on capital employed that we are getting from these hotels and our view of how this will improve over the next 5 years.

In financial year 2026, we reached approximately 9% return on capital employed, and we expect to reach double-digit returns this year. This is not the end goal as these sites continue to mature by financial year 2031, we expect them to reach returns of more than 15%. Our Hamburg catchment is a prime example of our model working well. A key city, lots of demand and where we have been able to secure great properties at the right price, increasing our density and scale to drive strong financial performance. We have 6 open hotels in Hamburg, of which 50% are freehold. Whilst these sites are not yet mature, they are already delivering high levels of RevPAR ahead of our wider German estate. In aggregate, profits at the site level were GBP 12 million in financial year 2026, and we are extremely pleased that the catchment as a whole is already delivering double-digit returns. Our Hamburg St. Pauli hotel was a new build freehold site that has been open and trading for 4 years. It is already delivering RevPAR ahead of our wider Hamburg catchment with high levels of profit at the site level and double-digit returns on capital.

Since the year-end, we have opened another site, taking us to 7 in total and our increasing scale and density in Hamburg is allowing us to drive efficiencies. Our model is now working in Germany. We have a national presence. Our product is popular with guests, and we have a powerful commercial strategy. While there is no one-size-fits-all formula for success, we now know what works and what doesn't and have 3 main levers to do this, starting with our portfolio strategy. A detailed review of our existing portfolio has identified our top priorities for future growth. Having tried a few different things in the past, we have a clear focus on formats and locations which we know deliver the best returns. Typically, these are larger hotels in prime city center locations and acquisitions that are appropriately priced. As a result, we are making some significant changes to our growth strategy. By optimizing our open portfolio and at the same time, reducing and reprioritizing our capital spend towards opportunities that deliver the highest returns, we will accelerate our financial performance.

Another key change is that all future growth will now be funded either through recycling of existing freeholds or through new leaseholds. While this will moderate the pace of room and profit growth to full year '31, it will significantly reduce our capital intensity, increase cash flow and accelerate returns on capital. While optimizing our open portfolio and improving the quality of our committed pipeline, we will still deliver significant growth for rooms over the next 5 years. In financial year 2027, we will open over 2,000 new rooms across Germany. And with nearly 12,000 open rooms at the year-end, we expect to have 18,000 rooms opened by financial year 2031.

As I said, we continue to see significant long-term potential with the long-term ambition to become the #1 hotel brand in Germany. However, for now, we are focused on driving cash flow and returns.

I will now turn to our multichannel strategy. We are making great progress in building the Premier Inn brand. Our average brand awareness increased to 19% last year. And as you can see here, we are closing the gap to our competitors. Our high-quality proposition is resonating well. And on the right-hand side, you can see that we are driving great guest scores, but we need to push harder to grow our customer base even further. We have a unique brand positioning in Germany, focused on a great night sleep, which we know is a key priority for our guests. As you saw on the last page, our investment in marketing is driving higher awareness of our product and brand. And we operate using a digital-first approach complemented by other channels.

Second, as is the case in the U.K., we want to make sure that our guests get the best experience when they book with us direct. By enhancing the Premier Inn website and app, we have seen growth in both conversion and channel share versus last year. Online check-in is now available at all of our sites, with the rollout of mobile room keys starting this year. At the same time, we are refining our business-to-business proposition with local account management for our growing number of customers.

And finally, we are broadening our distribution to maximize reach, allowing us to drive brand awareness and increase RevPAR growth. Online travel agents are a key part of the German market and provide access to a significant number of both domestic and international guests, supporting volume growth.

Moving on now to our commercial performance. Our commercial program has been completely transformed and is driving increased revenues and contributing to our strong performance versus the market, but there is more for us to go after. We are continuing to improve our trading strategies, in particular for event nights. Our more established hotels have outperformed the market on event nights this year, with our total estate broadly in line. This is a great result and shows the changes we are making are working with a large step-up versus last year. Ancillary revenues have seen strong growth versus last year, and we are enhancing our online offer to include product add-ons such as early check-in. We are also adding to our on-site offer with an increased focus on food and beverage and our self-service shops that are available at our sites. These are resonating well with guests and generating incremental revenue.

With a strong commercial strategy and the improvements we are making, we expect to continue to outperform the wider mid-scale and economy market in Germany.

So what does this all mean for our German business over the next 5 years? We see significant growth potential and by financial year '29, we expect that Germany will turn cash flow positive. By financial year '31, we expect to reach 18,000 rooms, becoming one of Germany's largest hotel brands. With our growing estate, increasing maturity, we expect to reach a network RevPAR of more than EUR 83 and deliver incremental adjusted profits of GBP 65 million. In the same year, we also expect to reach double-digit returns on our total open portfolio. With reduced capital spend, growth through leaseholds and by refocusing on proven formats, our new 5-year plan will accelerate our financial performance and maximize financial returns. We continue to see significant potential in Germany beyond financial year '31. And with a more capital-light approach, we can continue to grow our network in a more efficient way, reducing capital intensity and driving higher cash flow and returns, showing that we can travel internationally.

As we have been presenting for quite a while, we'll take a break. When we resume, Hemant will talk you through property and capital allocation as well as the financials and guidance before Dominic concludes our presentation, and we can move to Q&A. Thank you.

[Break]

Sorry. I'm now going to talk you through our property strategy and capital allocation framework and the changes we're making as part of our new 5-year plan. First, while Dominic and Mark both spoke on this earlier on, I wanted to remind you of the commercial and financial benefits to reflect on our flexible property approach. Our operational controls means we can -- our operational control means we can optimize and maximize returns from a site, for example, via AGP, so that once mature, we can recycle capital and reinvest in high-returning growth opportunities. Our strong balance sheet and flexible approach means we are well placed to secure the best sites in the best locations, whether freehold or leasehold, whilst minimizing the risk of cannibalization so that we can drive high capital returns.

By using our property expertise, we improve asset quality and realize significant development profits as we expand our estate. And a property-backed balance sheet supports our strong financial covenant, helping to secure more favorable terms with landlords and financing terms with lenders. Our property valuation -- value creation cycle is summarized here. Our already strong covenant means we can secure high-quality sites to generate excellent returns, which in turn attracts outside funding and offers us the chance to recycle capital into further high returning growth, and so the cycle continues.

As a reminder, we segment our estate into 5 distinct categories depending on the hotel assets maturity. As the site moves through to further development or yield potential, we look to recycle capital to drive even higher returns. Today, around 20% to 30% of the estate sits in the yield potential grouping with 30% to 40% in further development potential. Currently, a significant proportion of our estate is still in the opportunity for value creation category, including sites we are optimizing through the proposed extension of the Accelerated growth plan. As the project completes over the next few years, those hotels will move into further development and yield buckets, unlocking more opportunities to recycle capital and allowing us to reinvest into further growth.

Freehold recycling is an important enabler of our plans, allowing us to fund future growth while materially reducing capital intensity and remaining investment grade. In FY '26, we completed the sale and leaseback of 22 hotels, generating GBP 282 million of proceeds at attractive yields. This includes our new hub at the Old Bailey, for which we received GBP 57 million in cash, demonstrating our ability to realize value. Our new 5-year plan assumes that by FY '31, we'll recycle GBP 1.5 billion of freehold property by sale and leasebacks and other disposals, which will fully fund the next 5 years of capital growth. Our capital allocation framework is unchanged. Our disciplined approach is focused on delivering sustainable, attractive returns and seeks to strike an appropriate balance between investing in high-returning growth opportunities and returning excess capital to shareholders.

As a reminder, there are 4 priorities in the framework. First, maintaining an investment-grade credit rating is a source of commercial and strategic advantage for us, and we will keep our lease-adjusted leverage below our threshold of 3.5x. Clearly, we'll continue to invest in the fabric of our estate to maintain our high-quality guest experience, but our focus will be on investing in high-returning growth opportunities such as AGP and using proceeds from property-related disposals to fund all future growth. Third, continue to grow in dividends in line with earnings; and lastly, returning excess capital to shareholders. Dominic touched on this earlier. Our asset-backed balance sheet is an important source of competitive advantage.

By operating within our leverage threshold, we remain investment grade, giving us access to funding at lower marginal costs and putting us in a stronger competitive position when securing freeholds and signing leases. It also gives us resilience and flexibility through the cycle and supports an efficient balance sheet, allowing us to deploy capital into high-returning growth opportunities rather than holding excess cash. Whilst the group will continue to own a substantial amount of freehold real estate, we can reduce the proportion held from around 50% of sites today to operate in the longer term in a range of between 30% and 40% and continue to benefit from all of the advantages I've just outlined.

It's important to note that below a certain level of leasehold adjusted leverage, in order to remain investment grade, the group would have to start holding increasing levels of cash, creating a natural limit in terms of freehold and leasehold mix beyond which the balance sheet would become increasingly inefficient. And by operating in this range of between 30% to 40%, we will continue to have a good base of freehold property, which we can then recycle in the future to ensure we don't miss out on high-returning growth opportunities.

Our new 5-year plan is designed to maximize shareholder returns over the medium to long term. One of our key strengths is our ability to drive substantial levels of operating cash flow, and we'll continue to do so over the life of the plan. As Joe has already mentioned, continuing to invest in our product helps to ensure we sustain our high-quality guest experience and our market-leading position. We'll invest approximately GBP 1 billion over the life of the plan into our physical estate as well as technology to further enhance our business. By moderating our pace of growth and focusing on the highest returning projects, we'll reduce our total gross capital spend by GBP 1 billion by FY '31 compared with our previous plan.

All of our -- all of our future high-returning growth CapEx will be funded through recycling GBP 1.5 million of freehold property alongside a greater mix of leasehold growth, reducing upfront capital requirements. As a result, net CapEx will significantly reduce to GBP 200 million to GBP 250 million per annum, down from GBP 500 million previously, representing more than GBP 1 billion reduction in net CapEx versus our previous plan. With increasing margins from the initiatives you've already heard about, coupled with the reduction in net capital intensity, we expect that our return on capital will increase significantly to generate GBP 2 billion of free cash flow that will be available for shareholder returns through a combination of dividends and share buybacks.

I'll now turn to our financial year '27 current trading update and outlook before I take you through guidance for our new 5-year plan. In the U.K., positive trading momentum has continued into the current trading period with total accommodation sales up 2% and RevPAR growth of 1% versus last year. Our forward book position is ahead of last year with positive peak leisure demand supported by a strong events calendar. And with the continued impact of our commercial initiatives, we remain confident in maintaining a healthy RevPAR premium versus the market. F&B sales were down in line with our expectations, reflecting the impact of our accelerated growth plan. And in Germany, total accommodation sales were up 9% versus last year with positive impact from continued estate growth.

The market has been impacted by reduced events profile versus last year and increased levels of occupancy were offset by lower room rates, resulting in slightly lower RevPARs for the total estate and more established cohort versus last year. However, we continue to outperform the wider M&E market on both accommodation sales and RevPAR. Looking forward, we have a positive forward book position and are confident we can drive further RevPAR growth. We also now updated our financial year '27 guidance. I'll talk you through some of the key parts, but a more detailed summary can be found in the appendix to the presentation.

The phasing of new room projects means that we expect to open 1,000 new rooms in the U.K. as well as 750 new AGP extension rooms. In Germany, with our latest acquisition and pipeline openings, we expect to open around 2,300 rooms this year. The proposed extension of the AGP to include all remaining restaurants will result in a PBT reduction of GBP 40 million in FY '27, which will more than offset positive progress from our original plan, resulting in a net PBT reduction of GBP 10 million. In Germany, we expect underlying PBT growth of GBP 10 million before one-off costs of GBP 10 million, primarily in relation to new openings in the year associated with recent additions to our portfolio.

As a result of the ongoing geopolitical tensions in the Middle East, we're guiding to a GBP 5 million reduction in PBT in relation to hotels operated by our joint venture in the United Arab Emirates. And finally, we'll maintain net CapEx between GBP 200 million and GBP 300 million through recycling GBP 450 million to GBP 500 million of freehold property this year to help fund our network expansion and our extended AGP. Finally, turning to our new 5-year plan that includes 3 initiatives within our control that combined to drive GBP 275 million of incremental profit before tax. In the U.K., we expect the impact of business rates to be approximately GBP 110 million on our like-for-like estate by FY '29. However, as we've outlined today, we have key levers within our control that will drive an increase in our financial performance over the next 5 years.

The combination of new high-returning rooms in the U.K., the execution of the extended Accelerating growth plan and our refocused growth plans in Germany means that we're confident in delivering GBP 275 million of incremental profit contribution by FY '31 across these 3 initiatives. Clearly, we can't control market growth or gross cost inflation. So this all assumes that our U.K. like-for-like sales growth plus efficiencies offset U.K. cost inflation and finance costs. To bring this to life, across the next 5 years, our GBP 250 million of cost efficiencies will offset approximately 3% of gross cost inflation per annum on our GBP 1.7 billion U.K. like-for-like cost base, albeit this percentage will increase as we complete the extended AGP.

Therefore, if gross cost inflation were above 3%, every 1% of U.K. like-for-like sales growth would need to be offset by 1% of additional cost inflation, something we have been able to achieve over the last 15 years. This increase in incremental profits, together with the changes we're making to capital allocation mean that we expect to deliver an increase of 500 basis points on group ROCE, driven by both operational performance, but also the increasing leasehold mix of our estate and unlock GBP 2 billion for shareholder returns by FY '31. We're confident that with the plans we've outlined today, we'll drive increased margins and returns over the life of our new 5-year plan. I'll now hand back to Dominic for his closing remarks.

Thank you, Hermant. We have covered a lot today. And so before we open up to Q&A, I'm just going to do a brief summary. Whitbread has a great platform to build on. Premier Inn is a clear market leader in the U.K. with a growing national presence in Germany. Our hub brand is going from strength to strength, and we continue to see significant growth potential with these brands and these markets. But we are making some big changes to our approach, changes that will increase margins and returns without compromising our financial resilience or longer-term growth prospects. This is a bold and achievable plan that focuses on the things that we can control. With the exit from our remaining branded restaurants, we will strengthen our market-leading position in the U.K. and become a 100% pure-play focused hotel business.

We'll drive like-for-like sales momentum through our strong commercial plan and increase cost savings even further through our efficiency program. We're also making some big changes in Germany, where we still see huge potential. With a refocused growth plan, we will accelerate cash flow to become cash flow positive in full year '29 and reach double-digit returns for our entire Germany network by full year '31. Our model remains the right one for us, and we can say that confidently because we've done a lot of work to test it. It's a powerful model and has delivered our success to date. But with our plans today, including recycling more of our property and reducing our capital intensity, we can improve it further and increase group returns by over 500 basis points.

Our plan will create significant value and generate GBP 2 billion of free cash flow available for shareholder returns. Our commitment to you today is that with this new 5-year plan, we are going to go further and faster to deliver for our shareholders. Thank you for listening. And Hermant and I will now take your questions with our team here to provide more detail if needed. I'll now hand over to Peter Reynolds, our IR Director, who's delighted to host the Q&A.

Never have I felt more uncomfortable. Thanks, Dominic. Okay. If you could please wait for the microphone, Kitty will bring you a microphone. Obviously, we've got a lot of people watching online. If you could wait for the microphone and say who you are and your institution you're from. And if you could please limit it to 2 questions, that would be great. Jamie?

It was like a reflex test. impressive.

Jamie Rollo from Morgan Stanley. The first question is on AGP. You've added about 200 units to the program. The PBT impact is still GBP 100 million. There's still around 3,000 extension rooms. I appreciate the time scale is a bit different than you've done some already. But have you sort of weighed back the original AGP plan? Or is this the second cohort just perhaps less impactful at the bottom line because it's a higher returning, I guess, or less loss-making segment already? And then on Germany, you talked a lot in the U.K. about the alternative models you've looked at selling the brand, selling the property. I guess you can't do those in Germany really. So what alternative models have you looked at for Germany? And what happens there if you don't hit the targets?

Yes. So let me -- thanks, Jamie. Let me cover the AGP question first, and then Hemant will probably build on it and then same approach for Germany. So, I mean, it was really interesting to listen to that presentation. I don't know if you found, but when Simon talked about the accelerating growth program, it becomes crystal clear why it's the right thing for our business, removing the drag of the lower returning restaurants, investing in an improved guest experience overall, which, by the way, we now know our guests really like because we're partway through the first part of the Accelerating growth program. So really genuinely making a better product for our customers, but also driving significantly improved financial returns for that.

Categorically, it's the right decision for our business, and we become a simpler business with a better product overall. And to answer your question specifically about the first tranche of that, I mean, we're a year further down. So as in we're a year into the initial program. Overall, our learnings from that program are that it has performed better actually than we expected overall. The commercial results are really strong. And the guest proposition scores are better actually than we hoped. And as Simon mentioned, we've learned quite a lot through the first phase of this program. We've made some adjustments -- but net-net, overall, our confidence is higher today than it was when we first launched the program and our results from the initial sites from the first Acceleration Growth program are better than we expected.

The reality is through this extending the program, we could have added more extension rooms potentially, but we have taken a ruthless returns-led focus. And hopefully, that's come through very clearly in the presentation today. And therefore, the rooms that we've landed on for this extended part of the program, we think is absolutely optimal for maximizing returns overall for the customer. Hemant, anything else you want to?

Yes. Just building on that, Jamie. I mean the original program was going to generate GBP 70 million of PBT improvement, if you remember, that's what we talked about. Obviously, in the first year, we saw something like a GBP 30 million reduction that reversed. So we're actually going from GBP 70 million to GBP 100 million program. If you look at it from last year, when we were GBP 30 million, that's the GBP 100 million. So it's 2 different things. So not just to make sure we're comparing like-for-like. We have tweaked the original program as well as part of this. It was going to be 3,500 rooms. We've opened 600 already. But now the cumulative program is going to get to 3,600 rooms. So therefore, we have reduced the original program. We thought about business rates, as Dominic says, a very ruthless approach on making sure that we are prioritizing the highest return on capital opportunities for us.

And then we built that learning into the second part of the program, which is why as Dominic says, there's fewer rooms that we're opening. But overall, the return on capital, we've talked about between 15% and 20%. I mean that is -- that's probably -- it's undercalling it because the reality is that's not really including the impact of the fact that we're getting disposal proceeds, and it's also ignoring the fact that we would have had to invest in these branded restaurants we haven't do. So as an incremental decision, it's well over 20% return on capital on AGP.

So it's a transformative program for us. It's not an easy decision to make overall as a business. It involves a big change for our business, a seminal moment for Whitbread. It involves a number of job role redundancies in our business. But categorically, it's the right decision for our business. It will make us much more profitable, much higher returning and improve the product for our customers. And hopefully, as you've seen in the presentation, this is a team that is facing into the challenges and making adjustments to our business that is categorically going to make us stronger moving forward. On Germany, again, hopefully, I mean, you heard from Eric, the progress -- I mean, the progress overall we've made in Germany, I think, is really impressive.

And the transformation that we've led in Germany in the last 3 years as we've really adapted our commercial as we've learned from what works and what doesn't work, I think, is actually spectacular job that the team has done. And we can stand here with real confidence today to say we have got a model that works. I know in sessions that we've had this before, they -- a number of you have really pushed us to say, can we see some of that cohort analysis. We want to see the profitability of the actual hotels. We've shown that today. We've shown that the more mature hotels are comfortably getting to double-digit returns and will grow substantially over the next few years. And then we thought let's use a real example of Hamburg and show you what we're delivering in a city like Hamburg, larger hotels, city center, profitable, high returning. We've got a model that works in Germany.

The alternative kind of models that we looked at, we said, are we right to stay committed to Germany moving forward? We spent a lot of capital in Germany. Are we right to stay committed to Germany moving forward? Should we consider a more radical property operating propco/opco split in Germany, for example, it doesn't work in Germany for exactly the same reasons that it doesn't work in the U.K. exiting the business in Germany is not the right thing. We've worked out how Germany -- how to make Germany work. And we think we're going to drive significant shareholder value over the next few years through showing Germany the positive trajectory of profitability and returns. But it was really important that we've made some changes. And that's what we've spoken about today.

Those changes that we've made, both in terms of how we operate our business, the commercial model, the operating model, the benefiting from the scale, but also things like reducing our capital intensity, creating a more leasehold product moving forward. So the capital invested in Germany moving forward is going to be significantly lower, but also return significantly higher. And that's why we remain committed to Germany. We've made adjustments to the program, but we stand here feeling very confident about the business that we've built.

Next question, Richard Clarke just there, please.

Richard Clarke from Bernstein. Two questions. I guess just firstly, on the GBP 1.5 billion of property disposals you talk about, I guess that's less some restaurant disposals. Have you already identified those sites? And are they -- would you say those are going to be low yield London, Southeast? Or will you have to sell some of the sort of more regional sites at higher yields to get to that number? And is all of the -- all the purchases of those sites care about in terms of covenant is the Fitch number rather than things like rent cover? Are there any other guardrails that are looked at by the potential purchases of those properties?

And then second question, just following up on Germany. I guess we can understand that the business rates and the labor inflation were the kind of catalysts of a change in thinking on the U.K. What was the catalyst of the change in thinking on Germany to slow down the growth? What's changed in Germany over the last 6 months?

So Hemant, do you want to take the first part of the question, and I'll pick up the second part.

I will -- I'll also ask Mark to kind of elaborate and correct me when I get it wrong. Effectively, yes, I showed you the different buckets that we put properties into depending on their maturity. The reality is we have -- it's a 5-year program. So we don't know exactly, which you can tell me -- you might know exactly which sites you think. But it's likely to be sites across our entire portfolio. But I'll let Mark elaborate on that on what -- and also in terms of what potential buyers be interested, but they look at more than just a -- they look at our covenant as a whole, they'll look at other measures as well, specifically depend on -- such as rent cover depending on the specific site that we're selling. Mark will you?

Yes. So when we're choosing the properties to start with, we put them through a very comprehensive process. We look at our entire estate that's freehold or long leasehold. We take out several groups of properties that either we're going to sell or that we want to retain for various reasons as we showed on the funnel graph. And we end up with a large portfolio, some of which then has operational opportunities to redevelop AGP, et cetera. But then there are this large proportion at the bottom where we can select from which is substantial. And we want to do it over multiple years. So we're also thinking about how do we blend portfolios over multiple years rather than go down one route in 1 year and then find the next year, we'd rather have a different mix of properties.

The answer also is, I think, different buyers have different expectations. The overseas markets, some of the sovereign wealth money is more targeted at London, Edinburgh, Dublin, where yields are more prime, price capitalization rates are higher, but they expect a different type of model. Some of the portfolios we've done in the last few years are more regional based and the yield reflects those, which is why we've shown the blended yield that comes out at just over -- just over 5%. So we're sort of matching product to buyer at a price that works for both parties. Buyer expectations, typically, they are looking at our rent cover. They're looking at our current financial performance, which we share with them.

They're looking at our projections and they're making sure that the rent that we're agreeing to and the lease terms that we're signing up to and the indexation on the rent is something that we can afford to do for the next 25 years. And so we're quite cautious and we put a high rent cover as in a lower rent as a proportion of our performance to make sure that we -- even if we just assume that our revenues are going up by 2% or 3%, we've got lots of protection over the rent line. So they're really well covered. And then the rest is just building fabric and some of the usual property DD you'd expect them to do around the property itself. But they are looking at a covenant play and the strength of the tenant that supports that long-term rent cover.

Yes. I mean with the strength, this is why one of the points we've underlined today is the core strength of the Premier Inn brand and the financial covenant of Whitbread. I do remember a session a results session a couple of years ago where we got a lot of questions about our ability to execute on sale and leaseback, and there was some skepticism about our ability to do that. And I think what Mark and Hemant have shown really well over the last 18 months is the momentum that we've got in creating a very strong sale and leaseback at really attractive returns. And the ability then to recycle that money at attractive cap rates into high-returning projects like accelerating growth that we're talking about there, we're talking 15% to 20% returns.

It is a, we believe, a very smart way for us to increase the size of our business, the profitability of the business and returns for shareholders overall as we grow our business and we produce more free cash flow. On your question about Germany, I mean, I suppose the first thing to say is we really have learned an enormous amount about operating in Germany since our first hotel opened in 2016. And Eric touched on it a bit in his section. When we first went into Germany, we took a U.K. mindset. We were hugely successful in the U.K. And we felt we could mirror that model, replicate that model in Germany. We went direct sell only. We ran quite a lot of our business there because it was small, obviously, when we started from the U.K. We had a much more U.K.-orientated product.

And one of my observations coming back into the business is we needed to have a more German focus on how we're running that business. Now -- what we did extraordinarily well going into Germany was get great locations and great quality hotels. And that is really the bedrock now for the strength of the brand and the strength of our customer proposition. But it's this learning over the last few years of adapting our commercial model of widening our distribution of widening our product. We are now very clearly able to see which are the sites that really perform the best and which ones don't perform quite as well. And going into Germany, pre-COVID, we had to buy our way into Germany to some extent, and we paid a reasonable amount in some of the acquisitions. And some of those acquisitions included hotels that probably aren't absolute bull's eye compared to what we think works now moving forward.

So as we did this hugely detailed piece of work on Germany over the past few months, our conclusions were really clear, which is fundamentally, we do have a model that works. It works particularly well in larger city center hotels. We get the benefit of scale, and we get strong RevPARs that drive strong profitability. We can make regional hotels work, but they don't generally return as well as these prime, more city center type locations, a bit like Hamburg, which we spoke about today. So we've pivoted our growth strategy to focus more on those formats and those. So although there hasn't been a business rate challenge in Germany, this is more about us maturing as a business, being very clear, we're taking a returns-led focus in Germany.

We still think there's strong long-term potential in that market, but we're going to focus on driving the profitability, focusing on sites that we know are going to work, more larger hotels, more city center type hotels, which will drive returns and free cash flow in Germany, and I think will generate a significant amount of value for shareholders over the next few years.

Thanks, Dominic. Estelle?

Estelle Weingrod, JPMorgan. I have a question on the exit of the 1,500 lower returning hotels in the U.K. Can you just maybe elaborate a bit more? Have they always been below group average? Had the performance maybe come down? Just trying to understand what has changed. And connected to that, I guess, on the long-term potential, the 125,000 rooms for the U.K., the longer term. Given the reduction in room expansion over the next 5 years, can you just help us understand what gives you comfort in this initial target?

Yes. Okay. So let me cover both of those questions and then potentially Hemant and Mark might want to build on it. I mean, Mark covered a bit of this in his presentation. Dorchester was an example of a pipeline project or a site that we are going to exit. Let me be clear, we could open all of those pipeline sites. And actually, there would be some profitability from those sites, but they aren't going to be what we think is profitable enough or returning high enough. And hopefully, what you've seen today in our plan is we're taking a really clear focused approach to driving medium-term returns. So when we've looked at some of those sites, particularly with the increase in business rates, they now fall below our internal hurdles.

We don't talk about what our hurdles are, but they are -- they're challenging hurdles, but we find sites that will more than be well above those hurdles. And Mark talked about our future pipeline today, things like Harb, London, some of the other city center sites. The sites that we're exiting are sites that generally because of business rates are now slipped below that hurdle. What we're not going to do is just carry on regardless and open them. If they're below our hurdle, we'll make a decision to then not open that site because we're also confident with our model, this flexible model, we will find other sites that will be above hurdle. We also can see and we believe over the next few years, there will be a bit less competition for these sites as well. The macro environment is a bit challenging.

Interest rates are probably going to stay a little bit higher for longer. We will be able to cherry pick the very best sites. And what that means is we will not go for sites that are going to be below hurdle. So that's why we've taken that approach there. And then to answer your question about 125,000 rooms, we categorically believe there is still the potential to get to 125,000 rooms with Premier Inn. This is not a quick desktop piece of work that we did. We did an enormously -- Hemant's team did an enormously detailed piece of work on catchment area data and came to the conclusion about the potential for Premier Inn. It's quite an interesting story because I find it interesting. 15 years ago, we said there was a potential to get to 60,000 rooms in the U.K. And at the time, it was like impossible. We were 35,000 rooms at the time impossible.

And we're at 85,000 rooms today and higher returning than we were there. So sometimes when you -- from where you stand at this moment, you look at 125,000, would that be possible? But the scale of our brand and the quality of our business, remembering all the things we've announced today is going to improve our margins and returns more, that will actually make sites more profitable, which will open up more opportunities. But -- and this is really important. We're not chasing a growth target for the sake of a growth target. We are going to do it in a really data-led approach using returns as our filter to get to that number over time. We're not chasing it with a particular time scale. We will get there when we can get there from optimizing overall returns and shareholder returns.

Yes. And just to add a couple of things just very quickly, Estelle. The -- Dom talked about the pipeline rooms. But in terms of existing rooms as well, we obviously -- I mean this is something we do all the time. And you'll have seen we did 500 last year, we came out of. Effectively, I mean, Mark's example on Manchester, where we talked about Deansgate Lock, I think it was, Deansgate, which was a site we developed, and we were able to get good development profit from it.

But actually, we were able to migrate the trade from that site to other sites. So this is something that my team, Mark's team will be looking at all the time, different condodations where we are looking at the weakest performing hotel, can we migrate the trade somewhere else as and when another opportunity comes up with the extensions we're doing as well. So we're thinking about this kind of thing all the time. So it's kind of almost like business as usual. So we will continue to do that. And generally, we don't even model it really when we kind of give you the numbers because when we're taking -- coming out of those rooms, they're so relative -- the relative marginal profitability loss is so low because of the migration, we're just modeling the new rooms. So we're very good at this, something we've done for years.

It's Jaina Mistry from Barclays. Two questions as well. I guess if we're framing this new plan within the current context today, the strait of Hormuz is still shut. There might be inflation pass through coming on through the rest of the year. How much buffer or upside is there to your cost savings targets over the -- over the next 5 years? If we are in a situation where the U.K. is in a period of higher inflation, is there a bit of juice left in your plan? And then second question, Hemant, I think probably for you. GBP 1.5 billion of sale and leasebacks, it's probably GBP 500 million incremental from your old plan. Can you just give us a little steer on the additional lease costs that will flow through your P&L and will hit the bridge over the next 5 years?

Thanks, Jaina. Let me answer the first part of the question. Hemant will love me answering it about efficiency. And then I'll hand over to Hemant for the lease costs. So a couple of things. I mean, yes, these are uncertain times are they? I mean it's quite hard to call exactly what's going to happen with the Iran crisis day-to-day. One, that underpins one of our decisions, which is to focus on resilience of our business. And in uncertain times, having a business that can survive a cyclical world and actually use these periods of dislocation to actually strengthen our business and take advantage of the difficult environment, that is a really core competitive strength of our business.

The second thing to say is compared to many consumer-led businesses -- consumer businesses out there, we are in a relatively resilient place actually. We're mostly a domestic hotel business for domestic customers. And should more travelers not fly overseas, for example, because of increased airline prices, you heard from Joe, we have got a very sharp, very advanced commercial model, and we are there for U.K. customers who want to holiday or have weekends or take breaks in the U.K. And we see the summer as a period where we will try to make sure we take full opportunity of that and offer our guests what they're looking for. I guess the other side of that is exactly where you went, which is, hopefully, you're seeing that this is a leadership team that plans for the worst, but actually always tries to ensure that we deliver ahead of that.

And that means that we try very hard to stay ahead of things. And the efficiency program is one of the ways that we do that. And I think Hemant and the team have done an amazing job over the last few years. And Hemant touched on it in his script. I mean this was literally a line-by-line process across a whole cost base of driving efficiencies. And it is part of the core mindset of our business. Remember, we're a budget value business. So we take these things really seriously. And we have a track record of overdelivering on our efficiencies number. And we will continue that mindset to do everything we can to try to make sure that we continue to maximize our opportunities in the efficiency space. That's what I would say. Hemant?

Well, I mean, there's not much left to say. Jaina, expecting a CFO in public forum to say how much convinced he has got in there. I think as Dominic said, look, I mean, you saw the process of how we think about this thing. This is just something we do every year and every big business like us, multisite business, these are kind of things they're doing all the time. There will always be efficiencies, and we'll always try and stretch them. We've got a good record of doing that. So yes, [indiscernible].

Next question.

Sorry, Yes, on sale leaseback. Yes, I mean, the simple answer is GBP 500 million more or sale leasebacks theoretically is something like -- normally, that cash-wise, it would be, let's say, a 5% yield. But because of IFRS 16, there's a premium to that. So it's more like 7%, 8% by the end of the plan. Clearly, there's a lot of phasing within that. We've taken that into account, as you'd expect us to do. And so we're very comfortable still with the guidance we're giving in terms of what we think we can achieve overall. But obviously, the team can help with some of that phasing and [indiscernible] might want to model that.

And Ivor, over here, please.

Ivor Jones from Peel Hunt. One of the big punch lines was the expected return of cash to shareholders. Could you perhaps talk as much as you can about the expected phasing of that return? And I guess a subset of that question, while the share price is persistently not GBP 40, would you prioritize share buybacks over some capital spend while there's the opportunity given the potential for improving shareholder returns that way?

Yes. I mean, look, we haven't given specific phasing. We have said that this year, although we would expect to pay a dividend in line -- in line with our policy, we're not expecting to do any share buybacks because the high level of capital spend we're going to have because the extended accelerated growth program against the phasing of any disposal proceeds we've got from sale and leasebacks. So the reality is that our plan is more back-end loaded. We're being honest about that and open about that because the accelerated growth program, you've seen the phasing of the profitability. It's -- for us, it's a very high returning and, in my opinion, very low risk program. But it does mean that we need to invest the capital, and we'll see the benefits coming through over the next few years.

You've seen the phasing as well. We've got -- in terms of room openings, we've got the bulk of our room openings to come not this year, but over the next 2 to 3 years and then the maturity of those. So there is a little bit of back-end phasing towards that. You know that -- what our capital allocation framework though is that if we have the ability, we have excess cash. So if we have good trading in any particular period of time that generates excess cash for us because you do generate a lot of cash when trading is strong and it doesn't take much to -- for us to be able to do that, then what we won't do is squander that. we will be returning to shareholders as soon as we can.

So I think the important thing is the GBP 2 billion is very much in our control, much more than, say, managing cost inflation or the U.K. market because a lot of that is coming from our reduction in capital -- that is in our control. We can see exactly how we're going to do that. Clearly, it does matter how much cash flow we're generating from the business every year. But all of it after maintenance CapEx will be available for shareholder returns.

Tim over there Sorry, around.

Tim Barrett from Deutsche. Just a question about capital allocation. There's a big block on the slide, obviously, is maintenance CapEx, about GBP 1 billion. That feels quite high as a percentage of revenues. Can you talk through whether you reviewed that as part of this program, how you're planning your maintenance CapEx? And then just a small thing on Germany. I wanted to understand the extra cost you're talking about this year. Is that a package of hotels? How many? And obviously, the implication is you might split back into a loss potentially. Were you -- how did you feel about doing that at this stage in the development cycle?

Yes. Hemant, do you want to take the first part of the question on maintenance CapEx, and I can cover Germany.

Yes. I mean there's approximately GBP 200 million a year of maintenance CapEx. Yes, we reviewed everything. And we could spend more than that if we wanted to. The reality is that in a business like ours with a mature and maturing estate of hotel rooms, we have to keep investing in the product. So Joe mentioned it as part of his presentation. He also showed the chart that supports our RevPAR premium, the YouGov chart that supports our RevPAR premium with our brand in the Northeast of the chart looking at quality and value. We're very clear that -- and we can see in the numbers that as a hotel ages, and as it gets worse, there is a RevPAR impact. So we're quite methodical about how much we're investing back into the estate, but there's always attention.

As you can imagine, I'm trying to write that back, Joe saying let's spend more money and some saying let's spend more money on refurbishment. So there's always attention, and we're always managing that. So basically, we want to spend enough that we can maintain the quality of our estate and maintain the guest experience on average. But we know that there's always sites that we could be investing in. So there is a balance there. We balance that off. We think GBP 200 million considering the level of cash flow generation we can make and the margin we make from our estate is reasonable, and we know that, that actually works for us. In the future, we'll have a tighter estate. We won't have as many branded restaurants. So we've taken that into account in our thinking as well. But we think the balance is right.

I mean Joe covered some of it. today in the presentation. But one of the strengths of our business is all the data that we get from our customers. So every single site night of every single hotel, we can see exactly how much customer -- a customer spent and who that customer was. That enables us to see if a hotel, if the RevPAR is dropping off slightly, and we can bench it versus the guest satisfaction scores and break those guest satisfaction scores and things like the proposition or the team or the food and beverage, whatever it is. So we can take a very data-led approach to saying, in this site at this location, actually, our RevPAR is being impacted because we haven't done a refurbishment for x years.

And then we do a very, very careful refurbishment of that site. And when I say careful, I mean, financially, we run this business like we're spending that money ourselves. So Joe and Sarah, who's up here, who's done a lot of the work on the room propositions, we felt we were spending a bit too much on the room refurbishment. Our guest scores are high, and we felt we were spending a bit too much. You saw on that chart that we reduced it by 40%. We did that by literally going screw by screw, piece of wood by piece of wood, every single detail of the show to get that cost of that room down. What that means is we can now do more rooms versus we did before, which drives higher guest scores, which drives higher RevPAR.

But there are other sites we look at and say, we aren't going to do a refurbishment on that site. Actually, the guest scores are still pretty good. And although we haven't done the refurb for a long time, it's actually in pretty good shape. So we don't take -- sometimes big corporations, they take uniform views on this. They go, every 7 years, we're going to do a refurb. We are much more data-led in how we do that. And that's why we can say with confidence that we're spending about the right amount of money. And then your second question was around Germany. Eric, I might ask you to build on what I say here. But the first thing that we wanted to -- the 2 things that we really wanted to underline in the presentation today was the core of our estate, the model is working.

And you can see that by the profitability of the more mature hotels and through a catchment like Hamburg, for example. And we know why it's working. We know it's generally larger hotels, city center hotels in the right locations, coupled with our guest proposition and the strength of the brand. And we also know that this year, our assumption is we'll be making a good underlying profit in Germany. But we have made a number of acquisitions in Germany. They're mostly leasehold acquisitions for this year. They're mostly leasehold acquisitions. We've got a small collection of hotels that we have bought, and they are bull's eye for our model.

So we are spending some money on the conversion of those hotels, very, very sensibly spent money. We're not overdoing the expenditure on those hotels, but they need to feel like a Premier Inn. That has some costs associated with it. But out of that, we will open a set of hotels, which are going to be profitable. They're going to be strong returns and they're bull's eye locations. So for the course of this plan, for the 5 years, we're really comfortable we're making the right decision on those sites. Eric, anything you want to add?

Yes. I mean maybe just to add on what you said, and as you saw on the slide, I mean, we are maturing these new sites much faster than we did in the future, mainly through our multichannel approach. So we are very confident that we will see better results compared to previous cohorts on these hotels that we are going to add to the portfolio. Secondly, I mean, making a hotel Premier Inn was initially when the company went into Germany, a big exercise, if I may say so. So it needed all to be on day 1, 100% what this proposition stood for. We are more pragmatic now in doing this, saying, let's get into the site. Let's make sure this is very good serving our guests, but let's not get to gold plated solution at day 1 before we open the site.

So this gives us the opportunity to open the site earlier and then also to monetize the site earlier and then in the first cycle, ramping up the distribution and earning the money in. So these both things, I think, in combination really help us. implementation.

Profit and returns led focus underpinned by great guest satisfaction.

For Kate Xiao from Bank of America. 2 questions from me. First, can I ask about your commercial initiatives and the RevPAR premium. Obviously, you mentioned a number of things that are resulting in a favorable mix shift, including Premier plus and Harb development. Can you understand the incremental RevPAR uplift you would expect on an annual basis from these? 50 basis points above kind of thing? And then the second question, Dominic, thank you very much for the very transparent communication around strategic review, would you mention about the option of [indiscernible] brand, I wonder whether there could be a potential buyer out there for the brand that would pay a considerable premium because they see them having better capabilities of rolling out the brand maybe to more franchisees and more international markets. Do you think there's a buyer out there?

Okay. So let's take the first part of the question, Joe. I mean we don't guide on exactly what the initiatives are going to add up to over the course of the plan. We have a ruthlessly detailed plan internally that benches all of the different initiatives. I mean we're super excited by the commercial program because when we look at it and we say, a, our core revenue management capabilities are best-in-class, and they're only getting better, particularly as we adopt the latest technologies. And then we look at each guest's mission and say, how do we maximize the revenue from that mission. So the core room revenue, but then the ancillary revenues about that, whether that's food or beverage or room with a view or early check-in or late checkout or Premier Plus.

We see multiple opportunities in that area. And the third thing is because of our vertical integration, because of our direct relationship with our customers, we can access that extra revenue better and faster than our competitors can. You put that all together and you link it to the really strong team that Joe has got in the commercial function. I think it's super exciting, the opportunities ahead of us. And the reason we spent time on this today is you all know the driving of the revenue performance of this business, and as Hemant touched on from a shareholder returns perspective, it's a really important part of our business. So that's why we wanted to show you the level of confidence we've got in that. Joe.

Yes. It's a really good question. I mean it's hard to guide on an exact number. But what I would say is the year has started well. We're hitting the same level of incremental revenue year-to-date up to week 8 that we were hitting last year. So we've managed to sustain that and in certain weeks, we have actually exceeded it. So we're keeping going. I think there's plenty more to come is what I would give you confidence in. We have a lot of opportunities that we're working on already and are in the plan, but the plan isn't a fixed plan that we just lock into the year. As and when new opportunities, we've got new partner conversations coming on. There's a couple of opportunities I mentioned now like things like electric vehicle charging, which we're starting to get into.

So I feel really confident there's plenty more to come, and we should be able to sustain the level of outperformance that we demonstrated in FY '26.

Thanks, Joe. And then your question about selling the brand. I mean, I'm sure there will be people interested in buying the Premier Inn brand. To your point, it's an exceptional brand. I mean we're in a unique position with 12% market share in the U.K. and we are showing that can travel internationally with the success that we're having in Germany. There'd be a limit to how much a company be willing to pay just for the brand. But the bigger and more important point for us is when we looked at this and we looked at it in a lot of detail, if we sold the brand separately, it would be Whitbread -- minus that is left. The company that brought the brand would probably then distribute and sell the rooms with that brand.

And we think we're uniquely placed to optimize revenue and how we sell and distribute the business already. So -- for smaller businesses, selling the brand to a major international player, for example, I can see why that makes sense because suddenly, they get access to a global distribution system. Actually, our distribution system in the U.K. is unbelievably good for the Premier Inn brand, unbelievably good. We have high occupancy. You can see the market outperformance, and we have a core group of loyal customers. And adding into, let's say, a U.S. rewards program, for example, that honestly is not going to drive significant benefits for our business because fundamentally, those international guests, are they going to want to stay in one of our great hotels in Stoke? Probably not.

We've got -- the bulk of our business is actually outside London. Mark said, we've got a lot of new hotels opening in London, but we're also a very regional business. And so we think the model that we've optimized over the years actually is already doing an amazing job of maximizing revenue. So you then have to believe that overall, selling the brand would be a more value-accretive option than us owning the brand ourselves and executing this 5-year plan. And whichever way we cut it, the best way to maximize shareholder returns for this business over the next 5 years is to execute this plan that we're talking you through today.

Jack.

Jack Cummings at Berenberg. First one, just a clarification on Germany. I think you're taking some rooms out of the pipeline, but I don't think there's any closures or disposals. But I know you said in the release that some of those earlier pre-pandemic acquisitions haven't kind of met expectations. So any reason for holding on to those assets that are maybe underperforming? And then the second one, just some of the other hospitality businesses in the U.K. have talked to a pickup in demand for staycations because of the ongoing conflict. Is there anything you can talk to with respect to the demand drivers on the leisure side of your business that you've either got on the books for this summer or that you've already seen?

Yes. So let me -- shall I take the second part of the question, do you want to take the first part of the question, Hemant. I mean, as we touched on in our trading statement, we're actually in a good book position for this year moving forward. I know there have been questions out there about the macro environment for consumers. And as I said earlier, it's an uncertain world we're in, isn't it? However, I can also see that we could be very well placed if there is a staycation boom. And I'm not going to stand here and say there's going to be a staycation boom. Nobody knows that right now. But airline prices are going up. Normally, that means fewer people travel. We're the largest hotel business in the U.K. with over 850 hotels.

We are well placed should more people stay in the U.K. to benefit from that. But it's hard -- it's very hard to call. We're in a good book position for some of them, but we're quite a late booking market. So we're seeing no negative signs currently from the situation that is out there, but we're really mindful of fact that there are large changes and dislocations happening. I do think if more people stay in the U.K. this year instead of going overseas, we'll be well placed to take advantage of that. But time will tell on how that pans out.

Yes, Jack, the easy answer is we are making closures. So you might have missed it as part of Eric's presentation, but we are taking our target down in Germany from 20,000 rooms to 18,000 rooms a year later. Part of that is that we will close some open hotels to optimize the current estate as well.

Anna Barnfather.

Anna Barnfather from Panmure Liberum. Just a follow-up on Germany. Obviously, very different from the U.K. with the 40% reliance on OTAs. I wondered what your thoughts on where that could be reduced if it can be reduced and what the drag on returns it is of paying that sort of fee away.

Yes. It's a great question, Anna. I mean we did a lot of work on whether we should widen our distribution in Germany. Eric led that work. Again, we've taken an incredibly data-led view. We started in Germany with the same model that we've got in the U.K., which is direct only. But of course, when you start a hotel brand in a market and you've got 5 or 10 hotels, your brand awareness is very low. So you have to work very hard to get direct bookings. What we did is a number of data-led trials with online travel agents to see whether we were going to get to incremental customers by widening our distribution. And the answer was a categoric yes, it works.

We get to an incremental customer, and we can drive higher RevPARs and higher profitability by getting to more customers. It's also have the added benefit. You saw that from the brand awareness slide. Our brand awareness is rising faster than our competitors. Part of the reason for that is actually we're using the third-party distribution to build our brand. Every time a customer goes on Booking.com or Expedia or something out in Germany, they'll see a Premier Inn brand. If they don't know that brand at that moment, then they'll get to know the Premier Inn brand and they'll get to experience the brand. So categorically for us, it's helped us bring more guests into our hotels, and it's helped us drive profitability, better RevPAR, better returns.

The other side of it is we are driving really strong guest scores in Germany. And if you go on Booking.com and you look at the guest scores we're getting from our guests, and it's incredibly transparent, isn't it nowadays? And increasingly, customers when they book a hotel in a new city, they'll just have a look on Booking.com or Expedia or whatever, and they look at the guest ratings. Well, our average score for Booking.com is well north of 8.0. So it's generally in the very good to level. And it's really good value for money, a wonderful way to get more customers into our hotels and build awareness. But in parallel to that, you can imagine we also have a strategy to say we want to build a long-term relationship with these customers as well.

And the beautiful thing about Germany is the patterns are quite similar to the U.K., lots of business customers and lots of multi-trip leisure customers. So building a direct relationship with the customer can also be good for them and good for us. So over time, I'd expect we would continue to use online travel agents in Germany. I think that percentage will probably drop over a medium-term period of time as we build that direct relationship with our guests, things like rolling the app out with digital keys, it creates that direct relationship.

But I can also see us for the foreseeable future, we'll continue to use a wider distribution. because at 18,000 rooms in Germany, we are a fraction of the hotel business in Germany, one of the great opportunities of that market, which means that the incremental customers we can get from widening our distribution is really profitable for us.

Thanks, Dominic. I'm just conscious of time. We probably got time for the last few. So.

I think we're on time.

Just -- sorry, I just wanted to get to Jarrod, just the last question, please.

Just in terms of maybe an accounting question. I mean, you're basically getting rid of food and bev. So I take it it's going to no longer any revenue disclosure there? And are you going to be moving this some way for asset held for sale? Or are there any write-downs there? And then secondly, can you give any guidance on interest cost, just given sale and leaseback, et cetera?

Yes. I mean, we can probably follow up and give you some more detail kind of modeling questions to the team. But yes, there are different definitions when we're going to make an asset held for sale. We will -- we have done that for certain assets, but not for the bulk of the new assets yet because they aren't at the place where they've got an offer on them. I'm oversimplifying. We have though written down. So as part of the adjusting items for this year that's just gone, that has gone up by GBP 75 million more than it would have been without the second phase of the accelerated growth plan. And then, yes, on interest, I mean, well, I mean, why don't we help you with -- I mean, I mentioned earlier on to Jaina's question that sale and leaseback cost, you can roughly assume 8% for full year of the asset value in terms of the P&L impact of that approximately with an IFRS premium. And then obviously, you could help you with modeling interest cost based on cash balances. We'll do that separately if you want, Jarrod.

Thanks, Hemant. Dom, do you want to.

Yes. I'm really respectful of everybody's time, and we're on time. I'd like to thank everybody for both here in person and online for your -- I mean, we find it fascinating, but we're slightly biased. But hopefully, you found this interesting to you. We're super excited about this plan. If I just leave you with a few thoughts on this plan, we are reducing our capital intensity. We're going to increase our profitability. We're going to increase our financial returns for shareholders, and we're going to take profitable market share in both the U.K. and Germany.

That for us is a super exciting place to be, and we've got a great team to deliver it. So thank you for your time today, and we really appreciate it. And as Peter and Hem said, any follow-up questions at all, you know where we are. Thank you.

Hello, everyone, and thank you for joining us today for the Whitbread Full Year '26 Q3 Trading Update Call. My name is Sami, and I'll be coordinating your call today. [Operator Instructions] I would now like to hand over to your host, Dominic Paul, CEO of Whitbread, to begin. Please go ahead, Dominic.

Thank you, Sami. Good morning, everyone, and thank you very much for joining the call for our Q3 full year 2026 trading update. I'm joined by Hemant Patel, our Group CFO. Hopefully, you've had a chance to review our announcement this morning. I'm going to start with a brief overview for those who haven't seen it before opening up the call for Q&A, when Hemant and I will be happy to answer your questions.

I'll start with a few comments on our financial performance in the quarter. We saw strong trading momentum in both the U.K. and Germany. And as I'll come on to shortly, I'm pleased to say this has strengthened into the current trading period. In the U.K., the return to market growth that we saw in the summer has continued and occupancy remained high at 83%. RevPAR was up 3%, and we maintained a healthy premium versus the rest of the mid-scale and economy market.

We traded particularly well in London, where we increased both occupancy and rates, resulting in RevPAR up 7% versus the prior year. U.K. food and beverage sales were in line with our expectations as we continue to make excellent progress on our Accelerating Growth Plan that will both improve the guest experience and drive higher returns for shareholders by transforming some of our lower returning branded restaurants into higher returning hotel extensions.

Our German business also delivered a strong trading performance in the period, and we remain confident in reaching profitability this year. Total accommodation sales up 12% and RevPAR was up 7% in local currency. This performance reflects the increasing maturity of our estate and brand, supported by our commercial initiatives, and we continue to outperform the rest of the market on both accommodation sales and RevPAR growth.

Now moving on to current trading and starting with the U.K. Our performance has strengthened versus the third quarter. And in the 6 weeks to the 8th of January 2026, total accommodation sales and RevPAR were both up 4%, and we outperformed the wider market.

In Germany, trading during the first 6 weeks have also been strong and total accommodation sales were 11% ahead of last year and total estate RevPAR was up 5% to EUR 56. Our cohort of more established hotels are also performing strongly with RevPAR up -- with RevPAR of EUR 66, up 8%.

Now turning to costs. We have made great progress with our efficiency program and so we've been able to increase our expected savings in full year '26 by a further GBP 10 million to between GBP 75 million and GBP 80 million. And looking forward to next year, whilst there is no change to our underlying inflation assumptions following clarification from the government on the mechanics of transitional relief on U.K. business rates across over 1,000 of our properties, we now expect the cost impact will be circa GBP 35 million in full year '27, which is lower than our preliminary estimate of GBP 40 million to GBP 50 million.

We continue to believe the proposed changes to business rates are punitive and will impact future investment and job creation. And we, along with the wider hospitality industry, are actively engaged in pressing the U.K. government for changes. Taking into account the GBP 60 million of efficiency savings that we're on track to deliver next year, we therefore now expect net inflation in full year '27 of between 3% and 4%.

And finally, a word on the outlook. Starting with the U.K., while forward visibility remains limited, our booked position for full year '27 is building nicely and is ahead of last year with positive long lead leisure bookings into peak periods. And in Germany, we have continued to perform ahead of the market and remain on course to reach profitability this year.

We are continuing to focus on what we can control and are making great progress on each of our strategic initiatives. Our Accelerating Growth Plan is on track, and we are building out our committed pipeline in the U.K. We're growing our business in Germany, and we are on track to become the country's #1 hotel brand. Our commercial programs are continuing to drive like-for-like sales momentum. We're continuing to maintain a tight grip on costs with our ongoing efficiency program, and we are recycling capital by sale and leasebacks into high-returning investments like Accelerating Growth Plan.

As we said back in November, in response to the U.K. budget, we are exploring a variety of options to further drive profits, margins and returns. That work is ongoing, and we expect to provide an update to the market regarding our Five-Year Plan at the time of our full year results in April.

I'll now hand back to Sami to host the Q&A. Can I please ask you to limit your questions to 2 per person, so we can get through as many as possible. Thank you.

[Operator Instructions] Our first question comes from Jamie Rollo from Morgan Stanley.

The first question is just on U.K. RevPAR. Obviously, encouraging to see that back in growth after 6 quarters of declines. But your occupancy is still down year-on-year. So I'm really wondering, first, what your sort of confidence level is in RevPAR staying positive. I know you don't guide, but just be good to talk about the drivers there. And also what drove the 2 percentage point outperformance in the current trading period. It's quite a big number.

And then the second question is just on the end of April on the variety of options that you're exploring with regards to the Five-Year Plan. I'm just wondering how wide-ranging that review is? Is it going to be mainly operational? Or is it also strategic? Is it just a response to the budget? Or is this also a response to the activist letter? And is this a review by Whitbread? Or does it involve an independent third party?

Thanks, Jamie. So let's talk about current U.K. trading first. I mean occupancy was slightly back year-over-year, but you also see in current trading, it was very, very close to the year before. Pricing was strong.

As you know, we optimize by room, by night, by hotel. And some of our hotels have higher occupancies than the year before, some have slightly lower. The key thing is to optimize revenue every single room, every single night. And I think we're doing a really strong job of doing that. So occupancy is very slightly back. There's actually pretty much at the edges, which I think is really encouraging.

I think the market, to your point about the 6 quarters, there was an inflection point earlier in the summer. I think we feel very confident in the underpinning of the U.K. hotel market by this lack of supply and the supply growth coming into the market is still very low, and we think will support the hotel industry in the U.K. for a number of years.

And we think we're best placed to take advantage of that. Super strong brand, fantastic operations, really strong commercial program. And I think you can see in the numbers that we are talking about today, real momentum building in that commercial program. You asked a question about current trading in particular and what drove that.

We had a really clear strategy to trade through December, the Christmas period and into the New Year period. We take every single period very carefully. We're very, very operationally and trading focused as an organization.

There are a number of things that drove that. One, consistency of the product, the strength of the brand, strength of our locations. Frankly, no one in the U.K. market can match us on those things.

And then we traded the business really well. We're making fantastic progress on things like our CRM using the data. Remember, the majority of our customers book direct. We've got that data from our customers. Getting better and better at utilizing that data to drive revenue. And our pricing actions were very carefully orchestrated, very smart and I think helped underpin the fact that we outperformed the market quite materially through that period.

So I think really, really encouraging. Overall, I think we feel very good about that, and we feel confident about the underlying market in the U.K. To your kind of question about the independent review and I guess, kind of Corvex in particular, I mean the first thing I should say is we are very confident in delivering long-term value for our shareholders.

We said in November that we're reviewing a range of options to drive profits, margins and returns, and we're going to come back and update on the Five-Year Plan at the end of April. We have got a fantastic Board at Whitbread. We've got an experienced strong Board.

We regularly review all the strategic options available to us in order to maximize the long-term value for our shareholders. I would reiterate that we are open-minded, we're objective, we're critical in the assessments that we do. And we've got a really good track record of demonstrating this.

Two examples, our decision to separate and sell Costa Coffee and return capital to shareholders and more recently, the Accelerating Growth Plan that we announced. And these are structural changes to our business that we won't shy away from if they are the right thing to do for our shareholders. Part of the review that we will do, of course, we're taking very careful consideration the views of our shareholders. And we'll come back at the end of April and update on that. We're open-minded. We are very confident that we've got a strong plan that's going to deliver value for our shareholders. And I think the trading statement today kind of shows the momentum that we're building, but we're open-minded. We'll review all options. And we'll come back to the market and update on that at our full year results at the end of April.

Our next question comes from Leo Carrington from Citi.

Firstly, can I ask on the transaction this morning with LondonMetric? Can you give some more color around this, just given the timing around the budget, I suppose, was this agreed before the budget? If not, in what way did the terms or valuation change over the last few weeks?

And then secondly, on the net cost outlook. Firstly, for FY '26, in the past -- and I'm thinking of the cost savings. In the past, you've mentioned the robot vacuum cleaners, the food procurements, et cetera, in the operations, but the quantum of these savings and the increase itself suggests something else possibly. If you could just give some color on what you've managed to achieve since the last update, that would be really helpful.

Thanks, Leo. I'll take this. Yes. So I think, first of all, the transaction with LondonMetric, we said at the beginning of the year, we were guiding to GBP 250 million to GBP 300 million of disposal proceeds for the full year. This is part of that. We're still on track to get that, that includes sale and leasebacks as well as other disposals. It's an GBP 89 million deal across 9 sites, net initial yield of 5.3%, which we think is really good value. So a wide range of sites, including regional sites as well as London sites as well.

So we're very happy with that pricing. As you can imagine, these deals don't just happen overnight. So we've been talking to them amongst other options for a while. The most important thing for us is to make sure that when we are making these kind of transactions, we are maximizing returns to our shareholders. And what we're trying to do here is raise funds to actually invest into very high returning projects like the Accelerating Growth program, which is returning high teens returns on capital.

We're happy that we've got the best pricing for those in the marketplace. Clearly, things like the change in business rates has a small impact on pricing things like sale and leasebacks, but it's not significant, and we're still really happy that we got very good pricing, and we're making, as I say, creating great value for shareholders by doing the deal.

On net costs, I think we've got a big cost base. It's a GBP 1.7 billion cost base, and we've got a good record of looking for efficiencies over the last few years, very, very comprehensively. It's a large process in terms of -- there are many different initiatives that make up the [indiscernible] that we're going to save efficiencies this year.

And across the whole cost base from labor, across procurement costs, across technology costs, et cetera. And what we're looking for is real efficiencies here. This is not just cost cutting. This is not just taking investment out. This is actually doing the things we want to do that are right for our guests and for our guests in the most efficient way possible.

It's an ongoing program. As we get closer to the end of the year, obviously, we get more and more certainty in terms of what's going to land. We're always looking to accelerate programs, bring them forward for next year. We're always looking to increase the scope of our individual programs and make them land better. And some of the examples you mentioned are good examples of that.

We're also adding things in as well that we haven't been able to affect it might increase some investment in technology that allows us to do that or even new ideas. As I said, this is just something that we continue to do. As inflation comes into the business, we always find further opportunities that come apparent.

As labor costs go up, it makes sense for us to invest in technologies. You mentioned robot vacuum cleaners is a great example where we invest in technologies that allow us to take those costs down. The same applies to utility costs. The same applies to procurement costs as well.

You mentioned that there's a large supply program. We've been able to accelerate that. That's where we've taken a site-by-site and warehouse model for food and beverage supply. And we've been able to put in a wholesale model in, which has cut the cost of procurement, the actual individual items for us, we'll be able to take advantage of the wholesalers buying scale, but also the actual delivery costs that are much more efficient -- much more efficient network for sharing with other customers.

Our program going forward is going to be informed heavily by things like AI, where we know there are more opportunities for things like, for instance, improving labor scheduling and forecasting. And then we have a host of other things, which we probably even thought of that AI is going to bring us. And obviously, there are many examples in terms of just day-to-day management of the business that we're looking at as well.

So we're very confident in the program now. We've been able to, as I say, accelerate significant cost savings into this year. We're still happy we've upped up -- we upped in November the target for next year of GBP 6 million. We're very happy we're able to achieve that as well.

Our next question comes from Jarrod Castle from UBS.

I guess you changed the impact you'll see from the rates in 2027. Do you care to give any guidance on the profile post 2027 based on existing plans? Or indeed, has your view improved like it did for 2027 in terms of the rates impact?

And then just because you raised it, AI Agentics, we've obviously seen like signings with Google's Gemini. I mean, what are you doing on that front for distribution? I know historically, it's probably been the highest in the industry by far in terms of direct. But how do you view the challenge there in terms of having to potentially do more through third parties, et cetera?

Thanks, Jarrod. I'll take the first part, and then I'll hand over to Hemant. I mean, firstly, on the business rates, of course, you're right. We're now forecasting a circa GBP 35 million increase in business rates next year. It is really complicated the way it's calculated.

The government -- when we came out with GBP 50 million, it was a preliminary number. The government clarified a few things, that's brought it down to GBP 35 million. Of course, that is a short-term financial hit. We've got a very strong track record of mitigating costs over time. And we feel very confident in our ability to drive returns for our shareholders for long-term share -- to drive long-term returns for our shareholders, and we'll be updating on that further, as I said, by the end of April.

We are not just taking this increase in business rates lying down. That's what good leadership teams do is they -- if they get a surprise increase in cost, they work out how to mitigate that. We've also in ongoing conversations with the government about that. We do think the increase in business rates is punitive. We are having direct conversations with the government about that.

Also U.K. hospitality and the CBI are lobbying the government hard on that. There is a consultation process running at the moment. It's due to finish by middle of February. We are working on the assumption that those business rates won't get reduced further, but it's a consultation process.

We do believe what we've set out is the worst-case scenario. What we'll do is continue to work very, very hard on how we mitigate those increasing costs and how we drive the shareholder returns over the next few years.

I will just quickly touch on the distribution point and then hand back to Hemant for the kind of multiyear view. Really interesting, isn't it? I mean, you're right, Premier Inn has got this incredibly strong direct distribution model in the U.K. Our approach is actually to set ourselves up really well for whichever way this goes.

So we are doing a lot of work behind the scenes on optimizing our web and app content for AI. There is a school of thought that says actually Agentic AI will threaten the big distributors because customers over time will increasingly go direct because they'll use Agentic AI to do that as opposed to use a distribution platform.

And we are setting ourselves up to ensure that we will benefit from that. We're also, as you know, using distribution to access incremental groups of customers. So Expedia inbound into the U.K. is an example of that. So the beauty of our model is I think we are very well set up for whichever direction this goes.

But we are doing a significant amount of work behind the scenes to make sure that our business is very well set up for this kind of movement to how customers are researching and choosing accommodation providers. The key thing that comes up very strongly is they look at guest ratings, they look at the strength of brand, and we're very strong on both of those things.

So the consistency of the product, the strength of the brand actually is our biggest strength when it comes to a changing distribution platform. So I think we're well set up, and I feel very encouraged that we are approaching this with a very open mindset.

Jarrod, yes, just on business rates, so I'm just building on what Dominic has already said. So clearly, yes, we came out with a straight off the budget with a view on GBP 40 million to GBP 50 million next year. We've updated that as we sign up more about our transitional relief was going to be applied with this business rate regime it's slightly different to the previous regimes, not just in the profile, but actually in the application of that, which became apparent.

And hence, the estimate of GBP 35 million for next year, which are fairly very clear on. We haven't said anything about what that means over the longer term. I mean, clearly, it's very easy to do the math, but we have a mix of different hotels with slightly different depending on valuation, different transitional relief profiles. We've only -- obviously it's a 3-year rating regime. We don't know what's going to happen by year 4 and 5. We feel confident that as Dominic said, that on April 1, we come back and talk about the overall mitigation, illustrate and an update to our Five-Year Plan, we will give some more detail in terms of what we think the overall phasing looks like for the business in terms of that plan.

So we will give some more detail at that point. I think the other thing is, obviously, there are rebates as well that we will be challenging valuations as soon as we can from April onwards. And then there will be a multiyear process of getting rebates back against the business as we get those valuations agreed.

Again, we don't know the phasing of that. We don't know how quickly that will happen, that we will guide to as part of our efficiency plans. So these numbers are unmitigated before any of those rebates numbers and before any impact of protection lobbying government. So yes, we'll give some more details in terms of what that looks like, but we haven't done so at the moment, and we'll work through what that looks like for years 4 or 5 as well.

The other thing just building on what Hemant said at the end there, Jarrod, I mean the other point about business rates, which is interesting is we are in a privileged position to do a lot of work behind the scenes to mitigate the impact of business rates over time.

And we are well set up to do things like the challenges, for example, that Hemant just touched on. The independent sector is going to be particularly hit by this. And the supply constraints in the hotel market are going to become more exacerbated, we believe, because of the various increases in costs in the hotel industry, whether that's minimum wage or national insurance or business rates, which is actually going to support the hotel sector over the next few years.

And we are very, very well placed to take advantage of that. And we are -- got a great track record of driving efficiencies. As we become more and more efficient and utilize the scale of the business that we've got, we can actually extend our leadership position versus our competitors and make us harder and harder to compete against. And that's our focus. How do we get even stronger as a brand and a business through this despite the headwinds.

Our next question comes from Timothy Barrett from Deutsche Numis.

Can I start with a question on costs? Obviously, that GBP 10 million incremental for this year is very impressive with only 6 weeks to go. It wasn't in your plan at the interims. I'm just wondering how much of it is cash and how much of it is noncash, please?

And then the second thing, just going back to the RevPARs actually. In the third quarter, London was a standout at 7%. Was that consistent through the quarter? Or is there lumpiness in London that we need to be aware of?

Yes, Tim. I'll pass to Hemant for the first part of the question, and I'll pick up the second part of the question.

Yes, it's all cost -- it's all cash. [indiscernible] we have all through the year, we've got a large plan and a probability against what we're going to deliver in terms of the efficiency programs because of timing, because of the actual -- once we trial things and how effective they are. So there's a large corporate stuff we're always working on. And as things crystallize, we will commit to and then we'll talk to the market throughout the year in order to deliver GBP 75 million to GBP 80 million or at the beginning of the year, obviously, we were only kind of about GBP 50 million. In order to deliver that, we have a very wide range of potential opportunities that we're going to be able to deliver.

We crystallized that over time. It's real cash, real costs are coming out of the P&L. Some of it, obviously, we move into -- start this year and move into next year and some of it has been accelerated from this year. So for instance, we mentioned earlier on the change in our F&B supply that through the year, we've been able to bring that forward, and we've got more and more of the benefit for this year. So we've been able to commit to that as we've seen that land. But it's real hit on money, is real cash.

And Tim, just on the question about London, consistently strong actually, not particularly lumpy, consistently strong through the quarter. And again, and I've said this on the calls before, we feel very good about London overall as a market.

We're increasing our capacity in London, which is turning out to be categorically the right thing to do. It's a high-quality market. We're relatively under-indexed in the London market. A number of our new hotels opening are there, they're driving very strong returns. And one of the reasons that we feel so confident about the profitability of the new rooms that we're putting in is they disproportionately are in London, which is, as I said, a consistently strong market.

Our next question comes from Alex Brignall from Rothschild & Co Redburn.

First one, just in terms of full year '26 PBT, Hemant, I know you've talked about this earlier, but the release sort of says happy with full year expectations, but the kind of components of it suggests that there's probably a bit of an upside both in terms of the statement of the better cost efficiencies and also the better trading.

I wonder if you could sort of give us an expectation of how those pieces drop through to PBT, [indiscernible] give guidance, but just how we might think about it sort of formulaically? And then a couple on the consequences of rates. How have your sort of creditors and banks and the rating agencies kind of given you a -- tell us what you're going to do in April kind of comment? Are you in that situation where they're effectively waiting for your plan?

And then the second bit of it would be, as the #1 market share business in the U.K., do you think that this is the moment where maybe you say, well, this is our opportunity to take a lot of share. You've talked a lot about supply coming out. Often these kind of times of weakness when the biggest businesses take a lot of market share. Is there sort of a theoretical aggressive route where you massively bolster your balance sheet and then you have a big [indiscernible] money that you can go and take a lot of share from some of your struggling competitors?

Thanks, Alex. So let me take the second part of the question, and then I'll hand over to Hemant about full year '26. I guess -- I mean, the first thing I'd say is we are extremely disciplined about our returns focus. So what we won't do is just chase growth for the sake of growth.

What we will do is add capacity when we are really confident that, that capacity is going to be accretive overall for our returns. Now we are in a fortunate position and a lot of our competitors are not in this position. We are in the fortunate position of having strong profit from the vast majority of our hotels, very strong profit and high margin. So although the business rates next year, has an impact on our business. The reality is the vast majority of our hotels will still deliver very, very strong, very, very strong returns and very strong profitability.

Our focus, of course, is how we continue to drive that profitability moving forward, which is what we talked about updating at the end of April, where we'll update and say, talk about how we mitigate business rates over time, but also how we further drive margins and returns for the business.

Now in terms of going for growth, I do think that supply is going to remain constrained in the U.K. for quite a long time. That will mean that sites to us probably will offer strong returns. But just to reiterate the point, our growth program that we've got planned is very returns focused, and we will continue that returns net approach to our strategy. And in terms of full year '26?

Yes, Alex. So on FY '26, yes. Very clearly, we are guiding to a GBP 10 million improvement in our cost base this year, the efficiency program, which drops to the bottom line. So that should be an increase in your forecast of GBP 10 million. And clearly, depending on exactly what you're assuming for RevPAR, we don't guide on RevPAR. But clearly, trading has been very strong across this last quarter. We've outperformed the market.

So although you'll be seeing weekly STR market data, we've outperformed that. So again, depending on the view going forward, we might expect to see some upside from that RevPAR as well against previous forecast.

Yes, Alex, I suppose just building on that point about the growth, which is we talked about the Accelerating Growth Plan, 3,500 extra rooms to the Accelerating Growth Plan. I mean that is us taking market share in the market. It is also driving accretive and incremental returns because we're removing the drag of a lower-performing branded restaurant, replacing it with higher-performing extension rooms. That's a great example of how we can both drive growth but also drive returns. And we'll take that kind of focus on returns moving forward.

Our next question comes from Kate Xiao from Bank of America.

My first question is a follow-up on the '26 guide. Can I just confirm that U.K. net cost inflation is still the 2% to 3% range? I want to do the math of the GBP 10 extra million of cost savings is equivalent to about 60 basis points of year-on-year increase of the U.K. cost last year of EUR 1.63 billion. So if the range still holds, can I understand this as the guide used to be closer to the 3%, and now it should be closer to the 2% of year-on-year net cost inflation for U.K. cost? That's the first question. And then just the second question, can I ask on your property valuation. Obviously, you did at 1H property valuation of GBP 5.5 billion to GBP 6.4 billion. I wonder what's your view on that valuation range after the U.K. business rate change? Are you looking to do another round of property valuation accordingly?

Yes. So yes, I mean, overall kind of net cost inflation is now at the bottom of that range effectively. So yes, I mean, the important thing is it's a GBP 10 million reduction to the kind of the forecast we have with in line with our previous cost guidance. But it's the bottom of that range, you're absolutely right. 2% to 3%, but 2% 2.5%. In terms of property valuation, I mean, we did the property valuation as you say, I mean it's something we do every few years in reality as for information and also to give some support to our ability to recycle capital as well. There's no other implications in regards to that property valuation in terms of an accounting revaluation or anything like that. So it's not something we'll do that often. Yes, business rates obviously has an impact on that. But clearly, that's an unmitigated view. We're going to come back on April 30 with a full view of what our Five-Year Plan looks like, clearly, it's value property, think about future cash flows on that property overall. So there is some impact from business rates in terms of property valuation, but it's relatively minor and unmitigated as well. But there's no -- yes, we don't need to do a property valuation at this stage and time.

[Operator Instructions] Our next question comes from Jaafar Mestari from BNP Paribas.

Just one follow-up on U.K. business rates impact. Hemant Patel, I think you said doing the math is relatively easy for year 2 and year 3, but maybe it's worth just doing it all out just so we're on the same page. So if I assume that the EUR 35 million impact for '27 is effectively right at the cap. It cannot increase more than 30%. That's the transitional relief. Would it be fair to assume it's sufficiently big that in year 2, you're also again right at the cap. So another 25% increase this time, call it, EUR 37 million. And I guess more debatable in year 3, is it still big enough that you're again right at the cap and increases another 25%, and that would be GBP 45 million in year 3. So it increased completely unmitigated, of course, but GBP 110 million, GBP 120 million over 3 years. Is that what you're trying to mitigate?

Yes, of course. I mean we haven't given the detail in terms of what [ BRs ] looks like. So I'd say we want to be able to give a mitigated view of what the impact is for us across the next 5 years, which we'll do on April 30, including how we're going to drive overall profit returns across the whole of the business.

I don't think the question is easy, but you can do the math to an extent. The reality is it's not quite as simple as you said, because obviously, some properties aren't going to go up at the full amount to get to the full cap. So by the time you get to year 2, there will be some properties that will be reached their increase in valuation. And obviously, by the time you get to year 3, you'll have some as well even potentially in year 1 as well.

It's not quite as simple as that. I'd say what we'll do, because obviously it's not as simple as it's more complicated because actually there are different transitional relief profiles for different valuations of site as well within that. And there are other aspects of the business rates as well. We'll be talking about England here effectively because obviously 3 other nations that we need to consider as well and other kind of supplementary and perhaps from local authorities as well. So it's not quite as simple as that. We will -- we've got a better view of what it looks like over the next 5 years as I said April 30th, including a full kind of mitigated view of what we think it means for the Five-Year Plan.

Just a couple of things. As we said at the beginning, the level of increase in business rates on the hotel industry overall is punitive. We're already working on how we mitigate those costs over time. We've got a very good track record of mitigating costs over time.

We are open-minded. We will look at all of the different options open to us. And in parallel, we are working very hard with the government as they go through the consultation period to show why this isn't the right outcome for the hotel industry.

Having said that, if the government does not change their view on it, we are better placed than any of our competitors to deal with this and make sure that we are one of the winners as we come out of this in terms of driving long-term returns and actually driving market share over time.

Very clear. So for the year 1, it is 30%, and then you can only get a little bit better.

Yes. I'd say we'll give a better view on April 30. Thanks, Jaafar.

And Jaafar, we can follow up separately post the call. I'm sure there'll be a number of questions on business rates, which we are happy to follow up on.

I'd like to thank everybody for the -- I'd like to thank everybody for their time today. I mean, as you can see, we feel really good about the progress we're making, but also the momentum that we've got in the business. We appreciate your time, and thank you very much.

That concludes today's call. We thank everyone for joining. You may now disconnect your lines.

Good morning, everyone, and welcome to today's Whitbread Full (sic) [ Half ] Year '26 Interim Results Call. My name is Seb, and I'll be the operator for your call today. [Operator Instructions]

I'll now hand the floor to Dominic Paul, Chief Executive, to begin the call. Please go ahead.

Thank you, Seb. Good morning, everyone. Thank you for joining myself and Hemant Patel, our Group CFO, for our half year results call. Hopefully, you've all been through our release, and you've had a chance to listen to our results presentation this morning.

But before we open up the call for Q&A, I thought I'd just pull out a few key points. Let's start with our first half results. As you probably all know from the published data, the U.K. market returned to growth in the second quarter. As a result, U.K. accommodation sales were in line with last year for the first half. And with the benefit of our commercial program, we continue to outperform the mid-scale and economy market on both accommodation sales and RevPAR.

Now food and beverage performed in line with our guidance, and we continue to make great progress on our accelerating growth plan to transform our offer at around 200 of our lower returning branded restaurants and unlock 3,500 higher returning extension rooms. We've done really well with our cost savings, delivering GBP 43 million in the half, helping to partially mitigate cost inflation that ran slightly ahead of our previous expectations. As a result, U.K. EBITDA was down just 3%, and we're increasing our full year guidance to GBP 65 million to GBP 70 million of cost efficiencies for this year.

In Germany, we delivered a positive revenue performance that was ahead of the market despite softer-than-expected market demand in the second quarter, and we significantly reduced our adjusted loss before tax. We continue to make great strategic progress with a recent agreement to acquire 1,500 rooms in key locations, taking us closer to becoming the #1 hotel brand.

Turning to current trading. First, in the U.K., the positive trading momentum has continued during the first 6 weeks with both total accommodation sales and RevPAR up 3%, and our forward booked position remains ahead of last year. In Germany, after a softer start to September, the market has returned to growth in more recent weeks, and we remain on course to reach profitability this year.

Now turning to the 5-year plan. It was this time last year that we announced a 5-year plan. As summarized in our presentation this morning, we are executing at pace, and we remain on track to deliver a step change in our performance and return GBP 2 billion to shareholders by full year '30. In the first half, we completed a number of sale and leasebacks and with a positive updated valuation of our property, we are confident in recycling at least GBP 1 billion worth of property. This will be reinvested into high-returning projects like our accelerating growth plan and further network expansion in the U.K. and Germany.

With significant cash flow, we can deliver a step change in profitability and deliver GBP 2 billion to shareholders through both dividends and share buybacks.

Now we do have a lot of people on the call today. So before we move into Q&A, in the interest of time, could I please ask you to keep to a maximum of 2 questions each.

With that summary, I'll now hand back to Seb to host the Q&A. Thank you.

[Operator Instructions] Our first question is from Jamie Rollo of Morgan Stanley.

First question, I know you don't like talking about RevPAR or obviously guiding, but just on this positive RevPAR inflection we've seen in the U.K., do you think it's all events? Or do you think the underlying market has actually improved? And how are you thinking about RevPAR as we enter a more sort of corporate-driven period?

And the second question on Germany. So a very, very confident comment in the prerecorded presentation on the 5-year plan. Obviously, there you've trimmed your guidance this year. I'm just wondering what RevPAR growth you need in the second half to get to that GBP 0 to GBP 5 million. It looks like a pretty material pickup is needed from the sort of plus 3% RevPAR in the last 6 weeks.

Thanks, Jamie. So let's talk about the current trading situation. I mean, you're right, in the summer, there were events. The market benefited a little bit from the warm weather, but the underlying market was positive. So when you strip out those impacts, the underlying market was positive. And I think the key thing is that trading momentum for the market overall has continued into the current trading period. As I've just said, we're at 3% RevPAR growth for the past 6 weeks. So the underlying market, actually -- when we had this call in, I think it was June, we talked a lot about would there be a RevPAR inflection. We felt there would be. It was obviously -- it's always really hard to say precisely when. But what we're seeing now in the underlying market is positive, and I think there are good reasons for that.

So the structural underpins for the U.K. hotel market are really supportive. Supply remains constrained. There is still this meta trend of independent closing, and that gives us a great opportunity. So the structural underpins help support the market. And I think the normalization post-COVID, we're now entering a slightly different era. And I think you can see that in the underlying trading performance, which has been positive.

Now of course, when there are events, we do benefit. But generally, there is an ongoing calendar of events in the U.K. Last year it was Taylor Swift. This year, it's Oasis. Next year, it's going to be Take That and some other concerts. So broadly, I think we're feeling good about the positive momentum in the U.K. market. And remember, the underpin is our kind of consistency of our brand and the guest proposition.

I think in Germany, I mean, I'll pass over to Hemant for the kind of second half for Germany. But overall, again, as you heard in the presentation, we feel really good about the momentum that we're building in Germany. If you look at our turn in performance over the last 2.5 years, it's actually been substantial. We're creating a business of scale. The product is resonating extremely well with guests. Our financial performance is getting materially better. We're on track to hit profitability this year. And we're on track to hit that GBP 70 million PBT by full year '30. So we're building a business of scale. We're confident of building a business that is going to drive strong returns and strong profitability. And we think there's a really good strong value opportunity for Whitbread in Germany.

Thanks, Dominic. Jamie, yes -- so I mean, yes, clearly, the second half of the year for Germany, we need to see a strong pickup in terms of RevPAR for us to get to our targeted profitability. We feel very comfortable with that. In the first half of the year, particularly in Q2, we saw a very strong events program last year, and we've annualized against that. And the German market went negative over that quarter. We've outperformed the market. In Q1, our RevPAR growth was double digit. We can see that through the last couple of years, we've seen significant double-digit growth in RevPAR growth. So it's quite feasible for us to achieve that in the second half of the year. Most importantly, we've got a very strong forward book position. The event density going forward through October and the next few months is much stronger than it was at this time last year. So we're seeing a reverse of what we saw in Q2 this year. So we feel very comfortable with our ability to get to the right levels of RevPAR to get us to profitability this year.

Our next question is from Estelle Weingrod at JPMorgan.

The first one on cost inflation. I mean it happened to be higher than what you expected. Can you just specify what costs more specifically triggered this revised guidance? Is it F&B, utilities, I don't know. Also, how should we think about the incremental GBP 5 million to GBP 10 million of cost efficiencies? Like what are there? And just to confirm, are they incremental to your 5-year plan or brought forward?

And just another one on room openings. So 94 new U.K. rooms in H1, of course, more closures because of the AGP. Is that in line with the phasing you expected? And are you still comfortable with the target for this year?

Thanks, Estelle. So let me take the first kind of part of that, and then I'll hand over to Hemant. I mean, I think I can say this more comfortably than Hemant. But Hemant and the team have done a phenomenal job of building a super strong efficiency plan for our business. That is one of the underpins of the 5-year plan. Remember, we've got accelerating growth plan, the U.K. network expansion, the very strong commercial program that we've got, which is helping drive our performance and then the improvement in performance in Germany. But an important underpin is also our efficiency plan. We're a value-based business. It's really important that we continually challenge ourselves to do things better and smarter to drive those efficiencies. And we got well ahead of this. And as we've seen in the U.K. market inflation, thank goodness, we got well ahead of it. We outlined a plan last year to get to GBP 250 million worth of efficiencies over the next 5 years. And we're really comfortable with our position where we are on that, and that's one of the reasons why we could up our efficiency guidance for this year.

So I guess if I step back from it, I'd say I think this business is doing a really good job of delivering on all the elements within our control. And I think we're showing that as a business, we are very, very good at dealing with the various headwinds that come through. And the efficiency program, I think, is a really good example of that.

In terms of room openings, I mean, the summary is, yes, we're on track and on course to hit our target room openings. We're on track to open between 500 and 700 of new rooms within the Accelerating Growth program. Remember, we are really confident about that these rooms are going to be high returning. They are extension rooms in hotels where we know there is strong demand. Extension rooms are often are higher returning hotel rooms because it's a really efficient way to add growth. And we've also got a really strong pipeline of new hotels that we'll be opening over the next few years, again, which we're really confident are going to be strong returning hotels. And our accelerating growth plan is bang on track with where we want it to be at this stage. So again, we feel really comfortable with the progress that we're making.

Estelle. Yes, just to build on the cost inflation and efficiency points that Dom made. Yes, I mean, clearly, we are seeing cost inflation this year. We guided to net inflation of 2% to 3%. We're still within that range, probably in the middle of that range rather than the lower end of that range once we take account of the slightly higher inflation that we've seen this year. Inflation has been driven this year by a lot of things that impact our labor base, so National Living Wage, the National Insurance change, obviously, that we had at the beginning of the year and food and beverage inflation. And it's food and beverage inflation in particular, that has been higher than I think the industry was expecting. You'll have seen all of the headlines on how food and beverage inflation has been ticking upwards over the last few months. So we can see the impact of that.

In response to that, we've obviously upped our efficiency plan to partially offset it. We were guiding to GBP 60 million of efficiencies this year. We're now saying between GBP 65 million and GBP 70 million. That's part of the GBP 250 million that we're guiding to for this year and in total of 5 years, including this year going forward. We've got a good history of being able to continue to drive efficiencies. We're a big business, a multisite business with a large operation. As inflation comes into the business, it drives new ideas, new technologies, new ways of working that will allow us to take further cost out going forward. Whether it's to accelerate efficiencies, whether it's to increase the size and scope of the initiatives we have at the moment or it's come up with new ideas, I'm very confident we're going to be able to continue to innovate and drive efficiencies going forward.

Our next question is from Richard Clarke at Bernstein Societe Generale Group.

So it looks like in your messaging today that you're separating the increase in lease costs from your cost inflation guidance. Obviously, in your 5-year plan, there is no bridge line item for the, I guess, GBP 55 million to GBP 60 million of higher lease costs related to the GBP 1 billion of property recycling, nor one related to the lower cash interest costs. So just is there headroom in the other line items that means you can offset that higher lease cost across the 5-year plan?

And then second question, I guess, the property valuation looks pretty healthy, but the yield at 5.5% to 6%, why is that higher than the 5.3% you've realized so far? And what would you expect to pay on that GBP 1 billion of property disposals, would you do sale and leasebacks at 6% yields? Or are you being selective and will do one that's more like at that 5% to 5.3% level?

Thanks, Richard. I think I'll hand over to Hemant to pick those 2 points up.

Yes. So thanks, Richard. Yes, so on the lease interest costs, so I'll just remind you that these are not cash items. The accounting for leases is under IFRS 16, and it basically simulates a capital purchase and depreciation and interest based on having a capital purchase is how that works. I'm sure you know that. So these are cash items. The reality is we have accelerated the level of sale and leasebacks that we're making -- that we're doing. We said we're going to do GBP 1 billion sale and leasebacks over the 5 years of the plan. This year, we're going to have between GBP 250 million and GBP 300 million of property disposals, most of which will be sale and leasebacks. So we're getting ahead of that program because we can see some good value out there, and there's pent-up demand for our assets.

So in terms of how it fits in the 5-year plan, when we set the 5-year plan, we took account of the P&L impact of our leases. So I'm comfortable that it's all included within the overall cost inflation. So yes, there'll be a bit of phasing here. There's been a bit of an accounting change, which changes some of the phasing. It's relatively minor in terms of what it means over the long term. And a reminder, obviously, this doesn't impact EBITDA. It's not a cash item. And then in terms of the valuation of the property, yes, so we've done a property valuation, first time we've done one since 2018. It's increased the range of valuation by about GBP 0.5 billion versus the previous valuation between GBP 5.5 billion and GBP 6.4 billion. The net initial yield range is at 5.5% to 6.5%. This is done by an independent valuation partner, Newmark. The range has obviously gone out since the 2018 valuation. I mean, clearly, interest rates have gone up significantly over that period, something like 400 bps at that time. This is showing about 100 bps of increase in terms of the net initial yield, which shows, I think, the strength of our covenant overall.

Clearly, this is a careful valuation that assumes an asset-by-asset valuation. The reality is we have been able to achieve better than this valuation in terms of our recent transactions. Those transactions aren't just high-quality London assets. There's a range of different assets within those transactions. So would I be hopeful to be able to -- site by site, as we do sale and leasebacks, would we be hopeful that we'd be able to get to better yields than this? Clearly, we're going to negotiate hard and try and get the best possible yields that we can.

Your question about whether we would transact an asset at 6%, it very much depends on the asset. The range is there to illustrate the fact that actually we have a vast range of different properties from London assets, big prime located London assets to regional assets that might be at the edge of a small town in somewhere in the U.K. So the range of yields you'd expect are -- there's quite a wide range. It very much depends on the asset. It depends on demand for that particular asset in the market at that time. The most important thing is we'll make sure we do that carefully to get the best possible return for shareholders and able to recycle that capital and put it back into high-returning assets in the future.

Our next question is from Jarrod Castle at UBS.

Just given we're on the -- hello, can you hear me? Just given we're on the valuation, I was wondering, it is obviously materially higher than the previous valuation. And I would imagine some properties came out higher than you expected them to be, probably some came out a bit lower. But do you think it gives you scope to recycle even more than you've actually communicated under your -- the next 5 years? So is there more scope to sell some of these properties to recycle the capital? And have you got any numbers behind that potentially?

And then just looking ahead to the budget, I know there's not much you can say, but obviously, there's proposals on the labor side, which include increasing the powers of unions, increasing the rights of employees on day 1. And then obviously, we will also get a minimum wage increase. But in particular, on what is currently proposed in the labor changes, I'd be interested to get your thoughts on what that might mean for your business.

Yes. Thanks, Jarrod. And I think on the property valuation point, I mean we said we would look to recycle at least GBP 1 billion over the life of the plan. Those words are chosen pretty carefully. I think as you say that the overall valuation is encouraging. I think it supports the strategy that we've got very well. And we laid out what that kind of recycling capital strategy looked like in the presentation. As hotels get mature, it gives us an opportunity to capture development profits, do a sale and leaseback. As Hemant just said, invest that money, for example, we'll do at a 5% cap rate and then invest it in something like an accelerating growth plan where we're confident we're going to get very strong returns. That is a really good way we think of both driving kind of shareholder value over the course of this plan, but also demonstrating the strength of our covenant and the property underpin that we've got. So this kind of concept of active recycling, we think, has been well received, but also an important part of investing in high-returning growth over the next few years. And you're right, the property valuation has been supportive and positive, I think, to that strategy.

In terms of the cost increases, as you say, no one in the U.K. knows what's going to happen in the budget at the end of November. We've been very clear with the government that as a business that has a strong position in the U.K. and is growing, it's important that we're able to profitably invest in our business for growth. And obviously, the hospitality industry got hit pretty hard in the budget. I mean what I would say is I would absolutely back us as a business to continue to be agile and pivot if we get cost increases into our business. And over time, we will mitigate those cost increases. Anything that, for example, hinders our ability for labor flexibility, of course, that's not helpful in the short term. On other hand, we're a very good employer already. A lot of the cost increases the government is talking about like getting rid of 0 hours contracts, for example, we already don't have those things. We do pay above minimum wage already. So we're a good employer. But we're also very agile. It's why we're doing things like investing in robot Hoovers, for example. It's why we've just transformed our supply chain. So the efficiency plan is not a simple cost-cutting plan. It's actually a genuine kind of reengineering and replumbing of the business behind the scenes to make us more efficient. And I would always back Whitbread's ability to be able to mitigate these cost increases over time and over the course of the plan. I think that's an important part of the messages, I think, from the leadership team we've got here at Whitbread.

Our next question is from Tim Barrett at Deutsche Numis.

My 2 things. Firstly, starting on -- carrying on, on costs. Obviously, you don't know the living wage and business rates from April. But can you talk about the things you do know about for next year and how you're positioned on utilities, food and beverage, cleaning, that kind of thing?

And then the second one, I may have missed this in all the text, but what you've bought in Germany, the 1,500 rooms, have you said what you've paid for that. What the assets are trading as currently and therefore, how much you might have to spend in rebrands?

Yes. Thanks, Tim. I think -- I mean, from a cost point of view, I mean, as you say, there will be some announcements in the budget and no one knows what those announcements are going to be. If I step back and look at what we're doing with the business, I think we're doing all the right things to mitigate the cost increases that are likely to be seen across the business. So for example, let's look at food and beverage. The move that we're doing on accelerating growth plan is a really strong move to mean that we are less exposed moving forward to this kind of food and beverage cost inflation because we are increasingly focusing on our own hotel guests, which means actually we have fewer people coming in for dinners, for example, but actually a much more profitable model because of that, a better guest experience overall and a much more profitable model. So I think it reinforces why that strategy was absolutely the right strategy for us to do.

Similarly, with labor costs, there's been a lot of catch-up in minimum wage actually over the past few years, which we've all seen. But we're also ahead of the curve in terms of driving labor efficiency. We're making really good progress on things like labor scheduling. I've already talked about automation. We're doing things like -- we'll be rolling out check-in on the app, for example, which ends up saving labor in some of our hotels because it means that actually guests can go direct to the room. So we are working very hard behind the scenes to continue to evolve our product and proposition so that we remain at the forefront of what guests want, but also delivering it in a really efficient -- cost-efficient way. And remember, supply is going to remain constrained in the U.K. hotel market over the next 5 years, but also scale has got advantages. Our ability to invest in state-of-the-art revenue management systems, state-of-the-art labor scheduling systems, state-of-the-art automation means that we widen our advantage versus the independents and other smaller hotel chains. So ironically, a slightly difficult environment does strengthen our position further in this business over the next 5 years. It's up to us to make sure we take advantage of that, but that's exactly what our 5-year plan is doing.

What's the hedging in place on utilities and F&B?

Yes, Hemant?

Yes. So we don't guide yet. We haven't guided on cost plans next year, Tim, because obviously, the largest part of our cost base, we don't know what the inflation is going to be because it is about minimum wage, it is about other whatever changes that might come in the budget, we don't know. So for [indiscernible], yes, we've got good hedging on utilities going forward. So yes, we're well hedged for next year. You'll have read that there are other non-commodity costs and potential inflation coming in, which we haven't got the detail of things like the nuclear levy and the transmission network charges. We will guide when we get to our quarterly results in January, we'll guide to it a bit more detail in terms of what we think is going to happen going forward. But I'll refer back to Dominic's point that actually, we've got a strong efficiency plan, and we're flexible and nimble enough to be able to manage whatever comes away, obviously, it's not a complete surprise.

And then to your second point, just on the German acquisition, we aren't giving any more detail at this stage. We can't do that. We can't talk about the other party of the hotels or any price paid. We will do so when we're able to do that. We're not opening these sites until next year. So there's time before [indiscernible] that's the case. And we'll let you know exactly what the implications are.

But Tim, we're really confident that this is an excellent acquisition for us. I mean, it's 8 bullseye sites for our city center locations. You saw in the presentation, we're really confident about knowing which sites will work and which sites won't work. City center locations of hotels of reasonable scale work really well for us. We've also got smarter and smarter about how we do conversions. We spend a bit less money than when we first went into Germany on doing those conversions. That means we can be confident on the financial returns that we get. And we've got a distribution platform and a brand platform now that we can plug those new hotels into. And so we can say with confidence that those hotels are going to drive strong returns for this business and are in ideal locations for us as we continue to grow the business.

Next question is from Alexander Brignall from Rothschild & Co Redburn.

[indiscernible] very formal, Alexander.

I know. Sorry, my colleagues [indiscernible]. But I might start going with that from now on. It's quite nice. My mother would be happy. A couple of questions. Firstly, just on the property valuation. Are any of the disposals, I know you use a lot of transaction values within the yield, and it seems like you've been very prudent on the yield. So a lot of this will be captured in there. But have any of the disposals that have gone into that been to actually exit the hotel rather than keeping you on as a tenant? So I guess I kind of -- that kind of comes into the lease dynamic because obviously, the exit value that you get is subject to the lease that you then commit to. So sort of if there's any way you sort of realize an outside value for the property that someone else is willing to pay for it rather than someone willing to pay for you to remain the lessee, that would be hugely helpful.

And then I know that you don't really look at the sort of balance sheet, capitalized value of leases. But by the end of the year, that number, net debt to EBITDA is going to be almost 5x sort of as reported. So I just kind of wonder whether that is the right level to be for buying back stock, especially given the obvious sensitivity to pricing, which is very hard to have much confidence over?

Yes. Sorry, just to understand your question, Alex, I think what you're asking about is how the property valuation and how the methodology of it effectively. It is done on the basis that we are the tenants. So the sale and leaseback site by site individually, effectively taking the profitability of each individual site, turning that into a rental value and then applying the local yield based on the characteristics of that site, the location of that site, the size and location of that site, based on whatever historical data there might be of our transactions and other hotel transactions either locally or across that region or across that market. So it's as much detail as it can be done and with as much rigor that we can do that.

It's -- your second point, so just in terms of the leasehold capitalization of our sites. I mean actually, the way -- obviously, you'll know that we use Fitch as a ratings agency, we use their calculation in terms of the lease leverage impact. That's actually based on the cash rents, which is a more sensible way if you think about doing that and applying a sensible capitalization factor on those cash rents. So that's how that works. So sorry, I'm probably not answering your question, actually. Let me just give -- I'm repeating your question to make sure I understood it.

Yes. I guess the property question is, you're obviously a spectacularly well-run hotel business and can afford to pay higher leases and probably can derive a higher property valuation than anybody else can for the properties that you have. So I guess my question is, within any of the disposals that you've made of hotels, there been ones where you have fully exited the hotel and you have ceased to operate there and you have achieved -- got a property valuation that can give you a sort of outside value of your property rather than just the capitalization of the rent that you're willing to pay because you make an awful lot of money. That's really the soul of the question.

Yes. Okay. Let me answer that a bit better. So yes, most of our disposals are sale and leasebacks. We do exit some sites. These tend to be sites though that are undertrading sites. They tend to be small sites where we can migrate to trade away from that site into other sites we might have in the catchment or we might be building extensions, for instance, with the Accelerating Growth program or building new rooms with new hotels. So it's probably -- they're not typical sites, and they're relatively low profit, still generally making EBITDA, but relatively low profit, relatively low value small undersized sites. So they're not typical, and they aren't necessarily a good indication of what might happen if we were to sell it in our better trading sites.

Our next question is from Muneeba Kayani from Bank of America.

A lot of my questions have been answered. But I wanted to ask around the U.K. market and your outperformance compared to that. With the market, like you said, you think it's kind of underlying improving. How are you thinking about your outperformance into the second half of this year?

Yes. I mean, we don't -- as you know, we don't guide on how RevPAR is going to look in the future because, of course, that's something that's hard to predict. What we do talk about is what we're seeing right now. And as you've seen in the current trading, our current trading is positive and the underlying market is growing. And I think that's really helped by the structural underpins, the low capacity growth in the market overall, the reduction of the independents. And then within that, we're really well placed. And I think we're really well placed for a few key reasons. We've got a super strong brand. The customers know what they're going to get, and they really enjoy the guest proposition. You can see that through our guest scores. We've got a really, really clear and ambitious commercial plan. I think we're executing really well behind that. And that's made up of a number of things. It's made up of things that are optimizing our revenue management system, a bit like I was talking earlier, we're a scale business, and we're taking advantage of that scale by having state-of-the-art revenue management systems.

We're progressing rapidly on things like our digital progress. We are quite unusual in the U.K. market in the sense that we have pretty much all of the data from our customers, and we're using that data. We're using that data to drive frequency, and we're using that data to aid retention of our customers. So our commercial plan is really strong, and it's supported by a very strong brand and a very, very strong and consistent guest proposition, which our people work very hard day in, day out to deliver. And that helps our outperformance versus the market. As I said earlier, it ebbs and flows the outperformance versus the market. The key thing, I think, is that we've got a really strong RevPAR premium versus our competitive set. And in fact, that RevPAR premium has widened. And we feel confident that we'll be able to continue having a RevPAR premium versus our competitors for all the reasons that I've just said, super clear plan, executing well and really focused on delivery of it. So we feel confident of being able to continue to drive that RevPAR premium. And as a reminder, what we're seeing in current trading is positive. We don't guide on the future, but what we're seeing in current trading is positive, and I think that's helping support our business.

That's clear. Can I ask a follow-up question on the Germany acquisition? You said you don't want to disclose the details right now. When can we expect to get more details around that?

Yes. Muneeba, it's Hemant. Yes. I mean, we'll be able to talk about it certainly as we enter next year. So the timing, we might be able to talk about it at our quarterly results, but it will very much depend on some factors I can't get into in terms of the deal. As soon as we can talk to you about it, we will do.

And again, we're really positive about that acquisition, bullseye locations for us. We've got a really clear plan of what works for us from a growth perspective in Germany. The scale is really helping us drive this performance, this move to profitability this year and then on track for hitting GBP 70 million PBT by the end of the plan by full year '30. And this acquisition overall will be really supportive of that growing strategic position in Germany, which is a good and strong hotel market, and we're building a position of real scale and strength in that market.

I think we've got one more -- time for one more question.

So our last question is from Jaafar Mestari at BNP Paribas.

I'll ask two, but if you only have time for one, that's fine. Just on inflation, could you help us time the point in the year where food in particular, started to make you change your views? Because as of May, you were still thinking bottom end of the 2% to 3%. Just quite keen to understand if we're 2.5% for the year, is it bottom end for a good 6 months and then H2 is going to be top end. That would be helpful.

And then just secondly, on the property valuation, let me know if I'm focusing on numbers are rounded too much, but how important is long leasehold within that portfolio because you continue to value freehold and long leasehold. If I just look at freehold, obviously, it's fair that the overall valuation increases, you've invested a lot. But per freehold room, it doesn't look like the valuation per room is down at all, could actually be up a touch. And I know it's been more London development, for example. But is that fair?

Right, Jaafar, I'll take it. I think on inflation, I mean, you'll probably -- you've seen the analysis and the headlines. Food and beverage inflation has been ticking up over the last kind of 3 to 4 months. We're obviously predicting what it might be for the full year. In some instances, we know because we have contracts, other instances, it will be commodity linked and things -- some of the prices will float. It's our best guess for the full year at this stage that everything nets off between this 2% and 3% and I talked about the midpoint of about 2.5%. Yes, the phasing generally builds in. We're making some assumptions based on commodity by commodity. So it's not easy to say exactly what that will look like. But I think -- if you really want to assume some phasing, you can assume it's fairly flat base across the year.

In terms of the property valuation, yes, clearly, I mean, the long leasehold is part of it. These are effectively -- exactly as I say, these are effectively the de facto freehold sites is the way we consider them because they have got very long leases with a kind of understood leasehold components to those. The impact -- the actual valuation in terms of per freehold room. I mean, the way I think about this is there's a few moving parts to the valuation overall since the last time we did the valuation. We've sold something like GBP 400 million of freehold and long leasehold properties since then within that. Most of which obviously -- a lot of it through sale and leaseback. So it's coming into our leasehold estate. We have disposed of sites as well. We've added sites as [indiscernible] some freehold as well, particularly some good quality London freehold sites, although a lot of those are still in construction at this stage. And then we've also seen significantly higher profitability per room coming through over that time period as our margins improved pre-COVID.

And then the final thing offsetting that is what has happened to property yields, obviously driven by gilt rates in particular. I think I mentioned earlier on, gilt rates have moved up something like 400 bps over that time period, the yields here, the real rent quoting has come something like 100 bps or so in that range.

Taking that into account, obviously, all of that, you get to derive the actual valuation on a site-by-site careful sale and leaseback basis. Where that leaves the valuation, it's a point in time. The reality is if we think that gilt rates are going to be coming down if interest rates come down over the next few years, it is likely that valuation will go up over that time period, as you'd expect. I think the other point I'd note is that we have been achieving probably better than this range historically. So it feels like there's some upward pressure on valuations. Anyway, you can see that evidence kind of coming through. So over the last kind of year or so, we've had some very strong transactions. You've seen some in the presentation as well where we've given some examples. They aren't necessarily fully typical, but I feel confident that this is a sensible valuation, probably at the prudent end of things. And I'm happy with the valuation per room going forward.

Okay. So I think I'll -- thank you. Just a few words for me to close the call. I mean, we've got a super clear plan. We're executing well. We've got a return to market growth in the U.K. Our vertically integrated model, brand strength and market-leading guest proposition, we're delivering positive like-for-like sales momentum, and we're maintaining our position as a market leader.

In Germany, our growing estate, the increasing maturity of that estate and the increasing maturity of the brand means we are on track to reach profitability this year and deliver GBP 70 million of PBT by full year '30.

Whilst we are encouraged by our current trading performance, we remain focused on the things we can control where we're executing our 5-year plan at pace. That 5-year plan is focused on driving sales, increasing margins and delivering attractive financial returns, and we feel very confident in our ability to do that.

Thank you for listening. And do come back to the IR team, you know where we all are, should you have any further questions. Thank you.

This concludes today's conference call. Thank you all very much for joining, and you may now disconnect.

Good morning, everyone. I'm Dominic Paul, Group CEO, and I'd like to welcome you to Whitbread's 2026 Interim Results Presentation. Today's presentation will take place by remote webcast, followed by a live Q&A session at 9:15 a.m. U.K. time, and Hemant Patel, our Group CFO, and I will be happy to answer your questions. Details of how to join the call can be found on our website. I'm going to start by taking you through the excellent progress we have made during the first half and provide a summary of our results. I'll then hand over to Hemant, who will take you through our results in detail. I'll then come back to cover the strategic initiatives, which ladder up to our 5-year plan.

But first, I just want to spend a few moments on the strategic progress we are making to transform our business. When I rejoined Whitbread nearly 3 years ago, it was already a fantastic business, but with the potential to go even further. Since then, we have announced our Accelerating Growth Plan, which, together with our other strategic initiatives, became our 5-year plan that sets out the scale of our ambition. I'm really pleased with the progress we are making in what has been a more challenging environment. In the U.K., as the overall market returned to growth in the second quarter, I'm pleased to say that we maintained our outperformance versus the market in the first half, driven by our strong guest proposition and ongoing commercial program.

In Germany, we are making great progress and remain on track to deliver profitability in full year 2026. And with increasing scale and maturity, we expect to deliver GBP 70 million of profit before tax by full year '30. By focusing on what we can control, we continue to make excellent progress on each of the key initiatives underpinning our confidence in the medium term. As a result, our 5-year plan remains on track to deliver a step change in our profits, generating GBP 2 billion for shareholder returns by full year '30. We are executing well and are on a clear path to become a much bigger and an even better business, delivering for our guests, teams and shareholders.

Having seen a return to market growth in the second quarter, U.K. total accommodation sales were broadly in line with last year. We made good progress in Germany despite softer market demand in the second quarter, delivering 7% accommodation sales growth, resulting in a reduced loss of GBP 3 million. Despite inflationary pressures, our U.K. cost base reduced by 3% with the impact of our accelerating growth plan and increased cost efficiencies. Lower U.K. profit before tax meant the U.K. return on capital employed for the first half was 11.8%. While group PBT was back 10%, the strength of our vertically integrated model meant that group EBITDA was down just 2% year-on-year and still 41% up versus full year '20.

As a result, we generated significant free cash flow that helped fund our program investment as well as GBP 182 million of shareholder returns in the period. And despite lower earnings with the impact of share buybacks completed over the last 12 months, adjusted earnings per share reduced by just 2%. Moving now to the outlook for full year 2026. While forward visibility remains limited and despite some uncertainty around the forthcoming U.K. budget, I am pleased with the progress we are making across each of our 3 strategic pillars and remain confident in the full year outlook. First, in the U.K. As you will have seen, the positive momentum has continued into the current trading period, and our forward booked position is ahead of last year.

We remain on track to open 1,000 to 1,200 new rooms this year, and we're making excellent progress with our accelerating growth plan, having now opened the first of our new extension rooms, and we're on track to fully reverse the impact on full year 2025 profits. Second, in Germany, demand has stepped up in recent weeks, and we are delivering a more positive trading performance. We have significantly grown our pipeline with the agreement to acquire 8 new hotels in prime city locations and remain on track to open 400 new rooms by the end of this year. And we're on course to deliver profitability in Germany this year, albeit we are moderating our guidance slightly and now expect to deliver adjusted PBT of up to GBP 5 million this year, reflecting softer-than-expected market demand in the second quarter.

And third, we will continue to drive long-term growth. Having made great progress in the year-to-date, we will recycle GBP 250 million to GBP 300 million worth of property this year to help fund our network expansion and accelerating growth plan. We now expect to deliver GBP 65 million to GBP 70 million of efficiencies this year, up from GBP 60 million guided previously, partially mitigating high levels of inflation, and we are on track to complete our previously announced GBP 250 million share buyback by the time of our full year 2026 results.

The excellent progress that we are making on our initiatives means that we remain confident in delivering a step change in profitability and significant returns for shareholders. Our accelerating growth plan will boost U.K. margins and returns by optimizing our food and beverage offering at a number of sites and unlock 3,500 extension rooms. We will also open at least 8,000 new high-returning hotel rooms, reaching 98,000 rooms across the U.K. and Ireland. Together, these 2 elements will deliver over GBP 220 million of incremental profit by full year '30. In Germany, we aim to have 20,000 rooms open by the end of full year '30. With greater scale and brand maturity, we remain on track to reach GBP 70 million of profit by full year '30, an uplift of GBP 80 million versus full year 2025.

And as a budget hotel brand, we remain focused on managing our costs and will deliver GBP 250 million worth of savings by full year '30. Our commercial program is expected to drive positive like-for-like sales momentum in the U.K. and together with our efficiencies, our assumption is that we'll be able to offset cost inflation over the life of the plan. This plan is fully funded, and we will keep average net CapEx of GBP 500 million, which is net of proceeds from property-related transactions. We have made great progress, having completed a number of sale and leasebacks at attractive yields in the year-to-date. We are pleased with the updated valuation of our estate and are confident that we can recycle at least GBP 1 billion worth of property over the life of the plan.

I will now hand over to Hemant, who will take you through our performance in more detail.

Thanks, Dominic, and good morning, everyone. I'll start with a summary of the group's performance before covering the U.K. and Germany in a bit more detail. I'll then provide an overview of our FY '26 outlook, current trading and updates to our guidance before a reminder of our capital allocation framework and some details of our updated property valuation. A robust trading performance in the U.K. and good progress in Germany were offset by reduced food and beverage revenues owing to our accelerating growth plan, resulting in overall revenues slightly behind last year.

Higher-than-expected gross inflation was mitigated by excellent progress on cost savings and reductions in our cost base due to the accelerating growth plan. As a result, operating costs fell by 2%, but slightly lower revenues meant that our adjusted EBITDA was also down 2% to GBP 0.6 billion. Having returned GBP 182 million to shareholders over the past 6 months, lower net interest receivable meant that adjusted profit before tax was GBP 316 million. Adjusting items of GBP 28 million, the majority of which related to our accelerated growth plan meant that statutory profit before tax was GBP 287 million.

Our vertically integrated model continues to generate significant operating cash flow, and we were able to build on this with GBP 95 million of property disposals, helping to fund our investment in high-returning growth opportunities. We have a strong balance sheet with lease-adjusted leverage of 3.2x, which is within our investment-grade threshold of 3.5x. I'll now run through the drivers behind this performance, starting with the U.K. U.K. accommodation sales were in line with the first half of last year. This, with the expected reduction in food and beverage revenues as a result of our accelerating growth plan meant that total U.K. revenues were 3% behind last year.

Although there was higher-than-expected cost inflation, we delivered an increased level of efficiencies, which, together with the impact of our accelerated growth plan meant that U.K. operating costs fell by 3%. Taking all of these movements together, U.K. adjusted profit before tax reduced by 7% to GBP 331 million. Our occupancy levels stepped up in the second quarter as we saw a return to market growth supported by stronger demand over the summer months, delivering 81% in the first half, which, although lower than last year, is still ahead of pre-pandemic levels. With the benefits of our commercial initiatives and trading expertise, average room rate strengthened by 2% to GBP 86. While RevPAR was back 1% with the impact of our continued network growth, total accommodation sales were flat at GBP 1.1 billion, over 50% higher than pre-pandemic.

Whilst our level of outperformance can vary depending on a number of factors, including supply changes, competitive force and demand levels, we sustained our market outperformance in the first half. Through our brand strength, training expertise and commercial initiatives, we outperformed the market on both RevPAR and accommodation sales growth and are continuing to command a healthy RevPAR premium that increased to just over GBP 6. In the current trading period, we're annualizing against what was a strong performance last year. However, we maintained a healthy RevPAR premium to the market at just over GBP 5.50.

Now on to Germany. We're pleased with our progress in Germany despite softer-than-expected market demand in the second quarter, revenues were up 9%, driven by the increasing maturity of our estate, further improvements to our trading strategies, broadening our distribution and increasing food and beverage sales. Operating costs in the period increased to GBP 88 million, reflecting our network expansion and cost inflation. However, with strong revenue growth, our EBITDA increased by 23% to GBP 37 million and adjusted losses before tax reduced significantly to GBP 3 million. Our cohort of more established hotels is continuing to mature and is a key driver of our overall performance.

On a rolling 12-month basis, profit before central overheads increased to GBP 17 million in the period, up from GBP 10 million a year ago. The cohort is on track to reach its targeted double-digit return. We're making excellent progress with continued outperformance versus the rest of the German mid-scale and economy market. As you can see, both our more established cohort and our network as a whole are outperforming the market in terms of RevPAR growth despite softer-than-expected market demand in the second quarter. RevPAR of our cohort of more established hotels grew by 3% in local currency ahead of our total state, reinforcing the point that is not yet mature and giving us real confidence that it can and will grow further.

Turning now to group cash flow. The strength of our vertically integrated model meant that we delivered adjusted operating cash flow of GBP 406 million, helping to fund both our ongoing program of investment in future growth and shareholder returns. We continue to invest in high-returning growth opportunities, including our accelerated growth plan and network expansion in both the U.K. and Germany, with the result of gross CapEx spend was higher than last year at GBP 328 million. As previously announced, we will recycle GBP 1 billion of property over the life of our 5-year plan with GBP 250 million to GBP 300 million of property proceeds expected in FY '26.

We made great progress towards this with GBP 95 million of proceeds from property disposals, resulting in net CapEx of GBP 233 million. The net result was a total cash flow before shareholder returns of GBP 102 million. Having returned just over GBP 180 million to shareholders via dividends and share buybacks, we maintain a strong balance sheet with a net debt position of GBP 563 million and a lease-adjusted leverage of 3.2x, which is below the investment-grade threshold of 3.5x.

Now on to current trading and updates to our FY '26 guidance. In the U.K., positive trading momentum continued and both total accommodation sales and RevPAR were up 3% versus last year. Our forward book position is ahead of last year, and with continued impact of our commercial initiatives, we remain confident in maintaining a healthy RevPAR premium versus the market. F&B sales were down in line with our expectations, reflecting the impact of our accelerated growth plan. In Germany, we've seen marked recovery in more recent weeks after what was a soft start to September, with total accommodation sales up 9% versus last year. RevPAR for the total estate was 3% ahead of last year at EUR 82 and RevPAR for the more established cohort was 8% ahead of last year at EUR 95.

With a positive forward book position supported by a strong events calendar, we're confident that we can drive further RevPAR growth. Reflecting the group's performance of the year-to-date, we've made some modest changes to our FY '26 guidance as follows. Higher-than-expected cost inflation in the U.K. will be partially mitigated through accelerated efficiencies of GBP 65 million to GBP 70 million in FY '26, up from GBP 60 million. As a result, we still expect net inflation to be within our previously guided 2% to 3% range. In Germany, we're making good progress and remain on track to deliver profitability this financial year, albeit we're moderating our PBT guidance slightly and now expect up to GBP 5 million of PBT this year from GBP 5 million to GBP 10 million previously due to softer-than-expected market demand in Q2.

Finally, there will be an additional GBP 5 million to GBP 10 million of lease costs as a result of the progress we're making on sale and leasebacks. Our capital allocation framework is unchanged. Our disciplined approach is focused on delivering sustainable, attractive returns and seeks to strike an appropriate balance between investing in high-returning growth opportunities and returning excess capital to shareholders. As a reminder, there are 4 priorities in our framework. First, maintaining investment-grade credit rating is a source of strategic advantage for us, and we will continue to keep lease-adjusted leverage below our threshold of 3.5x. Second, investing in high-returning growth opportunities such as the accelerated growth plan and using proceeds from property-related disposals to keep average net CapEx at a maximum of GBP 500 million per annum across the life of our 5-year plan.

Third, continue to grow dividends in line with earnings. Lastly, returning excess capital to shareholders. As well as keeping the interim dividend per share the same as last year, we're on track to complete our previously announced GBP 250 million share buyback by the time of our FY '26 results. And we remain on course to return GBP 2 billion to shareholders via share buybacks and dividends over the life of our 5-year plan. Finally, an update on our recent property valuation. Since it was last valued in 2018, we're pleased that the value of our freehold and long leasehold property has increased to between GBP 5.5 billion and GBP 6.4 billion, which represents an uplift of circa GBP 0.5 billion. This is based on individual sale and leaseback transaction values in the wider market.

The key assumptions are a net initial yield range of 5.5% to 6.5%, average rent cover of 2.0x and it includes GBP 760 million for nontrading assets and those still under construction. It's also worth highlighting that since the last property valuation in 2018, we've realized over GBP 400 million of property-related disposal proceeds. As previously announced, we'll recycle GBP 1 billion of property over the life of our 5-year plan and are making great progress. We've completed the sale and leaseback of 8 properties for GBP 99 million at attractive yields. This includes our [ Premier Inn ] Hotel in London for which we realized GBP 19 million in cash and profits on disposals of nearly GBP 4 million. Having received GBP 120 million of property proceeds in the year-to-date, including restaurant disposals, we're on track to realize between GBP 250 million and GBP 300 million in FY '26.

I'll now hand back to Dominic to talk through our strategic priorities in more detail.

Thank you, Hemant. I'll now take you through the progress we've made against our key initiatives and our future plans. Turning first to our strategy and progress in the U.K. Our Acceleration Growth Plan is our biggest ever development program, increasing the performance of over 200 of our U.K. sites. The transformation of our food and beverage offering in these locations will result in us becoming a much bigger and more profitable business, whilst delivering an even better service for our hotel guests. Drawing upon our significant in-house property expertise, we are making excellent progress on unlocking 3,500 high-returning extension rooms in areas where we know we have excess demand.

And I'm pleased to say that the first of our extension rooms are now open. On the right-hand side of the slide, you can see that we've moved quickly over the past 18 months. And as at the half year, we had 80% of all schemes in planning with 60% of these already approved. We have completed or are in progress at over 20% of sites with further progress against all of these measures expected by the end of this financial year. The other element is optimizing our food and beverage offering at these sites, replacing the previous branded restaurant with a more tailored and efficient integrated format for our hotel guests. Having already sold just over 40 sites, we are on track to exit the remaining effective branded restaurants by the end of full year 2026, as planned and have already opened just over 50 new integrated restaurants, which are driving an increase in commercial performance.

By the end of this year, we will have 500 to 700 extension rooms open. And as previously guided, we are on track to fully reverse the one-off impact to last year's profit of between GBP 20 million to GBP 25 million. Once complete, the plan will deliver incremental profit versus full year 2025 of at least GBP 100 million, increasing our U.K. margins and returns. Since the pandemic, U.K. hotel supply has declined, driven by a shift in demand from non-branded to branded hotels and a reduction in the number of independents. Our market analysis, which is based on conservative assumptions, shows that we don't expect hotel supply to recover to 2019 levels until at least 2027. Our committed and future pipeline of both Premier Inn and Hub rooms alongside 3,500 extension rooms unlocked through our accelerating growth plan supports our target of reaching at least 98,000 rooms by full year '30.

We are well placed to capture further profitable share of the U.K. hotel market and drive returns higher. As we progress towards our long-term potential of up to 125,000 rooms across the U.K. and Ireland, the pace at which we open new rooms will be determined by the level of returns that we can generate. With nearly 30% of our committed pipeline driven by the expansion of Hub, I want to spend a few moments talking about why we are excited about the brand momentum and longer-term potential. There are a number of differences between Hub and our main Premier Inn brand. Hub allows us to target a distinct part of the market, attracting both business and leisure guests who value prime city locations.

The rooms feature a sleek modern design with integrated technology. While smaller than a typical Premier Inn room, they offer everything that our guests need for a great stead. And the customer journey is more digitally led, catering to tech-savvy guests. While there is a food and beverage offer, this is a more tailored offering with a focus on the bar experience. And why does it work? Well, we've been able to drive high occupancy levels at a great price point for our guests. And with a lean operating model, this is resulting in strong economics. With a higher density of rooms per square foot than a traditional Premier Inn, we can drive higher profit per room and still meet our return thresholds even in relatively high-cost locations.

Whilst pleased with our strong performance and high guest scores, we are further optimizing our offer. And with 5,000 rooms in our open and committed pipeline, we feel that the brand has huge potential, and we're excited about where we can go from here. Turning now to our commercial program. Premier Inn remains the U.K.'s #1 hotel brand with over 90% brand awareness. However, we are not complacent and have continued to invest in our brand with several successful campaigns in the period. We are also optimizing our digital marketing activity across multiple channels, increasing the impact of our campaign and reducing our cost per acquisition. We are broadening our addressable customer base and doing so profitably.

Our business-to-business proposition continues to perform well with good growth in Business Booker through improved account management for our customers. And to make it even easier to book with us, we will launch Premier Inn Business this year, combining our Business Booker and Business Account into one single platform. We are also continuing to optimize our relationships with travel management companies, which is driving sales growth through this important channel. Our use of inbound-only online travel agents is going well and is proving to be a helpful addition in driving incremental international demand. As we've highlighted already in this presentation, we have continued to outperform the wider market in the first half, underpinned by the success of our commercial program.

Strong revenue management remains central to our approach and a key differentiator versus our competitors. Our proprietary automated trading engine enables us to refine and optimize our pricing for any given volume of demand so that we can maximize revenues and returns. Our ancillary options are performing well and helping to drive incremental revenue. We'll also continue to optimize our event trading strategies and have included an example which shows our significant outperformance versus the market on both occupancy and RevPAR for one of the recent Oasis concerts at Wembley.

And we're further enhancing the digital experience and making good progress towards the app becoming central to how guests book and stay with us. We've seen improvements in satisfaction, channel share and revenues driven by updates to the customer journey such as the options to check in online, providing a more seamless arrival experience. The majority of our guests book directly with us, meaning we have access to a large and growing customer database. By leveraging our data, we are seeing an increase in guest engagement and enhancing our promotional capabilities with one recent e-mail campaign alone delivering GBP 3 million in incremental revenue. All of these initiatives are helping us to drive positive like-for-like sales momentum.

With more initiatives planned, we have the potential to increase our commercial performance even further. Our vertically integrated model underpins our position as the U.K.'s #1 hotel brand, driven by our reputation for high quality and great value. We are progressing with the rollout of our latest standard room format, ID5, which is delivering improved guest scores. We are continuing to add more Premier Plus and Twin rooms, which deliver a RevPAR premium compared to standard room in the same hotel. In Food and Beverage, our integrated ground floor concepts are performing well. And for those branded restaurants unaffected by accelerating growth plan, we have implemented a range of commercial initiatives to help drive positive sales momentum and increase profitability.

And finally, we remain committed to supporting our teams, maintaining high levels of engagement and employee satisfaction, which in turn helps to drive great guest scores. The U.K. inflationary environment has been challenging over the past few years, particularly with the impact of increases in national living wage and national insurance contributions. We have a strong track record of responding to these headwinds and over time, mitigate their impact through careful management of our cost base and the delivery of significant efficiencies. In the first half, we delivered GBP 43 million and are now accelerating our expected savings between GBP 65 million and GBP 70 million this year, and we remain on track for a total of GBP 250 million of efficiencies across the life of the plan.

The program reflects multiple initiatives across all areas of our business, which when taken together add up to a lot. You've heard us talk about robot vacuums before, but they are making a real difference for our housekeepers and reducing our costs across our estate and will be operational at the vast majority of our sites by the end of the year. I'm also pleased to say that in the first half, we have transformed our food and beverage distribution, moving to a new supplier, adopting a more tailored streamlined model that is already driving significant savings and operational benefits.

Now let's move on to Germany. Germany is a significant growth opportunity. The investment case is highly attractive with a large fragmented market and no clear market leader, and we are on course to replicate our U.K. success. We've grown rapidly over the last few years and are building a meaningful presence. With our latest agreement to acquire 1,500 rooms, together with our growing committed pipeline, we will have just over 20,000 rooms, close to double the number of rooms we have opened today. This is not the end goal. We're determined to fulfill our ambition to become the #1 hotel brand in Germany.

As we've built our presence in Germany, we've refined our property strategy. And having learned a lot over the past few years, we've now cracked the code using optimal location planning to get the best sites and make better decisions about how we convert new sites to the Premier brand, drive efficiencies, accelerate maturity and generate higher returns. Supporting our longer-term growth ambitions, we have agreed the acquisition of 1,500 new rooms, which is 8 hotels located in great locations in key cities with completion expected in spring 2026. To bring this to life, we have shown on the right-hand side what our Hamburg portfolio will look like with this latest acquisition.

With 6 hotels already opened, 3 in the committed pipeline and 2 more added through this deal, we're on track to reach 11 open hotels in Hamburg. Strong performance from our existing Hamburg estate reinforces confidence in our longer-term plans. We will soon have circa 2,000 rooms in one of Germany's largest cities with the potential to grow even further. And as in the U.K., we are always looking to improve our commercial strategy, drawing upon our growing pool of data to drive our performance. Throughout the first half this year, we continue to drive RevPAR growth ahead of market, even in what was a softer-than-expected second quarter.

We continue to refine our trading strategies with a particular focus on event nights given their significance in Germany. We have seen a year-on-year improvement in our performance versus the market on these nights with our more established cohort now delivering RevPAR ahead of the market and our total estate performing broadly in line with confidence this will improve as our estate continues to mature. Now while the market faced a tough second quarter, we feel really good about the progress we're making in Germany. As I've just mentioned, we are optimizing our trading strategies. Having expanded our distribution channels to include online travel agents and third parties, we are generating incremental demand, which is contributing to further RevPAR growth.

And our product is landing extremely well with guests, resulting in high guest scores and contributing to increasing brand maturity. Our 5-year plan remains on track with our growing estate progressing maturity. We expect to deliver adjusted profits of GBP 70 million by full year '30. In the same year, we also expect to reach double-digit returns on our current open portfolio of 11,000 rooms. As our estate and brand continue to mature, we will see a further increase to profits, margins and returns beyond full year '30. And now moving on to the third pillar of our strategy, enabling long-term growth. Hemant has already updated you on our latest property valuation and progress on our planned recycling of capital.

I want to now remind you of the commercial and financial benefits of our flexible property approach. We are broadly agnostic between freehold and leasehold as long as it meets our internal return threshold, meaning we can maximize our chances of securing the best sites in the best locations, whilst minimizing the risk of cannibalization so that we can drive strong returns. Operational flexibility means we can optimize returns from a site so that once mature, we can recycle the capital and reinvest in future growth. We can realize significant development profits through disposals via sale and leasebacks and a property balance sheet supports our strong financial covenant, helping to secure more favorable terms with landlords and financing terms with lenders.

Our property value creation cycle is summarized here. Our already strong covenant means we can secure high-quality sites to generate excellent returns, which in turn attract outside funding and offers a chance to recycle capital, and so the cycle continues. As a reminder, we segment our estate into 5 distinct groups shown here on the right-hand side of the slide. As the site moves through each stage, we look to recycle the capital to drive higher returns. With 20% to 30% of our hotels now having strong yield potential, we are planning to recycle some of this capital into new high-returning opportunities such as our accelerating growth plan. Our Force for Good program holds us accountable for delivering meaningful change across our 3 key pillars of opportunity, community and responsibility.

It is embedded across all areas of our business strategy, and we're making strong progress against our targets. Key highlights include the expansion of our Thrive program, including the launch of our latest Mini Premier Inn based in Lincoln this week that trains and supports young people with special educational needs as they seek to enter the workplace. Continuing our work with our charity partners, including raising over GBP 27 million of Great Ormond Street Hospital, we're committed to raising a further GBP 20 million with a new appeal that will fund the development of a new children's cancer center. And our focus on managing our environmental footprint means that we have the most low carbon hotel rooms in the U.K. and Ireland with over 2,000 open by the end of this financial year.

We also remain on track to deliver a 50% reduction in food waste by 2030. So I'm going to end with a brief summary. As I said at the beginning of the presentation, I'm really pleased with the pace at which we are executing, and we are on track to deliver a step change in our profits, margins and returns. In the U.K., the return to market growth and positive trading momentum mean we are confident in the full year outlook. In Germany, we are making great progress and are on track to deliver profitability in full year 2026. With increasing scale and maturity, we remain on course to deliver GBP 70 million of profit before tax by full year '30 with further growth potential thereafter.

As I set out today, we remain focused on what we can control and are executing against each of the key initiatives underpinning our 5-year plan that is set to deliver a step change in our profits, generating GBP 2 billion of shareholder returns by full year '30. Thank you for joining us this morning. Hemant and I will host a Q&A session starting at 9:15 a.m. U.K. time, and we look forward to taking your questions then. And you'll be able to find the details of how to join the call on our website.