Whitbread puts pub restaurants on the block

Whitbread is to sell large chunks of its struggling pub restaurant chains to focus on its leading brands, Premier Travel Inn and Costa Coffee, after growing speculation that the leisure group could be broken up.

The company is also considering exiting from its underperforming high street restaurants TGI Friday's and Pizza Hut, it said yesterday. The news came as it unveiled a 13 per cent rise in annual underlying profits alongside plans to return £400m to shareholders after the sale of 46 Marriott hotels, taking the total cash return since last May to £810m. Alan Parker, the chief executive, said the company was on track to becoming a "leaner, sharper and more focused group".

Whitbread intends to sell about 250 Beefeater and Brewers Fayre free-standing pub restaurants, which analysts estimated could raise £350m to £400m, but will hang on to the 271 outlets located at Premier Travel Inn sites. The group plans to build about 100 new Premier Travel Inns joined to pub restaurants. Mr Parker said: "The joint sites are substantially more successful than the stand-alone sites."

It also wants to expand the budget hotel chain abroad, kicking off with an investment of £6.5m in the Middle East where it hopes to open 4,000 rooms in partnership with the Emirates Group.

Despite disappointing sales across most of Whitbread's businesses, Mr Parker has resisted calls for a sale or break-up. Analysts at Numis said yesterday: "Whitbread has begun to take the action necessary to unlock the value inherent in the group. Some may say that this is a pre-emptive move to stave off a bid and the statement may yet draw a bidder out of the woodwork."

Pre-tax profits before exceptionals rose 13 per cent to £181m in the year to 2 March. Group sales climbed 9.2 per cent to £1.58bn, driven by Premier Travel Inn, where like-for-like sales grew by 7 per cent. Meanwhile, its arch rival Travelodge, which is owned by Permira, unveiled a 19 per cent rise in first-quarter total sales and the chief executive Grant Hearn affirmed his strategy of aggressively undercutting Premier Travel Inn. Permira is in the middle of appointing advisers from a shortlist of UBS, Deutsche Bank and Citigroup to advise on a possible £1bn sale or flotation of Travelodge.

The Costa Coffee shops also sparkled, with an 8.9 per cent rise in like-for-like revenues. Whitbread plans to double their number to more than 1,000 by 2010.

However, operating profits at the long-suffering pub restaurants were down 12 per cent at £64.9m. Whitbread parted company yesterday with the division's managing director Phil Urban, who struggled to reverse sales declines despite new menus and off-peak meal deals, and replaced him with Costa's head, Mark Phillips. The Beefeater chain is seeing some recovery, benefiting from menu additionssuch as the Beefeater Steak & Lobster. The high street restaurants continued to disappoint with flat sales, leading the company to say that it would review its investments in the TGI Friday's and Pizza Hut brands. Pizza Hut is a 50-50 joint venture with Yum Brands while TGI Friday's in the UK is licensed from Carlson.

The health club chain David Lloyd Leisure suffered a 16 per cent fall in operating profits to £41.3m but Mr Parker said he was encouraged by record membership levels.

Whittling down the estate

SOLD

Marriott Hotels

FOR SALE

250 Beefeater and Brewers Fayre pub restaurants

Total pub restaurant sales last year: £605m

UNDER REVIEW

TGI Friday's - £92.1m sales

Pizza Hut - sales n/a

STAYING IN THE GROUP

Premier Travel Inn - sales £407.8m

371 pub restaurants located at Premier Travel Inn sites

Costa Coffee - £143m

David Lloyd Leisure - £224.6m sales