Whitbread has announced a radical restructuring of its business, quitting standalone restaurants in favour of joint sites with its Premier Travel Inn (PTI) budget hotels.
And at the same time it is developing a new, smaller format for PTI and taking PTI overseas with a deal in the Gulf.
About 250 Beefeater and Brewers Fayre branded outlets, mostly on the high street, are to be put up for sale. But around 100 are being retained and will have hotels built alongside them.
The PTI brand has been reengineered so that it can work in a 20-room format enabling the new sites to be exploited. This full potential of this new format will be reviewed in the next couple of months after a planning assessment.
The returns from a site that features a hotel as well as a restaurant are twice that of standalone sites (return on capital employed is 12.9% versus an average of 6.5%).
Also being reviewed is Whitbread's involvement in its joint venture running Pizza Hut in the UK and its arrangement to run TGI Friday's under licence. Both are thought likely to go back to their respective US brand owners, Yum! Brands and Carlson.
\We have made continued progress towards our stated strategic objectives of focusing our management and capital on those businesses in which we have leading positions and strong growth prospects,\ said chief executive Alan Parker.
During the financial year to March 2, Whitbread grew profit before tax and exceptionals by 13.1% to £181.1m. Sales were up 9.2% to £1.584bn.
The star performer was again PTI, pushing profit up 30.4% to £139.8m from sales up 27.7% to £407.8m. Average rate was £45.86 against last year's £43.50, although occupancy marginally fell from 78.9% to 78.4%.
The big win was in terms of profit per room which soared from £3,917 to £4,982. This helped ROCE climb from 10.0% to 12.7%.
Costa Coffee has also been a big success during the year, growing sales 13.4% to £143m and opening 146 stores, including 52 overseas, increasing the total number by 29%. Less successful has been David Lloyd Leisure where operating profit, post exceptionals, plunged 41.6%. However, sales were up, reversing the negative trend of the first half.
John Derkach, currently running the Pizza Hut estate, is replacing Mark Phillips as the managing director of Costa. Phillips is taking over pub restaurants, replacing Phil Urban who is leaving Whitbread.
The new look Whitbread is a response to huge pressure put on management to unwind the company's conglomerate structure and deliver a more focused and streamlined business.
Last year, private equity firms began planting rumours in the press that they might bid for all or part of Whitbread and the company's management has been forced to deliver a coherent strategy to repel such attacks.
By far the biggest segment of the business going forward is now budget hotels. A joint venture initiative with Dubai-based airline Emirates, already a partner in the Costa Coffee business, has opened the door to overseas expansion for this brand.
The first PTI in the Gulf is to be a 300-room property at Dubai Investment Park, scheduled to open in the last quarter of 2007. It is being followed in 2008 by a similar sized property at Dubai Airport and by a 220-room hotel at Dubai Silicon Oasis. The initial investment for the three properties is £6.5m.
The PTIs in the region will feature air conditioning, swimming pools and room service in what Whitbread said was \to meet the specific demands of this Middle Eastern hotel market\.
The next key strategic decision for Whitbread is whether to bid for Travelodge, the second biggest budget hotel brand in the UK. With up to £400m likely to arrive in Whitbread's coffers from the sale of its pub restaurants the £1bn or so purchase price of Travelodge ought to be digestible, particularly if David Lloyd Leisure is also unloaded.
In the meantime, Parker may have done just enough to sate the appetite of investors who want the conglomerate structure of Whitbread unwound.