Hello everyone, and welcome to Whitbread's FY 2027 interim results. My name's Lydia, and I'll be your operator today. After the prepared remarks, there'll be an opportunity to ask questions. If you'd like to participate in the Q&A, you can do so by pressing star followed by one on your telephone keypad. 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 2027 interim results. I'm joined by Hemant Patel, our Group CFO, and we look forward to answering your questions shortly. Hopefully, you've been to our release and 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 inflation pressures, including the unexpected hike in business rates.
As a result, U.K. EBITDAR 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 growth impact falling in the first half, Germany EBITDAR still increased by 10%. Now turning to current trading. First, in the U.K., our strong trading momentum has continued during the first five weeks. Total accommodation sales up 4.5% and RevPAR up 3.2%, and we've continued to outperform the market. Food and beverage sales were down from 37%, in line with our expectations, with the closure of all remaining Branded Restaurants in September. 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 five-year plan that will deliver higher margins, cash flow, and returns, and generate GBP 2 billion of cash flow available for shareholders by full year 2031. 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 are 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 five-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 have 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 each of you to keep to a maximum of two questions each. With that, I will now hand back to Lydia to host the Q&A. Thank you, Lydia.
Thank you. Please press star followed by the number one if you would like to ask a question, and ensure your device is unmuted locally when it is your turn to speak. Our first question today comes from Jamie Rollo with Morgan Stanley. Please go ahead. Your line is open.
Thanks. Good morning, everyone. The first question is just on costs. You generated about 2/3 of the GBP 60 million efficiencies in the first half. You have beaten your efficiency targets for each of the last two years. Do you think there is upside to that GBP 60 million number? And is there any early steer on FY 2028 costs, particularly on the energy side? And then the other question on disposal proceeds, clearly you have maintained your target for GBP 450 million - 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 gilts environment, and sort of timing of that second half disposal process. Thank you very much.
Thanks, Jamie. Let me answer the first half today, and 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 five years. We are increasingly confident about our ability to drive material cost efficiencies. I think we did very well to get ahead of that when we announced our updated efficiency plan a couple of years ago. As you know, we do have a track record of delivering on our efficiency numbers. We're very confident 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. Technology is also really helping us in that area. So it's going to be one of the key drivers of the plan, and we feel very good about the efficiency plans we've got moving forward. In terms of share leaseback, 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.
Yeah. On efficiency, Jamie, you're right. We've delivered two-thirds of the program so far this year. A lot of that has set us off. 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, some of which Paul has talked about, including the check-in process, front desk, and a digital journey for guests. All of that's 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 for the partnership.
It's great for us to get ahead of it, but GBP 60 million is the target. We're not giving guidance on next year yet. We're fully hedged this year on energy, well hedged next year. I'm happy with where we are. But in January, when we get to our Q3 results, give you more detail on inflation next year, and our efficiency targets as well. We'll have a much better understanding of the program and also the contracts that we'll have signed for next year. Then just building a little bit more on the disposal proceeds. You're right, there's a lot we need the business to deliver. We're still actually confident GBP 450 million - GBP 500 million for the full year. We've delivered GBP 21 million for 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. We're feeling very confident. We're obviously very aware of the fact gilt rates are elevated, and might well remain so. What we won't do is do a deal where we don't think gives the right balance of shareholder value. What we're trying to do here is recycle capital at 4%-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 lightly. We'll be able to manage how we engage disposal proceeds, but also how we spend capital where necessary. We'll watch that.
But at the moment, we're still very confident of the GBP 450 million - GBP 500 million.
Thank you.
Thank you very much.
Thank you. Our next question comes from Leo Carrington with Citi. Please go ahead.
Good morning. Thank you. If I could ask on the Germany pipeline. It is much reduced, partly with the openings in H1. I think this puts your open pipeline rooms around the five-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? Then secondly, on top of the activist, a few comments. I guess you have alluded to this, but what is actually wrong about or what elements of the activist plan would be distracting? Is there something that they are specifically looking for which you have already taken off the table in arriving at this new five-year plan? Thank you.
Thanks, Leo. Two really good questions. Let me talk a little bit about the capital allocation plan that we have got, and why we are so confident in it. If you look at the capital that we are going to spend within the five-year plan, it is actually focused on three key areas, the growth capital. The significant area is Accelerating Growth Plan. That is truly transformative for our business. Removing the drag of unprofitable or less profitable restaurants, replacing them with high returning extension rooms. It is 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 five-year plan we have got. The next area is U.K. new room growth.
Now, we've already taken a number of sites out of our 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 in for the next five-year plan will be north of 15% returns, and we've got data to support them. 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.
Actually, when you look at Germany, we've taken GBP 500 million balance growth capital for Germany during this five years, which leaves GBP 200 million, GBP 100 million of which will be spent this year. So over the remaining four 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. Then where we end up with Germany actually is a business of scale. So as of today, as we're having this call, we've got 75 hotels open in Germany. So 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 either to a tenant or leasehold model. You put all of that together, investing in sites where we get north of 15%, resizing capital at a significantly lower rate than that. That's one of the drivers for this 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 2031, 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 support that. So that's your first question, and then the second question was activist and Corvex.
It's really interesting, isn't it? 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 you had a GBP 60 million increase in employment costs, primarily driven by National Insurance. Then the budget last year, frankly, the government appeared to have made a mistake and hit the hotel business rates particularly hard. That's GBP 160 million worth of extra costs that came through in that budget over what now is the next two years. And we had two ways of reacting to that. You continue with the plan we had, and we adjust upside quite dramatically in order to actually more than offset those increased costs and deliver materially higher margins returns over the next five years. And obviously, that's exactly what we did.
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 three global investment banks. 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. 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 ticking off every single area of the five-year plan in terms of delivery. 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. Earlier in the year, they announced that we should do a strategic review, but we'd 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 because we're a public company. Obviously, a public company always has to be open for a sale. Then more recently, Corvex has come out and said, actually, they don't think we should put the company up for sale, but we should do a strategic review, and we should give them a board seat.
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 finally, having 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 their board nominee doesn't appear to offer any material accretive skill set to our board can be the right thing to do. Our message today is unanimous from the board, which is we've got the right plan, we've got momentum 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. 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, and we're confident of being able to do that, and we don't want distraction.
Thank you.
Very clear. Thank you. Thanks, Dominic.
Thank you. Our next question is from Jaina Mistry with Barclays. Your line is open.
Morning, Dominic and Hemant.
Good morning.
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 basis points. What's driving this? Do you see this as a sustainable runway? I'm conscious that in your current trading, it's narrowed slightly to 100 basis points. Just walk us through what's driving it and how we should think about H2 there. Then question number two, could you remind us how hedged you are on utilities for FY 2027 and FY 2028? Thank you.
Thanks, Jaina. We're really pleased and proud of the results that we've announced today. We think it really shows the strength of the plan that we've got, but also the execution of that. Of course, the RevPAR performance is one of the key ways of measuring that. You're absolutely right, in Q2 our outperformance versus the market wide. This doesn't flow. Of course, 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 were a few things going on. 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. Now, I think we have been particularly rapid at coming up with a plan that will mitigate those cost increases. But frankly, better at doing that than our competitors. We're seeing the industry generally go through a period where they're struggling with cost increases. So you can see 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. 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, oh, and by the way, increasing focus on ancillary revenues, and you can see how we can deliver an outperformance.
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 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 strong. From an inflation point of view, a hedging point of view, I'll hand over to Hemant.
Yeah, Jaina, it's pretty simple. We're fully hedged this year. We haven't given any guidance yet, but we'll give some more guidance in January for next year. As I 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. We'll make sure that we hedge appropriately.
Thank you.
Thanks Jaina.
Thank you. Our next question is from Tim Barrett with Deutsche Numis . Please go ahead.
Thank you.
Hi.
Hi, both of you. Hi there. Just had a question. First question actually also about the RevPAR trend. What wasn't brought out in that answer was London. 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 the sustainability there. Question two, apologies for mentioning the government again, but since we all spoke, the visitor levy has come out. I just want to just get to your understanding of that. It feels like it's potentially uncapped. People I talk to think it could be around 5% on average. Do you think you have the pricing power to pass that on in due course? Thank you.
Thanks, Tim. A couple of things on London. As I think you know, we under index in London in terms of sites and then when we look at our national footprint. London is a fantastic market for us. The recent openings that we have done have been particularly strong, give us high confidence that the new sites will deliver north of 15%. When you look at our performance in London, you have to remember we are under indexing there. I also think London is one of those markets where there is always strong underlying demand. You have seen London at the moment. Lots of business travelers, both within the U.K. coming to London, but also coming from overseas. Of course, there is 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 have got coming on, this is a great example of the level of detail obviously that we go through on a site-by-site basis. The new sites that we have got opening up in London, prime locations in areas where we are under index and we have high confidence we can deliver very accretive returns for the group. So that is a fundamental reason for our performance in London. Then when you talk about the visitor levy , of course, we are not in favor of the levy, and we have 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 not capped, but there has been some rowing back from that. We do already have a 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 check out, which means we pass all of that cost along. If we look at the business tax levy.
Right
No, we are not in favor of it. It is another tax for U.K. consumers. Yes, we set our business up to be able to pass on that cost. We also think we have got more pricing power than our competitors, and actually will probably hit them harder overall. But we are already set up to show to customers that it is a separate cost.
Yeah. 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. What we were able to do, though, because of our commercial engine pricing power, is take significantly more rate. So it is a very rate led out performance for the market. We outperformed the market by something like 7 percentage 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, just learning, as Dominic says, we have seen this in Manchester and Liverpool. We have got good earnings, so we are 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 have been able to do that really well.
Thanks, Tim.
Thank you.
Thank you. Our next question is from Kate Xiao with Bank of America. Your line is open.
Thank you very much for taking.
Hi.
Hi. Thank you for taking my questions. Really appreciated. 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 nine, 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 your U.K. existing network as a result of that. Thank you.
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. If you look at U.K. returns, we are highly confident of driving the 500 basis point increase in returns. That is because we're fundamentally improving the quality of our business. Let me give you an example. Accelerating Growth Plan, 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 a restaurant 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. Then we've got a journey 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 our profit over the next few years. We've then, of course, got our commercial engine driving strong RevPAR and an 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. That's what gives us so much confidence.
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. 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,
Yeah. I mean, I'd say nothing changed in terms of where we're going to get to by the end of 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'll be discussing. That's made up of these higher returning hotels, particularly focused on London and South East, 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 growth plan, where the AGP are closing rooms going forward, but also taking some rooms out. Obviously, it's part of that program, but we netted it off to give you that in terms of the impact of that and the guidance.
Also some low-returning sites, as long as we still talk 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 some changes, supposing 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. This year, we're still going to get to 1,000 underlying rooms plus another 15 rooms through acceleration growth plan.
That's really helpful. Thank you very much.
Thank you.
Thank you.
Thank you. The next question is from Richard Clarke with Bernstein. Please go ahead.
Hi, good morning. Thanks for taking my questions. I guess one thing that has not been mentioned today is your two 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. Then second question, on slide 26, I think you have got a new definition of ROCE called capitalized lease ROCE in footnote two. Just wondering how are you capitalizing lease in that definition, and is that the ROCE that you are 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 will hand over to Hemant. We are 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 that were not going to deliver increased returns. Then when we had 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 a quite significant GBP 500 million worth of capital in the U.K. to ensure that the sites that we were opening in the future, we were absolutely confident were going to deliver accretive north of 15% returns. We are generally quite cautious about doing conversions.
We generally like new builds because we can make that site super efficient and get scale of the site that drives in cost efficiencies, but also therefore the profitability returns for that site. Occasionally, conversions do come up which are really interesting, and those two sites fell into that category. It gives us an opportunity effectively to open hotels very quickly after purchasing, spend relatively minimal CapEx on those sites, and have an immediately profitable and high returning site. 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.
Good. Richard, your question on capitalized lease ROCE. 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 each type and the accounts approach. But we need to make sure that when we are taking a new lease on, we are looking at it to make sure it is adding shareholder value. We think about the rent cover so the service rent cover to make sure we have got strong cover there and it is adding value overall and to make sure we are not too expensive. We also then look at it as if it were an investment up front, 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 are looking for the freehold sites as well. So this is just an internal definition that we are using as part of our investment appraisal process. Our overall ROCE calculation is much simpler than that.
It is an IFRS 16 view of the world and lets the it follows the cash flows effectively. So this is true. I guess what I am trying to say is our investment appraisal process is very, very prudent, and it should drive higher returns on capital than we are targeting internally for the shareholders.
Thank you, Richard. Appreciate the questions.
Thank you. Our last question today comes from Jaafar Mestari with BNP Paribas. Please go ahead.
Hi. Good morning. I have two, 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 are also buying a hotel in the package, and then they are talking about rethinking the right menus for hotel guests and building new things together. I am aware there is 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 spaces. That is still the main model.
Then on cost saving, you have talked about cost efficiencies being two-thirds, one-third between H1 and H2, so that has helped a little bit.
Could you help us understand the potential saving on some of the other costs? Top of my mind is GBP 10 million rebranding costs in Germany. Was that all in H1? There is a GBP 40 million disruption from the accredited 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 guides, please.
Thanks, Jaafar. Let me pass the first question about AGP, and then Hemant will answer probably some of your second question, but might have to take it offline to help you through that. The first question, a really good question on the Accelerating Growth Plan. It is a very, very good data point and evidence of our return-to-growth focus overall as a business. If I step back from the service growth plan and talk about what we have done. We have 740 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 thus 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 the Branded Restaurant literally transforms the economics of that site. At the same time as we are doing that to that site, building the extension room. We have already got over 50 of these sites now open. We have got good data to support the fact they are 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 is a tailored menu for our hotel guests, super efficient for us to deliver, but guests like it. This is the perfect example of a strategic shift that is better for our guests and better for our shareholders.
Very exciting.
There was another group of sites, certain 200s, where when we looked at it, we could build extension rooms on those sites, but actually we would not get a strong enough return on capital, and that is either because the catchment area would not really support a significant size extension or would only be full at certain times of the year, like the summer. We have taken a very returns-led approach and said in those sites, we are not going to build extension rooms, and we do not get a strong enough return on capital. We either sell the restaurant to someone else who can operate that restaurant. 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 operating 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. The end position of those sites is you end up with our hotel with a super efficient 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 is a really nice model, and it is a lot better for us than us operating that restaurant ourselves.
Now, there is time taken to build those breakfast rooms. In the intervening period, we have a contract with our operator to serve breakfast for our guests for an interim period. Then moving forward, we end up with a highly profitable hotel because we are removing the drag of the on-property restaurant. A breakfast proposition actually secured for our guests, driving high guest satisfaction. 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 are executing AGP is frankly phenomenal. It is a complicated program. It is the most transformative program. We are making really good progress.
Thank you, Jaafar.
Yeah. Just on cost saving, Jaafar. You have identified most of the 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. That is because lots of the delivery in the first half comes from programs that started last year, have been called forward last year to get more of those cost savings in earlier. Clearly, they build into the base of the cost base permanently go forward. But the year-on-year phasing is as you said. AGP is quite lumpy, in all honesty. There is the first phase that we have 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 will see a lot of that in Q3, but then we will see the cost coming out in Q4. 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. Capital, I will be offline. These are capital offline without any more detail. I think the biggest thing is the overall efficiency numbers, as we said. So there is a little bit of front-half phasing effect for that, but I think you have got a clear understanding where we think contest in them land based on discussions that we have had with you and your colleagues.
Thank you. As you probably saw in our presentation, this year is a year of heavy lifting, particularly in AGP, where we start seeing the benefits come through quite clearly next year. Let me just sum. I think that was the last question. Let me just summarize where we are. We have a great plan. It is going to deliver material increases in margins returns of GBP 2 billion for shareholders by FY 2031. We have got momentum in delivering the plan, and you can see that from our results today. We have got a world-class board focused on the delivery of this plan for all shareholders. I really appreciate all of your time today. Thank you for the questions. I am sure we will 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 line.