UK hotel, coffee shop and restaurant owner Whitbread has announced it will separate leading coffee shop chain Costa from its other businesses, which include Brewer’s Fayre, Premier Inn and Beefeater.

The company said it has been considering separating Costa and Premier Inn into separate businesses for a while but was waiting until the time was right to optimise long-term value for both companies.

It is expected the demerger of Costa will be completed in the next 24 months in order to allow momentum to be maintained, transformations to be completed and to drive international expansion. Whitbread wants to move at a pace that is practical and appropriate in order the optimise value for shareholders.

This decision follows pressure from hedge funds for Whitbread to spin off Costa. The pressure primarily came from Elliott Advisors, which owns a 6% stake in Whitbread that it claims makes them the largest investor, and Sachem Head, which owns a 3.4% stake. Elliott Advisors believes £3bn of value could be created by the demerger of Costa.

Whitbread chief executive Alison Brittain said: “Over the last two years, Whitbread has made tremendous progress in innovation and growth in our core UK businesses and we have recently delivered a step-change in international development through two significant acquisitions in China and Germany. We have considerable momentum in the delivery of a complex multi-year transformation programme, which will improve our core operational capability, redevelop our technology platform and deliver significant levels of efficiency.

“We are confident in our plans to deliver further progress in these areas, which will ensure both Premier Inn and Costa are in a strong position to continue their success as separate entities, creating further value for our shareholders and opportunities for our team members.

“I am excited that at the point of separation, both businesses will be able to take advantage of the structural growth opportunities available to them in the UK and internationally. Costa will become a listed entity in its own right and the clear market leader in the out-of-home coffee market in the UK. Costa will also be well positioned to build further on its strong international foundations with growth expected in China and Costa Express.”

Whitbread has also released its preliminary results for the full 2018 financial year on 25 April. The company reported strong UK performance and an increase in international momentum.

Full year revenue across the group totalled £3.3bn, a 6.1% increase on 2017 full year results. Underlying pre-tax profit totalled £591m, a 4.5% on 2017, and discretionary free cash flow of £585m, a 9.9% rise.

The coffee shop’s return on capital was 46.0%, compared with 45.4% in 2017, which represents an increase of 60 basis points. The group as a whole’s return on capital was 15.4% up 20 basis points from 15.2% in 2017.

Brittain said: “This growth has been underpinned by disciplined investment in new capacity for both Premier Inn and Costa and a relentless focus on improving the overall experience for our millions of customers. With ongoing growth in coffee consumption and our increasing ability to win market share from the independent hotel sector, we are confident of further growth at a good return on capital in the years ahead.

“Internationally, we announced two strategically significant transactions for Premier Inn in Germany and Costa in China…In China, we completed the buyout of one of our two joint-venture partners. This acquisition provides Costa with full control of stores outside Beijing and allows us to increase our ambition to target 1,200 stores by 2022. These acquisitions provide solid foundations from which both businesses can grow international operations of increasing significance in the years ahead.”