Accor’s Bazin: Record 2017 vindicates ‘aggressive’ M&A
Accor’s Bazin: Record 2017 vindicates ‘aggressive’ M&A
21 FEBRUARY 2018 9:53 AM

AccorHotels executives were bullish about full-year 2017 performance, pointing to record percentage growth during a call with analysts to discuss the results. A rebound in its core market, France, was a key driver for the company.

PARIS—AccorHotels executives are jubilant about the company’s full-year 2017 performance, which showed like-for-like operating profit of €492 million ($606 million), which they said was a record 10.1% increase.

That profit represented a 2.5% to 6.7% improvement on the French hotel company’s previously stated full-year guidance of between €460 million ($567 million) and €480 million ($592 million), they added.

More good news for the company is renewed strength from its core market, France, after several quarters of lackluster performance following terrorist attacks.

The full-year figures showed combined average daily rate for France (approximately 152,000 rooms) and Switzerland (approximately 8,000 rooms) grew 7.4% for the fourth quarter of 2017 after five quarters of negative or stagnant movement.

During a presentation with analysts to discuss the results, AccorHotels CEO Sébastien Bazin said the “group has never been so strong.”

He also said the strong quarterly and full-year results prove the wisdom behind the company’s acquisition of FRHI Hotels & Resorts, which includes brands Raffles, Fairmont and Swissôtel.

“Jean-Jacques Morin (Group CFO), Sébastien Valentin (SVP of investor relations and financial communication) and I back in December 2015, what did we hear from each of you (analysts)? … ‘It’s crazy; you’ve gone off the rails; it’s private equity; what’s this business of buying at the worst time brands at 20 times the multiple? You don’t know what you’re doing. Accor’s not credible in luxury. … You will lose 30% of your management contracts; your hotel managers will leave in droves; and you’ve probably negotiated poorly with our owner friends of the day. … You shouldn’t give stock,’” Bazin said.

“I heard it all; 90% of people had doubts or were extraordinary aggressive. ‘Your synergy is total rubbish.’ All of those of you who said that to me, come back and see me; we’ll have a glass of wine together; it’s on me. But take a look at what we’ve achieved,” he added.

Bazin said AccorHotels stated at the time that the deal would see €65 billion ($80.1 million) of synergies through 2019.

“Fifty-five million euros ($67.8 million) have been delivered at the end of 2017,” he said. “That is a year ahead of schedule, so the multiple today is close to 13 and not 20. We have signed 36 hotels over the three brands, and we won two-thirds of the tenders (we applied for), and none of them were tenders were would have attempted with (Accor’s) Sofitel (brand).”

Another success Bazin underlined was AccorHotels’ investment in Huazhu Hotels Group (China Lodging).

“People were not skeptical; they were agnostic,” he said, adding that the firm’s initial investment in January 2016 of $193 million translates today to a stake value of $1.1 billion.

Morin called the results “a remarkable year in terms of financial performance.”

“Looking at France and Switzerland, (revenue per available room) rose 4.2% over the year … very good momentum in France. This is a reflection on what’s happening in Paris, where RevPAR rose 9.2% in Q4,” Morin said.

Dare to try
Bazin said AccorHotels had made mistakes, but such errors are part of today’s disruptive landscape.

The CEO said one of AccorHotels’ three engines is audacity—the other two are its brands and its geographic footprint.

“This group is up-ending everything, Bazin said. “It doesn’t mean that we will succeed at everything. Time will tell whether we are succeeding, but at least we will have tried. We are disrupting everything, including ourselves.”

One new area of disruption at AccorHotels is its mobile app, AccorLocal.

“Digital tech will to allow an interface with customers who AccorHotels has not thought about for 30 years. AccorLocal moves closer to the person who doesn’t need a hotel room, lives in a big city and to whom I can provide local services,” Bazin said.

The company has also embarked in areas such as co-working, events and catering, which Bazin said represents only 5% of revenue today but will be more tomorrow.

Bazin acknowledged that his firm had not been successful in its plans for independent hotel distribution on AccorHotels’ own platform, a response to a question on Airbnb’s latest foray.

“We read Airbnb’s announcement, which is pretty powerful, ambitious. I’ve always had admiration for Airbnb; I’ve never decried the company … (it) seems fully reasonable to grow new businesses and increase the range of offerings. They’re doing exactly the same as what we did when we launched, that is independent hotel distribution. … we realized for us it was not a good idea,” he said.

“If they can do it, so much the better. It is fascinating, interesting and pretty exciting to watch. Wide open,” he added.

The company continues to talk to owners about investing in its AccorInvest “Booster” standalone entity, but no further color was given during the presentation. Bazin said during the presentation of 2016’s full-year results last February that the firm would “remain the biggest shareholder for a very long time, I expect.”

Still, AccorHotels’ portfolio continues to grow.

The company set another record in 2017 for portfolio development, with 301 hotels and 51,413 rooms opened during the year. Its construction pipeline includes approximately 161,000 rooms in 874 hotels, 78% of which will be in emerging markets.

Bazin said the company does not have a single gap in its portfolio in terms of options it offers to its guests. While there might only be a €5 ($6.16) difference in the rate between one of the firm’s 25 brands and another, that could represent a huge difference in the mind of a guest, he added.

Regarding the company’s November 2017 buy of Australia’s Mantra, Bazin said that the Australian “competition authorities have not finished their work. We expect in mid-March the report on their requirements.” He said he has “99.9%” confidence “the deal will happen.”

AccorHotels also reported growth in its New Businesses portfolio, which includes concierge and digital services and luxury home rentals, for which full-year revenue increased 6.9% to €100 million ($123 million).

Like-for-like revenue for full-year 2017 increased 7.9% to €1.9 billion ($2.3 billion) for the full year, while earnings before interest, tax, depreciation and amortization for the same period increased by 8.1% to €626 million ($771 million).

At press time, AccorHotels shares had risen 1.21% on the London Stock Exchange, while the French stock exchange Cotation Assistée en Continu40 EuroNext had dropped -0.49%. The Baird/STR Hotel Stock Index was up 2.68% for the same time period.

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