Accor reports pressures in China, solid global growth
Accor reports pressures in China, solid global growth
01 AUGUST 2019 8:42 AM

Accor officials, during the presentation of first-half 2019 results, said a strong Europe and a rejuvenated South America have helped boost global performance. Talks are also in progress to divest Accor's real estate holdings in its Polish hotel subsidiary Orbis.

PARIS—Accor remains jubilant.

The French hotel firm’s latest earnings report, for the first six months of 2019, shows a 30.1% increase to €375 million ($417.3 million) in earnings before interest, taxes, depreciation and amortization, and a 2.9% rise in global revenue per available room, compared with the same period in 2018.

For the full-year 2019, global RevPAR is predicted to grow by 3% year over year.

Accor officials are also cheering the reopening on 1 August of what is perhaps its most famous asset, the original Raffles Singapore, following a top-to-bottom renovation that began in February 2017.

If Accor has reason to be concerned, it is due to continued RevPAR pressure in China, which Jean-Jacques Morin, Accor’s CFO and deputy CEO, said during an earnings conference call was due to continued trade disputes between it and the U.S. and what he said was Chinese gross domestic product growth at its lowest in 27 years.

RevPAR declined at hotels in the company’s Asia-Pacific portfolio by 0.2%, much of that caused by China. Morin said this negativity went against what he sees in the APAC region, which has returned to strength.

Morin said the company’s cash conversion—the proportion of profit converted to cash flow—in the period was at 76%, above its guidance of 70%.

He added that earnings numbers in Accor’s luxury segment has been the major catalyst, especially in Asia, which he added accounts for 31% of Accor’s portfolio and approximately 50% of its pipeline.

“RevPAR did improve across all regions in (the second quarter), 40% (driven) by occupancy, 60% price-driven. … North America turned positive in Q2 to the tune of 3.1%,” Morin said.

Middle East and Africa RevPAR grew 2.5% in the second quarter and 1% in the first half of the year, and “the region notably benefited from strong performance during Ramadan,” Morin said.

“In South America, revenue was up 13.8% in H1 and continued to accelerate through a successful pricing strategy, notably in Sao Paulo, and occupancy, (notably during) the Copa America Football Championship in Brazil in June,” he said.

Hotels in Accor’s home market of France posted RevPAR growth of 4.7% in the first six months of the year, which Morin said was due to events such as the Paris Air Show and the soccer FIFA Women’s World Cup.

Luxury and light
Morin said Accor’s higher-end products underpin much of its recent success.

“Luxury and upscale now represents 40% of the total revenue. It used to be 22% in 2016,” he said.

He added that Accor is to continue on its asset-light strategy, which it began with the 55% sale of its HotelInvest division in February 2018.

“What (Accor) will do is that we will make the model pure. We want to be a pure-play hotel-service group. When we (bought our recent) acquisitions, they came with some assets, and so now we are working on OrbisMantra and Mövenpick, basically getting rid of the leases,” he said.

“On Mantra and Mövenpick, we are working on the lease portfolio … only keeping the management and franchise business,” he added.

Morin said Accor is in talks with investors in regards to the sale of Orbis’ real-estate holdings, which he said had a gross asset value of approximately €1.1 billion ($1.22 billion).

He added that all boded well for the company, predicting that RevPAR for full-year 2019 would be driven by performance in Europe, which contributes approximately 50%.

“The one question that you may have is the (United Kingdom) because nobody knows where the U.K. is going to go, but in the U.K. we have a very good performance in London. ... I think more at risk are the provinces,” Morin said.

The company noted in its earnings news release that in the U.K., “the increase in RevPAR in London (+4.3%) reflects a persistently active domestic tourism market, while RevPAR in regional cities (-2.1%) was impacted by uncertainties related to Brexit.”

Total revenue in H1 increased by 27.8% to €1.93 billion ($2.15 billion).

“Transformed into an asset-light player, (Accor) is now capitalizing on its growth drivers—strong complementary brands that are leaders in the majority of their markets, a sustained development, leading positions in the most touristic markets and a unique ecosystem,” Accor CEO Sébastien Bazin, who was not at the earnings conference call, stated in the earnings release.

As of press time, AccorHotels stock was trading at €39.79 ($44.28) a share, up 9% year to date. The Baird/STR Hotel Stock Index is up 16.1% for the same period.

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