Article Summary:

In its full-year 2019 results, Accor reports network, revenue per available room and EBITDA growth, despite global occupancy pressure from a series of calamities now joined in 2020 by coronavirus.

Primary Category: Earnings Recaps

Secondary Categories: Brands, Development, Europe, News

PARIS—Accor’s full-year 2019 earnings before interest, tax, depreciation and amortization of €825 million ($891 million) came in slightly below the guidance given in October—and it was reduced then, too, from previous predictions.

Still, the metric increased by 14.8% in reported and 5.9% in like-for-like terms for the year compared to 2018.

Global revenue per available room also grew by 1.7% in 2019 over the previous year, according to results.

Speaking during an earnings webcast, Accor President and CEO Sébastien Bazin said “our business model is incredibly solid, robust and can weather a lot of tempest,” referring to a litany of challenges in 2019 to which now has been added the outbreak in China of coronavirus, also known as COVID-19.

“Three of those developments (we) knew about when the last round of budgets were done. … (but turmoil) shifts all the time,” Bazin said.

Angst in 2019 included the U.S.-China trade war, Hong Kong protests, Australian bushfires, Brexit, the gilets jaunes movement in France, Middle East geopolitics and turmoil in Chile, Argentina and Peru, he said.

“But despite all of this, EBITDA grew from €719 million ($776 million),” he added.

Bazin also underlined the completion of the French firm’s transformation from being a real-estate manager to being a service provider.

“I like the audacity. I like the risk we’re taking, and I think it is achievable,” he said, referring to Accor’s spending and mergers-and-acquisitions activity over the last half-decade or more.

He said the strategy going forward is to convert 2019 record pipeline into new 2020 openings, complete the integration of 2018 acquisitions, target EBITDA growth to €1.2 billion ($1.3 billion) in 2022, maintain a high level of cash conversion and continue the commitment to being asset-light, curtailing costs and reducing use of plastics to achieve greater sustainability.

Jean-Jacques Morin, deputy CEO and CFO, said the emphasis on recurring free cash flow of €434 million ($469 million) allowed Accor’s board to agree to an ordinary divided of €1.05 ($1.13) per share in cash or additional shares. Bazin added that a target for 2021 is to increase share buybacks to €400 million ($432 million).

“And this will continue beyond 2021,” Bazin said.

Transformation
Bazin touched on a few pieces of information that he said would not be necessary to show after this particular earnings call.

Accor has gone from being 58% asset-light in 2014 to 96% today, Bazin said, while its upscale and luxury portfolio has grown from 22% in that same year to 41%.

“The transformation is over. Accor is today a pure asset-light company. … This is not anecdotal. This is all behind us today,” Bazin said.

That change has come about through sound business, he added.

He said in 2019 Accor sold another 5% of AccorInvest for €200 million ($216 million), which resulted in a 13% internal rate of return versus May 2018; sold half of its 10% stake in China’s Huazhu Group for $451 million, a 350% increase of its original 2016 investment; sold its assets in Orbis S.A. for net proceeds of €730 million ($788 million), a 22% increase in its January 2019 tender offer; and sold its lease portfolio in Mövenpick for a net debt reduction of €429 million ($464 million).

Of the November 2019 deal with Huazhu, Bazin said “one has to believe that selling it today would be virtually impossible.”

China’s problems with coronavirus were mentioned, with Bazin saying the firm’s top priority is the safeguarding of its 25,000 staff there.

“Eighty percent of our people, we have asked them to stay at home, not physically working at the hotels. … We have closed a lot of hotels, but the impact from all of this is €5 million ($5.4 million) reduction in lack of revenues,” Bazin said.

That number matches the one InterContinental Hotels Group gave in its 2019 earnings published on 18 February.

Bazin said Greater China constituted 3% of Accor total revenue, but 10% of its rooms, and cited data from STR, the parent company of Hotel News Now, that said in January occupancy in China fell 45% year over year.

Approximately 200 of Accor’s 370 hotels in China are closed or partially closed, Bazin said.

In regards to outbound Chinese travelers, he said there was very minimal impact.

“Ninety percent of the 140,000 million Chinese travelers when they travel, they stay in Asia-Pacific,” Bazin said.

“We’ll have more info in 20, 30 days. There have been cancellations but also re-bookings. The Chinese authorities are doing one hell of a job, and (the industry is) blessed with long-term growth in demand,” he added.

Fee generation
Bazin and Morin said the shifting of Accor’s portfolio more to luxury is translating into higher fee generation, anticipating the average of €1,200 ($1,300) per room in 2019 would grow to €1,600 ($1,730) per room through 2020.

“Twelve brands represented 90% of the money we invest … and our top 10 countries account for 60% of our EBITDA stream of management and franchise fees, and that would be 80% if you added countries 10 to 20. Upscale/luxury constitutes 42% of the portfolio in those top 10,” Bazin said.

“I am actually not happy with only 5,000 (rooms) being in development (in North America) … as a percentage of what we have we need to show muscle and to go deeper there, and we are certainly doing it faster today through (acquired brands) Delano, Mondrian and SLS,” he added.

Currently, Accor has 5,036 hotels and approximately 740,000 keys, with a pipeline of 1,206 hotels and 208,000 keys, 35% of which is upscale and luxury, he said.

Network-size growth in 2019 of 5.1% is a record, Morin said, with the company now opening a hotel every day and signing one every 16 hours.

According to the two executives, last year was the first time Accor grew more in the Asia Pacific region (8.4 million rooms) than in Europe (8.3 million). They added that the market remains fragmented, with China being 52% branded and Europe 32%.

As of press time, Accor stock was trading at $38.92 a share on the New York Stock Exchange, down 7% year to date. The Baird/STR Hotel Stock Index was down 2.8% over the same period.

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Headline: End of transformation, buybacks underlie Accor growth

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Article Time: 10:38:00 AM