Accor’s Bazin sees room to grow from pandemic lows
 
Accor’s Bazin sees room to grow from pandemic lows
05 AUGUST 2020 9:16 AM

French hotel giant Accor has not escaped the pain of the pandemic, but its growth continues to be fueled by acquisitions and new signings, executives said on an earnings call.

PARIS—Accor President and CEO Sébastien Bazin said the COVID-19 pandemic is “global, sudden, violent and unprecedented” and has involved his company “turning over 5,000 stones,” referring to the approximate number of its global hotel portfolio.

The turnaround will not be easy, he said.

“Whatever we do, clearly everything will have to be disciplined. There is no time now to have fun. We are in a world where there is no margin of error. The team is aware what is going on, and 100% will be results-driven with vigor and discipline,” he said.

Speaking on a conference call to report first-half 2020 earnings, Bazin said the French hotel firm is well-positioned to capitalize on distress in the industry.

Bazin made reference to Accor’s soon-to-be-signed agreement via its Ibis brand with the newly formed Travelodge Owners Action Group. That followed landlord antipathy to Travelodge’s financial rearrangement via a company voluntary arrangement to reduce rents that was passed with the inclusion of contract break clauses.

“(The situation at) Travelodge would never have happened without this crisis being there. Travelodge is a fine brand, and that it is all about reorganizing and not being able to pay rent. I have no idea if we will have 20 Travelodges, or all 500. It will be somewhere between 20 and 500, and that will be a significant increase (to our portfolio),” he said.

He added that he has had similar conversations with other groups.

“To have Accor’s leadership, size and strength is attractive,” Bazin said, noting he is interested in portfolios of 10,000 rooms and above.

He said among Accor’s current owners, the financial position is “remarkably strong, stronger than I would have thought, with very few in serious disarray.”

Gallic grit
Overall, Bazin said Accor will be focusing on adapting to changes in guests’ behaviors and regularly stress-testing the business model.

He said Accor will become even stronger, with better brands and an increased concentration on reducing guest-acquisition costs, studying domestic and regional guest booking patterns and working in association with local and regional tourism boards.

“As of (3 August) and for five days rolling, occupancy in China is 60%; France, 56%; Germany, 39%; U.K. 35%, and across North and Central America, 35%, and those are increasing with every week passing,” Bazin said.

He added 60% of bookings are made with less than five days’ notice.

“That is one reason it is so difficult to project the future,” he said.

He mentioned VeryChic, the last-minute booking engine Accor bought in April 2017, and that Airbnb is more of a competitor than ever before as guests seek accommodations options they believe are safer and have less contact with others.

Another boon is that France and Germany will soon have no limits on group size, he said, although he acknowledged that in Europe 50% of all trade fairs have been postponed.

“Business is the segment in which we have the most unknowns, and that will continue at least until summer 2021, and we know as a fact that we will never come back to that of 2018,” Bazin said.

He said he expects group business will be down 25% to 30% through summer 2021 and 10% to 15% beyond that.

Bazin said COVID-19 was merely an accelerator, a crisis that has given Accor a higher sense of responsibility and a stronger commitment to environment, inclusion and solidarity.

Ultimately, he said he is optimistic due to the firm’s solid background, good planning and targeted supply.

Bazin said Accor is embarking on two other projects, one a continuation of initiatives started long before the pandemic, the other a direct result of it.

The “Hotel Office” initiative allows people to book hotel rooms for home-working away from their real homes and is available in 250 hotels in the United Kingdom and approximately 70 in Northern Europe with plans to grow rapidly.

The second initiative is to retain on the Accor payroll those employees earning below €50,000, funded by the firm’s Heartist program of employee training and support. Employees no longer on the Accor payroll will still have full access to its training and help, Bazin said.

He said the ability to offer such help comes “between pleasant and hard to accept.”

Present pain
Accor’s initiatives and strategies do not cover the pain it and the hotel industry are feeling right now, said Jean-Jacques Morin, the firm’s deputy CEO and CFO.

He referenced the World Travel & Tourism Council’s estimate that the pandemic has caused a $3.4 trillion contraction in global tourism gross domestic product, jeopardizing 121 million jobs.

Bazin said that “only reinforces the importance of targeting domestic clienteles.”

Morin said “traditionally (Accor has) given guidance for the full year during the half-year presentation, but with this one, we cannot.”

Revenue per available room was down 59.3% for the first half of 2020, and down 88.2% in Q2 compared with the same period last year, Morin said.

The company’s hotels in the Asia-Pacific region, which suffered first from COVID-19, are also among the first to recover with Q2 RevPAR down 77.4%, compared to Europe, where RevPAR for the same period was down 90.6%.

Morin added global, comparable occupancy was 31% in H1, and 14.7% in Q2. Approximately 81% of Accor’s hotels now are open.

Revenue declined 52.4% to €917 million ($1.1 billion) in the first six months of the year compared with 2019, while earnings before interest, tax, depreciation and amortization was -€227 million (-$269.5 million) and recurring free cash flow was -€473 million (-$561.5 million).

The company has €4 billion ($4.75 billion) in liquidity, including €2.4 billion ($2.85 billion) in cash.

Reduction in recurring capital expenditures amounted to €60 million ($71.2 million) for full-year 2020, and the company raised another €1.06 billion ($1.26 billion) in proceeds from the 2019 sale of its approximately 90% stake in Polish hotel group Orbis S.A and the €429 million ($509.3 million) reduction in consolidated debt from its recent buy of Swiss brand Mövenpick.

Net debt in December 2019 was €1.33 trillion ($1.58 trillion), but was reduced as of June 2020 to €1.09 trillion ($1.29 trillion), and the firm also received a tax cash refund of €300 million ($356.2 million) stemming from litigation with French tax authorities dating to 2000.

Accor also is in the process of selling its headquarters in Paris for approximately €290 million ($344.3 million).

Bazin and Morin said Accor’s pipeline remained at approximately 206,000 rooms, or 28% of the current portfolio. In the first half of 2020, 12,000 rooms have been added, most in China.

Bazin said of 2020’s turbulent months illuminated “all the things (business) shouldn’t be doing anymore.”

At time of publication, Accor stock was trading at €22.66 ($26.92) a share, down approximately 45.7% year to date. The Euronext 100 was down 15.3% for the same period.

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