Accor SA

PAR:AC

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, welcome to the Accor Q1 Revenue Conference Call. I now hand over to Mr. Jean-Jacques Morin, Deputy CEO. Sir, please go ahead.

[Jean-Jacques Morin]

Good afternoon, ladies and gentlemen. Good morning. Thank you for being with us for this Q1 2019 revenue call. So let's start the presentation, if you will, on Page 3. So before we go and deep dive in the numbers, we'd like to give you some highlights of the Q1 2019. Accor posted a solid revenue growth at 8.8% on a like-for-like basis, demonstrated across all segments. As for Hotel [indiscernible] -- as for HotelServices, sorry, which is our core business, revenue growth was 7.3%, fueled by an organic system growth of 5.6% for the last 12 months and a RevPAR of 1.6%. This demonstrates the resilience of our business model. We expect an improvement of the momentum across the year and confirm the 3% RevPAR growth full year target that was mentioned last February. As for the second highlight, I'd like to talk about organic development. Organic development remains sustained in Q1. We added, organically, 8,300 rooms over the network, and we expect to deliver record organic system growth for the full financial year of 2019. The churn was limited to 3,500 rooms, and we reached over the quarter the symbolic threshold of 2,000 (sic) [ 200,000 ] rooms in the pipeline. The third point that I would like to make sure we focus on is execution of the strategy. And execution of the strategy, 3 points. First off, on Orbis, we signed a cooperation agreement with -- under which we work with the company on value restructuring options. So the project is moving on. We have on the restructuring announced at the end of 2018 all the appropriate approvals from the various [ additions ] to move ahead. So again here, this is something which is moving ahead. And the last one is that we completed a second tranche of the share buyback program that I will now detail on the next page. So I move to Page 4. So Page 4 gives you a snapshot of where we stand on the share buyback program. The share buyback program had been announced back in February 2018 as part of the Booster proceed allocation, and it was to the tune of 10% of our share capital. As you will see from the table, on March 26, we completed the second tranche for EUR 500 million, which equates to 13.4 million shares at an average price of EUR 37.3. Overall, since the beginning of the program, we have now purchased 21.8 million shares for EUR 850 million. This equates to 7.5% of our share capital. So the Board of Directors should shortly decide the next steps to complete the execution of the program, this program and share buyback. So I move back now to development, and I am on Slide 5. And you'll find here the traditional breakdown that we provide of our network and pipeline by region. I already mentioned the 8,300 rooms over Q1. Among the noticeable openings are the Pullman in Shanghai and the MGallery in Qatar. If we zoom on the network by geography, Europe remains our core market with 50% of the network. Asia Pacific continued to deliver divested growth, accounting for 30% of the network and 50% of the pipeline. And in MEA, those are Middle East and Africa, the network recedes due to some closing in Saudi Arabia and in Egypt.So if you now move to the next slide, which is Page 6, we go there into RevPAR. And so this is the overall group RevPAR growth evolution. You see that Q1 RevPAR was 1.6% on the back of 2 very strong years of comparable. If you break it down by region, first off, Europe and Asia Pacific, I will detail in the next slide as they are the largest one and constitute 80% of our business. But Europe was a 3.3% RevPAR growth. Asia Pacific was minus 0.6% RevPAR reduction. If you talk now on the regions that are not detailed later on, which is to start with North America, RevPAR growth was a negative, minus 2.1%. Two atypicals explain this. There were some special event last year in The Plaza in New York, which boosted last year's numbers. And this year, on the contrary, we've got a large renovation at the Fairmont Royal York in Toronto, which is a 1,300-plus room hotel. So quite significant. If you were to rework for these 2 atypicals, then the RevPAR will be to the tune of 1%, which is in line with the market. Looking now at the region Middle East and Africa, the RevPAR was a negative 0.7%, reflected in the continued complex situation in the UAE, which we have been experiencing over the last 2 years where oversupply drive prices down. Now moving to South America. South America rebounds and posted a sound RevPAR growth of 11.2%, occupancy being up 350 basis points on a like-for-like basis, and with Rio, which is finally recovering from the Olympic Games.On a per segment basis, luxury was impacted by a significant renovation in Singapore and tough comps in North America, which I just was talking off with The Plaza.So that's on the overall view on the RevPAR growth. If you now deep dive in the 2 key regions, which are Europe and Asia Pacific. So Europe. The first thing is that in Europe, the largest country is France, and France posted a 2.7% RevPAR growth increase. And you saw strong numbers, good numbers both in Paris at 2.7% and in the province at 2.5%. Yellow vest on the -- very much negatively affectedly our business and going forward, the Le Bourget will support the corporate demand over Q2. Moving to the U.K. The U.K. posted a 1% RevPAR increase, continuing last year's term. Here, 2 different situations. The one in London, which was very good with a 5.8% growth of the RevPAR. And again because of inbound leisure tourism, both domestic and international, some explanation as what we experienced back at the end of last year. And this is affecting the products, which has become weaker at minus 4% and where we see a softening of the corporate demand amidst of the Brexit environment. Germany posted a 3.4% RevPAR increase and there were some good sales, notably the Bauer in Munich and [indiscernible]. As Eastern Europe is concerned, a good RevPAR, 5.4%. Again, with a good Poland, and a strong leisure demand, continued strong leisure demand in Budapest. And finally, Spain posted a good 8.8% RevPAR on the back of recovery from the Catalonia attention some quarters ago. And also hampered from 2 significant hotels in Barcelona that were in refurbishment in Pullman and the Fairmont. Now if we move to Asia Pacific, the RevPAR decreased by 0.6% over Q1. Australia was a key driver with RevPAR now in negative territory at minus 1.6% with some of our supply in key cities, but also more importantly, the upcoming general election in May, which make that corporate consumption is not there.The Chinese travels in Asia Pac were down, and this has been impacting Southeast Asia in general. And I'm talking about Thailand, Vietnam, Malaysia, which on top of that in many of those places, there were elections. So again, not the best environment. And then last, but not least, Singapore was affected by the Fairmont and Raffles renovation, which should be over in H2. So that's on Asia and Europe. I move now on the view by segment. So I am on Slide 8. So Accor posted an 8 -- a EUR 987 million revenue over the quarter, which is up 8.8% on a like-for-like basis. The growth was across all segments. The reported growth was 34.2% and the variance between the 2 is essentially perimeter effect coming from the integration of Mantra and Mövenpick, and you've got the details in appendix. The other thing that is quotable is a small -- or smaller currency effect to the tune of 1.5% as the euro has been weakening against notably the USD and the Canadian dollar.So moving into each of the segment. HotelServices, up 7.3%. That translated to 13.3% on a reported basis for the same reason, i.e., acquisition of Mantra and Mövenpick. If you move to Hotel Assets and other, again, good revenue, very good revenue at 8.9%. And it translates very sound trading condition in Eastern Europe and Latin America, so we were just tucking off. The reported growth at 108 -- 106% reflect the acquisition of Mantra and Mövenpick last year in June and September. As for New Businesses, revenue was up 10% on a like-for-like basis. It translates into 22% on a reported basis as ResDiary was acquired last year in April. I move now to the management and franchise revenue, which is the core activity of HotelServices. It includes franchise base and incentive and some additional orders, additional services like training or IT. So Q1 stands at EUR 225 million and it is up 7% like-for-like, and that demonstrate the resilience of the business model. In Europe, M&F, so management and franchise, was at 7.6%. And this is the translation of 3.3% of RevPAR growth that we just discussed, an organic net system growth around -- the organic net system growth over the last 12 months plus some incentive fees in Turkey as we had, as you may recall, an extraordinary area in Turkey following notably the currency devaluation. In terms of Asia Pacific, M&F revenue posted a sound 4.2% like-for-like growth, which translates the organic net system growth to the tune of 5.4% and the 5.4% excludes Huazhu, which is not generating a lot of revenues. So that needs to be excluded in this computation. And the minus 0.6% RevPAR decrease that I was alluding to before. In the case of Middle East and Africa, M&F revenue was down minus 0.6% on a like-for-like basis. And this is essentially the reflection of the RevPAR that we went through, plus the fact that there is little happening in terms of development at this stage in that region. In NCAC, M&F revenue posted a strong 13% growth increase, which reflect the organic net system growth of 4.8% over the last 12 years. The RevPAR decrease that we discussed before of minus 2.1% and the ramp-up effect from the Fairmont Austin that opened last year, it's a very large property, more than 1,000 rooms. And we have also great performances in Fairmont, in some of our Fairmont and notably in the Rockies, which are generating incentive fees. In South America, M&F revenue reported 13% like-for-like growth, and this reflect the recovery of the RevPAR that we just discussed before. On a segment basis analysis, luxury is now 41% of management and franchise, and this notably translates the integration of Mövenpick. So moving to the last slide of this presentation, and the conclusion, so Q1 demonstrate the resilience of the business with strong revenue growth despite moderate RevPAR environment. We confirm record organic growth for system in 2019. We expect some RevPAR improvement over the next quarter, notably in Asia Pacific and North America, with a [indiscernible] 3% RevPAR growth in 2019 that we had mentioned at the beginning of this call. We remain committed to the asset-light model obviously and with notable progressive on Orbis and the cost rightsizing plan. And just as an ancillary point, we will provide you the IFRS 16 pro forma in May, i.e., before the publication of the H1 account.With this, that concludes my presentation, and the floor is yours for questions.

[Operator]

[Operator Instructions] We have one first question from Mr. Julien Richer from Kepler.

[Julien Richer, Equity Research Analyst]

Two questions, if I may. The first one on RevPAR. So if you look to the situation in Germany with weakness in GDP, Italy also, you will have very tough comps during the summer season in France. So how confident are you? And where do you think this recovering RevPAR is going to come from going forward because you will have to put some 4% or 5% RevPAR growth for some quarters in the coming quarters if you want to compensate for the different performance? The second question is on Orbis and the divestiture plan. I did discuss with AccorInvest recently about the likelihood of them buying the estate of Orbis. What is the agenda at this stage on that potential divestiture?

[Jean-Jacques Morin]

Sure. I'll take the Orbis question first. So on AccorInvest. AccorInvest, as you may recall, has a right of first offer on this transaction. So we will discuss with them. We have not yet discussed with them because we are not to the stage where we are fully able to discuss with them, but that should occur shortly. And the idea on this transaction is to be finished by year-end or early 2020. So that's on Orbis. In terms of RevPAR, I guess, for Europe and the RevPAR is that 3.3% in Q1. And I think each of these country are going to behave in such a way that we foresee for the rest of the year since your question was very much linked to European countries, to throw a number, which is going to be a little bit north of what we saw in Q1. France will be helped by, notably, the airshow. Germany, we see a strong business going ahead. And you're right, there is not a direct correlation because what you may read in terms of reduction of GDP and what we see in the business at this juncture. And then the real chance is not so much coming from Europe, Julien. It's coming from Asia Pacific and North America. North America in the quarter was weak for atypicals. Let's call it like that. And you won't get that going red. And as I was mentioning, there are properties which are doing extremely well again in Q1 in North America. That's why we've got incentives. And in Asia Pacific, Asia Pacific is a bit muted right now because of many election going on in Asia, to start with Australia, but there is more than that. There is Indonesia, there was Thailand. And so all of that has created an environment in the quarter that was, in our view, weak because of people not deciding. And we don't -- we see that as something which will turn around. And Singapore, which is the place where we have great business, this is the place where we also have a red quarter for the region, there are various property, the Raffles and the Fairmont, which are going to come back in operation in H2. And again, this is part of the things that make us think that the rest of the year will be good. And something you also know, Julien, is that Q1 is the smallest quarter, and so it is not either the full height basis to judge the business.

[Julien Richer, Equity Research Analyst]

And if you look specifically to Asia Pacific and North America, if you exclude those one-offs in the election and renovation, et cetera, what is the underlying trend in terms of RevPAR performance for those regions?

[Jean-Jacques Morin]

I won't give you the detail. I already gave you something that I never give, i.e., a 3% RevPAR for the year. At this juncture of the year, typically, we don't give guidance because -- but we wanted to give you some comfort on the basis of what you see in the number of Q1 that nothing has changed from a perspective on where we see the business heading in a more longer term. But I won't go into the discussion of the detail going forward for each of the region.

[Operator]

We have another question from Ms. Vicki Stern from Barclays.

[Victoria Jane Lee Stern, MD & Equity Analyst]

I have 3 questions. Just firstly, coming back on RevPAR, you've quite helpfully called out the positive drivers, then in certain markets for the rest of the year. Are there any markets where you'd call out sort of a risk of a decelerating trend from here? Just anything else to touch on there? Maybe outside of Europe as well. And second question is just on the acquisitions, if you can just give color on how the integration of Mövenpick and particularly Mantra is going. Is Mantra on track given the slowdown that you're seeing in Australia? Is that still on track with all the synergies, et cetera? And then just finally coming back on the share buyback obviously you completed the EUR 500 million. What are the next steps? You've got the ATM on the 30 of April, but will it be reasonable to expect we get another announcement after that? And related, is there any scope to actually go ahead of the EUR 1.35 billion original plan?

[Jean-Jacques Morin]

Okay. On the share buyback, the idea there is to execute what we committed to. And so we committed to a 10% share buyback, which equated to EUR 1.35 billion at the time that the announcement was made. So that's the envelope into which we -- that's the envelope that we're going to execute towards. On Mantra and the acquisition, what I can tell you is that Mantra on integration is in line with the plan. And I'm talking about the systems, I'm talking about synergy. So there is no deviation in term of those kind of elements. Obviously, the environment in Australia is affecting Mantra, so there is no doubt about the fact that the environment in Australia with a negative RevPAR in Q1 does have an effect on the Mantra business just like it has an effect on every hotel business. So on this one, but if this is not changing per se the end goal or the end post, if you will. It is just signing the speed at which you get there. But we are executing what we control, i.e., the integration from system, people and synergy. In terms of Mövenpick, we are in advance of the synergy. So we are slightly better than what was in the acquisition plan. In terms of the deceleration and the risk, I mean, nobody knows where China and the relationship with the U.S. may go, if they were to go like totally the wrong way, it wouldn't help. What I can see and what you can see is that if you look at some of the industrial or economic indicator of China, they are getting better and the PMI was better. The GDP that was announced was better. And it looks like the discussions are moving also at length. So that's one thing that again, a revenue will be able to put -- is judgment but is difficult to have a ball of crystal on that one. And then the other one is the one that you know very well, being English, is the Brexit. Nobody really knows what this Brexit thing is doing. And so again, as I was mentioning, Brexit did have some negative effect on consumption in the province in the U.K. We will see that. And the question there is that hopefully, a solution may be found, which help resolve that.Now the one thing that I would say, Vicki, you know that, but I'll recalibrate that, is that China is 5% of our business, and the U.K. is probably 6% or 7% of our business. So just on these 2 area, that's also where we have the great benefit of having an organization, which tried in many, on many, many value geography around the world. And so when things go wrong in one place, you hope that things will be -- or you will have a good better probability to find things that are going better somewhere else.

[Operator]

We have another question from Mr. Richard Clarke from Bernstein.

[Richard J. Clarke, Research Analyst]

Three questions, if I may. So the first one is, of the rooms you've opened in the quarter, it looks like you've opened about 1,000 in luxury and upscale and about 4,000 in economy. We seem to move away from your sort of planned shift towards luxury on an organic basis. Maybe you can kind of comment on that. Do you expect that to reverse? Why the luxury openings may be a little disappointing? Second one, maybe a bit more positively. Pricing seems to be becoming an ever larger component of RevPAR in Europe. What do you put that down to? Where is that pricing power coming from? And then, lastly, is there anything you can comment on in terms of full-year EBIT or EBITDA or half year EBIT or EBITDA at this stage?

[Jean-Jacques Morin]

Yes. Okay. I'll take the easy one, which is the EBITDA. So on EBITDA, you know that we don't comment on the EBITDA before the H1 so we don't give any number on that. So you will get the guidance at the end of July just like we typically do. In terms of development, there is a saying which says that a sparrow doesn't tell you what the summer is going to be. I don't know exactly when translated in English. [Foreign Language] And so I think the Q1 is not representative of a trend. It is just a data point as you surely know, in fact. And so you see, and if you look at the macro number, I mean, you see a pipeline which is much more geared towards a luxury through acquisition, but also through decisions from management, focus on that segment. And so the pipeline is much more luxury than the actual traded numbers. And so I think on this one, it's just one data point and it's notably not a trend. And in term of pricing power, I think part of the some of the element of that is the fact that the occupancy is quite high as occupancy is being high and this is very true in the U.K. but it is also true in France. And so I think this is -- and this is also something that we are experiencing in places like Central Europe, where we've seen very much that happening. And so we do benefit from that situation.

[Operator]

We have another question from Mr. Ed Castle.

[Jarrod Castle, MD, Head of the Travel & Leisure Sector and Co]

Sorry, it's Jarrod Castle. I didn't recognize the [indiscernible]. Three from me then. You kind of said record organic system growth. Do you want to quantify that? And also related to that, any thoughts on kind of room attrition rates during the year? And then, secondly, you kind of used the word organic. Anything on the acquisition side as well that maybe we should consider? And then, lastly, any comments on how all has been received by, I guess, the asset owners and your different partners?

[Jean-Jacques Morin]

Okay. On acquisition, it's easy. There is nothing of significance that we're working on. So that gives that one very easily. On record system growth, I mean, last year, we opened 44,000 rooms, Jarrod. So what we will do is we will do a number, which is going to be north of that number of 44,000 rooms. And then we also are going to ensure that we have a net system growth, which is equal or above 2% to 5% that we provided as a guidance around that number. So besides that, I'm not going to give you a more precise number. We probably can have more discussion once the year progresses, but it is too early there. And in terms of room attrition, I mean, if you look over the time at how the traded fee per room has been going, I mean, there is room attrition period-after-period. And you may recall what we said in the Capital Market Day, that there will be room attrition every year of this 3-year plan. And so that's the direction that we are going towards and that's what we see in the numbers.In terms of all, in fact, all is very well-received by everybody beside the financial community. So it's probably something that we should not explain to the financial community and more to the asset owners. It can really -- I think, joke aside, and I know you, sorry, I just take advantage of you, Jarrod, but all, when you explain how you tried to do it, when you explain what your target is to get there, when you explain how you've been dealing with the detailed plans, when you explain how the metrics is moving ahead, everybody just basically look at that and say, "My god, it makes a lot of sense." So that's really where we are on all. Now granted that I understand the next 2 years are going to be negative EBITDA contribution.

[Operator]

[Operator Instructions] We have one other question from Mr. Jamie Rollo from Morgan Stanley.

[Jamie David William Rollo, Managing Director]

Just quickly, 3 here, if I may. Any material benefit from the timing at Easter firstly? Secondly, if you do get some decent proceeds from the Orbis real estate, what is your sort of preferred use of that cash later this year? And finally, you've talked before about maybe exiting some of these asset-heavy components of Mantra and Mövenpick. Any plans with those leases, please?

[Jean-Jacques Morin]

Yes, okay. On Easter, there is a little bit of favorable, which is happening for Q2 and this is part of also why the numbers will be slightly better. But this is very marginal in our number. So there is not a lot here that need to go into. In terms of Orbis on the proceed, I mean, the strategy on what we are doing in terms of capital allocation won't significantly deviate from anything we've done because it remains being a consistent view on how to grow and create value, i.e., acquisition is one dimension, share buyback is another one. In acquisition, we've said and Sébastien has said that to be clear in the Capital Markets Day that we focus very much on anything which is around the Accor business, i.e., the hotel industry. As I was saying before, there is no plan and no work being done right now on an acquisition because the cash from Orbis is something that will come much later in the year. It is also true to complete that landscape that currently at the current price. I mean doing share buyback is a great return. So that's, I think, on Orbis proceeds. In terms of Mantra and Mövenpick, yes, processes are engaged in order to do what we said we would do, i.e., come to a pure asset-light business model. It is -- on Mantra it's not easy for the exact answer, but I provided to one other question before, i.e., the environment in Australia being not as supportive as it was 2 or 3 years ago. It's not easy to say when you are in that type of environment, so we are not going to do anything that doesn't make any sense. But in terms of intent, the intent remain the same. And so something on Mövenpick, we started the process.

[Operator]

[Operator Instructions] Sir, we have no further questions.

[Jean-Jacques Morin]

Okay. I would like to thank everybody for their time, their questions, their listening, and wish everybody Happy Easter. So enjoy it, and talk to you shortly. Bye-bye.

[Operator]

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.