Accor: 2006 Interim Results and Strategic Review of the Group's Businesses
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Accor: 2006 Interim Results and Strategic Review of the Group's Businesses
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Category: Worldwide -
This is a press release selected by our editorial committee and published online for free on 2006-09-06
Consolidated revenue rose by a reported 8.4% in the first six months of 2006. At constant scope of
consolidation and exchange rates, the like-for-like increase was 6.0%, reflecting the strong performance by
all the businesses and by every operating region.
EBITDAR amounted to €969 million, up 12.1% compared with first-half 2005, and represented 26.2% of
revenue, compared with 25.4% a year earlier. The 0.8-point improvement (1.0 point like-for-like) was led by
the strong growth in the Group’s two core businesses. EBITDAR margin in the Hotels business increased by
1.1-point like-for-like, reflecting the highly significant margin improvement in the upscale and midscale
segments in Europe outside France (+2.0 pts L/L) and in the US economy segment (+2.5 pts L/L).
The Services business reported an EBITDAR margin of 40.6% for the first-half, a 1.8-point like-for-like
increase that confirmed the business’ robust performance in all its markets.
Operating profit before tax and non-recurring items rose by a sharp 36.7% to €282 million for the half.
Net profit, Group share increased by 54.3% to €241 million, including a €129 million capital gain on the
sale of 68 hotels to Foncière des Murs during the period. As with the first transaction carried out in June
2005, the sale was designed to reduce earnings volatility by making use of variable leases based on a
percentage of revenues with no guaranteed minimum.
As a result, earnings per share rose 47.2% to €1.06 from €0.72 in first-half 2005, based on the weighted
average 228,278,721 shares outstanding during the period.
Net debt amounted to €1,248 million at June 30, 2006. Cash flow for the period included in particular
€892 million in proceeds from the disposal of assets resulting from the strategy of refocusing on two core
businesses, Hotels and Services, and the commitment to actively managing the hotel property portfolio.
Equity was reduced by €262 million during the period through the cancellation of 5,714,500 Accor SA
shares acquired under the share buyback program launched in May to enable shareholders to benefit from
the Group’s positive outlook.
The main financial ratios improved over the period, reflecting the Group’s strengthened financial situation.
Gearing stood at 31% at June 30, 2006. The ratio of adjusted funds from operations to adjusted net debt1
rose to 18.5% from 15.5% a year earlier, while the return on capital employed2 steadily improved, rising to
11.0% from 10.3% at June 30, 2005.
Outlook for 2006
July and August RevPAR was up an aggregate 10.4% in upscale and midscale hotels in Europe, 6.3% in
economy hotels in Europe and 3.6% in US economy hotels. Over the same two months, Services revenue
was up 15.6% like-for-like.
The Group’s 50% interest in Carlson Wagonlit Travel was sold in August for €365 million.
As of September 6, the share buyback program had been completed up to 80%, with the total impact on
net debt and equity amounting to €407 million. The Group intends to complete the entire €500 million
program by the end of the year.
For the full year, the Group’s objective is to achieve operating income before tax and non-recurring
items of €680 million to €700 million, an increase of more than 20% from the €569 million reported on a
pro forma basis in 2005.
The Board of Directors approved the in-depth strategic review conducted by the Executive Committee. The
Group refocuses on its two core businesses, Hotels and Services, while pursuing the divestments of nonstrategic
assets.
In the SERVICES business, Accor’s ambition is to enhance its global market leadership with highly innovative
voucher products under the “Ticket” umbrella brand.
Organic growth will be led by four main drivers: increasing the penetration rate, extending the product lines,
deploying products outside their original countries and entering new countries. In this way, the Services
business could achieve organic growth (excluding acquisitions and the currency effect) of 8% to 16% a year.
Acquisitions represent another important driver of future development in Services. Accor is therefore
planning to spend €500 million over the next five years to enable the business to acquire market share or
expertise, thereby potentially driving an additional 5% growth per year.
In the HOTELS business, Accor’s ambition is to be on the five continents the leader in economy and midscale
hotels and a major player in the upper upscale segment by promoting its expertise and adapting its operating
structures.
In this way, Accor intends to revitalize its brand portfolio by taking a new marketing approach. A new
brand for non-standardized economy hotels will be created in Europe and offered to independent
franchisees beginning in 2007 in France. In the upper upscale segment, the Sofitel brand will be
repositioned, while in the midscale and economy segments, the Formule 1, Ibis and Novotel brands will
be relaunched with new innovation and design.
In the United States, a strategic review of Red Roof Inn is being conducted.
Accor is also accelerating the program to divest its hotel property assets. After selling 261 hotels in 18
months for more than €1.6 billion (of which €725 million in cash), the Group will implement a program to sell
535 properties that is expected to raise another €3.2 billion by 2008 (including more than €1.6 billion in
cash).
In Europe, an assertive action plan is underway to implement three key business projects designed to
improve the profitability of both the hotel units, in particular in the two core European markets of France and
Germany, and of the corporate support functions. These projects are expected to improve profit before tax
by more than €60 million by 2008.
To support its expansion, the worldwide operating organization will be structured around eight expertise
and excellence platforms, creating a unique system of shared expertise essential to the faster
implementation of the management contracts and franchise strategy.
Accor confirms that 200,000 new rooms will be opened from 2006 to 2010, including 51% in the economy
segment and 34% in the midscale. More than two-thirds of them will be opened under management or
franchise contracts. The expansion plan is focused on emerging markets in the Middle East, in Latin America
and in the “BRICs” (Brazil, Russia, India and China which represent 50% of openings). It represents an
investment of €2.5 billion between 2006 and 2010, with a targeted 15% ROCE. Half of the investments will
be committed in Europe and 44% in emerging markets.
Accor is continuing to divest its non-strategic investments. More than €600 million in assets have
already been sold, including the stakes in Compass and Club Méditerranée in the first half and the interest in
Carlson Wagonlit Travel in August. Further divestments, totaling more than €500 million, are scheduled for
2007-2008. Proceeds from these divestments will be returned to shareholders.
The cash from property disposals will first be used to invest in new projects. Any remaining excess cash may be returned to shareholders, as long as this enables the Group to maintain its BBB credit rating.
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