Accor SA (AC) Earnings Call Transcript & Summary

Good day, and welcome to the Accor Group's First Quarter 2024 Revenue Conference Call. Please note that this conference is being recorded. [Operator Instructions]. I now give the floor to Ms. Martine Gerow, Accor's Chief Financial Officer, to begin today's conference. The floor is yours.

Thank you, and good afternoon, everyone, and thank you again for joining Accor's first quarter trading update call. So I will start with the key highlights on Slide 3. So I'm pleased to report that we started the year on a strong footing. Our operating performance was very solid in the first quarter, thanks to our portfolio diversification. So, starting with RevPAR. RevPAR in the first quarter was an excellent 8% growth, reflecting the resilience in global demand, and particularly, strong performance in the MEA APAC region. Pricing continues to be the main driver, contributing about 75% of the RevPAR growth for the group. But we also had an improvement of 1 point in occupancy versus prior. So occupancy in the first quarter stood at 61%. We were very pleased this quarter to see the acceleration in our net growth, which reached 3.1% on an LTM, the last 12-month basis in the quarter. That's 0.7 points above where we exited 2023, and it's driven by a strong pickup in openings. Actually, our opening in the first quarter is twice the level we had in the first quarter of both 2023 and 2022. So, we are starting to see the benefits of the new organization on signings last year, and which is now starting to convert into improved net unit growth. And finally, on revenue, group revenue increased 8% on a like-for-like basis to $1.236 billion, which is in line with RevPAR. Turning to capital allocation. We continue to execute on our capital allocation plan in line with our commitments. We are maintaining a solid investment-grade rating. Actually, we reinforced that rating with the upgrade from Fitch, which means our outlook from neutral to positive at the end of March. We are extended our debt maturity and preserving our liquidity with the issuance of a new 7-year senior bond for $600 million, and the coupon was $3.75. The issuance was actually well oversubscribed. And as we shared in February with you, we completed a second tranche of $400 million share buyback, and we canceled, as a result, 3.9% of our share capital at an average price of EUR 40.31. I will now turn to Slide 4 and walk you through the main components of the RevPAR growth in the first quarter. So I'll start with premium, midscale and economy, as we usually do, which posted a RevPAR growth in the first quarter, also very solid, plus 8%, driven by continued strong pricing resilience, as you can see here for about 3 quarters, and occupancy gains for the remaining quarter. In the first quarter, average room rate was up 6% for the P&E division, and occupancy rate was up 1 point at 61%. Turning to ENA, which is Europe, North Africa, RevPAR was up 5% in the quarter, and that was driven by a 3% growth in average run rate with Germany actually overperforming both the U.K. and France. If I now turn to the main countries within the ENA region. In France, which is the largest market in that region, Paris region and the provinces actually reported fairly similar RevPAR growth in the near low single-digit territory. Following a slow start of the year, France growth accelerated in March, benefiting from a stronger event schedule in 2024, as well as a more favorable Easter calendar. In the U.K., we also reached low single-digit growth, both in London and outside of London. And finally, in Germany, RevPAR was up in the high single-digits in the quarter, therefore, overperforming both France and the U.K. And this results both from a steady improvement, but also from a lower base effect in 2023, as we've commented in the past, Germany is lagging the rest of Europe early last year. Turning now to Middle East, Asia-Pacific, or MEA APAC. RevPAR was up a very strong 12% in the quarter, and was mainly driven by rate, as you can see on the chart. Middle East, Africa continued to report very solid RevPAR driven by price, notably benefiting from Ramadan in Saudi Arabia, which was this year, mainly the first quarter as opposed to the second quarter last year. Southeast Asia also posted very strong performance, driven by Singapore, where we had some strong concert activity and Thailand, where we are seeing strong demand from Chinese stores. Turning to Pacific, continued to deliver solid RevPAR growth, mid-single digit driven by demand with occupancy up 4 points in this region. And China finally continued to recover, but at a slower pace with less group meetings. Chinese outbound traffic is recovering as expected, which was commented on the positive impact it had on countries such as Thailand, but we also see that in the Middle East. But the return of international guests whilst it has accelerated is still well below 2019. And finally, in Americas, which as you know, is primarily Brazil for the PME division, RevPAR growth was up 4% in the quarter. Brazil had recovered occupancy above pre-level -- sorry, about 3 coded level. We're still above 2019 level, but we've seen a little drop in demand in the first quarter. Moving to luxury and lifestyle. On the right side of the page, RevPAR growth was 7% year-over-year, as you can see here, pretty balanced rate and occupancy gains. Average room rate was up 3% in the first quarter, and occupancy was up 2 points in the first quarter and reached 60%. Despite being slightly more exposed to North America, which is the market which for Accor's actually flat in the first quarter. Luxury RevPAR was still up 6% on a RevPAR perspective, with rates, as you can see here, driving most of the game. Turning to lifestyle. We were very pleased to see growth resuming in lifestyle with a very strong 10% RevPAR growth in the first quarter, mainly driven by occupancy. As you can see here, resorts had a particularly strong quarter in Turkey, in Egypt, and United Arab Emirates benefiting from strong demand, which also had a very positive impact on occupancy in that area of the world. I will now move to Slide 5 and comment on net unit growth and portfolio. So I shared in my introduction, net unit growth accelerated in the first quarter, and this is both for PME and Luxury & Lifestyle. So I'll start on the left with PME. Last 12 months net real growth for this division was 2.5%. That is in line with the midterm guidance for that -- for the division, which is between 2.5 and 3.5 CAGR. And it is up 0.6 points versus where we exited 2023. We had far stronger openings in the first quarter of 2024. Some of the novel openings were the TRIBE in Milano Malpensa and also Movenpick in Muscat in Oman. Churn was also lower than prior year, helping to boost the net unit growth in the quarter. Pipeline was slightly down 271,000 room, signs are traditionally low over the first quarter. And finally, looking at M&F revenue per room on an LTM basis was holding a EUR 12 million per room. Moving to the right, luxury and lifestyle portfolio also saw an acceleration in its net unit growth. The portfolio was up 6.8% over the last 12 months in the ending March 2024. This was driven by Ennismore, which had a remarkable net in growth on an LTM basis of 23%, sorry. In February, we shared with you the positive momentum that we saw in signings and pipeline, and we are pleased to see that it is converting into an acceleration of net unit growth at 6.8%, which is an improvement of 1.3 points versus where we exited 2023 for the Luxury & Lifestyle division, and it is gearing towards our midterm guidance of 8% to 10%. Now, this acceleration is fueled by a solid pipeline, which is up 2% versus December of last year. And the pipeline is now standing at 45% of the existing portfolio. Among the main notable openings, we had a resource opening in Egypt, alongside with an MGallery in Sopporo, Japan. And finally, on M&F revenue per room, also steady at EUR 3,800 per room versus -- so steady versus 2023. So at group level, NAGI 3.1% over the last 12 months, again, in line with the midterm guidance of 3% to 5%, and conversions continue to be the majority of our opening base to that 55% of our openings on a last 12-month basis. I will now turn to Slide 6, and comment the main components of revenue. So group revenue, as I was sharing in my introduction was up 8%. On a like-for-like, it was actually up also 8% on a reported basis versus last year with double-digit growth in M&F revenue in both divisions, and I'll come back to that in the next slide. Revenue growth, both like-for-like and reported is somewhat negatively impacted by lower reimbursed costs in the P&A division, and I'll come back to that. Reported room is positively impacted by the consolidation of Potel & Chabot which we acquired in October last year, consolidated sorry, in October last year, but that is offset pretty much fully by foreign exchange effects. So starting with the premium midscale economy, revenue was up 6% on a like-for-like in this division at EUR 600 million for the quarter. Management and franchise revenue very healthy up 14% in the quarter. That is 6 points above RevPAR, and is boosted by incentives, particularly in the MEA APAC regions. Incentives represented 33% of our M&F fees, and that is in line with where we closed 2023. This demonstrates the continued solid operational performance of the hotel across the region in the segment. As you may recall, the incentives are a function of hotel gross operating profit. Moving to services to owners. We have -- we're showing here a slightly negative variation year-over-year, and that is really the result of a baseline of 2023. In the first quarter last year, revenue benefited from the final cost reimbursement incurred under the accommodation service agreement for the FIFA World Cup. Now as a reminder, this has no impact on EBITDA as it is a pure pass-through. But it didn't impact the revenue on a year-over-year comparison. Turning to Hotel Assets and Other. Like-for-like performance remains driven by Australia, which is the main country under that segment, and Brazil. The revenue growth reflects here the geographic mix and the reported performance, which is 1% is impacted by FX on the Australian dollar. Turning to luxury and lifestyle. Luxury & Lifestyle revenue was up 12% in the quarter at EUR 556 million. Also solid growth in management and franchise, which was up 11% in the quarter. That is 4 points above RevPAR growth. services to owners grew slightly above RevPAR, thanks to a slightly better share of feeble channels. And then hotel assets and other like-for-like growth mainly reflects the opening of new venues at Paris Society. And the reported figure is again impacted favorably by the consolidation of Potel & Chabot since October of last year. I will now turn to Slide 7 on management and franchise revenue. As I have commented, overall, M&F revenue is 13% up in the quarter, which is 5 points above RevPAR growth, so good conversion. Starting with PME 14% growth. As you can see here, M&F revenue is pretty robust across all regions and consistently above RevPAR growth, mainly driven by incentives in MEA APAC, as you can see here, 21% like-for-like growth on M&F revenue in that region. We also had a very strong growth in America. This is obviously a much smaller part of that portfolio, and that was impacted favorably by a termination fee we received in the quarter. Turning to luxury and lifestyle. Again, M&F revenue up 11%. As you can see here, revenue growth in M&F is above RevPAR growth for both Lifestyle and Luxury division. And for Lifestyle, the worst was particularly strong, driven by a higher level of incentives in the quarter. So I will now conclude my presentation. If we can move to Slide 8 with the key takeaways. And as stated in my introduction, we started the year on a strong footing with an 8% RevPAR growth and an acceleration of our net unit growth to 3.1%. And again, this was one of the benefits we expected from the new organization, and we are really pleased to see it starting to take shape. As we called out in February, we launched and completed a second tranche of EUR 400 million share buyback in the first quarter, and this allowed us to actually maximize the accretion for shareholders. In the first 12 months, following the CMD, we held in June of 2023, and taking into account the dividend of EUR 18, which will be proposed for approval at the next engine on May 31, we will have returned over that 12 month -- first 12-month period, $1.1 billion to shareholders. So, we are well on our way to execute our plan to return between EUR 3 billion and EUR 3.5 billion over the 237 period. Third, we leveraged the share buyback program to facilitate the rotation of some of our historical shareholders, namely Jean John, whose ownership is actually today slightly below 4% as compared to 10% at the end of 2023. And this, combined with our rejoining the Carte Blanche in March is translating into renewed interest from long-only investors, some of which have already become new shareholders of that call. Now, whilst we continue to operate with a certain level of macro and geopolitical challenges, we are pleased again with our Q1 trading results. And it gives us confidence in reaffirming -- as we did in February, our midterm growth perspectives, and we will communicate 2024 specific guidance with our H1 results at the end of July. Now, that concludes my opening remarks. Thank you for listening, and I will now open the floor for your questions.

Thank you very much Ms. Gerow. [Operator Instructions]. Our first question today is coming from Vicki Stern, Kifer Barclays.

I just wanted to just start on the demand outlook. So it doesn't seem like there are any obvious cracks in demand out there, although you've obviously seen some softer data coming through in markets like the U.S. and the U.K. But just curious on your sense on the demand outlook now, anything to call out perhaps in terms of phasing to have in mind in coming quarters? And then pulling it all together, how it's sort of leaving you feeling about the full year RevPAR for this year? I think consensus is around the 4% mark. Does that feel sensible based on what you see? Secondly, you've made the comments there on net unit growth, obviously, a sort of acceleration from where you exited last year. similar question really, how does that leave you feeling for the full year net unit growth this year? Is any sort of phasing to have in mind there on the churn piece? Or could we start to think about something perhaps a touch better than the bottom of the range that you talked about with the full year results? And then just finally, on the share buybacks. Obviously, you've just done the EUR 400 million. I guess the real question is sort of to what extent you might be willing to increase the leverage to the upper part of that 2.5 to 3x range that you've talked about and give more back already this year?

Thank you, Vicki, for the questions. So on the demand, we're seeing the softening in the U.S., I think we had already started to notice that as we exited weeks last year. So I would say nothing particularly new on that front. We're continuing to see very good demand in the Middle East, Asia-Pacific. China is a bit softer, but China is far less, let's say, impacting for Accor from a revenue perspective. And Europe is no particular -- trend was soft at the beginning of the quarter, but March was better, and we have the Olympics in France over the summer where we expect a bit of an uplift. So I feel very comfortable with the 3% to 4% midterm guidance that we gave on RevPAR. And as we commented, I believe that the February probably toward the higher-end of that guidance for the last quarter. So that's kind of in mind where the consensus is today. With respect to net unit growth, we were pleased with the acceleration in the first quarter because that puts us actually into the low end of the guidance, which is not where we were when we exited 2023. There might be some churn later in the year. So right now, I would still guide towards the lower end of that 3% to 5% net unit growth midterm guidance. And finally, with your last point, we are staying with that 2.5x to 3x leverage. This is where we want to operate. We have, as I commented, we somewhat accelerated the return to shareholders versus what certainly, our initial view was when we put that -- when we shared that plan with shareholders. So keeping with that 2.5 to 3x leverage.

Sorry, just a follow-up on the last one. I guess at the moment, you bet towards the lower part of that range. So any sort of appetite to think about more shareholder returns this year?

I think that's too early in the year to say Vicki. We'd like to start -- would like to start recovering some of our cash flow and seeing what that leverage is as we progress through throughout the year.

We'll now go to Jamie Rollo calling from Morgan Stanley.

Three questions, please. So very good like-for-like sales of 13% RevPAR 8%, net growth up 3%. Just very simple math, that 2-point sort of benefit, which you talk about from M&F. Are you saying we should expect that gap to narrow over the rest of the year as you've seen a very strong recovery in the first quarter? Secondly, on services to owners, obviously, the Qatar revenue sort of distorts the picture would be quite helpful to get within SG&A, what the actual SMDL revenues are, so stripping out all the cost reimbursement and whether you're still expecting to make a small profit this year in services to owners. And then finally, you referenced the termination fee statement. Could you just clarify that, please? And quantify how many rooms that relates to?

Hi, Jamie. So on your first point, as we communicated in the midterm guidance, we are expecting a positive distortion between RevPAR and M&F revenue growth. And we're certainly seeing that in the first quarter. I don't expect 5 points on a full year basis, and that is not what we put in our meeting guidance in the convert -- sorry, the positive impact in our midterm guidance was closer to 3 to 4 points. In terms of the STO, if we look at just the PME division and we exclude the reimbursed cost, STOs actually up 9% in the quarter, which is still about 1 point above RevPAR for that division. And yes, we still expect to turn a small positive profit or positive EBITDA for STO on a full year basis. On the termination fee in Brazil, it's basically -- I mean, if you take that impact out, the Americas M&F revenue growth would be closer to 14% as opposed to the 33% headline that you have. I don't have the number of rooms that corresponds to.

But it's in the quarterly room counts. Yes, fine. Thank you very much.

Thank you, sir. We will now move to Leo Carrington of Citi.

If I could ask 2 questions, please. Firstly, if you could elaborate on the pipeline itself, very fractionally down sequentially. Is that just due to the strong openings that you referenced? Or is there any other phasing in terms of signings or attrition that we should now have out? And then secondly, a couple of weeks ago at the Bloomberg article suggesting that Ennismore is looking for some stand-alone expansion capital. Can you just elaborate on this a bit further if you can. And update as where there's got to and what we might expect in terms of the strategy there and the use of that capital?

Thank you, Leo, for the question. On pipeline, the Q1 is always a -- I think you've got the main elements of that. Q1 is always a low quarter in terms of moving to the pipeline because we had a pretty healthy level of openings in the quarter that actually impacted that pipeline. Most on the PME side, because in luxury and lifestyle, actually, the pipeline, I think, was slightly up. With respect to any more, we have -- there's no, let's say, no new projects right now with respect to the extension of capital in Ennismore as had a very, very solid performance in the first quarter, and I have nothing to report on that front.

We'll now take questions from Jarrod Castle from UBS.

Can you just talk a little bit about exit rates on your hotels, what the churn rate was versus the gross additions? Just be interested in that? And then just in big picture terms, kind of any views on business versus leisure versus group, how that's contributing towards growth now. I'd be interested just to hear your thoughts there. And then just lastly, I mean, I know probably your bookings are immaterial at the moment. But just how are you seeing the bookings for the European summer at the moment, if there is any commentary around that.

Sure. And just, Jarrod, thanks. Your question on return was that the exit rate, i.e., for year 2023? I'm assuming that was the question, right?

No, sorry, it was just around like hotels leaving the portfolio because they weren't meeting brand standards or they were converting.

Got it. Okay. So what we -- so we had some of -- we had more of that in the fourth season last year than we did in the first quarter of this year. We actually had a relatively limited churn in the first quarter, sorry, of this year. I would set a kind of big picture, we're still staying with the Pure program, which is the -- bringing the portfolio up to standards, that is the brand standards. That impact is still estimated to be around 2 points over the 3 year, with most of the impact to be in 2024. And with respect to the Olympics, the bookings are in line with what we expected for the summer, and we do expect some pickup as the Olympics committee uses more room.

And any comments on business just to group? How that...

Yes. So we're seeing good traction on both. We're seeing good traction on the business bookings. Business bookings are actually up in the low teens, in the quarter on a bookings value. And we're also seeing an increase in group meetings, although it's small. And I think we commented on that previously, but it's more smaller groups and not larger groups. But those are also -- and it's obviously, very different by region because it depends on what kind of events you have. But overall, we're seeing also a nice pickup in small meetings.

We'll now move to Muneeba Kayani calling from Bank of America.

We've seen a pickup in deal activity in Europe this year. How are you seeing the market? And kind of what's your appetite for the bigger conversion transaction? And then secondly, just from an earlier question on demand. Last year, we kind of seen Americans coming to Europe benefiting RevPAR in the region. Are you seeing that trend continuing? And also just on Asian travelers, you said they were -- you were seeing them into Thailand. But are you seeing them coming into Europe yet or not?

Thank you for your questions. So to your first question, no, we don't have an appetite to pick up really additional brands. We have 46 brands in the portfolio. We had a conversion rate of -- 55% of our openings were conversions. So we feel we have a portfolio that allows us to meet our net unit growth targets without having to acquire brands like some -- see some other players doing that at various sizes. With respect to the Asian travelers, we are seeing good pickup from Asian travelers, Chinese transit in Southeast Asia, and we're starting now to see them also in the Middle East region. We're not seeing them much yet in Europe or certainly the U.S. And it's -- I think that's the general industry trend. And with respect to -- and I'm sorry, I forgot your second question, which was on demand.

Just Americans into Europe.

Yes, sorry, American into Europe. Well, we actually had a fairly good leisure demand from Americans. It's early to tell with respect to the summer. We may have a lower demand from U.S. this summer, but we'll have a stronger demand from European because of the Olympic games. And conversely, that could mean that we'll have a stronger demand from the U.S. before the Olympics and after the Olympics. So our take right now is that it shouldn't have much -- we shouldn't see much of a let's say, lower level of demand or high level of demand from -- versus what we had in 2023, which was a pretty robust demand from American travelers.

We'll now go to Julien Richer calling from Kepler.

Two for me, please. The first one on the Olympic impact, you mentioned the summer situation, but is it likely to think that in Q2, we might have a negative impact coming from people postponing their travel or avoiding France and in Paris because of the Olympics coming? And the second question on AccorInvest, if we can have an update on the refinancing process and where we stand, please?

Sure. So the way we thought about the way we thought about the impact of related games was -- and we've shared that with you in the past that we think it's roughly -- it's about a 2-point improvement in -- for the -- sorry, for France. Now France is about 20% of the business, and that's on a full year basis in way. So that's about, call it, 40 to 50 basis points in RevPAR on a full year basis. So, we haven't planned for a -- we plan for an uplift overall, but we haven't planned for a massive uplift with respect to RevPAR at hit level. And the way we thought about that is, to your point, we think that there might be a bit of a softening in the show what we call the shoulder both before and -- sorry, during the Olympic season, but we think that we'll see maybe some pickup from different regions before and after. So we've looked at what happened in London. And in London, there was a bit of a softening sell in Q2 and Q3, but there was a strong pickup in over the Olympic period. We think it's probably likely that the same thing will happen, at least for the European travel for the Paris Olympics. Now, we also had Ramadan in the first quarter, so that helped. We had some sports event that should also helped Q2. So overall, again, we think we may have an impact on Q2 and Q3 -- sorry, Q2 and Q4, which is a shorter season. But not dissimilar to what we saw in London, which was not massive buying stretch. In terms of the refinancing on AccorInvest, that is progressing well. So we're still expecting to see that refinancing being concluded by the end of this quarter really.

[Operator Instructions]. We'll now go to Alex Brignall of Redburn Atlantic.

I just have one on RevPAR. You've clearly done a very good Q1. Your guide for the rest of the year, I guess you could look at it 2 ways. One would be that on a year-on-year basis, it's going to be kind of a much lower rate of growth. The second would be that on a kind of versus 2019 basis, you're actually anticipating a small deceleration in RevPAR growth to get to kind of the midpoint of your guidance range. Do you still think that it's best to kind of keep 2019 in mind when we look at your quarterly numbers through the year, just how we're doing the modeling?

Thanks for your question. So yes, we had in the first quarter in the segment -- we're sticking to our 3 to 4 midterm guidance. As I indicated, we'll give more clarity on the 2024 guidance specifically when we publish our H1 results at the end of July. Right now, we're staying with that -- upper end of that RevPAR guidance. With respect to your question, which is should we still be looking at 2019, I think my simplicity would be we don't internally. We actually now, for the first year, are looking at year-over-year growth because we feel that the recovery effect is behind us and we're now back to a more normal pattern of travel, which I mentioned.

We have no further questions. I'll give the floor back to Martine Gerow to conclude this conference.

Thank you. Well, thank you for joining us on this call, and thanks for your questions. And I will now wish you a very good rest of the day.

Thank you very much. Ladies and gentlemen, that will conclude today's presentation. Thank you for your attendance. You may now disconnect. Have a good day, and goodbye.