Accor SA (AC) Earnings Call Transcript & Summary

Good day, and welcome to today's Accor Third Quarter 2023 Revenue Conference Call. This meeting is being recorded. At this time, I'd like to hand the call over to Martine Gerow, Chief Executive Officer of Accor. Please go ahead.

Thank you, and good evening, ladies and gentlemen, and thank you very much for joining Accor's third quarter trading update call. So without further ado, I will start with the key highlights on Slide 3 of the presentation. So the activity remained very consistently strong over the last 3 months, which demonstrates both the resilience of Accor, but obviously, of the travel demand. Our RevPAR was up 15% year-over-year and we were particularly pleased with this result given the fact that we had high comps last year where RevPAR was 14% versus 2019 in the third quarter of 2020. And this was supported really by all regions and segments, and we'll come back with more details in a couple of slides. RevPAR growth was steady throughout the third quarter. So every month was a strong month. And RevPAR was driven by a continued gain in rates and occupancy. So balanced across rates and occupancy. Net unit growth on a last 12-month basis reached 3% at the end of the third quarter. It is a deceleration. We expected it versus the 3.5% which we had reported as net unit growth at the end of June on a last 12-month basis. And this is really -- and we had shared this with you at the time, this is really driven by the fact that we had an exceptional third quarter 2022, which was actually a record best in terms of openings. So the combination of RevPAR net unit growth led to a group revenue of EUR 1.286 billion, which is up 13% versus prior year on a like-for-like basis. So in addition to delivering strong trading performance in the third quarter, we're also executing very rigorously on our financial and business strategy. In September, we regained our investment-grade rating with S&P on the back of robust business and financial performance and credit metrics. This enabled us to launch and to complete successfully a hybrid bond insurance of EUR 500 million and that illustrates the credit investors' confidence in our business model and financial discipline. And as per the commitment we made in June, we recently launched a EUR 400 million share buyback program, which is the first step in the EUR 3 billion shareholder return strategy, which we shared with you at the CMD back in June. And finally, given those strong results and assuming no material change from the current geopolitical and economic environment, we are raising once again our guidance for the full year of 2023. So growth in RevPAR is now expected in the low 20s, and consolidated EBITDA is now expected between EUR 955 million and EUR 985 million, which is about a 2 point increase at the midpoint versus our previous guidance. So I'll now turn to RevPAR per division on Slide 4. So starting on the left, premium Midscale and Economy division posted a RevPAR growth in the third quarter of 15% year-over-year and that's driven by continued strong pricing resilience for about 2/3 and occupancy gain for about 1/3. In the quarter, average room rate was up 10% year-over-year and occupancy rate was up 3 points versus prior year at 71%. If I look more closely by region in ENA, which is Europe and North Africa, third quarter RevPAR was up 9%, driven by an 8% growth in average room rate. And looking at some of the key countries in that region, France, RevPAR was up 8% and benefited from the influx of international leisure guests in the Paris area, particularly over the summer, which offset some softness that we saw on the domestic leisure. And in September, RevPAR actually in September in France was up 11% and we saw the benefit from the Rugby World Cup, especially in cities where we have more limited supply such as [ leisure or not ]. In the U.K., pretty similar pattern comparable to France, stronger flows from international guests, which benefited London. Germany, softer performance, which reflects also the economic environment in Germany versus France and the U.K. with a more limited increase year-over-year. As we, I think, have commented in the past, this is a market that's particularly driven by [ MICE ], which has not fully recovered. Moving to MEA APAC, so Middle East, Africa and Asia-Pacific. Third quarter RevPAR was up an impressive 25%. And as you can see here, it's driven both by volume and by rates. Middle East continued to be supported by solid price increase. Occupancy in that part of the world slightly improved and it has now reached pre-COVID level. Pacific, so a relatively soft growth of its domestic demand, but benefited from the recovery of the international business guests from Asia such as China, Japan and India. And Southeast Asia posted a very strong performance, particularly in Singapore, where we saw very healthy price increases, which are fueled by international demand. China, very strong growth, 44% RevPAR growth in the quarter and RevPAR actually in China is now above 2019. Moving to Americas, which, as you know, for Accor, for PM&E is primarily South American. Within that, primarily Brazil. Third quarter RevPAR was up 13% versus 2022. Brazil recovered actually their pre-COVID occupancy level in the second quarter of 2022. So we continue to benefit from rate increase in this area. If I now move to Luxury and Lifestyle on the right, RevPAR growth was 14% year-over-year. And you can see sustained momentum driving 2/3 of the growth on the rate side with average room rate up 9% in the third quarter and occupancy rate for about 1/3 of the gross occupancy rate was up 3 points year-over-year. Luxury RevPAR was up 15% in the quarter, equally supported, as you can see here, by occupancy and price. We're starting to see some leveling off in the U.S., but that remains positive, notably for Fairmont, which is our largest activity in North America. Lifestyle RevPAR was up 12% versus prior year in the third quarter. Lifestyle is a segment that recovered a bit faster. And so we have somewhat lower baseline effect, but we did have a very solid summer season in our resorts activity. If I move now to Slide 5 and comment the hotel portfolio and pipeline, so starting on the left, again, with premium, scale and economy, the network grew by 2.9% over the last 12 months with very good growth in China, which demonstrates the recovery in that area. On Luxury and Lifestyle portfolio, the portfolio grew by 3.4% over the last 12 months, really driven by Ennismore, which is, as you know, our Lifestyle portfolio. At group level, the net unit growth was 3% over the last 12 months. And again, I commented on the fact that this is lower than what we reported at the end of the second quarter, but really related to the record opening that we had in the third quarter of 2022, which now are not in the last 12 months. Openings over the quarter specifically were essentially in line with the historical average. And we were pleased to see churn that also returned to a normalized level of about 2% on an LTM basis. We are confirming our full year 2023 net guidance at between 2% and 3% in aggregate, but we're also confirming it by division with 6% for Luxury and Lifestyle. And we're also reiterating our guidance regarding the fees per room, which are between EUR 1,000 and EUR 1,100 per room for PM&E and between EUR 3,600 and EUR 3,900 per room for Luxury and Lifestyle. Turning to the pipeline. The pipeline benefited from strong signings, notably in PM&E MEA APAC and in Lifestyle. And the total pipeline grew 3% year-over-year to 219,000 room and that's mostly, obviously, PM&E, given the weight of that division. If I move to Slide 6, which is the revenue breakdown by segment. So as I said in introduction, the group revenue in the third quarter totaled EUR 1.286 billion. That's up 13% on a like-for-like basis versus prior year. On a reported basis, revenue grew at 12%. And you really have 2 offsetting effects, one positive effect on the perimeter, which is mainly the consolidation of Paris Society which we acquired at the end of -- in November of 2022. That sits in hotel assets and other in Luxury and Lifestyle and now is that positive effect was actually offset by FX, which was negative in the third quarter. For premium, midscale and economy, like-for-like revenue was up 13%, reaching EUR 767 million. And you can see that's driven by growth in M&F revenues, which were up 17% on a like-for-like basis. Within that, incentive normalized at about 34% of the M&F fee. So well in line with pre-COVID level and that drove growth in M&F revenue in PM&E, which was slightly above RevPAR and growth. Cost inflation within the hotels has been held under control and that's obviously a positive for the incentive portion of our M&F revenue. Services to owner grew at 11%. That is slightly lower than the growth in RevPAR, but this is really related to the fact that last year in the third quarter, we had a very strong uplift coming from the reimbursement of cost incurred under the accommodation service room for the FIFA World Cup. So more of a baseline effect. Hotel assets and other like-for-like performance for PM&E is primarily driven by Australia and Brazil. And the Australia business, which is the main business and mainly newer destination was already back above 2019 last year and therefore, we have more of a normalized rate growth for -- sorry, growth rate for this part of the business. If I turn to Luxury and Lifestyle, like-for-like revenue was up 17% to EUR 539 million. Management franchise was up 11%, incentives representing about 33% of M&F fees. Services [ turned ] a very good growth, 18%, so above RevPAR growth and we are very pleased to see an increase in what we call our [ fee-able ] channels, which includes mainly web direct and direct channels. And that are over-performing other distribution channel and therefore, positive impact on our STO revenues. Looking more closely at M&F revenues on Slide 7. So overall, 15% growth in M&F revenue across both divisions. So in line with the RevPAR growth in the quarter, which was 15%. PM&E, as I commented, 17% growth in M&F revenue. And really the performance by region reflects the differences, one in the pace of recovery, but also the weight of management contracts in that regional mix. For example, if we look at MEA APAC, this is a region that is the most exposed to management contracts and therefore, more fully benefits from the incentive recovery. We have the same effect in Luxury and Lifestyle. But on Luxury more specifically, we took a cautious view regarding incentive contribution this quarter given the uncertainties regarding macro and geopolitical environment. Moving to Slide 8. I just wanted to illustrate how we are swiftly progressing on the execution of the capital allocation plan that we presented during the Capital Market Day. So I'm going to go quickly on that since I summarize that in the introduction. But following the release of strong earnings in the first half and the improvement in business and credit metrics, we were pleased to see S&P upgrading our credit rating to investment grade, BBB- with a stable outlook. That was on September 12. And we are committed to maintain credit metrics that are consistent with an investment-grade rating because it gives us greater market access and flexibility when it comes to managing our liability. This triggered the refinancing, as we had shared with you of the January 2019 hybrid bond. That included 2 steps. First step was the successful issuance of a new hybrid perpetual bond for EUR 500 million. That was on October 12. We are pleased to see that this issuance was oversubscribed 4x despite the fact that we came out in a market that was somewhat choppy and that reflected the renewed investors' confidence in the group, solid credit profile, but also its strategy and its growth potential. And the second step, which was actually done in parallel with a tender offer on the hybrid bond issued in January 2019 which was also successfully completed. Just to let you -- to share with you this refinancing will be broadly neutral on our net financial expenses when we couple it down with the step down on the coupon on our existing debt. So even though the new hybrid bond is at a higher coupon than the January '19 one, the net impact of that is essentially neutral. The completion of the issuance of the hybrid bond allowed us to be -- allowed us, sorry, to be in a position to initiate our per-share buyback program of EUR 400 million over the next 6 months. And that is absolutely consistent with the commitment we made to return EUR 3 billion to shareholders over the '23-'27 period. And at the time, we had indicated that, that return would include between EUR 1.5 billion to EUR 2 billion through share buyback. And as of Friday, we had concluded EUR 80 million of that share buyback. The volume is roughly EUR 8 million of share buyback for trading days. So we concluded the CMD stating that it was all now about execution, and we are pleased to report that thus far, we are on track. I'll conclude this presentation with the key takeaway slide. So activity remains resilient. Price is holding well despite the macros volatility. We reiterate our net unit growth guidance between 2% and 3%. And given the strong performance in Q3 and assuming no material change from current geopolitical and economic environment, we are raising again our guidance for the full year of 2023. We're now expecting RevPAR growth in the low 20%s. We had guided you towards the end of the 15% to 20% range the last time we spoke. And we are now expecting consolidated EBITDA between EUR 955 million and EUR 985 million. Previously, we were EUR 930 million to EUR 970 million. So that's about a 2 point increase at the midpoint level. So thank you for your attention, and the floor is now yours for questions.

[Operator Instructions] Our first question comes from Jaina Mistry from Jefferies.

I have 3. My first question is around net EBIT growth. You've had a very strong profile in Q3 and your guidance is unchanged this fiscal year. And [Technical Difficulty]. And then my second question is around your buyback program. In 12-month run rate EUR 8 million...

I'm sorry, Jaina. You're breaking out. So I haven't -- I didn't catch your questions because you're really breaking out.

I'm sorry. Is this better?

Yes, that's better.

Okay. So my first question was around NUG and how confident you are that 2% to 3% [indiscernible] can accelerate next year? My second question is around buybacks. Your current buyback implies a run rate of EUR 800 million over 12 months. Is this something that can be continued over the next 3 or 4 years? Or should we think of this as a front loading of the buyback? And then my last question is around AccorInvest. We've seen the press saying that AccorInvest is looking to [ dispose ] certain assets. Could you just update us on what's happening in this business and the timing of the disposal of Accor's stake in the business?

Thanks for your question. So in terms of net unit growth, we're maintaining our guidance to 2% to 3%. Part of that -- but yet we are confident in our ability to accelerate this. We had a somewhat of a lopsided net unit growth in 2022 with a very, very high rate of opening in the fourth quarter. That should normalize in the coming year. But when you think about our net unit growth guidance or projection for the '24-'27 period, that is 3% to 5%. So the acceleration is really 1 to 2 points and the acceleration is actually more on the Luxury and Lifestyle side of the portfolio. PM&E net unit growth guidance is actually quite consistent to where we are right now and we're very confident in our ability to deliver the net unit growth on the Luxury and Lifestyle side. With respect to your second question on the buyback program, what we said was that we expect a EUR 3 billion return to shareholders. Between EUR 1.5 billion to EUR 2 billion of that will be in the form of share buyback. If you take that over a 4-year period, '23 to '27, that's basically up to between EUR 400 million and EUR 500 million per year. This is the first year, EUR 400 million. So it's completely in line with what we have shared with you. And with respect to AccorInvest, the -- they are -- and I think we shared that with you previously, they are only new asset disposal program. They have actually started that program. They are essentially pursuing that program as a matter of course. They have started discussions with their pool of creditors, given the maturity of their debt. In terms of disposal of that stake, we have no plans at the current time. This is not a question for today. This is a question that may be relevant in the back end of '25 or '26 when AccorInvest will have completed its refinancing.

We will now move to our next question from Andre Juillard from Deutsche Bank.

A few questions for me. First one on the renegotiation of the prices from corporates, the trend you register on the MICE segment, and the first feedback you can have on Olympic Games, could you give us some more color about all this trend? That's my first question. Second question is about the capital allocation. So you gave some clear guidance about the return to shareholders is expected to take place between '23 and '24. You said relatively clearly that there were no plan of strong M&A. But regarding the operating trend and the fact that you should deliver some good results and you're improving one more time your EBITDA guidance, could we anticipate an acceleration of the return to shareholders or some good news if the balance sheet allows it or not?

So in terms of the corporate negotiated rates, what we're seeing is -- and we've actually done a survey recently -- so what we see is we see both an increase in demand. I think we -- I think the intention was to increase corporate trial spend by 10% for the accounts with which we -- so the large accounts. And on the rate side, it's basically in line with inflation. I think the pricing indication was between 4% and 5%. So both kind of volume and rates positive trends. With respect to Olympic Games, we don't have any further insights. As you know, some of the rooms have already been sold, at least the inventory has been sold for the media and the staff. With respect to capital allocation, I think that what we've said was we are committed to return about EUR 3 billion over that '23-'27 period. We do not plan for any transformational acquisition. There are only kind of plug-in acquisitions. And what we have also said is that, that return plan did not include any disposal of any significance and in particular, do not include the disposal of our -- going back to the previous question on AccorInvest.

We will now move to our next question from Leo Carrington from Citi.

If I could ask 3 questions as well. Firstly, if you could help us by calling out the impacts that you have already seen or expect to see as a consequence of the tension in the Middle East, that would be helpful. As I understand that is already incorporated into guidance. So any comments on the impact to your Middle Eastern business would be helpful. And then in terms of this driving a cautious incentive fee recognition, is this something you can help quantify the impact of in this quarter? Maybe in reference to the incentive fees in Q2 or 2019, which I think were around 35% of the total. And should we assume that implied in your guidance as a similar sort of cautious intensive fee recognition baked in? And then final question on the pipeline. It looks to have stepped up again. Can you indicate what trends you're seeing amongst the signings into the pipeline in terms of conversions compared to new builds? And if you could give that usual split of conversions within openings and signings, that would be fantastic as well.

Sure. So the -- so obviously, we're monitoring the situation in Israel very closely. And our first priority is clearly the security and safety of our staff or the staff of the hotel and our clients. We've seen some cancellations in that region, nothing that is material at the level of the group. And we'll keep monitoring the situation. But thus far, some cancellations, but again, nothing that is material. In terms of your second question with regard to incentives on Luxury and Lifestyle, I mean, to give you an order of magnitude, potentially a couple of millions, nothing more. In terms of the pipeline and actually openings, about 50% of the new signings and 50% of the openings are conversions. So pretty consistent with what we have seen in the recent past. And if you take conversion plus under construction, that's about 2/3 of the pipeline.

We will now take our next question from Alex Brignall from Redburn.

I'll just do one, please. As we've gone through the year, the sensitivity to RevPAR seems to be slightly coming down. Obviously, we don't know exactly what your guide is, but kind of in the low 20%s. It seems like your EBITDA sensitivity is either going down a little or you're just being -- acting with an abundance of caution given the macro environment. Could you just maybe tell us which one of those it is?

Sure. We've taken our -- we said that we'll be in the high end of the 15% to 20% range, call it, 20%. And we're now saying that we'll be in low 20%s. So if you take that as 2, 3 points and you convert that into the RevPAR -- sorry, the EBITDA increase that we've done, which is about, I think, from right at the low end, it's EUR 25 million, that gives you a math which is pretty consistent with what we said in the first half. So the sensitivity is not naturally -- or at least I would say that the sensitivity has not gone down. It's still EUR 7 million to EUR 8 million [ per point of RevPAR ]. And the guidance for the EBITDA on the full year basis, we try to have a balanced view between, obviously, being within that guidance and taking into account whatever uncertainty there is in the current geopolitical and macro environment.

We will now move to our next question from Vicki Stern from Barclays.

Just coming back on the comment about the cancellations. I appreciate those are small in the context of the group, but it's helpful just to understand a bit better how consumers and businesses are behaving in the region. So if we could just get more color. Are you seeing those cancellations just in Israel or is that extending to the broader Middle East, Egypt and Turkey? And sort of how are the hotels behaving then in terms of price as those are coming through? And then finally, if you could just remind us then on your exposure both in the Middle East and also Turkey, Egypt separately.

Sure. I'll start with maybe your last question. So in terms of our portfolio, we have about 2% of our portfolio which is in Turkey and a further 9% which sits across the Gulf and North Africa as well as Egypt and Jordan. So if you just take the Gulf state, that's about 5% of the portfolio. And then we've got another 1%, I think, in North Africa and then another couple of points in Egypt and Jordan. In terms of where we see the cancellations, we primarily see the cancellations in the region, but we also see some cancellation from individuals and groups who are planning events from that region, particularly Israel, who are planning events outside of Israel. So it's impacting primarily the region around Israel at this point. And again, we're monitoring the situation closely and we'll continue to do so. But in terms of the exposure, it's about 9% without Turkey and Turkey is another 2%.

And just to follow up the impact on price. I know that, that region generally has obviously been one of the sort of more extreme ones in terms of pricing power. Just any sort of initial reactions on price, some of the cancellations or weaker bookings might be coming through?