Accor Sa

Hello and welcome to the ACOR 2020 first semester results call. My name is Dan and I will be your coordinator for today's event. Please note this conference is being recorded and for the duration of the call your lines will be on listen only. However, there will be a Q&A session at the end of the call. You may register a question by pressing star 1 on your telephone keypad at any time. If you require technical assistance, please press star zero on your telephone keypad to be connected with an operator. I will now hand you over to the chairman and CEO of Accor, Sebastian Bazin, to begin today's conference. Thank you.

Thank you so much, Dan. Thank you for all of you to be connected as of this minute, and sorry to be a couple minutes late. We're going to have a lot to discuss and to talk about, and, of course, a lot of sharings in between. questions you may ask and answers we likely have as well. So you, I know we're going to be going through the deck. So I'm going to give you the page that I'm talking from. So to make it easy on many of you, since we're not on Webex or on Zoom. So we start with page number four, which titles COVID-19 crisis takes the world decades back. It's split it in two graphs. I guess on the left side, it's basically factual. You have it in my quote. What we're going through, and we've been talking about it in February and March, it's global. That crisis is global, sudden, violent, and unprecedented. It has major impact on the world GDP, which is likely to be in 2020 the worst for the last 40 years. It obviously has impact on unemployment, and I'll go back to this in a minute, likely to be the worst over the last 40 years, if you believe the numbers from international labor organization. And unfortunately for us, it is also likely to be, and we know it is, the lowest ever international travel for the last 30 years. So what you see on the right side, nothing new for many of us on the phone. is then the expected GDP drop in 2020, and it varies in between different economies. If you go to page number five, it relates to the travel and leisure industry. Of course, the impact is not only massive, but we are one of the worst industries going through the crisis with nothing much we can do about it except coping with it, responding to it, and adapting to it. On the left side, we don't know, and it's kind of bizarre that I guess at this stage, half year, we simply have no idea whether the billion five numbers of travelers we enjoyed over the last years and months of 2019 would be dropping to 600 or could be dropping by 80% to 320. If that were to be the case, the 300 million is the same number the world enjoyed in 1985, which means that, yes, we have to accept that we go back 35 years in a population which was probably a third of the size of what it is today. On the right side, it's the impact of the drop of travelers on the revenues at large and the contribution to GDP of our own industry. Those numbers are, again, nothing new coming from the WTTC, likely a drop of 39%, which is $3.4 trillion disappearing in revenues to local domestic GDP. But the one thing I want to pause a minute on is the drop of 37% in the job contribution to the industry and at large. I think many of you know, and I've been repeatedly saying, It's close enough to one job out of 10 works for the travel and leisure industry on the planet, which means that, again, the 330 million is close enough to 10% of people being employed today. If we go down by one-third, which is losing 120 million jobs, that means that, again, in terms of unemployment, it's going to rise to 3% only due to our industry. And I know there's a lot of ripple effects. are many people not directly working for the industry. And I've been thinking of a lot of local communities leaving from the hotel revenues and from tourism activities also disappearing underneath them as we speak. So massive impact, not only for the industry, but for job existence on the planet. On page number six, we... Getting closer to Accor as it is, and then Jean-Jacques is going to come to you even deeper in the Accor numbers, and I'll come back as a conclusion. On the left side, it's of two natures. One, notably, I guess it's interesting to notice that Europe has reopened its frontiers to the extent of 92%. Very daring. They've done so over the last five to six weeks now. I know every day as we're passing, there's chances of some borders being closed again on some different provinces between Belgium, Holland, and not accepting people from southern Spain. It's still in question, but it is very different from other continents. And, of course, in South America, all the borders are virtually closed in between Chile, Peru, Colombia, Argentina. It's the same thing in Asia-Pacific. Chinese frontiers are still closed as we speak. and kind of a similar effect immediately. It only reflects on the importance of targeting domestic clientele because those domestic clientele don't need to cross the frontiers and thank God for industry at large, roughly 75%, 25% depending on the country is today domestic clientele. That is not sufficient but it's critical to get back in business and to enjoy better numbers for the rest of the year. And now I'll give you a bit more granularity on the right side of page number six. We're going on numbers ref bar as you see them. Bottom of the pool likely to be at the end of March, which is of no surprise, which is when the hotel will be mostly closed. And looking for clearly better trend and rebounding ever since. And I can tell you that's slide ends at the 18th of July. Let me give you, because we've been working for the last five hours, I'm giving you numbers, not in terms of RFA, but in terms of occupancy, because I think it says it's even more. I'll give you four or five numbers that you guys could write down at your leisure. As of last night, and for the last five days rolling, the occupancy is China across our core brand is 60%. The occupancy in France is 56%. The occupancy in Germany is 39%. And the occupancy in the UK is 35%. And across North and Central America, it is 35%. So it's certainly better than the numbers you see here and it is increasing every week passing the one thing to be to notice which is extraordinarily important which basically tells you why it is very difficult for us to project ourselves in the future for Europe and whether it is and it doesn't matter which country 60% of all the bookings made today have been made with less than five days' notice. So on Monday, people decide what they will do the following weekend or the following week. That number was exactly double last year at the same pace. So 2019 was at least 10 days' notice. So within two or three days, we learn so much more on what could be the end of August, what could be mid-September. We simply don't know as we speak. But surprises have been mostly good over the last three weeks of early summer. That's where we are. I'll hand over to JJ and I'll come back to you on the closing remarks.

Okay. Good morning, everybody. Good morning, ladies and gentlemen. Very happy to be with you for that H1 result presentation. In line with what Sébastien just discussed, I mean, we've been traditionally disclosing guidance for the full year during this H1 call. And this one, with the context that was just explained, we won't. With that being put aside, let's move to page eight, where we describe, in fact, the overview of the business momentum and the financial performance. You can see here that in terms of the business momentum, the figure reflects with, unfortunately, not much surprise, the unprecedented deterioration in the industry linked to the spread of the COVID across the world. So, Revpar is down 59% and in fact 88% in Q2. Occupancy is at 31% for H1 and 15% for Q2. And we've got, as of today, 81% of portfolio of hotels open. I'll go in more details later on that statistics. To translate that into numbers, the revenue at €917 million is down 48.8%. The EBITDA is a negative €227 million, and the recurring free cash flow is a negative €473 million. So, if you move to the next page, which is page 9, what did we do? There are things that are under our control. There are things that we can't really do much around. I mean, the health epidemic situation is obviously not in the control of the company. But on anything that we had under our control, we took immediate and drastic measures in order to protect, on the one side, the earnings, and on the other side, making sure that we've got the proper financial aid. Let me go into some detail about that. On improving the operating leverage, you may recall that in the Q120 call, I mentioned an ABDA impact on the group coming from the COVID of 170 million euro. If you were to, as a rule of thumb, compute what it implies in terms of ABDA sensitivity to RESPA, the number we have discussed is 28 million. And I provided you with a number that we would probably be north of 20 million for the rest of the year. And I am happy to report that we are below €20 million over H1. And this has been the fruit of a lot of cost-saving plans, actions from all the teams around the world. We also came public on reducing GNA to the tune of €60 million in 2020. And as of the end of June, we have already achieved 60% of that €60 million. The other element which got significantly adjusted adjusted, sorry, is the sales marketing distribution of LSF and new businesses, where in fact here there was a lot of adaptation to volume. The other KPI that is critical and where we've been showing some good actions and control is the cash burn. In the Q1 call, we said that the actual cash burn in March was $150 million negative. In May 18th, we published a press release where it was implying a monthly cash burn of 100 million, and in H1, over H1, the monthly cash burn has finally reached 80 million, so much better than the 100 million. On top of that, you surely recall that we talked about recurring CapEx plan at 60 million by 2020, and I am happy to confirm that we will do it, and the share buyback and dividend have been suspended. So, last but not least, Part of the work that we did as a reaction, as an immediate measure and a reaction to that crisis was to make sure that we had the proper balance sheet and financial structure. We had a good start because we started closing the Orvis transaction. And as of the end of June, we've maintained a very strong positioning because we've got more than $4 billion of liquidity made up of $2.4 billion of cash and $1.8 billion of of revolving credit facilities, which are all unowned. So, besides the pure member, and I'm moving to slide 10, there is on this slide a couple of things that we did. I mean, we discussed Orbeez, but we also closed Moventic in H1. We continued to work on strengthening our loyalty guest base, and you can see here that we added 2.3 million of members. And last but not least, we had a good ride when it comes to development. We have 4.3 last 12 months net organic system growth, which everything being equal in the current world is a good number, very good number. I give you some details on that 4.3 million and the situation of our development on page 11. You can see here that we opened 12,000 rooms in H1. Asia-Pacific is a bit north of 50% of the opening, and there was quite a lot of openings in Wazhou as the Chinese market has recovered and continues to be vigorous. On the pipeline, you have a number of 276 rooms, which is very close to the one at the Yaran, so stability of the Baikan, a little bit below. And last but not least, the churn was controlled, and we are below 2%. which is exactly what we would like it to be. I'm moving now to page 12 to give you some more highlights and color on the second pillar of the business, which is REVPAR. REVPAR is 59% of H1. Translate how the pandemic has been spreading by geography. You see here very well that April and May have been the worst months with a number close to 90% of RESPA, and that this RESPA is, as you would expect, essentially driven by occupancy. If you move to a view for the key regions, so Asia-Pacific, RESPA is down 77%, and you have a very visible improvement, notably in China since March. Greater China, which is the pandemic epicenter, was the first also to get out of the, or to recover, I should say, from the crisis. And the RESPA in Q2 is minus 63%. In June, we're at minus 50%. We have an occupancy level of 48%. And in July, when we look at where we're going to end up the month of July, we should be around 60% of occupancy. Quite significant recovery from where we were back in March in China. April, Australia, sorry, not. posted a negative 84% RESPA, and this is essentially because the country is closed, and so most of the business is coming from government quarantine. When you come to Europe, RESPA was 90% negative, but we've seen visible improvements this May, and notably in Germany and in France. Germany has managed the crisis the best, and so they came out of it the fastest, and you see that in the speed and their numbers. France wasn't bad. We have, in fact, today some recovery that Sébastien gave you some numbers. There is a difference between greater Paris and the province as, in fact, the province is benefited from the domestic tourism flow and greater Paris is obviously suffering from the international travelers flow not coming in or not coming in as you would expect. The third key country in Europe is the U.K., and the U.K. has been trailing as their lockdown has been trailing. We still had significant amount of hotel close at the end of June, and so they will recover with some delay. The rest of the world that started slower into the crisis and are now somewhat lagging. NCAC and South America have a reported respire of minus 95% over Q2. And Middle Eastern Africa is, in fact, penalized by the lack of religious pilgrims to the holy city in Saudi, which is a very lucrative part of our business in Middle Eastern Africa. If we talk not of the actuals, but how we get out of it, you know, we see on the page 13 that the reopening has been moving from 38% Percent of the hotel network being open at the end of April, so at the worst of the crisis, moving up today at more than 80%. So that's going in the right direction. And you see that translated into RESPAR. I mean, the group RESPAR, we were discussing numbers into the tune of minus 90% previously. We are, in fact, better than 70% at the end of July, minus 70% at the end of July. with the comment that Sebastien made, which is the visibility is very, very short window, very much a short window, so not a lot of visibility. If you move to, this time, the results themselves, and so the revenue by segment, which is the page 14 of this presentation, can see the revenue of 917 million euros, very little difference between the reported and the like for like, mostly, in fact, the sale of the portfolio, lease portfolio of Movenpick. Drilling by segment, hotel service revenue was down minus 53% on a like-for-like basis, on a rest part of minus 59%. And, in fact, just to give you more detail on that revenue, the M&F fees is down 72%. And the service to owner is down 42% for the same reason than the one that we explained back in Q1. As for hotel assets and others, the revenue is only down by 40%. And again, here, part of the explanation is where is the hotel asset situated. And today, they are mostly Australia and Brazil. And the numbers in Australia and Brazil in Q1 were quite good. As for new businesses, the revenue is down 40% with a big difference between the travel related activities such as, you know, one fun stay and other activities like digital services which are much less linked in fact to the travel business and where the results are much better. Moving now to a bit more detail on management and franchise. I'll be pretty summary because, in fact, you see that the statistics and the numbers are about the same for each of the jurisdictions. The part which is important is the fact that the 72% is, in fact, lower than the decrease of RESPA, which is only 59%. And the reason for that is that we adjusted the incentive fees in H1. And the incentive fees, which are very much correlated to the hotel profitability, are very close to zero today. So that's why you have that drop of 72% for 59% of Respar. And you will also notice that we did that adjustment in Q2, and the fact that the Q2 revenue is slightly negative. Moving to the BDA by segment, I am on page 16. I think regarding hotel assets, with NDBDA minus 10%, we ended up quite well, and I'll detail that later on. Regarding new businesses, you find again here the same differences between the business which are correlated to the travel industry, NDBDA basically like Accor, from the business which are related to other, more to other industry, just like The Edge, for example. And regarding hotel services, we end up with a negative 141 million, which drives most of the loss in H1. And I propose that we move to page 17, where we gave you more detail than what we would usually do so that you understand it well. You see on that page that the loss is largely driven by sales, marketing, distribution, and notoriety. When we did the Q1 call, we explained what was happening on sales, marketing, distribution, and loyalty, which you would have in a theoretical world expenses which are to the tune of the fees received from hotel owners. When you talk about trespass reduction, just like we saw in Q2, which are huge, the cost cannot be flexed as fast as the revenue, and notably the fixed cost. And so that's why you've got that EBDA loss, and we'll get back to that point when Sébastien will do the last part of the presentation. On reimbursed cost, it has behaved exactly like it should, i.e., it's a true pass-through. On other services to honor, which includes services like, you know, some accounting services or design and technical services, again, here, it's behaving as expected, i.e., close to zero. You basically... get reimbursed for the revenue that you receive. And last but not least, the management and franchise ADDA is a breakeven, and you see that consistently across all regions, largely affected, in fact, by incentives not being there. If you move to the next page, which gives you a detail not of hotel service but of hotel assets, you see here numbers that illustrate, in fact, the transformation of our business model in that segment. Today, what we have there is mostly Asia-Pacific and Brazil, as a geography, sorry. And the other activities include Strata, Timeshare, and AccorPlus, and they are, in each one, about 50% of the revenue of hotel assets and others. The EBDA was limited to 10 million, which is a good number. And this is because we took very, very significant actions. Like in Brazil, we basically separated ourselves from 50%, more than 50% of the personnel. So that kind of avalaged the situation. In Europe and Australia, the government were very supportive and we had good employment, partial employment schemes that help us again variabilize that cost base. And also, last but not least, the lease structure, variable lease structure that we've got in Brazil is such that you don't have to pay the lease because the business is not there. So all of that has been helping at weathering, in fact, the EBDA line. Now, moving below EBDA to net profit, and I am on page 19, you see here net profit loss of 1.5 billion. There are three comments I would like to do. Number one, the share of net losses of associates, which is a minus 363 million loss. What you find here, and it's on the table, is Accor Invest, Wazoo, and SBE. These guys are in the same business line as we are, and they were basically impacted by the COVID-19 just like we are. And so that has been affecting their NVDA, that has been affecting their impairment, and what we take on that line, as you know, is our share of their net income. And on top of that, at net income level, you have, in the case of AccorInvest and SBE, a high level of indebtedness that is impacting the net income of those entities. The second point I'd like to highlight is the non-recurring item. to the tune of 1 billion, which is essentially impairment. As you know, we've been transforming that company over the last five years through acquisition. We did several billions of acquisition, which technically results in a significant amount of intangible being recognized on the balance sheet at market value. So with the current situation, IFRS has been requiring that specific impairment tests are conducted regularly in H1, and so we revised, in fact, the valuation of those intangible, and as you have discounted rate, which is significantly going up because of the hospitality market volatility, and second, the fact that you are not projecting to be back to the 2019 level before 2023, you've got mechanical computation, of that impairment which had the 1 billion. Again, as you know, it's a non-cash charge, but this is what we took in the account of H1. Orbis translated into a profit, no surprise, and there was a 272, 200 million, sorry, profit coming from the discontinuation of Orbis. If you move To the cash view, so moving from APDA to recurring free cash flow. Recurring free cash flow reached minus 473 million. This equates to the 80 million if you divide it by six months that I was earlier mentioning. What you, quotable on that table, sorry, is the working capital change. We already see a negative working capital change of 180 million compared to 74 last year. And that translates, in fact, the fee collection default that we saw over H1. I think that's it for this table. If I were moving to the last slide of my presentation today, which is page 21, you have on that table two things, the liquidity position and the net debt. It starts with the net debt. You have a bridge between December 19th and June 2020. And you can see a slight improvement of the net debt position to 1.1 billion of net debt. If you go through the bridge, you see the recurring free cash flow that we just went through of 473 million, negative. You see the completion of Orbeez, 1 billion, positive. You see the completion of the share buyback of Q1, 300 million, negative. I remind you that since then we've been spanning any share buyback. And the last but not least that you probably are not aware of is that we decided to monetize our Paris headquarters, the tower that we own. And so we are in an active self-process. And as per the rules, the IFRS 5 rules, we are deconsolidating in that bridge the amount of net debt associated to the Paris headquarters building. So that's 219 million. Liquidity, all in all, the 1.1 billion of net debt translates into 2.4 billion of cash position. To that, you add the RCF facility and ROAM, and that's how you come to the 4 billion that I was alluding to before. The other element, because I'd love to have more positive things to say, sorry, And in this gloomy world of the COVID-19 crisis, we got a blue bird in July who received a $300 million cash payment from the tax authorities, which relates to litigation that we have had with them since the year 2000, so something which is about 20 years old. And I am very happy to have that cash in my bank account. I think with that positive note, I'll close my presentation of the account and pass over to Sebastian.