Accor Sa

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 Giraud, 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 three of the presentation. So the activity remained very consistently strong over the last three months, which demonstrates both the resilience of Accor, but obviously of the travel demand. Our RESPAR 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 RESPAR 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. RESPAR growth was steady throughout the third quarter. So, you know, every month was a strong month. And RESPAR was driven by continued gain in rates and occupancy, so balance across rates and occupancy. Net unit growth on a less-for-a-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 less-for-a-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 opening. So the combination of Ref Bar and Net Unique growth led to a group revenue of 1.286 million, which is up 13% versus prior 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 compete successfully a hybrid bond insurance of €500 million, and that illustrates the credit investors' confidence in our business model and financial discipline. And as for the commitment we made in June, we recently launched a 400 million share buyback program, which is the first step in the 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 year political and economic environment we are raising once again, our guidance for the full year of 2023. So growth in RESPAR is now expected in the low 20s and consolidated EBITDA is now expected between 955 and 985 million, which is about a two point increase at the midpoint versus our previous guidance. So I'll now turn to RESPAR per division on slide four. So starting on the left, premium mid-scale and economy division posted a red-bar growth in the third quarter of 15% year-over-year, and that was driven by continued strong pricing resilience for about two-thirds and occupancy gain for about one-third. In the quarter, average room rate was up 10% year-over-year, and occupancy rate was up three points versus prior at 71%. If I look more closely by region in ENA, which is Europe and North Africa, third quarter, respire was up 9%, driven by an 8% growth in average room rate. And looking at some of the key countries in that region, France, respire 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 in the domestic leisure. And in September, RevCore 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 Lille or Nantes. 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 NEA APAC, so Middle East, Africa, and Asia Pacific. Third quarter RFR 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 as it has now reached pre-COVID level. Pacific saw 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% REST-PAR growth in the quarter and REST-PAR actually in China is now above 2019. Moving to America, which as you know, for Accor, for PM&E is primarily South America and within that primarily Brazil. Third quarter REST-PAR 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, rest bar growth was 14% year over year. And you can see sustained momentum driving two-thirds of the growth on the rate side, with average room rate up 9% in the third quarter. And occupancy rate for about one third of the gross occupancy rate was up three points year over year. Luxury REF bar 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 US, but that remains positive, notably for Fairmont, which is our largest activity in North America. Lifestyle rest bar was up 12% versus prior in the third quarter. Lifestyle is a segment that recovered a bit faster. And so we have a somewhat lower baseline effect, but we did have a very solid summer season in our resorts activity. If I move now to slide five and comment the hotel portfolio and pipeline. So starting on the left again with premium mid-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 comment in 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 a churn that also returned to a normalized level of about 2% on an LTN basis. We are confirming our full year 2023 NUD guidance 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 €1,000 and €1,100 per room for PM&E and between €3,600 and €3,900 per room for luxury and lifestyle. Turning to the pipeline, the pipeline benefited from strong signings, notably in PM&E mail pack and in lifestyle. And the total pipeline grew 3%. year over year to 219,000 room and that's, you know, mostly obviously PM&E given the weight of that division. If I move to slide six, which is the revenue breakdown by segments. So, as I, you know, said in introduction, the group revenue in the third quarter total $1,286,000,000, 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 two upsetting effects. One positive effect on the perimeter, which is mainly the consolidation of Paris Society, which we acquired in November of 2022, that sits in hotel assets and others. in luxury and lifestyle. And that was that positive effect was actually offset by FX, which was negative in the third quarter. For premium mid-scale and economy, like for like revenue was up 13%, reaching 767 million. And you can see that's driven by growth in MNF revenues, which were up 17% on the like for like basis. Within that incentive normalized at about 34% of the MNF fees, so well in line with pre-COVID level, and that drove growth in MNF revenue in PM&E, which was slightly above REFAR growth. Cost inflation within the hotels has been held under control, and that's obviously a positive for the incentive portion of our MNF revenue. Services to owner. grew at 11%, that is slightly lower than the growth in REF PAR, 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 agreement 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 Strati business, which is the main business and mainly New York destination, was already back above 2019 last year, and therefore we have more of a normalized growth rate for this part of the business. If I turn to luxury and lifestyle, like-for-like revenue was up 17%, so $539 million. Management franchise was up 11%, incentives representing about 33% of M&F fees. Services to own a very good growth, 18%, so above RFR growth. And we're very pleased to see an increase in what we call our feeble channels, which includes mini web direct and direct channels and that are over-performing other distribution channel and therefore a positive impact on our SPO revenues. Looking more closely at MNF revenues on slide seven, So overall, 15% growth in M&F revenue across both divisions, so in line with the rest of our 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 you look at NEA 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 eight, 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 gonna go quickly on that since I summarized that in the introduction. But following the release of stronger 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, triple B minus with a stable outlook. That was on September 12th. 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 liabilities. This triggered the refinancing, as we had shared with you, of the January 2019 hybrid bond. That included two steps. First step was the successful issuance of a new hybrid perpetual bond for 500 million euros. That was on October 12th. We were pleased to see that the issuance was oversubscribed four times, despite the fact that we came out in a market that was somewhat choppy. And that reflected the renewed investor's 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, was a tender offer on the hybrid bond issued in January 2019, which was also successfully completed. Just 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 coupons 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 in a position to initiate our per share buyback program of 400 million euro over the next six months. And that is absolutely consistent with the commitment we made to return $3 billion, sorry, euros to shareholders over the 23-27 period. And at the time, we had indicated that that return would include between 1.5 to 2 billion euros through share buyback. And as of Friday, we have completed 80 million of that share buyback. The volume is roughly 8 million euros of share buyback per trading day. 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 macro's volatility. We reiterate our net unique 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 a rough bar growth in the low 20s. We had guided you toward the end of the 15 to 20 range the last time we spoke. And we are now expecting consolidated EBITDA between 955 and 985 million. Previously, we were 930 to 970 million. So that's about a two-point increase at the midpoint level. So thank you for your attention. And the floor is now yours for questions.

Thank you, ma'am. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing a star 1 on your telephone keypad. And please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. Again, please press star 1 now to ask a question. Our first question comes from Shaina Mistry from Jefferies. Please go ahead. Your line is open.