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.

Hi, Martin. Thanks very much for taking the questions. My first question is around net unit growth. You've had a very strong profile in Q3, and your governance has unchanged this whole year. How important are you that this 2% to 3% nod year can happen this year? And then my second question is around your buyback programme. In 12-month run rates, that's £800 million. Is

I'm sorry, Sheena, but you're breaking out, so I haven't, I can't, I didn't catch your question because you're really breaking out.

Oh, I'm so sorry. Is this better?

Yeah, that's better.

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

Thanks for your question. So in terms of the net uni 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 union 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 union growth guidance or projection for the 24-27 period, that is 3-5%. So the acceleration is really one to two 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, A $3 billion return to shareholder, between $1.5 to $2 billion of that will be in the form of share buyback. If you take that over a four-year period, 23 to 27, that's basically up to between $400 and $500 million per year. This is the first year, $400 million, so it's completely in line with what we have shared with you. And with respect to, you know, with respect to AccorInvest, they are, and I think we shared that with you previously, they are on a new asset disposal program. They have actually started that program. They are essentially pursuing that program as a, 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, you know, Accolibus will have completed its refinancing.

Fantastic. Thank you very much.

Thank you. We will now move to our next question from Andres from Deutsche Bank. Please go ahead.

Good evening. A few questions for me. First one on the renegotiation of the prices from corporates, the trend you register on the MySegment, and the first feedback you can have on Olympic Games. Could you give us some more color about all these trends? That's my first question. Second question is about the capital allocation. You gave us some clear guidance about the return to shareholders expected to take place between 23 and 24. You said relatively clearly that there were no plan of strong M&A. But regarding the approaching trend and the fact that you should deliver some good results and you are 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? Thank you very much.

Hi, thank you for your question. 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 the At least the intention was to increase corporate travel spend by 10% for the accounts with retreats or 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. I think the inventory has been sold for the media and the staff. With respect to capital allocation, I think that, you know, what was said was we are committed to return about $3 billion over that 2023-2027 period. We do not plan for any transformational acquisition, no 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 it particularly did not include the disposal of our, going back to the previous question, on NACRNs.

Thank you very much.

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

Thank you. Good evening, Martin. If I could ask three 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 in corporations for 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 there 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 there's a similar sort of cautious incentive 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.

Thank you. Sure. 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 the left and left side, 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 your conversion plus under construction, that's about two-thirds of the pipeline.

Thank you. We will now take our next question from Alex Brignol from Redburn. Please go ahead.

Evening. Thank you for taking the question. I'll just do one, please. As we've gone through the year, the sensitivity to RAVPAR seems to be slightly coming down.

Obviously, we don't know exactly what your guide is, but in the low 20s, it seems like you're 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? Thank you.

Sure. So we've taken our, you know, we said that we would be in the high end of the 15 to 20 range, let's call it 20, and we're now saying that we'll be in the low 20s. So if you take that as, you know, two, three points, and you convert that into the EBITDA increase that we've done, which is about, I think, 20. Well, at the low end, it's 25 million. That gives you a math which is pretty consistent with what we said in the first half. So the sensitivity is not necessarily – or at least I would say that the sensitivity has not gone down. It's still 7 to 8 million per point of reference. you know, the guidance for the, on the FOIA basis, you know, we try to have a balanced view between obviously being on the, being within the guidance and taking into account, you know, whatever uncertainty there is in the current geopolitical and national environment.

Thank you very much.

Thank you. We will now move to our next question from Vicky Stern from Barclays. Please go ahead.

Yeah, hi there. 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 colour, 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 prices 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. Thanks.

Sure. Hi, Vicky. 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 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 regions, 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, you know, in terms of the exposure, it's about, you know, 9% without Turkey and Turkey is another 2%.

Thank you. 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 the earlier sort of initial reactions on price of some of the cancellations or weaker bookings might be coming through.

Yeah, on that one, I think it's a bit premature to give any, to read any trends.

Okay, thanks very much.

And thank you, and may I remind you, if you wish to ask a question, please signal by pressing star now. And please make sure the mute function on your phone is switched off to allow your signal to reach your equipment. Please make sure your phone is unmuted. Thank you. We'll now move to our next question from Jamie Roll from Morgan Stanley.

Thanks, everyone. Just a few questions on really the sort of guidance. First of all, there's a 30 million EBITDA range in the full year, which in one quarter is quite high, given the sort of sensitivity. And yet you're saying that your caution on IMFs was only a couple of million in the quarter, I think. So if you just try and square that circle. Secondly, if I compare the like-for-like revenue and REVPAR, there's a real gap in luxury, up 10% on like-for-like M&F revenue versus up 15% in REVPAR. Is that where all the IMF conservatism is, or is there any in the other divisions? And then I think someone tried to offer this question earlier, but just in terms of quantifying revenue, how much caution there is in . Is there any or is it all sort of within the range?

Jimmy, I lost you on the third question, if you don't mind repeating.

Yeah, just on the IMF caution, is that encompassed across your EBITDA range? So is there any IMF caution in the high end of the EBITDA range? Or is that just like assuming a normal fourth quarter?

So on the, you know, on the guidance, 30 million range between the high and the low is a consistent, like I said, percentage of the full year number versus what we typically have done at this point of time in the year. In terms of the, no, if you ask me where I feel, do I feel I have a 30 million range? I will tell you, no, I have not. But again, I think this is a guidance and we just want to maintain some flexibility within that. In terms of the incentive fees, yes, there is some cautiousness that we took in that guidance, certainly on the low end. on the luxury and lifestyle side. It's not on the PM&E side.

Okay. Thank you very much.

Thank you very much. And it appears this was the last question in the queue. And as a reminder, to ask a question now, please signal by pressing 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. Thank you. And we have a question from Jared Castle from UBS. Please go ahead.

Thank you. Just why haven't you actually taken any caution in the incentive fee for PME? And then secondly, just in terms of the 2% to 3% NUG guidance, can you give any indication of the exit rates at the moment, please? And then just any broad comments. I know you generally... don't say too much on these calls, but anything, just how are you seeing cost pressures at the moment? Thank you.

Sure. So to your first question, the reason we're a bit more cautious on the luxury and lifestyle incentives is because that's the region that is more exposed to the Middle East. So we just wanted to, you know, keep some level of prudency on that particular side of the business. In terms of the NUD guidance, we do expect a healthy level of openings in the fourth quarter. But we are overlapping the fourth quarter of 2022. That was also very, you know, very healthy, you know, hence, you know, our guidance in the two to 3%. And if you want to take your own view as to where we'll be within that range. But we do expect a strong level of openings in the fourth quarter this year. And with respect to the cost pressure, we're actually seeing the growth operating profit margins in the hotels that are holding up. So they are able to offset inflation by price increases. Thus far, you know, we're able to essentially pass through inflation and some into the rates.

Okay. Thanks very much.

We will now move to our next question from Simon Lechypre from Stifel. Please go ahead.

Yes, good evening. Just one for me as a follow-up to the IMF question and looking at PME in Europe, once again, like for like FIG growth is below REF PAR growth. It was already the case in H1. I mean, why is that? And I mean, I would have expected, let's say, a catch-up in H2 of the IMF. So why it remain below the REF PAR growth trend? Thank you.

So on PME, so in Europe, right, so respite growth was 9% and it's 8%. So we have about a point in, let's say, lower than the respite growth. So we have basically an impact from Germany. in this region. I mentioned the fact that Germany has a soft growth, which means that we have a bit less of an incentive fee favorable impact from that market. That's really what's driving it. Because if you look at the other markets.

It was already the case in H1 because there was six points of difference in H1.

That's correct. And in H1, we also had a bit of a base effect. Okay, thank you.

Thank you. And our next question comes from Muneeba Kayani from Bank of America. Please go ahead.

Yes, good evening. I just wanted to ask about one comment in your release, which is around the first signs of normalization of activity growth and materializing after several quarters of intense recovery. like which regions are you talking about specifically in your comment there? And then just also on your REF PAR guidance, like how are you thinking about that across regions and segments and kind of what's your visibility on 4Q at this point? Thank you.

Thank you for the question. So normalization really refers to North America. And you see that in the SDR data. So our performance is no different than what you see in the SDR data. So we're still seeing a couple of positive, let's say, points of growth in NORAM, but it's obviously not double-digit growth as we see in our division. And that's what we mean by normalization. But it's really only in North America that we see that. With respect to regions, segments, not only has the growth in the quarter been very steady across each month of the quarter, but it's also been very steady across each region and each segment. You see that at the division level. Actually, when you look at, and I know we're not talking about 2019 anymore because it's a long time ago, But when you look at third quarter growth versus 19, it's actually a couple of points better than second quarter growth versus 19. So we still see, obviously, you know, it's decelerating when you look year over year, given the base effect of 2022. But when you look versus 19, third quarter is a couple of points in each region and segment better than the increase we saw in the second quarter versus 19. And I'm sorry, I forgot your third question.

Thank you. I just had two. Okay.

Thank you. And as a final reminder to ask a question at this time, please signal by pressing star 1. We'll pause for just a brief moment to allow you to signal. Thank you. And as there are no further questions at this time, this concludes today's question and answer session. And with this, I'd like to hand the call back over to Martine Giroux for any additional or closing remarks. Over to you, ma'am.

Thank you. Well, thank you all for your questions and for listening, and I wish everyone a very good rest of the day.

Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect. Thank you.