Accor: 2009 First-Half Results

- Prepaid Services: firm resistance of revenue (up 5.7% like-for-like[1])
and margin (up 0.4 points like-for-like)

- Hotels:
- Economy hotels outside the US: resilient revenue (down 7.3%
like-for-like) and margin (down 2.3 points like-for-like), led by a
solid performance in France
- Upscale and Midscale Hotels and Economy Hotels in the United
States: two segments severely impacted by the crisis

- Operating profit before tax and non-recurring items: EUR182
million (down 44.5% like-for-like)

- Robust balance sheet: Funds from operations/adjusted net debt ratio of
21.5%

- Cost-cutting plans already 50% completed in the first half:
owned/leased hotels operating costs reduced by EUR72 million and
support costs by EUR37 million
Operating costs reduction plan in the owned/leased hotels raised to
EUR150 million from EUR120 million

***

- Full-year target for operating profit before tax and non-recurring
items: EUR400 million to EUR450 million

***

- Given the depth and speed of the changes ahead, the transformation and
development of the two core businesses will be stepped up.

As part of this process, the Board of Directors has approved Chairman
and CEO Gilles Pelisson's recommendation to conduct a review of the
potential benefits of demerging the two businesses into two independent
companies, each with their own strategy and resources for growth.

2009 first-half financial results

(in EUR millions) First-Half First-Half % change % change
2008 2009 as like-for
Adjusted(1) reported -like(2)

Revenue 3,758 3,410 -9.3% -8.1%
EBITDAR(3) 1,088 924 -15.1% -15.0%
EBITDAR margin 29.0% 27.1% -1.9pt -2.2pts
EBIT 425 242 -43.0% -39.0%
Operating profit before 393 182 -53.7% -44.5%
tax and non-recurring
items
Operating profit before 264 114 -56.8% -
non-recurring items, net
of tax
Net profit/(loss), Group 310 (150) n/a -
share
ROCE(4) 14.5% 12.1% -2.4pts -

(1) As a result of applying IFRIC 13 from January 1, 2009, the
Group reviewed its accounting policy for recognizing award credits
under customer loyalty programs. The new accounting method has been
applied on a retrospective basis, with pro forma data provided for
the six months ended June 30, 2008.

(2) At constant scope of consolidation and exchange rates

(3) Earnings before interest, taxes, depreciation,
amortization and rental expense.

(4) ROCE: Corresponding to EBITDA expressed as a percentage of
fixed assets at cost plus working capital.

In an extremely weak economic environment, consolidated revenue for the
first half of 2009 totalled EUR3,410 million, down 9.3% on a reported basis
and 8.1% like-for-like compared with first-half 2008.
PREPAID SERVICES
Revenue from the Prepaid Services business rose by 5.7% like-for-like in
the first half, overcoming the adverse impact of i) sharply higher
unemployment rates, which are affecting corporate customers, particularly in
Europe, and ii) lower interest rates, which are reducing interest income
recognized in revenue. Operating revenue (i.e. excluding interest income)
rose by 6.8% over the period, compared with a 1.2% decline in interest income.
Revenue growth was led by stepped-up marketing and sales initiatives,
which drove the development of new products and the penetration of new
markets, in particular with the launch of travel agency cards in the United
Kingdom and holiday vouchers in Romania. Other initiatives targeted France's
prefunded Universal Employment Service Vouchers (CESU Social) program, which
is designed to support people most hurt by the recession.
EBIDTAR margin stood at 43.2%, up 0.8 points on a reported basis and 0.4
points like-for-like. The margin improvement reflected the 1.1-point
like-for-like gain in the margin on operating revenue (51.3% flow-through
ratio[2] excluding interest income). The decline in interest income reduced
total margin for the period by 0.7 points like-for-like.
In Europe, EBITDAR margin narrowed by 1.4 points like-for-like, impacted
by rising jobless rates in the region and the steep decline in interest
rates. In Latin America, it improved by 2.0 points like-for-like, despite the
decelerated growth in interest income following the steady drop in interest
rates since May 2009.
HOTELS
In a severely depressed business environment, Hotels revenue fell 11.4%
like-for-like in the first half.
Although the Upscale and Midscale Hotels and US Economy Hotels segments
have been hard hit, with revenue contracting by 13.3% and 12.8% respectively
over the period, the Economy Hotels outside the US segment demonstrated
firmer resistance, holding revenue weakness to 7.3%.
The Group's ability to limit the revenue decline compared with the
competition was supported by a certain number of marketing and sales
initiatives deployed as part of the battle for revenue process. The battle
for revenue is also being supported by the success of the A|Club loyalty
program, whose more than 3 million cardholders account for 10% of retail
customer revenue, just one year after launch.
In addition, the first half already saw operating costs in the
owned/leased hotels reduced by EUR72 million, out of the announced
EUR120-million target for the year.
Accor confirms its objective of opening 30,000 new rooms in 2009. 12,100
have already been opened in the first six months of the year, of which 78%
under low capital-intensive ownership structures (management contracts,
franchise agreements and variable rent leases), 58% in the Economy and Budget
segments, 35% in Europe and 35% in Asia. Pursuing this expansion dynamic
remains a priority, with 103,000 rooms in the pipeline.
- Upscale and Midscale Hotels hard hit by recession
In the Upscale and Midscale segment, revenue declined by 11.9% as
reported in the first half, and by 13.3% like-for-like.
EBITDAR margin came to 23.6% of revenue, down 4.1 points as reported and
like-for-like. The response ratio, excluding support costs, stood at 33.9%
and at 45.5% after accounting for the EUR25-million reduction in support
costs driven by the cost-cutting plans.
- Economy hotels outside the United States: resilient revenue and
margins, led by a solid performance in France
In a lackluster economic environment, Economy Hotels proved to be more
resilient than the other segments, with revenue retreating by 7.6% as
reported during the first half and by 7.3% like-for-like.
At 34.1%, EBITDAR margin narrowed by 1.9 points as reported and 2.3
points like-for-like. The firm resistance was primarily due to operations in
France, where margin was down just 0.4-points like-for-like, to 30.5% on
reported basis. The response ratio, including support costs, was 34.9%.
- Economy Hotels US: deeply impacted by two years in a row of recession
Motel 6 revenue contracted by 2.0% on a reported basis in the first half
and by 12.8% like-for-like.
Although still affected by the severely weakened US economy, Motel 6 is
still faring better than the competitors, with RevPAR two points higher than
the peer group's. In the United States, the Economy segment is generally
outperforming the Upscale and Midscale segment by around 10 points of RevPAR.
EBITDAR margin amounted to 30.8%, down 7.1 points as reported and 5.7
points like-for-like, while the response ratio was 18.7%, in a country that
has been in recession for more than two years.
CONSOLIDATED RESULTS
Consolidated EBITDAR[3] amounted to EUR924 million in the first half of
2009, down 15.0% like-for-like compared with the year-earlier period and
15.1% as reported. EBITDAR for the period reflected the support-cost savings
already achieved in the first half, which totaled EUR37 million out of the
full-year target of EUR80 million.
It represented 27.1% of consolidated revenue, compared with 29.0% in
first-half 2008.
The firm resistance of the Group's two main core businesses, Prepaid
Services and Economy Hotels outside the US, helped to limit the decline in
margin to 1.9 points as reported and 2.2 points like-for-like.
EBIT fell by 43.0% to EUR242 million as reported and by 39.0%
like-for-like. The fact that some rental expense is indexed to revenue helped
to save around EUR15 million over the period.
Operating profit before tax and non-recurring items stood at EUR182
million for the period, down 44.5% like-for-like and 53.7% as reported.
Operating profit before non-recurring items, net of tax amounted to
EUR114 million, compared with EUR264 million in first-half 2008.
The net loss, Group share, which came to EUR150 million, was impacted by
EUR194 million in asset impairment losses (of which EUR118 million on Motel 6
goodwill). These losses reflected the decline in the assets' balance sheet
value and did not have any cash impact. In addition, the net loss includes
EUR53 million in restructuring costs, primarily related to Group
reorganization programs.
In first-half 2008, the Group reported a net profit, Group share of
EUR310 million, lifted by EUR130 million in capital gains on asset disposals.
Funds from operations declined to EUR378 million from EUR487 million in
first-half 2008.
Net debt stood at EUR1,961 million at June 30, 2009, after EUR193 million
in expansion expenditure in the Hotels and Prepaid Services businesses, EUR77
million in asset disposals and the payment of EUR201 million in dividends.
Net debt also includes two non-recurring items: the acquisition of an
additional 15% interest in Groupe Lucien Barriere for EUR269 million and the
payment of EUR242 million to the French State in settlement of tax
assessments on Compagnie Internationale des Wagons Lits (CIWLT). Note that
the Group has contested these assessments before the court.
The main financial ratios attest to the solidity of Accor's balance sheet
at June 30, 2009. Backed by the two bond issues totaling EUR1.2 billion
carried out in the first half, the Group has EUR1.8 billion in unused,
confirmed lines of credit at June 30, 2009. No significant amount of debt has
to be repaid over the next three years. The ratio of funds from operations to
adjusted net debt[4] stood at 21.5% at June 30, 2009, compared with 24.2% at
June 30, 2008 and 25.8% at December 31, 2008.
Return on capital employed declined by 2.4 points during the first half,
to 12.1% at period-end from 14.5% at June 30, 2008.
Outlook for 2009
- July business trends
Prepaid Services: growth in revenue despite the faster decline in
interest income
Revenue was up 0.6% like-for-like and year-on-year in July, reflecting a
4.4% increase in operating revenue and a 21.9% drop in interest income
recognized in revenue.
Latin America is faring better than Europe, as stronger operating revenue
growth (up 6.3% versus 3.3% in Europe) offset a steeper decline in interest
income (down 26.5% versus 18.8% in Europe). The decline in interest income
that emerged in May 2009 is gaining momentum as the third quarter begins.
Hotels: improving trends in July, buoyed by the increase in the
proportion of leisure travelers during the summer
In Upscale and Midscale Hotels in Europe, July RevPAR was down 12.7%
like-for-like, compared with a 19.2% decline in the second quarter.
In the Economy Hotels segment in Europe, July RevPAR was down 8.5%
like-for-like, compared with a 9.7% decline in the second quarter.
In the US Economy Hotels business, July RevPAR was down 15.2% for the
month, versus a 15.7% decline in the second quarter.
- 2009 earnings guidance
In the absence of any visibility in the economic environment, the target
for operating profit before tax and non-recurring items has been based on the
following assumptions:
In Prepaid Services:

- A more than 25% decline in interest income in the second
half, causing like-for-like revenue to show a slight gain for the year.
- An operating margin of more than 40% for the year.
In the Hotels business:
- No major improvement in business expected in the second half.
- The plan to reduce operating costs in the owned/leased hotels will be
stepped up to EUR150 million from EUR120 million, to ensure that the response
rate holds steady at 35%.
Consolidated earnings:
- Support costs will be reduced by EUR80 million over the year.
As a result he target for operating profit before tax and non-recurring
items has been set at between EUR400 million and EUR450 million.
Business strategy
Give the depth and speed of the changes ahead, the transformation and
development of the two core businesses will be stepped up.
As part of this process, the Board of Directors has approved Chairman and
CEO Gilles Pelisson's recommendation to conduct a review of the potential
benefits of demerging the two businesses into two independent companies, each
with their own strategy and resources for growth.
Upcoming events
- October 15: Quarterly Report (third-quarter revenue)
Accor, a major global group and the European leader in hotels, as well as
the global leader in services to corporate clients and public institutions,
operates in nearly 100 countries with 150,000 employees. It offers to its
clients over 40 years of expertise in two core businesses:
- Hotels, with the Sofitel, Pullman, MGallery, Novotel, Mercure,
Suitehotel, Ibis, all seasons, Etap Hotel, Formule 1 and Motel 6 brands,
representing 4,000 hotels and nearly 500,000 rooms in 90 countries, as well
as strategically related activities, such as Lenotre.
- Services, with 32 million people in 40 countries benefiting from Accor
Services products in employee and constituent benefits, rewards and
incentives, and expense management.
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[1] At constant scope of consolidation and exchange rates
[2] The ratio of the change in like-for-like EBITDAR/change in
like-for-like revenue is known as the flow-through ratio when like-for-like
revenue goes up and as the response ratio when like-for-like revenue goes
down (in which case it is equal to 1 - [change in like-for-like
EBITDAR/change in like-for-like revenue]).
[3] EBITDAR: Earnings before interest, taxes, depreciation, amortization
and rental expense.
[4] The ratio of funds from operations before non-recurring items to
adjusted net debt is calculated according to a method used by the main rating
agencies, with net debt adjusted for the 8% discounting of future minimum
lease payments and funds from operations adjusted for interest expense on
these payments. Funds from operations before non-recurring items corresponds
to cash flow from operating activities before non-recurring items and changes
in working capital requirement.
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SOURCE Accor

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