Accor will announce a reorganisation on 4 August in an investor call, with costs leading the agenda as it looked to transfer its asset-light model to the company’s operations.
The CEO would not be drawn on details, promising to be “clearer about the amount involved and the type of organisation we want” in August.
The pandemic was likely to have a €170m impact on Ebitda in the first quarter. Jean-Jacques Morin, deputy CEO, said: “Our balance sheet is very strong, in May we had €4bn in liquidity which will enable us to hold out for 40 months. We should be able to weather the storm.”
“We’ve got to increase our margins. You always learn during times of crisis". Bazin quoted astronaut Bertrand Piccard: “The crisis you accept becomes an adventure”, adding: “and that’s what we’re shifting into. Like any adventure, you’re better off afterwards. We will become stronger”.
Revpar decreased by more than 90% in April and May. Bazin added: “In the US, although they had been hard hit they have shown resilience in the hospitality sector. They went from down 80% to down 60%.
“As the end of March, beginning of April, we were at a loss. It was very violent. It’s an absolute plummet. We’re talking about a 65% drop in travel. In our industry you need freedom of movement, booming tourism and lots of business travellers. Until two weeks ago, those three things weren’t happening. I had never thought that we could lose 1 billion in international travellers.
“Accor is in a position to cope with this plummet, but we must be cautious. We must adapt and adjust. We’ve gone through the lowest point but we have no idea how long it will take to rebound.
“We’re addressing our brands and making them distinctive from other families of brands. Today we have to focus much more on domestic travel than international - 75% of our business is European.”
At the end of April 62% of the group’s estate was closed, with reduced activity for 75% of staff, or 210,000 people. Of the 110 countries where Accor operates, 90 countries were under quarantine.
By June 29 67% of the group’s hotels were opened. The CEO said: “Travellers are looking for seasonal rentals in houses and apartments so that they can come into contact with as few people as possible. They are also looking to camping.”
For the full-year 2019, revpar was up 1.7%, expanding in all regions other than Asia. The portfolio grew by 5.1%, ahead of the 5% target, with revenue up 3.8% like-for-like to €4.049bn, Ebitda up 5.9% to €825m and the Ebitda/cash conversation rate at 77%, against the group’s target of 70%.
Morin said: “2020 will be a different animal, the board of directors has decided to keep the group’s liquidity by keeping the dividend and pausing the share buybacks. One of the cornerstones of our strategy is expansion, we have 1,200 hotels over the next five years, which is 30% of our existing portfolio.”
By segment, hotel services, which represented the 96% of the portfolio not owned by Accor, saw Ebitda up by 5.8% in 2019. The remaining 4%, owned by the group, saw profitability fall by 7.3%, mainly due to Mantra in Australia. Morin said: “The Australian market wasn’t very supportive. There was a deep banking crisis which had an impact in the economy, add in the bush fires and the trade wars between the US and China”. Ebitda growth at new businesses was 88.8% with the deputy CEO commenting: “We’ve done a lot of work at Onefinestay and Jean Paul”.
In April the group took a number of measures. These included: a travel ban, hiring freeze, reduced schedules and /or furloughing for 75% of global head office teams the second quarter, resulting in a minimum €60m reduction in G&A for 2020 and reviewing recurring investment plan for 2020 resulting in a €60m reduction in capital expenditures.
The board had also decided to withdraw its proposal for a 2019 dividend payment of around €280m and after consulting with the main shareholders - JinJiang International, Qatar Investment Authority, Kingdom Holding Company and Harris Associates - had decided to allocate 25% of the planned dividend to the launch of the ALL Heartist Fund.
The fund assists the group’s 300,000 employees, pledging to pay for their Covid-19-related hospital expenses, for those who do not have social security or medical insurance, as well as furloughed employees suffering “great financial distress” and individual partners facing financial difficulty.
The company has appointed Bruno Pavlovsky, chairman of Chanel's fashion activities, as an independent director, for a three-year term. Bazin attributed the decision to the group’s move into the luxury segment, commenting: “We needed somebody with different insight with experience in this segment. Bruno will help us make a quantum leap in the world of brands and luxury”.
Insight: And this is a company with €4bn at its fingertips, with efforts underway to extend that, we understand, although not through the sale of Mantra, the market in Australia not exactly being at a peak. Although certainly peaky.
When Bazin is saying that he doesn't want to be audacious, you know things are serious. He also said that he didn’t want the company to pay for services that the owners weren’t using, which was one of the few clues into what a reorganisation could entail and one which was spoken as a true former investor. Everyone is looking to cut the fat. If Accor can convince owners that it too has an eye on the bottom line and isn’t going to deluge them with mandatory pillow menus, it will be all the more attractive.
Now imagine that you don’t have €4bn - and if Bazin can quote astronauts then this hack can quote John Lennon - for most companies imagining this isn't hard to do. What can those without €4bn do? Huddling together for warmth - or strength in numbers - is a given. Accor has shown no signs as yet in participating in transactions. Indeed, when asked why the group wasn't buying shares back at a bargain price, he said: “We have decided that we must preserve cash at all costs. This is not the right time to use it. We apologise. We have other priorities.” More likely the group will look to bolster the system organically. Conversions aren’t a big part of the luxury world it wants to woo. Maybe Chanel can help.
By the time August rolls around, several of the big players will have lifted their skirts to reveal their ankles as H1 results hit the catwalk. Expect reorganisation to be this season’s look.