Accor’s losses extend to the EBITDA line

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Accor, the French hotels group which operates with the Ibis, Novotel and Raffles brands, slumped to a big loss in 2020 even after setting aside interest, tax, depreciation and amortisation costs.

Often shortened to EBITDA, the metric is closely watched across the sectors as a proxy for operating profit. Accor’s EBITDA fell by more than €1.2 billion last year. Earnings before interest, tax, depreciation and amortisation were €825 million in 2019. In 2020 the number was negative €391 million.

The net loss for the year was just under €2 billion against net profit in 2019 of €485 million. The loss per share was €7.71 against earnings per share last time of €1.55. There is no dividend.

Accor has more than 750,000 rooms in its system at more than 5,000 hotels and other residences. Around 46% of the rooms and 59% of the hotels, are in Europe.

Overall, revenue per available room fell 66% in the fourth quarter, slightly worse than the 62% decline for the full year. In Europe, RevPAR was down 73% in the last three months of 2020 and down 63% in the 12 months.

The company said it saw: “signs of significant recovery in all regions in the third quarter, with a strong summer season in Europe, after the low point seen in the second quarter.” But it added: “The new restrictions implemented by European governments in response to the resurgence of the epidemic in the last quarter halted the summer recovery.”

At the end of 2020, the company said it had a development pipeline of 212,000 rooms – equivalent to around 28% of its current total. It said that three-quarters of the pipeline was in emerging markets.

Sébastien Bazin, chairman and chief executive officer, said: “In 2021, while the vaccine is ensuring a gradual rebound in tourism - largely driven by leisure guests - Accor is ideally positioned to benefit from the recovery and press ahead.”

Short term, Mr Bazin said: “Leisure travel will reignite stronger than anyone believes. “Don’t be late for the rebound,” he advised. Mr Bazin also expressed firm confidence in the industry’s long-term prospects. He said hospitality is “blessed” despite the recent downturn.

Net debt was more or less unchanged at €1.3 billion.

Speculation has circulated in recent months about a possible merger between Accor and IHG Hotels & Resorts. Without mentioning IHG, Jean-Jacques Morin, the deputy CEO, said: “There is plenty of scope for consolidation over time. The question is, how much time? At the moment it is not the right time.”

Insight

It may seem odd to talk about building hotel businesses while the Covid wrecking ball is still smashing its way through the industry. But companies are addressing the issue. Accor included.

OK, let’s not be naïve. Some of the discussion exists as a way of getting away from the dismal trading that laid waste to trading in 2020 and is now stretching into 2021. But as most people associated with the sector know, the addition of space is a powerful driver of profitability.

One option ground out of the rumour mill is of a merger between Accor and IHG. But it is hard to see the logic even if one tries to ignore the pandemic. Results from both companies in this week underline the point.

In theory, Accor would be helped by a much-larger US operation: it would balance its portfolio which is at present heavy in Europe. The US market has done better than Europe recently – albeit only relatively. But why would IHG want to dilute its US exposure and add to its European operations?

If cost cutting is the main motive, the pandemic has led all companies to find efficiencies and most say the benefits will outlast the pandemic.

Investors may be attracted to a merger proposition that promises to accelerate the growth in room numbers on both sides. But both companies saw the rate of expansion slow last year and both express confidence in a bounce back.

Additionally, how would it be paid for. Cash? If either side could borrow the sums required, they would have to persuade sellers that cash yielding near-zero interest is a better bet than equity which comes with the probability of dividends, and dividend growth. Cash looks especially unattractive if inflation picks up, as is perfectly possible.

And valuation is a problem. Here one cannot ignore Covid because it probably heralds permanent industry change at least in some respects, notably in business travel metrics. So, an Accor/IHG merger? It is a rumour best left in the cellar.