Accor prepares for demand shock by slowing cash burn
 
Accor prepares for demand shock by slowing cash burn
23 OCTOBER 2020 8:11 AM

French hotel giant Accor is focused on maintaining performance in Europe as a second spike in COVID-19 cases in many markets causes leisure demand to fall.

PARIS—With the summer vacation uplift over, executives at Accor said a decline in leisure travel coming up against increased lockdown restrictions across Europe, especially in France, is dampening revenue.

In an earnings call outlining its third-quarter 2020 results, Jean-Jacques Morin, Accor’s CFO and deputy CEO, said the French company has adequate liquidity, a comprehensive cost-savings plan and the innovation and adaptability to get through the storm.

Analysts listening to the call asked about pressures on AccorInvest, the ownership vehicle that was spun off Accor (it divested its majority in early 2018) but of which Accor still retains an approximately 25% interest.

Morin said 90% of the group’s hotels now are open, up from 62% at the time of its half-year earnings report in August, but that only 1% of the markets it is in currently have no COVID-19 restrictions.

He said those restrictions are having a huge effect on revenues, citing how Saudi Arabian authorities are only allowing 1,000 pilgrims on the principal days of the hajj pilgrimage to Mecca, rather than the usual approximate number of 1 million.

Accor reported revenue for the third quarter of €329 million ($390.1 million), down approximately 64% year over year.

Like-for-like revenue within its management and franchise system declined 72% year over year, and global revenue per available room fell 62.8%, which Morin noted is a great deal better than Accor’s April lows, where declines exceeded 90%.

“Discipline, adaptability and cost control” is critical in the next few quarters, he said.

He added there has been much improvement since the second-quarter trough, and a tight control on cash burn and maintaining liquidity of more than €4 billion ($4.7 billion) are two principal management objectives.

There is a “€200-million ($237 million) cost-saving plan, and we will have a good view of that in February,” Morin said, adding that initiatives such as co-working platforms require only limited investment.

He said monthly cash burn is approximately €80 million ($94.9 million).

“The question is, where is the world heading?” he said.

Steady ship
Morin said the owners of Accor’s hotels are not suffering too much for now.

“There is little distress coming to us at the moment,” he said.

Few owners have approached Accor, he added, and the company would only step in financially for some of its very key investors if that was required.

“Accor is not in the business of financing hotels,” he said. “A covenant holiday is in place, and (owners) are renegotiating the next period of that.”

In regard to AccorInvest, Morin said, “We will act as a rational liquidity investor, as it is an important part of what we do; it is 25% of what we do.”

He said the vehicle has many solid investors behind it, despite Colony Capital, where Accor CEO Sébastien Bazin once presided, having shown by recent sales that is planning to exit hotels.

“The AccorInvest portfolio is essentially in Europe, and the prospects in Europe are tougher … so you must think of other ways of fixing your financials,” Morin said. “I know about Colony only in what I read in the press. In the end it is something that will find its way, but we have the type of investor that many companies would love to have.”

He said he does not think any vehicle associated with Accor is in a rush to sell.

“In Latin America and Australia there are products they can monetize, means in which they can act, but the question is, do you want to be a first seller as the valuation … might have fallen months ago,” Morin said.

Accor is working on increasing partnerships and programs, including discussions with airlines and car-rental companies, which Morin said could bring in approximately €100 million ($118.5 million).

The firm continues to grow its system, with approximately 7,800 rooms opened so far this year.

“That is comparable with what we did this time last year. (Asia/Pacific) was a little more than half of that, which is a little more than one would expect,” he said.

Morin said Accor’s pipeline comprises approximately 280,000 rooms, almost exactly the same as what it was at the end of last December.

As of press time, AccorHotels stock was trading at €24.44 ($28.97) a share, down 41.5% year over year. The London Stock Exchange was up 18.5% over the same period.

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