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Earnings Transcript for AC.PA - Q1 Fiscal Year 2022

Operator: Hello, and welcome to the Accor Q1 2022 Revenue Conference Call. My name is Jess, and I will be your coordinator for today’s event. [Operator Instructions] I will now hand over to your host, Jean-Jacques Morin, Deputy CEO and CFO, to begin today’s call. Thank you.
Jean-Jacques Morin: Thank you very much. Good evening, ladies and gentlemen. I’m very happy to be with you today for this Q1 ‘22 revenue call. Before we start the presentation and for the sake of clarity, we will continue to provide the RevPAR variation by region versus 2019 for this year. This is to ease the understanding of performance and notably because of some base effects. As for our revenue figures, we provide both the variation versus Q1 ‘21 and Q1 ‘19 in the document. So with that and without further ado, let’s move to the Slide number 3, where you’ve got the highlights of the quarter. Very happy to report that Q1 continues to show an improved business performance and momentum. Q1 ‘22 RevPAR more than doubled versus Q1 ‘21. And the RevPAR versus Q1 2019 continues to improve sequentially quarter after quarter to post a minus 25% number in Q1 which is what we had told you during the result -- year-end result in February. Net unit growth reached 2.5% over the last 12 months, and we’re going to detail that a bit later on. All of that translated into a group revenue of EUR 701 million, which is an increase of 85% versus Q1 ‘21 on a like-for-like basis. So what are the drivers of this performance? And this is the right part of the table that you’ve got face to you. Number one, there is sustained rebound led by domestic demand. And this is domestic demand for both business and leisure as we see through notably events. The second reason is that there is an acceleration of international travel, as you see across the world, across the globe, the reopening of borders. There is one notable exception to that, which is China. The third key reason is that we’ve got in our hand a strong pricing power across all regions and all segments. And we have today an average room rate which is above the level of Q1 2019 on a like-for-like basis. So this is stemming from 3 things
Operator: [Operator Instructions] The first question comes from the line of Jamie Rollo from Morgan Stanley.
Jamie Rollo: Jean-Jacques, two questions, please. First, it would be quite helpful to know where March was, if you’re able to split out the sort of latest months and maybe give us a feeling for what April is running in terms of RevPAR for those? Secondly, on the commentary about domestic demand recovering at the end of the year and international later, is it too simplistic for us to sort of infer that you think RevPAR will still be negative in the fourth quarter? I mean, it doesn’t sound like it, but sort of maybe that’s the inference from those comments. And then just on the drop in the pipeline and the sort of lack of rooms growth which you’re putting down to China and Asia, could you talk a bit more about that, please? Because obviously, the restrictions are still going on in the second quarter. And is it just a sort of China issue? Or is there any more sort of weakness elsewhere in the region or indeed elsewhere in the world in terms of construction delays?
Jean-Jacques Morin: On the numbers, Jamie, I think I am not going to start to disclose RevPAR month by month, but just you use STR and you use our mix and I think you’ve got a very good idea of how much April is running better than the month of March. And the numbers have been significantly getting better. And again, here, just by looking at the STR weekly publications, you see that extremely well. On your question about China and the development in China, I mean, this is obviously a very good question. Today, when we turn around and talk to our team on the ground, they do confirm that they are able to do the forecast that were the budget that they have been giving us a couple of months before. So at this juncture, I’ve got no reason to think differently. I think the difficulty with the China region is the violence of the variation. I mean, they decide to shut down Shanghai. And suddenly, it’s 17 million people that are confined for weeks. They are talking, as you know, about [indiscernible] and it’s the same discussion, and not to talk about all the many cities that have got millions of inhabitants and that are in the same situation. So I think what needs to be followed through with China is whether the situation from where we are continues to negatively evolve. And then obviously, it will have an impact on the business. So whether it will be just like what we saw last year, which is very -- was a very bad quarter -- a very bad month I should say. And then the next month is a big positive because, again, everybody goes back to business. That, we don’t know today.
Jamie Rollo: And sorry, just on the -- so it’s just the China situation at the moment? There’s no other sort of delays elsewhere that you’re seeing?
Jean-Jacques Morin: No, no, we don’t. No, we don’t. We don’t, we don’t.
Jamie Rollo: And sorry, the middle question was just about the demand recovery by the end of the year for the domestic sector and international lagging. I mean I know you don’t want to give guidance on RevPAR, but that sort of read a little bit cautiously. Does that mean you think RevPAR will still be down in the fourth quarter compared to ‘19?
Jean-Jacques Morin: Yes. The answer is yes. The answer is most probably with what we know. I would say the reason for why I don’t want to give any forecast on RevPAR is that just think about the last time we talked, which was February. In February, everybody was so much frightened by the Omicron and what the Omicron has done to the numbers in the month of January. And since then, I mean, [ make it tough ] every month, we’ve been improving the RevPAR by more than 10 points. February versus January and March versus February and April versus March and so on and so forth. So the speed at which the numbers can fluctuate is immense. And I think nobody was probably in his right mind foreseeing that speedy recovery of the RevPAR. So I think we’ve got to keep that in mind. So I give you the answer for the Q4 trying to be helpful with what I know. But again here, I think we may be surprised by the speed at which international recovers. Like I was mentioning places like Bali being reopened. Today, the gating item is not so much the fact that you cannot go to the place than it is the fact that you may not find a ticket to get there. There is not enough airline capacity to get there at this stage. But I would think that the airline companies, if they see the bonanza and the capability to do again a good business, will find some means in order to reopen. And suddenly, we will be surprised. The China situation is, in fact, unchanged versus what we knew. China is important in the Asian business. China has basically been closed all of last year. And today, I don’t think anybody can foresee when China will reopen. And all the statements that are done by the Chinese government are clearly stating that they are not changing the zero COVID strategy policy. So as long as that doesn’t change, you will have the kind of fluctuation and very intense, in fact, volatility that we’ve seen on our business.
Operator: The next question comes from the line of Bilal Aziz from UBS.
Bilal Aziz: Three hopefully quick ones for myself. Firstly, what percentage of M&F were incentive fees in the quarter, please, Jean-Jacques? And then secondly, tied to that, you obviously walked us through in quite a lot of detail about the full year that you expect IMEAT somewhere to be 20% to 35% for the full year. How does the performance in Asia Pac potentially impact your talks around that range this year? How important is Asia Pac effectively for the incentive? And then lastly, just on the cost savings, just when we start thinking about the drop-through for 1H, I think you drew another EUR 90 million for the full year. How does that phase between 1H and 2H this year, please?
Jean-Jacques Morin: Okay. Taking the question, on the incentives, you may recall the numbers, the series of numbers was 15% in 2020 for the full year, 21% in 2021. The number for Q1 is 23%. So it continues to improve gradually. In terms of Asia, no, I don’t think Asia has got a specific effect into that. In fact, you may recall that Asia was doing quite well last year in terms of incentive because some of the hotels were full because of quarantine business. And so kind of fundamentally, their business was good at profitability level because they were full. Even in the top line, i.e., the price that you practice was not as high as the one that you would have practiced in normal businesses. So no, there is no correlation here. The one thing on incentive I’ll say, one thing that I have said many times but I’ll say it again, the incentive curve is not a linear function. The incentive curve is a sum of specific deals hotel by hotel. And so you’ve got some, I would say, step-up effects that are difficult to predict. It’s not as if, if your RevPAR moves like 20%, your incentive is moving by 20%. Your incentive may grow faster or may grow slower depending on which hotels are impacted by the RevPAR that we’ve been discussing. And your last question again was -- I didn’t catch it well.
Bilal Aziz: Just on the cost savings, the phasing for this year.
Jean-Jacques Morin: Yes. On the savings, there is -- everything is per plan. There is no surprise here. We’ll give you an update in H1 as we typically do when we cover the full P&L. I have not planned to do that in this call because this is a revenue call. But the EUR 200 million is the EUR 200 million. The effect for the full year that we provided to you is the effect for the full year. And I’m not going to give you at this juncture more than that.
Operator: The next question comes from the line of Richard Clarke from Bernstein.
Richard Clarke: Three, if I may. Just to comment on the very last slide about the acceleration of openings that you’ve seen in Q2 thus far. Has that been sort of broadly across the different regions or focused anywhere in particular? And does that mean we can expect Q2 to look a bit more normal than maybe Q1 did? Second one, I think 3 sort of sizable deals that you haven’t mentioned in the quarter. The JO&JOE deal in China. I think AccorInvest sold a pretty sizable chunk of hotels to B&B in France and there were some Travelodge wins as well. So just wondering, are any of those particularly material? You haven’t mentioned them in the release. Maybe they’re not, but anything you could bring out there. And normally, in H2 -- the H1 results, you would give guidance. Can we expect guidance? What would be the triggers for you giving us the sort of full year guidance at the H1 results at this point?
Jean-Jacques Morin: Yes. I’ll start with the last one. The first guy who would love to be able to give you guidance is me, trust me, because it would mean that I am back to something which is much more normal. I would say that everything that we’ve been seeing since the beginning of the year goes in that direction. Frankly, there is a normalization, which is faster than the 1 that I would have thought. And notably, because in December when we were working on all of that and doing our budgeting, I mean, we were just in the midst of Omicron and it was supposed to be we don’t know what. And so our target has not changed versus what I had said in February, i.e., we would like to go back to some guidance on EBITDA, just like we do it at the end of H1. So we’ll see what develops between now and July, but this is what we would like to do. In terms of the 3 deals that you mentioned, yes, you’re right. I mean the JO&JOE one is a good deal. It’s a deal that we were able, in fact, to get and beat here some of our core competitors. So we’re happy to have that. It’s a deal on a very long period of time. It’s 1,300 hotels, but it’s on 30 years. So you and I have got some time before we discuss the various forecast. But it is exactly where we want to be, which is it is exactly the kind of direction from a strategic perspective that we want to do, i.e., having some partners in order to develop our product line in China because this is, in our experience and the experience with Huazhu, the right way to go and proceed. And so JO&JOE is a very good product in Lifestyle for the market as they are in China. So very happy about that. So we will talk about it more and more as things will become concrete, but at this juncture, this is, as you will understand, very, very early. On AccorInvest and Covivio, yes, you’re right. There is a portfolio that AccorInvest had the possibility to basically stop. They had a lease which was coming to an end and they decided not to renew the lease. To put everybody on the same level of information, we are discussing about 2,500 rooms, 2,600 rooms is kind of the number. And so when I was giving you the 3.5% net unit growth, this is obviously something that I have taken into account. And Travelodge remains limited. I mean, it’s a couple of hotels. And there is -- it’s a limited number of hotels. But you’re right. Again, here, it’s one of the things that we’ve done during Q1.
Richard Clarke: And maybe just a quick follow-up. So did you -- the B&B deal, the Covivio deal, was that -- did you know that when you set the guidance of the full year results then? Or you’re actually guiding that the gross openings are going better and your sort of attrition has come down as kind of...
Jean-Jacques Morin: No, no, no. I am a good comptroller, so I did know.
Richard Clarke: Okay. And then just a question on the acceleration of openings in Q2, is that back to normal levels now?
Jean-Jacques Morin: Yes, yes, yes. The answer is yes. Sorry, I forgot that part of your question. Yes, the Q1 is just -- I mean when you look at development in a given quarter, things can happen. And so what you’ve got here is exactly a situation of a point which is not representative of what we think the development business is going to be for the rest of the year. So the Q2 number should be significantly better.
Operator: Your next question comes from the line of Jaafar Mestari from BNP Paribas.
Jaafar Mestari: Just one of the other announcements of the last few months is this central reservation system that you are going to do in-house, I know you had hinted at that at the full year presentation, but would love a few more details. And just wondering whether this comes with extra OpEx, extra CapEx that are material enough that you’re going to have to guide? And more fundamentally, of course, getting a good system is important, but doing it in-house doesn’t allow you to move the cost variability to a third-party like you were initially going to do with Sabre and with a pure transactional business model. So are you happy with the fact that you’re going to have a much more fixed IT-based staff system compared to competitors who have managed to push that to a provider?
Jean-Jacques Morin: Yes. No, there is no big numbers attached to that CRS strategy. It’s basically the amount that we would have spent anyway that we’re going to spend and work in a much closer relationship with D-EDGE. I mean D-EDGE is a great company. It’s one of those new businesses that we have been discussing, fast booking, you may recall. And we will get back to you. And we did that -- we started to hint at that during the year-end presentation exactly for that. We’ll give you updates. But D-EDGE is here a jewel and we’re going to capitalize on that jewel. It’s one of those very, very few people that connect, in fact, CRS with more than 500 parties, third-party [ DNSs ] around the world. It’s a team of 300 very skilled IT engineers. And so when COVID came, you’re right, we looked at what we were about to do with Sabre. And we figured out that this strategy was probably a much smarter strategy in terms of getting us through the next years and, in fact, building on things that we had in-house versus trying to go and do something which was much more difficult and much more costly to develop. So that’s, I think, why we went through that announcement, and we are very happy with what we see from D-EDGE. It’s helping to scale it because they were doing that already for about 12,000 properties. We bring our 5,000 properties. So it starts to be a very nice base of customer. The fixed versus variable, I think the other thing in that solution is that it’s a cloud solution. So we will get the benefit in terms of variability to be on the cloud solution and not anymore on a mainframe hardware, big server type of approach. And I think that from that perspective also, we will get a better answer to what crisis may be. And all in all, it’s a less costly solution than the one that we wanted to do with Sabre. So I think it makes a lot of sense to come into account what we know today and what has been happening in the last 2 years.
Operator: The next question comes from the line of Alex Brignall from Redburn.
Alex Brignall: Just one for me, actually, please. The signings and you don’t disclose it, but they sort of can be implied a little bit. They look like they were relatively low. And Q1 is always a quiet quarter, but is there anything there on how sort of the pipeline of signings to go into pipeline looking for the rest of the year?
Jean-Jacques Morin: No, I mean your computation is right. I mean, Q1 was a bad quarter in terms of development, let’s call it what it is, either in terms of openings or in terms of signings. The churn was controlled because you guys have been asking many, many times the question on will you see the churn deviate because of the way the world has been going for the last 2 years with the COVID? So I think on that portion, we had a good quarter. But both on opening and on signing, it was a weak quarter. Now if you go and do a little bit of a trend analysis, you will find out that Q1 is never a very good quarter and that there is always some volatility quarter-to-quarter in those numbers, which is why I insisted on saying that Q2 will be back to what the history has been showing you. And that overall, in the year, the number is 3.5%, that we don’t see China as impacting that -- those numbers checking with the [indiscernible] and we do that extremely regularly. And I think there is nothing here that we see in any part of the world that would make us think differently. We are living in that crazy world into which there is a lot of geopolitical instability, call it Ukraine, call it China, after COVID. And if you look at the numbers, as I have it in my hands, everything is fine. There is no cancellation. The backlog, as I see it for the coming months, is super strong. And I have no direction which are telling me that the instability that you may see may impact going forward the flow of international traveler or domestic traveler. To the contrary, you see the geography is reopening one after the other and very significantly in the first quarter of this year. So that’s what -- I mean, I talk with what I have in my hands, which are facts.
Operator: [Operator Instructions] And the next question comes from the line of Andre Juillard from Deutsche Bank.
Andre Juillard: First question was about the segmentation. Could you give us some more color about the kind of segments you are seeing? You have mentioned domestic and international expected to accelerate, but could you give us some more color about my segment and different ones? The second question is about the site revenues. Are you seeing a reacceleration in the other revenues that you were expecting from summer workplaces and so on? And last question about M&A. Do you see any distressed assets coming on the market and some opportunities which could make sense for you?
Jean-Jacques Morin: I’ll do it in reverse order because I’m sure I remember at least one question. On M&A, the answer is no. There is no distressed asset. I mean this crisis is something which is amazing because we’ve been discussing that, and it’s still confirmed by the data at the end of Q1, the level of bankruptcy is still well below the level of bankruptcy of Q1 2019. So in 2022, whether you look at it at France level or you look at it at European level, these are the 2 stats that I have, there is a level of bankruptcy which is probably 30% below what it used to be. So I am not seeing any distressed assets and M&A is not what we focus on currently. What we focus on currently is making sure that we save as much of the rebound. And you’ve seen the rebound is an animal which is extremely powerful because it accelerates quite a lot. And so we just want to make sure that we don’t lose that opportunity. And up to now, we’ve been doing very well, and we plan to continue to do that. On the site revenue, it’s a discussion for another time. It’s too early, Andre. But we will get back to you with that at one point in time during the year to give you something which is more palatable on what you call the other revenue, which is everything we can do around the workplace. On MICE I would -- MICE is about what, 15% of what we do. I would say we are probably 40% below what we used to be in the same quarter in 2019. That would be kind of my hunch, somewhere between 40%, 45% on MICE is probably what I would say, but it’s not totally changing the needle. What matters the most currently is the return of international traveler. If what we’ve been seeing over the last months can be confirmed, i.e., frontiers remain open with limited test, because frontiers can be open but then you’ve got tests which are making it impossible to nevertheless travel because you’ve got to stay 2 weeks or whatever in quarantine so it doesn’t work. So if you can go for what Asia is trying to push ahead today and if you can get some of the airline capacity lined up around that, I think that will have a very significant effect to our numbers. We are not yet there. And the -- and I think that’s what I would say on the segment question that you were asking. Is that answering your question, Andre?
Andre Juillard: Yes. Maybe one additional one about the sensitivity that you’ve been communicating in the past few years. Could you give us some idea of the expected sensitivity for 2022?
Jean-Jacques Morin: In fact, this is a revenue call. So I’m going to be very focused, because that’s what pays off in business. So I’ll talk -- you know what, I think I won’t talk to you anymore about sensitivity because if I go with what I answer to one of your colleagues, which is if I am able to give an EBITDA guidance, I don’t think we’ll have ever to talk again about sensitivity. The sensitivity was one way to guide everybody at a time that nobody knew what the RevPAR is. So as soon as I start to get a better idea of what the RevPAR is, then I don’t have to go through that whole with all the limits of doing those kind of rule of thumb, but I can give you an absolute number. So, we’ll talk about it in July, Andre.
Operator: The next question comes from the line of Bruno de La Rochebrochard from Bryan Garnier.
Bruno de La Rochebrochard: Your exposure to Russia and Ukraine is very limited. But can you confirm today that until now there are no impact on bookings? And also, would you mind to split the bookings between business and leisure?
Jean-Jacques Morin: Yes. Yes. I mean the short answer is absolutely. There is no effect. I mean, again, remember, Russia and Ukraine is like 1% of what we do. So it’s very, very limited. And as I said, there is nothing in the number that we can see that relates to that crisis at all. So that’s the short answer. In terms of business versus pleasure, the 60%, 40% goal is a good proxy. 60% business, 40% leisure is a good proxy for what the group has been doing in terms of mix.
Operator: There are no further questions in the queue, so I will hand the call back to your host for some closing remarks.
Jean-Jacques Morin: Okay. So listen, I’m looking forward, in fact, to be with you at the end of July to discuss the H1 performance. Thank you for being with us. And very happy to be able to [Call Ends Abruptly].