Earnings Transcript for AC.PA - Q2 Fiscal Year 2021

Operator: Hello and welcome to the Accor 2021 Half Year Results Call. My name is Jess [ph] and I'll be your coordinator for today's event. [Operator Instructions] I will now hand you over to your host, Sébastien Bazin, Chairman and CEO of Accor to begin today's call. Thank you.

Sébastien Bazin: Thank you very much. Good morning, everyone. Here we are for the H1 semi-annual reporting numbers for Accor. I'm happy to be with you. Jean-Jacques is next to me. He is on my right. So, let's start to have a good positive conversation and of course be super factual. What you have on page 4, which says recovery context is three things on this page. The first, of course on the left. It's certainly better than where we stood last year on June 20 where 87% of all our countries were actually closed or partially closed. That number is today 63%. I would have wished that number to be way below 50%. It is not the case as of yet. So we're still in a bit of a muddy water in terms of navigating through different countries and different rules. However, what you have in the middle of that page is very, very interesting and certainly positive. We haven't shown you here and we should have the months of January, February April. You do see April here at minus 64%. If you really were looking for the two months prior to this, that was 63% to 64%, the exact number. So it is noticeable for sure that for the last three months in a row, we've been improving RevPAR by exactly 500 basis point and probably likely to be the case and maybe even better for the month of August. So, no question data presents it is a positive momentum in terms of rebound, in terms of recovery for the last four months and, undoubtedly, due to the vaccine rollout and the progressive opening of many borders in many countries we operate in. So there is certainly a sign of light and very positive light in the next few weeks and the next few months ahead. Again, I think 90% correlated to the efficiencies of vaccines being rolled out. However, what you have on the right side of the page is we do have still a numbers of variants and it is certainly not homogeneous depending on the countries you are addressing. Whether you call it Gamma in South America, whether you could Delta in Northern Europe, it is certainly still messy. But clearly vaccination helps and there should be people going through hospital. So that shouldn't be impairing as it did last year on conduct of activities. What you see is, unfortunately, for us still, and there being an announcement this morning from England on obviously eliminating quarantine for a lot of the European Union members coming to the UK was a notable exception of France, which I don't know why that is. But again, every day, we have faced with different rules that we have to adapt and we have to explain to our customers, which is why we are really still depending quite a bit on the domestic markets. The third point here on that page is, no question, the size of market matter quite a bit in terms of performances and the two largest markets, US and China, still have quite as sea board is being closed but rebounding both of them in different matters, which you see on page 5. Page 5 would just give you two axis. The vertical one is the pace of recovery. The horizontal one is the weight of domestic market. No surprise, and you see it on the upper right. The USA clearly is benefiting from the stronger rebound because 95% of the travel and hospitality sector in US is depending on domestic clientele. China is also recovering quite fast as you've seen for the last now three months. Australia was and will come back. Clearly, we have been impacted for the last three weeks now with closing down the Sydney province, which is not being too helpful, but they had a huge rebound the months before that event happen and it's due to be reopening I hope by mid-August. But still a pretty resilient market and certainly being helpful to us on activities. You see in the middle of the page ready for rebound and we've seen it through the summer season whether it is in the UK, in France, certainly on the mid-sure [ph]. Germany is certainly better than we expected a weeks ago, and Brazil is a big surprise. Vaccine net rollout in Brazil for the last seven weeks only went from 17% to 45%, first dose. Very, very fast in terms of actually rolling out vaccination and certainly helpful for the domestic hospitality market. Bad news, no surprise, and we have to learn and we learn to be patient if you have a delayed rebound for Southeast Asia, certainly, Thailand, Vietnam, Cambodia, all those countries depending 90% plus of international travelers from Korea, from China, from Australia, from Europe, for that matter. And still some very, very difficult market in South America, like Argentina. That's where we are. It is clearly very eclectic but let's fight for places in which we see the rebound and certainly we've benefiting from every rebound in any market. So now, Jean-Jacques, to you.

Jean-Jacques Morin: Okay. So, thank you, Sébastien. Good morning, good afternoon to everybody. I am very happy to be with you today. And just as a word of introduction, we will do as we did in Q1, i.e. for the sake of clarity, we've continued to provide to you RevPAR valuation versus 2019, that makes the comparison much easier and it avoids base effects. As per revenue and EBITDA figures, we will provide in the presentation the valuation versus 2020 and 2019 when it is relevant. So when the ratio makes sense. So without further delay, let's move to page 7 where you've got the highlights of the first six months on the left part. So you see here the challenging micro environment that Sébastien as introduced. RevPAR was down 60% of other semester versus 2019. The last 12 months is of net organic system growth was at 1.9% and lot of that did translate into a group revenue to the tune of €8.24 million, i.e. a decrease of 53% versus H1 '19 of 6% versus H1 '20 on the like-for-like basis. The underlying figure effects more heterogeneous performances across geography but I'll detail that later on. On the high part you see in that context, we did keep a very strong trend on operational control of the business. Fixed cost as per plan on target and we will achieve the €70 million plus EBITDA that we had guided you towards. And both on EBITDA sensitivity to RevPAR and monthly cash burn guidance that we had given to you back -- add to the result in February, we are well in line. Well comforted by the actual and we do confirm the numbers for the full year, i.e. an EBITDA sensitivity below €18 million and an average monthly cash burn below €40 million. If you move to the next page, we put that slide back to refresh everybody on where we are RESET and what is RESET. So RESET, you see on the left part the EBITDA effect of it. No change here, and we will be done and we will exit by 2022 with the €200 million effect to the bottom line at the EBITDA level. The nature of the saving is 50% staff, 50% non-staff. Just to give you a little bit when it deals with staff, what is -- what is the staff of it. All the non-European departure plans was completed by Q1. The latest and the largest one is France, which will start in July 2021 and the reason for the differences in time is fundamentally the legal process that you've got to go through, depending on which jurisdiction you are. So it's easier to do things in Asia Pacific, a little bit more formal when you are in Europe. The plan reflects the reorganization with the management structure, which has now less layers, but it also reflects a significant amount of task that we diminished. And if you would downwards or you see here on the table 1000 plus tasks have been eliminated out of 7000. That's all the work that we've done over six months to analyze who does what end-to-end and make sure that we've got as much as possible a lean process. You see all the elements here just to give you color. The commissioning of 20% of IT application, migration plan towards the cloud, the reduction of contractor, which are more expensive than internal employees and cleared over time a dependency in term of competencies. We also have optimized marketing and there is significant effort to get to one unified management contract of that business that simplifies the life of everybody. That's why [indiscernible] so that's some reset a bit. Now, if we move to the more classical review of the high star evolution and I am on page 9. Overall, 60% down as explained by Sébastien and improvements, which is very marked since April and that the July numbers as we see it is confirming. When we start with Europe, which is about 50% of what we do, we clearly see an acceleration of other second part of the quarter, which is just the translation of the restriction relaxation and also very importantly the higher rate of vaccination. We are now on double-vaccination above 50% in a very large part of Europe. So, starting with South Europe minus 63%. The lockdown in April obviously didn't help but RevPAR in France improved 22 points. So 22% driven between April and June. So very significant increase here. July today, by the way, the effect of the fourth wave is very limited. So we don't see any cancellation of any significance, which is a question you can ask yourself. If you move to North Europe, minus 74%. Two different picture here. The UK is very similar to France and you've got a 26% improvement driven by the province between April and June and good news here is that as you know since mid-July there is quarantine free travel for all three vaccinated British residents, so that globally helps the business. In Germany, the situation is different. They got delayed relaxation of restriction and very importantly, there is no business event and the large part of the business in Germany. If you move to Asia-Pacific, the RevPAR shows a marked improvement while down to minus 38%. But here again a very heterogeneous picture. You've got the good players Pacific [ph] can get of China and they are test bar which are respectively minus 19% and 18%. So, significant improvement. Both regions have got above the same pattern, i.e. they are large domestic market and very well controlled sanitary situations. To be quoted is the fact that in Pacific, there were cases, I would say few cases compared to what we see in Europe we talk about 100 cases when in France, we talk about 10,000 cases per day. But this has been enough for Australia to decide to basically shutdown Sydney and Melbourne, and that will affect the performance for Q3. Moving to Southeast Asia, RevPAR is at minus 70%, and here vaccination is clearly lagging and 80% of the business in Southeast Asia is coming from international travel. So you've got a direct effect to the business numbers here. When you move to Middle East, Africa and India, RevPAR is down 44%. Dubai has been doing good, just like it has been doing good for the last quarter with opened border and restaurant and the export 2020 should be a further catalyst in Q4. If you move to Saudi, there on the other hand, the pilgrimage permits were stopped in June and so that didn't help the plan. What has been communicated is that they will start the pilgrimage permits, which is what you need in order [ph] to be able to go to holy cities and which is where our large part of the business is teaming and so they will be staffed mid-August. So again that's a positive. If you move to America. Again, here, a very different picture. You've got the US, which is being a steadily improving months after months and on the other hand, Canada very, very, very -- has been plagued, in fact, by very stringent restriction over H1. The real good news again here is that mid-August, the borders between Canada and the US should reopen and we do a lot of our business, notably in the Rockies, from Americans spending time -- on Canadian, sorry, results. Now, so much for the RevPAR. Moving to the net system growth; you see here the overall picture and net system growth at 1.9% over the last 12 months. We opened of our Q1 -- of our H1, sorry, 15,000 rooms which is better than last year of 30%, which is less than H1 '19 by about 20%. So we recovered on the opening, but we are not where we used to be. Again, there is no real surprise here. The pace of cost opening is somewhat subdued as owners are cautiously monitoring the activity rebound and this is extremely true in places like Southeast Asia. Overall, we saw the openings being postponed to the tune of 30% over H1, which is -- which is a bit more than what we see historically, less again than H1 '20 but more than what we have seen historically and the translation of the overall pandemic situation. Some remain under control. The -- this will drive us to probably be in the low range of the 3% to 5% net system growth guidance that we had given to you back in February. Just a couple of more words on development. I mean [indiscernible] no change. The opened five care home in H1 '21, very much consistent with last year's performance. Again, consolation of China been doing good. And as far as conversion, we are at about 40% of the openings, which again is very consistent with historical level. There is no spike per se of conversions. We are in line with what we had foreseen before in history as performance. I'm moving to the next page, which is now dealing with revenue. You've got the revenue by segment and I am on page 11. You see here, I've got revenue at €824 million, the variance between the like-for-like and the preferred [ph] currency effect, but nothing here of significance. If you move to hotel service, the revenue is down 60%, which again is fully in line with 60% RevPAR growth that we had mentioned. If you go down a little bit more, you've got the M&F which is a sharper growth at 67%. I'll detail that late on but again here, no surprise and as far as salaries to owner is concerned, it is only down by 56% and the lesser revenue declines reflect stronger activity in the US and Asia Pacific compared to the group average. Again, the US and the places where we've got [indiscernible] in Asia Pacific, the business which are doing good like Australia. If you move to the last segment which is Hotel Asset and Other. This segment is, in fact, doing better than hotel service minus 38% on a like-for-like basis and this is thanks to Australia. So what we saw in Q1 did confirm itself over H1, i.e. leisure demand and holiday destination just like at the goal and essential head cost. So essentially Australia was a close country and the people within that territory have been taking vacation in a much more than, in fact, we could have anticipated. And as far as new businesses, which is part of Hotel Asset and Other, the report, as you would expect that upon in digital services than in travel related services, travel related services are in line with what we see in our current business, the digital much better. If you drill down now on the M&F revenue like we typically would do, you see M&F decreased by 67%, RevPAR by 60%. It's the overall distraction. It's the effect of the incentive in the management contract. What is interesting is, when you look at it, note that H1 '19 versus H1 '20, you see an increase. You see 19% increase and that translates to the fact that incentives are triggered, again, are triggered back to former situation where they drop significantly in H1 '20, they are coming back up in H1 '21 notably in Asia Pacific, in Australia, and notably in Dubai. And so that's why, in fact, you've got that increase on the like-for-like basis of M&F between H1 '21 and H1 '20. So a very good sign that when things comes back, obviously, incentives flow back. Now, if you look net debt revenue, but if you go into the EBITDA the EBITDA reflects the operational upgrade that I've been talking about before. I mean, you see that sort of response, which is all in all, about the same number minus 60%. The EBITDA improved by about €100 million, so €107 million, to be precise. And so that resulted in a good EBITDA sensitivity, which is slightly below €60 million per point of RevPAR. So below the guidance that we had provided to you come success on the fact that the guidance is the right one. Now, how do we explain that? There is clearly an effect which is Australia. We had not anticipated that's the Australian people would behave like they have been behaving, and so that has been a good surprise and that shows up in the EBITDA sensitivity. The other thing is the incentive. Again, here, there are some incentives and those incentives are notably good in Middle East and Africa, notably good in Australia. And so that's again positive and there was, in fact, no debt -- bad debt to call this semester versus last year. So, that's what -- if you add up improved EBITDA in absolute value, that's what when you add up improve the sensitivity to RevPAR when you add up and I keep the last one, but the most important one for my last point which is that's where you find RESET. All the resetting that we've been talking, that's where you find it. So, the improvement in EBITDA is, RESET. It's all the good things that we've longed to do on the valuable cost, right? The improvement in variable costs, which are non-permanent, but nevertheless an adaptation of our cost base to the revenue base. And on top of that, there are other few things I said, Australia incentives ready to go. Moving to hotel services; I'll talk about M&F next slide. On Service to Owner, the EBITDA remains negative here as we are not fully flexing just like it has been the case for the last quarter of the cost base to revenue base. If you move to hotel assets, I've mentioned it. It's coming from Australia, but also a better performance of new business to a lesser extent. I'll detail that in an upcoming slide. I move now to page 14; there is here the detail of the M&F EBITDA. I won't hide the reason for why the M&F EBITDA is better now. The same reason that the one that just once who. I would like to highlight also one thing which is we did get some one-off governmental subsidies over H1. There was a law in Germany by which fixed costs would be aimed off as a one-time payment and so despite fundamentally furlough scheme disappearing or being -- being in fact at least reduced. Like in Australia, for example, there is no more furlough scheme; and you may recall, we significantly benefited from that because also the business is good and so the furlough is going down. On the other hand, we did have a one-off -- a nice one-off in Germany. So that's one thing I would like to highlight because, again, these one-off do not do not necessarily happen again in H2; that's why they are one-offs. If you move to hotel assets; on this one, I'll go relatively quick. I mean, Hotel Asset and other is two-third Australia. Then it is 20% Europe. The 20% Europe is the new businesses. And then there is a little bit, which is in America, and that's the variable leases that we've got in Brazil. So when you translate that into profit, the EBITDA of Australia was very good for all the reason I said and the people really willing to get back to life and so you've got the largest part of the improvement of EBITDA coming from Australia. The new businesses were better than last year. And then the Brazil basically is protected because these are variable leases. So there is no variance on this. So that's the transition that you can have on hotel asset profitability. If you move to page 16. Now we move to the -- the lines below EBITDA to net profit. You can see that we generated a positive net profit of €67 million. Very large variation here. The share of net losses of associate and joint venture which is where you see joint venture is now fundamentally AccorInvest of share or remaining share to invest of 40%. Again, we went through that. Europe was not good. AccorInvest is Europe. So AccorInvest performance was impacted by the overall performance of Europe slightly better than last year but seen, nevertheless, negatives. And then last year was worse. It's worth mentioning because it included as since that time, that we are -- we've been working out a deal creating that asset-light platform on lifestyle and the asset-light business has been now part of the platform and 100% owned since the end of 2020. So, essentially that line has been [indiscernible]. You may recall that in those days, SB [ph] was an asset heavy element and we -- it was part of our asset-light format, sorry, than to clean state situation. So that we did and you see the effect of it in the numbers. Non-recurring item is mainly related to Huazhu; so Huazhu is a great story. We went through that. You sort of kind of return that we got 5 times on the first round of sales, 8 times on second round on the sale. So what you've got here is, you've got the effect of the additional sale of the stake of 1.5% in February that generate €240 million of cash and following that sale, we have adjusted the accounting to RevPAR not as a joint venture but as a financial investment. Financial investments are recorded at fair value. So we -- when we -- when we did the recording at fair value, we captured in fact the upside on the sale of the February stake to the -- to the full amount, sorry, of the remaining stake of 3.3%. So that's the accounting. So net-net, the capital gain recognition is to the tune of more than €600 million for 3.3 residual stake recognition. If you move to the cash; you see here that there was a significant again improvement on cash burn. Still negative but as what it was in H1 last year, a couple of highlights here. On the recurring investment, because of the situation that you know of and this difficult context, we did put a very strict controlling over H1. And so the figure is that €38 million non-recurring investment. It will go up in H2. That number is not what you would see in H2. In H2, you will have a significantly higher number because notably, we're going to open some hotels and there will be some key money cash outlay. I'll give you one just the Fairmont in Los Angeles is a double-digit figure and the first number is not a one. So that's just to tell you how things can -- can move and be chunky from one period to the other one. Nevertheless, I do confirm to you the guidance that we had provided before. We said, €150 million to €200 million. I think we will be in the low end of the €150 million bucket. The second element which is worth mentioning here is working capital, very negative last year. You may -- you may recall because of the tough of the COVID crisis, we had a significantly negative working capital effect. And I would say that it is back to a normalized level, it's a good level. It has been well managed. We do collect the fees and it's negative but if you -- if you recall what the business is as the first half of the year, the number is negative, and by the way, much more negative than the 40 that you've got here. So all in all, again here, a very good working capital management. Last but not least, it's not unknown but I want to highlight it. The cost of debt reflects just the credit downgrade that we add back one year ago from the rating agencies when we are moved from BBB minus to BB plus, and so that's the step-up that we've covered at that point in time. So that's on, that's on the cash burn. If you move to the last slide that I will cover, which is the stages of liquidity. Obviously, the balance sheet position is very important to slow the crisis just like the one that we are living with the COVID. Our liquidity position over H1 is at €3.4 billion and we provided to you a bridge between December and June. Most of the items, which are here you know of, the 1.9 -- the 1.5% stake disposal. The AccorInvest capital increase in that amount of €241 million, there is also the €35 million for this back and the shelter minority buyout which is part of the any small lifestyle platform creation you know of. The debt repayment did the occur in February. Two things that I'd like to complement -- comments with. The cash burn, that's what we just went through. So, the €40 million times 6 and the commercial paper. We were able to issue €100 million more commercial paper in H1. I think it's the credibility of [indiscernible] market because besides being a non-investment grade, we're still able to have €500 million of commercial paper outstanding on the program of 500 and it translates in fact the appetite for the economy. In the other, you've got a few things like the hybrid coupon and that's why you also asked the restructuring cash cost. So with all that detail, we -- I would like to give the floor back to Sébastien which will give you some closing remarks.

Sébastien Bazin: Thank you so much, Jean-Jacques. So we are back on page 20 here, two or three things here. On the left part, just reaffirming something we staged almost 25 years ago which is all the different measures, different actions being undertaken by Accor and its teams all over the planet on trying to be generous, trying to be protective of everybody who is vulnerable. We've been acting quite a bit for helping not only to enlarge diversity but to make sure inclusion exists to make sure we've heard -- we make things easier for handicap people. We've been partnering with United Nations on gender based quality. We've been partnering with Expedia with also the UN and going forward with the sustainable development program, which we've been doing with 2021 for the last 15 years. You also know, and we have collectively to be very, very proud of it, of the ALL Heartist initiative, the fund that we put together 14 months ago. The numbers is huge and probably would have which a number being below. We put aside €70 million to help people who did not get access to hospital or did not get access to food or in disarray because of furlough or hotels being closed. As of last night, 88,000 people of our Accor have been asking for help in which we've been granting roughly $350 per individual. That is 27 million that's being distributed over the last 14 years and it is not over. We will continue to be there for those in distress, who've been helping our core for the last 50 years to build what was being built. We also been displaying the all set protocol in 96% of the hotel. Extremely important for the leisure and the corporate business to be back. And that is displayed all of us a network of our core. And of course we have to do more and we had to strengthen even further. Commitment being made on carbon footprint by the year of 2030. We have to execute and we will on getting rid of all the plastic, unique guest-related item by 2022. And we committed and we will achieve of course gender parity in the different bodies and governments of Accor. So that's -- it's not optional and we have Brune Poirson who actually joined three months ago, her and her team. We probably going to get back to you. I don't know the date; it could be end of the fall or could be early 2022. But we will have a dedicated full day when it comes to ESG CSR and being action driven and explain to you what has been undertaken, how, why, when. The last page, which is page 21. It's a page you might have seen and we collect, but there is very few of you with us at the time of the general assembly two and a half months ago. Those are the exact five, the exact same five commitment priorities for 2021; there is no reason to change seven months or seven weeks starting, story. The first one, we have to be ready and so are we to benefit from the summer rebound wherever it is, and we have to be super agile. I told you it was great in the months of June in Australia, it's not as good in July, but it's going to be great again in September. We have to be ready when is going to be reopening in Southeast Asia. We have to help South America to rebound. We have to be in Dubai to welcome. We have to be in Istanbul to Mexico -- board room or to do in Mexico. Whatever it exists, I can tell you we have team on the ground and we have hotels being open to the extent of 98% -- or 93% of the Group. Number two, no question. We have to deliver 100% plus on the RESET costs saving. Those €200 million that Jean-Jacques talked to you about, you can actually put that in the bank. It will be there. They would be sustainable, and they're going to be helping us to improve margins moving forward. Number three, we have a very powerful Accor Live Limitless Loyalty Programs. It is being reinvented. We've been launching the new branded card with BNP and VISA as. As of three weeks ago it is being displayed as we speak. We're going to have probably great success about it. We've been signing major partnership with a lot of people into entertainment, car rental and many other industry. It is a good program and we have 68 million members. It is a time for people to use it and of course they do to get access to better pricing. Number four, we have to continue with developing our brands in different markets. And I think Jean-Jacques touched upon it. We talk to you a bit of a lifestyle. Lifestyle worth less than 4% of Accor over the last 20 years, it is more than 15% of all the signing over the last six months, and it is actually 29% of the fees value that we've been signing the last six months. So it is really being progressing very well with the 13 brands and there is more. And the pipeline is strong; it's not falling at all, and 36% of the pipeline is to the luxury, which is far more than the existing network of Accor. And, finally, on the side, talent is key. Human capital is all about Accor which is why we've launched this Accor ALL Heartist. This is why we've been so present in the field vis-à-vis the owners and the government entities. We are all over in 110 countries of Accor and we are able to be all of it because we have team on the ground. And having team on the ground, you also have to show that you are there to help and we're going from being really run by being compensating what do we do to do exactly the reverse. We need to positively contribute through Accor Hotel activities to the local community. So that's really a 180-degree shift on really help all those people around us, be it education, training employees, handicap. And of course, anything which is local food procurement; this is who we are and we have to make it a great advantage because of being a management operating company with 60 years of existence, that's where we are. Happy now to take questions with each of you on the phone. Thank you for listening for the last year 35 minutes or 40 minutes. Floor is back to you.

Operator: [Operator Instructions] And the first question comes from the line of Jamie Rollo from Morgan Stanley. Please go ahead.

Jamie Rollo: Thanks. Good morning, everyone. I've got three questions, please. First, you've given some encouraging data on the RevPAR improvement into July. Are you expecting that momentum to weaken after the summer as sort of leisure travel slows and other any sort of early indications of corporate demand you could perhaps share with us please. Secondly, on the sensitivity guidance of RevPAR to EBITDA. I appreciate this sounds like there is some sort of one-offs if you'd like in the first half, but the full-year guidance of €18 million still implies something like a sort of €19.5 million to €20 million sensitivity in the second half of the year. So, I'm just wondering why it would be sort of worse than the original guidance. And then, finally, could you talk a bit more about the slowdown in signings you're seeing. It sounds a little bit more cautious sort of the last updates. Where are you seeing that? And I sort of note a drop in the Asia Pacific pipeline. So is that most of the area of the slowdown? Thank you.

Jean-Jacques Morin: Jamie, this is -- good morning, first. This is Jean-Jacques. Let me take the sensitivity question because it's a very important question. I'm not saying that the sensitivity in H2 will be €20 million. That's your competition. The thing I'm saying is, I'm saying that the sensitivity will be below €18 million. So I'm very encouraged by what we saw in H1. The €16 million and the €16 million is in fact a reflection of very good work that has been done on RESET and on the management of the cost and that's the first goal. And that will continue and, in fact, you will see out of the €70 million of RESET that I was mentioning a larger part of that sitting in the second part of the year than in the first part of the year because as just to take a practical example here. I mean, the trans program coming in action right now will drive savings, additional savings on that line for the second part of the year. So I'm going your way here. I think the €20 million looks like their own computation. On the other hand, what I'd like to just also say is that if you just go that hard, furlough schemes are planned to be stopped in most jurisdictions in the second part of the year. Today, in fact, most of the countries has pursued the furlough scheme. So that's the contrast part of what I just said on people cost. You saw that monetize being honing although not seen in H1. I guess this is what we anticipated. But we also see the nice part today higher being significantly down in July. All along we did last God knows. We don't talk about a lot of cases, but Australia as being extremely, I would say, stringent on making sure that their company is totally at zero COVID cases kind of target. So the effect of that is another moving target. Then you've got the incentive. I just went to incentive and explained that it was a good piece of news in H1. Now the incentive if Australia doesn't go as well as in H1, you won't get that incentives kick for Australia. So that's another element, which is moving in the wrong way. On the other hand, volume should be much better in H2 than in H1. I mean, we're just talking about the RevPAR improvement. And so the Q3 as we have been disclosing should be disclosing, sorry, in the Q2 should be in fact much stronger in term of numbers at the topline level and in the end, the RevPAR sensitivity is first affected by volume. I mean, one of the issue that we have is we don't have enough business and the fact that we've got what we've got. And so that's going the opposite way. I'm trying to go a little bit into that question with month because it is very good question. And I know that all of you asking or thinking about the same thing and I just want to make sure that they get the comprehensive answer. So bottom line of it is that we have been doing extremely well. All the plan that we've been launching in line and in fact you focus is doing better, the topline still visible. I mean, what I just explained, Australia is another one. What Sébastien started with on the UK is another one. But we will be moving in the right direction. So, I'm very confident that we'll be below €18 million for the full year.

Sébastien Bazin: Yes. On the -- two things, Jamie, Sébastien here. On the first question, it's -- we have a pretty good visibility for the next eight weeks to come. Certainly, when it comes to August and September and the leisure business, which is strong and stronger than we expected. We have very low visibility for corporate MICE activities for the months of October, November, December. There is good signs, which is you have a lot of small groups between 30 people to 80 people in regional domestic corporates clearly rebounding, asking for reservation for those months of October, November, December. We still don't know whether we're going to have large 300, 400 seminars across regional. It might happen and being confirmed September. It's still a question mark. But I really believe we probably could buffer the loss of those large event to probably gathering 100s of small groups of 30 to 50 people, but I guess we'll know better by the end of September. When it comes to signing, I have no fear at all. We had 25,000 rooms being signed for the H1. There were less than 20,000 last year. There were 35,000 the year before. You know why that is has nothing to do with lack of pace of activities or lack of attractiveness for the brand. It's just happen as you know that 50% more of all the signings for the last five years happen to be in Asia Pacific. And in Asia-Pacific, 90% of all our developers could not travel. You cannot move away from Singapore. You cannot enter Cambodia. You cannot leave China. You cannot enter Malaysia. So, it's not they cannot go inside. So the owner are there. The documents are basically being negotiated. But when you sign something for 100 million plus commitment for 25 years, of course, you need to have physical attendance to be in front of that owners and that also has many question in terms of the context on where we sit. So, it's only a matter of getting that vaccination rolled out, getting frontiers being reopen and hesitation. You'll see the pace of signing coming back to the level of pre-pandemic only in a matter of the next few months ahead. So it's frankly as related.

Jamie Rollo: Thank you. And so, can I just come back, Jean-Jacques, on the EBITDA sensitivity? Sorry if I'm randomizing it. I was just going off the guidance where it does say slightly below €18 million. So I guess you're saying we should just remove towards slightly.

Jean-Jacques Morin: Okay. I stop the food deal that will close with you today, I would go for that.

Jamie Rollo: Okay, thank you.

Jean-Jacques Morin: Let's do that.

Operator: Your next question comes from the line of Jaafar Mestari from Exane BNP Paribas. Please go ahead.

Jaafar Mestari: Hi. Good morning, everyone. I just have one question really. I wanted if possible to come back on the drivers of the EBITDA improvement in management and franchise. So M&F revenue, if I'm looking at it year-on-year as you did, M&F revenue is €24 million better and M&F EBITDA is €55 million better. How much of that is the RESET cost savings which are, I think you mentioned, Jean-Jacques, was the most important factor, how much of that is incentive fee?. Your comments suggested that in regions like the Middle East is already very material, but perhaps not already at play elsewhere. And then how much of that would be lower quality stuff like lower provisions. Is that material you've already flagged that in H2. If you could break down that €55 million that would be helpful.

Jean-Jacques Morin: Yes. Let's make it tough, okay? Without going into the grant of all the numbers. To make it simple, There is a sort which is the three buckets that what you said. There is a sort of it which is incentive. There is a sort of it which is the fact that last year we did take significant bad debt to call in the account because nobody knew this crisis would go and there is a sort of it, which is the net of thinking everything else, which is RESET, I would say marginally because again after that you can go into merge more granularity. You got the furlough which last year was stronger than what you've got today. So the last bucket, which is the RESET bucket encompasses variable cost, RESET and other element, just like the furlough of some call home bonuses and those kinds of things. So make it simple, one sort, one sort, one sort.

Jaafar Mestari: Okay, thanks. So RESET, itself, is if it's part of one third is a lot less than a third so far and as you said in H2 the RESET cost [ph].

Jean-Jacques Morin: No. Because, no. No, because I said that the last bucket was a net of many things. And so once -- so the ones is correct and the fact that the net of everything else besides incentive and that debt is reduced. Is that clear because I just don't want to confuse you, Jaafar. I just want to make sure because I don't want to confuse everybody. It is a complex matter.

Jaafar Mestari: Thank you.

Jean-Jacques Morin: Thank you, Jaafar.

Operator: Your next question comes from the line of Simon LeChipre from Stifel. Please go ahead.

Simon LeChipre: Yes, good morning. Three questions, please. First of all, on the trading update you just share that you have positive expectation for the summer season. But could you perhaps share with us the sort of RevPAR range for the rest of Q3 compared with the minus 45% of July or at least for August that would where you have through. And also could you give us more detail on the pricing dynamic that you see at the moment. And lastly, what should we speak in terms of working capital for H2? Thank you.

Jean-Jacques Morin: Okay. So, I'll take the working capital one. Just like for -- just like for sensitivity to RevPAR. I'm happy with what we got. I said that in the comments, but in answering your question, I'm very happy with what we did on the sensitivity cash burn numbers and part of it is coming from working capital. The guidance that we had given to you back in February still old school, i.e. zero net working capital change for the full year is a good number for net working capital. So our time here to give you granularity and the reason for why I can't say that is we know that always H2 is a positive number whereas H1 is a negative number. So the H1 has been a negative number, but the negative number that has been I would say better than what you could anticipated and so the H2 will be positive and the working capital target of being positive for the full year holds. So, that is I think the answer to your question on working cap.

Sébastien Bazin: Simon, on the other one, I -- we won't give it to you simply because we don't have enough information. The only thing that I alluded to in my first slide, which I hope will be still true for the next months to come. Certainly in the next two months to come. I told you the last four months we had the benefit of the 5% RevPAR improvement. Funny enough, almost symmetrical for the last three months. I am hopeful that would be the case for August. I don't know for September but it might well be the case, but that cannot prolonged that 5% because then coming the fall, then you have better weight of the corporate business versus leisure business. So too soon for us to give you a guidance even on the next quarter. The second thing on pricing, it is so non-homogeneous. In places in which you go above 85% to 90% occupancy, as I told you on the Mediterranean shore, you get a better pricing that you had in 2019 because you're full and you have pent-up demand. In other places urban cities in Europe when you reach a 30% occupancy of course your price is still way, way below what you could have seen in 2019. So because it is so not homogeneous, I can't give you. It's only a matter of where you sit and which timing you act.

Jaafar Mestari: Thank you.

Sébastien Bazin: You're welcome.

Operator: Your next question comes from the line of Bilal Aziz form UBS. Please go ahead.

Bilal Aziz: Good morning, everyone and thanks for taking my questions. Two for me, please. Just a quick point on the incentive fees. Firstly, could you disclose the exact number you did book in the second quarter and tied to that. Are you now starting to see some reappear in Europe to so far in the third quarter, or perhaps what trigger point of occupancy do you expect that to occur in Europe given your portfolio. And then the secondly, from your US peers have started to talk about increased booking windows with the time to booking now extending, perhaps just what you're seeing there for part of next year right now with advanced bookings. Thank you.

Jean-Jacques Morin: Okay. So on the incentive, I will give you the precise number because if you look at our financial statements, you can probably guess it. So I had mentioned still 35% as a run rate basis of what is the incentive percentage of the total M&F revenue. Last year, you may recall, we said that we would be at 8%. So 8% of the total M&F revenue was incentive and as of H1, what was booked in 2021 was 18%. So that is as a percent and just to give you how it is improving. Now, the absolute value so that you don't have to do the computation, €169 million in 2019, €12 million in 2020 and about €29 million in 2021. On the booking window; I'll give you two numbers and of course it also varies per week. For Accor, at the group level, 50% of our bookings have less than three days' notice. So -- and in Europe, which I have learned yesterday, a third Northern Europe by the way, a third of Northern Europe, booking has less than 12 hours. And that's -- so you have to understand it. People are waiting for the very last minute to understand the rules of traveling. Of course, that number if you're going three hours away by car, then you can probably [indiscernible] and that's okay. But that's what we're facing. So, I hope that I guess we're going to have a better notice and probably enlarging the three days to probably a week. But we're not there yet.

Sébastien Bazin: And then, just as a complement on this one. What matters is booking, but also the cancellation level. I mean, you saw huge increase in bookings window and stuff in the states, but you also saw a lot of cancellations following that when rules were changed. And so you also need -- and hence the comment that I made when I was talking about the first wave of COVID in France and what has been happening, you really have to monitor what's happening on cancellation and today based on actuals, I can tell you that we don't see increased level of cancellation.

Bilal Aziz: Thank you very much.

Operator: Sure. Your next question comes from the line of Richard Clarke from Bernstein. Please go ahead.

Richard Clarke: Hi. Good morning and thanks for -- thanks for taking my questions. Three, if I may. Just the first one on Australia, obviously that was a bit of a bright spot in the first half. Lots of sort of news of lockdowns in Sydney, other cities reopening. Maybe you could just sort of unpack as to how your performance has sort of trended in the last month and your expectations of what happens in the second half based on the news there. And second question, the 7% of hotels that are still closed, maybe just some details where are those. Is your -- and what is the timeframe do you believe for those to reopen now? And then, third question is; your M&F revenues improved by €24 million, your SMDL revenues declined by €24 million. And just some commentary on why those are moving in opposite directions. Is that just a regional point, is that the incentive fees coming in or is there some discounts or anything else being put through there?

Jean-Jacques Morin: I'll take the last one because it's -- it's something that I should have quoted. It's a very good catch. It's very good question. In fact, there is no renegotiation whatsoever. It's a very important points. So out of all the crisis, one of the thing that has been extremely summon positive is that we didn't get into any discussion of changing the fee scheme. What is occurring on SMDL is the fact that today when people go and book the hotel because of the COVID crisis they go and directly go visit the hotel, right? So they go to the counter and basically book the hotel room will much more than what we've been seeing that in history. Quantifying of that is that there is about close to 60% of the business which is done this way when it used to be less than 40% in history. The consequence of that is that there is no fees which are attached to the booking that you are doing in the hotel directly, no distribution fees because the guide directly going to the counter. And so that's why the revenue that you've got in this MDL everything being equal is down because of the mix of direct versus indirect of stable channel, I should say versus non-stable channel. That's one element. The other one, which again is very much linked to the COVID crisis that we've got significant quarantine business. In Southeast Asia, it is probably 30% of the business, which is quarantine. Quarantine meaning that the government forces people who want to enter into the country to go into a hotel and they've got to pay the fees for that themselves. In Singapore, 80% of our business is quarantine business. So, the consequence again of the quarantine business is that there is no sales marketing distribution loyalty fees attached to that. So I think that's the answer on SMDL. In term of Australia, in Australia, you've got two very different picture. You've got the coast, the Gold Coast which is doing extremely well. And on this one, the RevPAR that you see versus last year at the end of June, are up 20%. So very significant increase in. We're always talking negative number. Here, it's a positive number and it's a very significant...

Richard Clarke: That's versus to '19?

Jean-Jacques Morin: Versus 2019, yes. Yes, you said last year. Oh, sorry, 2019.

Sébastien Bazin: 20% versus '19 and its way up 50% versus last year?

Jean-Jacques Morin: Yes. Yes, sorry, I -- I was. And on the other hand, the big cities, which are much more depending on international traveler and much more depending on it's fundamentally business our activity booking a negative number. So they are at minus 25%, 50% versus 2019. And so you've got this very different picture, which by the way is no different than what you find in France, what you find in the UK in that coupons recovery that we're going to face over Q3. The leisure business, the domestic business is very good, anything which is international is not there. And so the portion of the business, which is affected by the closing of Sydney and Melbourne. And by the way it is more than Sydney and Melbourne, which I think that it has extended to other like Perth and these kind of cities in Australia. That's the portion that we are going to monitor over Q3 to see how well they recover. I always want to be on the positive side here by saying that you talk about very limited number of case. So, it's not as if you've got a contagion which is extremely difficult to monitor, but with a vaccination right in Australia, which is below 15%. They've got no choice than to be super drastic. And Richard just on that, because we spent a lot of time with Simon McGrath who is the CEO of Pacific. He is really positive again when you get out of that confinement for Sidney. There is a lot of work and a lot of actually money put aside for the domestic clientele of Australia. They cannot go elsewhere other than to stay in Australia. So that money will be spent otherwise in January, February in Golden Coast. It is winter over there. Summer is going to be back. Sidney is a spring in the months of October, November, December. So, he is looking forward for very good activity on Mantra, when it comes to November and December.

Richard Clarke: And then, the 7% of hotels that are still closed today. What's the timeframe for those to reopen?

Sébastien Bazin: A lot of them are in Southeast Asia. A lot of them are South America, basically, where frontiers are being closed.

Richard Clarke: Okay, makes sense. Thank you very much.

Sébastien Bazin: You're welcome.

Operator: Your next question comes from the line of Leo Carrington from Credit Suisse. Please go ahead.

Leo Carrington: Good morning. Could I just have some a few questions on RESET, please. Firstly, are you still expecting the same split of the RESET -- RESET plan between 60% going to SMDL and the remaining elsewhere. And then just assuming and apologies if this is just a ManTech's is there any difference between savings hitting the bottom line and savings to be retained in ALSA years [ph]. The reason I ask is, how do you think, if fully retained, how do you think your owners who could see SMDL profits once it's RESET plan is complete and will I not be sort of asking for a fact one way over the next. And then lastly just a related point but what kind of EBITDA dynamics do you expect in H2 for SMDL? Do you expect this will improve as the SMDL revenues improve or any color there would be fantastic.

Jean-Jacques Morin: Yes, the 60%, 40% is still high. There is no change to that one. As I said, the plan is not fundamentally changed by any means. There has, as every plan, frustration as you progress. But the key numbers, the 60%, 40%, the €200 million, the €7 million, the time end of 2022 all of that is holding. So no change on this one. On this SMDL, I mean, before we get back to a positive line on SMDL there will be some time that still needs to come to pass through. And as I've said, we are still very negative and that's a question that I got earlier on SMDL and so we've got some line here to get back to something which is positive. And the other thing that I would say again to the difference of many of our competitors, we have no obligations whatsoever in term of free parking, what is the profitability that we do in SMDL. I know that in the States it's part of the contractual obligations and part of the contractual discussions. We have that on a Fairmont, right? So on what we bought in the US, we don't have that in any of the places in the world. So I think that's -- so on this one. And on H2, on SMDL you would think everything being equal that as business will start to kick in from September on you would have much more of the business, which is booked through the typical channel and not directly by people stopping their car and going to the hotel counter or funding directly to the hotel because things don't work or I don't know what. So you would think that number should improve on SMDL if things being equal; that's what I won't sell on this one.

Leo Carrington: Okay, thank you. And just on that, is there any difference on -- with the RESET plan between savings hitting the bottom line and being retained now here. I'm just thinking if you're sort of 2024 margin with this question?

Jean-Jacques Morin: No, there is no difference. I mean, what we kind of one went through in another call is that everything being equal the margin that you would do on the M&F business would probably significantly and prove and be enough of 70% at the end of the plan because those savings will make us -- of course, there is lower and as much more profitable on the M&F -- on the M&F business. I think -- I think that's the answer that I gave, I don't know, in February to one of the question I got. So, and on the rest again, you will find €200 million at the bottom line.

Leo Carrington: Fantastic. Thank you very much.

Operator: Your next question comes from the line of Andre Juillard from Deutsche Bank. Please go ahead.

Andre Juillard: Good morning, gentlemen. Two questions if I may. If I continue on the RESET plan and margin. Just wanted to ask you if on the €200 million expected of savings don't you think that part of them will have to be reinvested in some purposes especially thinking about distribution. First question. Second question is more general about M&A. Do you see any window for potential Mantra disposal and what do you think more generally about consolidation in the industry considering that we are starting to see the exit of this crisis, but all the groups you included are looking for sort of rationalization and consolidation could be part of the answer. Thanks.

Jean-Jacques Morin: So the question to your first answer is, no. There is no obligation whatsoever to do an investment. I think what will happen and happens today and will continue to happen in the future and has happened in history is we need to continue to invest into the company. I don't -- in systems, in brands and stuff like that. So all of that will be pursued, obviously, but I'm not counting or there is no allocation per se of those €200 million to any those action. It is things which are different. Had we not done the RESET plan, we would have been invested into a better improvement here, better tools for the ABS, improvements in marketing, improvement on brand recognition, all kind of things. So I would not link the two, Andre. And then, on M&A --

Sébastien Bazin: On M&A, Andre, there two answers to your question -- your two questions. On Mantra, it is not intended at all to dispose of Mantra for the next 18 months to 24 months. Why? It is because it's so elastic. We've been losing €50 million plus of EBITDA with the downturn of the Australian market. We need to get it back and we are getting it back as we speak and you need to have it back in the bank in order for people to buy positive EBITDA above leasing commitments. So -- and it would be foolish and stupid to sell it today and we don't have any reason to sell it today. So medium term to long-term, we confirm that I guess we will be disposing of all the hotel assets component of Accor because it is something that we must and should do to simplify the balance sheet and simplify the readings of Accor. But for the next 18 months to 24 months, it is not marketed at all and it shouldn't be marketed. When it comes to consolidation, I can tell you 150% of my time and the time management team is on day to day activities RESET being finished implemented, commercial people, GM to be ready for receiving any new customers responding to legislations and any vaccine rolled out. So, no, we have no time and no will to spend any disruptions when it comes to consolidation.

Andre Juillard: Thanks.

Operator: Your next question comes from the line of Alex Brignall from Redburn. Please go ahead.

Alex Brignall: Good morning. Thank you for taking the questions. I just have two, please. The first one, you mentioned in your discussion about system growth for the full year, that churn was higher and that would be a factor. Could you just give us a little bit of detail on that and the drivers of that, please. And then, the second question is on the loyalty and you have for that the changes you are making. Could you just give us a little bit of information on what it look like pre-COVID, maybe the mix between business travel and leisure or anything else that might be significant. Thank you.

Jean-Jacques Morin: Yes, I think the one on the churn. So to be to be specific and give you a precise number, the churn for the last 12 months is 2.5%. The churn for last year was 2.2%. The churn for FY 2018 was 2.1% and the churn for 2017 was 3.1%. So that's kind of why we are more or less in line with what you would expect and I think we are before I said around 2%. So that's more or less the model a you would expect it to be running on the normalized basis, Alex. And on the loyalty contribution, which is higher than 30% at the Group level for the last few weeks of course more than two-thirds of those are being burnt and used by leisure customers, which is very much correlated to the summer season. So we'll have a better reading by the end of this year when corporates are going to be back in the fall.

Alex Brignall: Could you say what that number was before COVID in terms of leisure versus business, please?

Sébastien Bazin: Probably very similar.

Jean-Jacques Morin: The loyalty numbers on this one, Alex, and why it's not worth spending too much time on those keys you've got the last part of what's happening today which is so much COVID related that it creates numbers that makes no sense. It may come back to what we discussed on quarantine. All the business that you've got in Southeast Asia and some business that we did get also in Australia by the way up to the end of H1 was quarantine business. When you've got quarantine business, you've got no loyalty whatsoever, right? You don't have any of those that are qualified.

Sébastien Bazin: We wish we could.

Jean-Jacques Morin: We wish we could. So, we wait for the next COVID crisis so that we can increase our loyalty numbers. In fact, let me -- let me think about that. Joke aside, joke side because it's not -- we really -- we really are having few numbers because of the sentiment. So I think as soon as business come back to a more, I would say, normalized level and the more natural channel mix, we will be able to go into -- into the height analysis.

Alex Brignall: Thank you very much.

Sébastien Bazin: Sure.

Operator: Your next question comes from the line of Ali Naqvi from HSBC. Please go ahead.

Ali Naqvi: Hi, good morning. Thanks for taking the question. Just wanted to ask on -- okay. Thanks for taking the question. Just on occupancy, I can see that it obviously varies by region. But there wasn't much an improvement in Q2. Could you give us any insight as to what was going on in July and how do you think that the RevPAR recovery will balance itself for the rest of the year versus occupancy and rates?

Jean-Jacques Morin: Yes, I mean, the rule of thumb that Sébastien kind of gave you on five points every month is what -- is mostly driven by occupancy and there is a very little fluctuation on the price per se. And so if you want to have a kind of a simple all occupancy should go in average up by 40% and there will be differences by jurisdiction. I mean, you should find out that Europe occupancy will go much faster than the 5% that job is called.

Ali Naqvi: Great. And just on the liquidity and when you get back to being cash positive. Is that -- what is the sort of priority in terms of use of the cash? Would you return it or would you look to increase your scale?

Jean-Jacques Morin: I mean, we're going to go -- the business model is a business model into which share buyback and return to the shareholder is part of the expectation of somebody who would invest into a company like ours. And you may recall that in January 2020, we had just launched a share buyback. And we were talking about grades from that perspective before what developments in one. So I think this remains a basis of how we look at excessive cash or our cash could be potentially returned. Now, on the other hand, we do what we are paid with which is we will also analyze you know where the greatest value is created. So between share buyback and potentially M&A bolt-on. I think we were doing that with quite a lot of discipline over the last two years before COVID. You may recall, that we return over the last two, three years about 5% of the market share every year, if you do the computation. And this is very much what is the best market practice around that and you would -- you should expect us to continue to act rationally and take into account to what create most value for the shareholders.

Sébastien Bazin: Yes. And another way to say it. It's -- and people will understand it very quickly. We have been proud to rising for the last 15 months. Firstly, employees of Accor, which is why we put the ALL Heartist Fund to make sure we protect human capital of this company which is why we exist. Two, three months later, we've been protecting assisting the owners of Accor Hotels wherever they sit. It's time for us post-pandemic to really go and protect and enhance value for the shareholders. That is the sequence and that sequence is starting now, of course.

Ali Naqvi: Thank you.

Operator: There are currently no questions from the queue. [Operator Instructions]

Sébastien Bazin: I guess we had an enjoyable time.

Jean-Jacques Morin: That was not a question, that was a comment.

Sébastien Bazin: Unless we have no further questions, I believe, is the case, I think each of you, it was a pleasure of course. Pierre-Louis and team here to assist and Rebecca and I will do and hopefully do a great job talking, introducing to investors and shareholders in the next few days to come. Thank you everyone. Thank you, all of you. Bye-bye.

Jean-Jacques Morin: Bye-bye.

Operator: Thank you for joining today's call. You may now disconnect your lines.