Accor: 2009 First-Half Results

    - Prepaid Services: firm resistance of revenue (up 5.7% like-for-like[1])
      and margin (up 0.4 points like-for-like)

    - Hotels:
        - Economy hotels outside the US: resilient revenue (down 7.3%
          like-for-like) and margin (down 2.3 points like-for-like), led by a
          solid performance in France
        - Upscale and Midscale Hotels and Economy Hotels in the United
          States: two segments severely impacted by the crisis

    - Operating profit before tax and non-recurring items: EUR182
      million (down 44.5% like-for-like)

    - Robust balance sheet: Funds from operations/adjusted net debt ratio of
      21.5%

    - Cost-cutting plans already 50% completed in the first half:
      owned/leased hotels operating costs reduced by EUR72 million and
      support costs by EUR37 million
      Operating costs reduction plan in the owned/leased hotels raised to
      EUR150 million from EUR120 million

                                       ***

    - Full-year target for operating profit before tax and non-recurring
      items: EUR400 million to EUR450 million

                                       ***

    - Given the depth and speed of the changes ahead, the transformation and
      development of the two core businesses will be stepped up.

      As part of this process, the Board of Directors has approved Chairman
      and CEO Gilles Pelisson's recommendation to conduct a review of the
      potential benefits of demerging the two businesses into two independent
      companies, each with their own strategy and resources for growth.


    2009 first-half financial results

    (in EUR millions)     First-Half    First-Half  % change      % change
                                2008          2009        as      like-for
                            Adjusted(1)             reported         -like(2)

    Revenue                    3,758         3,410      -9.3%         -8.1%
    EBITDAR(3)                 1,088           924     -15.1%        -15.0%
    EBITDAR margin              29.0%         27.1%     -1.9pt        -2.2pts
    EBIT                         425           242     -43.0%        -39.0%
    Operating profit before      393           182     -53.7%        -44.5%
    tax and non-recurring
    items
    Operating profit before      264           114     -56.8%            -
    non-recurring items, net
    of tax
    Net profit/(loss), Group     310          (150)      n/a             -
    share
    ROCE(4)                     14.5%         12.1%     -2.4pts          -



    (1) As a result of applying IFRIC 13 from January 1, 2009, the
        Group reviewed its accounting policy for recognizing award credits
        under customer loyalty programs. The new accounting method has been
        applied on a retrospective basis, with pro forma data provided for
        the six months ended June 30, 2008.

    (2) At constant scope of consolidation and exchange rates

    (3) Earnings before interest, taxes, depreciation,
        amortization and rental expense.

    (4) ROCE: Corresponding to EBITDA expressed as a percentage of
        fixed assets at cost plus working capital.

In an extremely weak economic environment, consolidated revenue for the first half of 2009 totalled EUR3,410 million, down 9.3% on a reported basis and 8.1% like-for-like compared with first-half 2008.

PREPAID SERVICES

Revenue from the Prepaid Services business rose by 5.7% like-for-like in the first half, overcoming the adverse impact of i) sharply higher unemployment rates, which are affecting corporate customers, particularly in Europe, and ii) lower interest rates, which are reducing interest income recognized in revenue. Operating revenue (i.e. excluding interest income) rose by 6.8% over the period, compared with a 1.2% decline in interest income.

Revenue growth was led by stepped-up marketing and sales initiatives, which drove the development of new products and the penetration of new markets, in particular with the launch of travel agency cards in the United Kingdom and holiday vouchers in Romania. Other initiatives targeted France's prefunded Universal Employment Service Vouchers (CESU Social) program, which is designed to support people most hurt by the recession.

EBIDTAR margin stood at 43.2%, up 0.8 points on a reported basis and 0.4 points like-for-like. The margin improvement reflected the 1.1-point like-for-like gain in the margin on operating revenue (51.3% flow-through ratio[2] excluding interest income). The decline in interest income reduced total margin for the period by 0.7 points like-for-like.

In Europe, EBITDAR margin narrowed by 1.4 points like-for-like, impacted by rising jobless rates in the region and the steep decline in interest rates. In Latin America, it improved by 2.0 points like-for-like, despite the decelerated growth in interest income following the steady drop in interest rates since May 2009.

HOTELS

In a severely depressed business environment, Hotels revenue fell 11.4% like-for-like in the first half.

Although the Upscale and Midscale Hotels and US Economy Hotels segments have been hard hit, with revenue contracting by 13.3% and 12.8% respectively over the period, the Economy Hotels outside the US segment demonstrated firmer resistance, holding revenue weakness to 7.3%.

The Group's ability to limit the revenue decline compared with the competition was supported by a certain number of marketing and sales initiatives deployed as part of the battle for revenue process. The battle for revenue is also being supported by the success of the A|Club loyalty program, whose more than 3 million cardholders account for 10% of retail customer revenue, just one year after launch.

In addition, the first half already saw operating costs in the owned/leased hotels reduced by EUR72 million, out of the announced EUR120-million target for the year.

Accor confirms its objective of opening 30,000 new rooms in 2009. 12,100 have already been opened in the first six months of the year, of which 78% under low capital-intensive ownership structures (management contracts, franchise agreements and variable rent leases), 58% in the Economy and Budget segments, 35% in Europe and 35% in Asia. Pursuing this expansion dynamic remains a priority, with 103,000 rooms in the pipeline.

- Upscale and Midscale Hotels hard hit by recession

In the Upscale and Midscale segment, revenue declined by 11.9% as reported in the first half, and by 13.3% like-for-like.

EBITDAR margin came to 23.6% of revenue, down 4.1 points as reported and like-for-like. The response ratio, excluding support costs, stood at 33.9% and at 45.5% after accounting for the EUR25-million reduction in support costs driven by the cost-cutting plans.

- Economy hotels outside the United States: resilient revenue and margins, led by a solid performance in France

In a lackluster economic environment, Economy Hotels proved to be more resilient than the other segments, with revenue retreating by 7.6% as reported during the first half and by 7.3% like-for-like.

At 34.1%, EBITDAR margin narrowed by 1.9 points as reported and 2.3 points like-for-like. The firm resistance was primarily due to operations in France, where margin was down just 0.4-points like-for-like, to 30.5% on reported basis. The response ratio, including support costs, was 34.9%.

- Economy Hotels US: deeply impacted by two years in a row of recession

Motel 6 revenue contracted by 2.0% on a reported basis in the first half and by 12.8% like-for-like.

Although still affected by the severely weakened US economy, Motel 6 is still faring better than the competitors, with RevPAR two points higher than the peer group's. In the United States, the Economy segment is generally outperforming the Upscale and Midscale segment by around 10 points of RevPAR.

EBITDAR margin amounted to 30.8%, down 7.1 points as reported and 5.7 points like-for-like, while the response ratio was 18.7%, in a country that has been in recession for more than two years.

CONSOLIDATED RESULTS

Consolidated EBITDAR[3] amounted to EUR924 million in the first half of 2009, down 15.0% like-for-like compared with the year-earlier period and 15.1% as reported. EBITDAR for the period reflected the support-cost savings already achieved in the first half, which totaled EUR37 million out of the full-year target of EUR80 million.

It represented 27.1% of consolidated revenue, compared with 29.0% in first-half 2008.

The firm resistance of the Group's two main core businesses, Prepaid Services and Economy Hotels outside the US, helped to limit the decline in margin to 1.9 points as reported and 2.2 points like-for-like.

EBIT fell by 43.0% to EUR242 million as reported and by 39.0% like-for-like. The fact that some rental expense is indexed to revenue helped to save around EUR15 million over the period.

Operating profit before tax and non-recurring items stood at EUR182 million for the period, down 44.5% like-for-like and 53.7% as reported.

Operating profit before non-recurring items, net of tax amounted to EUR114 million, compared with EUR264 million in first-half 2008.

The net loss, Group share, which came to EUR150 million, was impacted by EUR194 million in asset impairment losses (of which EUR118 million on Motel 6 goodwill). These losses reflected the decline in the assets' balance sheet value and did not have any cash impact. In addition, the net loss includes EUR53 million in restructuring costs, primarily related to Group reorganization programs.

In first-half 2008, the Group reported a net profit, Group share of EUR310 million, lifted by EUR130 million in capital gains on asset disposals.

Funds from operations declined to EUR378 million from EUR487 million in first-half 2008.

Net debt stood at EUR1,961 million at June 30, 2009, after EUR193 million in expansion expenditure in the Hotels and Prepaid Services businesses, EUR77 million in asset disposals and the payment of EUR201 million in dividends. Net debt also includes two non-recurring items: the acquisition of an additional 15% interest in Groupe Lucien Barriere for EUR269 million and the payment of EUR242 million to the French State in settlement of tax assessments on Compagnie Internationale des Wagons Lits (CIWLT). Note that the Group has contested these assessments before the court.

The main financial ratios attest to the solidity of Accor's balance sheet at June 30, 2009. Backed by the two bond issues totaling EUR1.2 billion carried out in the first half, the Group has EUR1.8 billion in unused, confirmed lines of credit at June 30, 2009. No significant amount of debt has to be repaid over the next three years. The ratio of funds from operations to adjusted net debt[4] stood at 21.5% at June 30, 2009, compared with 24.2% at June 30, 2008 and 25.8% at December 31, 2008.

Return on capital employed declined by 2.4 points during the first half, to 12.1% at period-end from 14.5% at June 30, 2008.

Outlook for 2009

- July business trends

Prepaid Services: growth in revenue despite the faster decline in interest income

Revenue was up 0.6% like-for-like and year-on-year in July, reflecting a 4.4% increase in operating revenue and a 21.9% drop in interest income recognized in revenue.

Latin America is faring better than Europe, as stronger operating revenue growth (up 6.3% versus 3.3% in Europe) offset a steeper decline in interest income (down 26.5% versus 18.8% in Europe). The decline in interest income that emerged in May 2009 is gaining momentum as the third quarter begins.

Hotels: improving trends in July, buoyed by the increase in the proportion of leisure travelers during the summer

In Upscale and Midscale Hotels in Europe, July RevPAR was down 12.7% like-for-like, compared with a 19.2% decline in the second quarter.

In the Economy Hotels segment in Europe, July RevPAR was down 8.5% like-for-like, compared with a 9.7% decline in the second quarter.

In the US Economy Hotels business, July RevPAR was down 15.2% for the month, versus a 15.7% decline in the second quarter.

- 2009 earnings guidance

In the absence of any visibility in the economic environment, the target for operating profit before tax and non-recurring items has been based on the following assumptions:

    In Prepaid Services:

    - A more than 25% decline in interest income in the second
    half, causing like-for-like revenue to show a slight gain for the year.
    - An operating margin of more than 40% for the year.
    In the Hotels business:
    - No major improvement in business expected in the second half.

- The plan to reduce operating costs in the owned/leased hotels will be stepped up to EUR150 million from EUR120 million, to ensure that the response rate holds steady at 35%.

Consolidated earnings:

- Support costs will be reduced by EUR80 million over the year.

As a result he target for operating profit before tax and non-recurring items has been set at between EUR400 million and EUR450 million.

Business strategy

Give the depth and speed of the changes ahead, the transformation and development of the two core businesses will be stepped up.

As part of this process, the Board of Directors has approved Chairman and CEO Gilles Pelisson's recommendation to conduct a review of the potential benefits of demerging the two businesses into two independent companies, each with their own strategy and resources for growth.

Upcoming events

- October 15: Quarterly Report (third-quarter revenue)

Accor, a major global group and the European leader in hotels, as well as the global leader in services to corporate clients and public institutions, operates in nearly 100 countries with 150,000 employees. It offers to its clients over 40 years of expertise in two core businesses:

- Hotels, with the Sofitel, Pullman, MGallery, Novotel, Mercure, Suitehotel, Ibis, all seasons, Etap Hotel, Formule 1 and Motel 6 brands, representing 4,000 hotels and nearly 500,000 rooms in 90 countries, as well as strategically related activities, such as Lenotre.

- Services, with 32 million people in 40 countries benefiting from Accor Services products in employee and constituent benefits, rewards and incentives, and expense management.

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[1] At constant scope of consolidation and exchange rates

[2] The ratio of the change in like-for-like EBITDAR/change in like-for-like revenue is known as the flow-through ratio when like-for-like revenue goes up and as the response ratio when like-for-like revenue goes down (in which case it is equal to 1 - [change in like-for-like EBITDAR/change in like-for-like revenue]).

[3] EBITDAR: Earnings before interest, taxes, depreciation, amortization and rental expense.

[4] The ratio of funds from operations before non-recurring items to adjusted net debt is calculated according to a method used by the main rating agencies, with net debt adjusted for the 8% discounting of future minimum lease payments and funds from operations adjusted for interest expense on these payments. Funds from operations before non-recurring items corresponds to cash flow from operating activities before non-recurring items and changes in working capital requirement.

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SOURCE Accor