Accor Hotels' (ACRFF) CEO Sebastien Bazin on Q2 2016 Results - Earnings Call Transcript

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Accor SA Ltd. (OTCPK:ACRFF) Q2 2016 Earnings Conference Call July 28, 2016 2:30 AM ET


Jean-Jacques Morin - CFO

Sebastien Bazin - Chairman & CEO


Geoffrey d'Halluin - Natixis

Vaughan Lewis - Morgan Stanley

Jarrod Castle - UBS

Vicki Stern - Barclays Capital

Tim Ramskill - Credit Suisse


Ladies and gentlemen welcome to the Accor Hotels First Half 2016 Results Conference Call. I now hand over to Jean-Jacques Morin, CFO. Sir, please go ahead.

Jean-Jacques Morin

Good morning everybody. Thanks for being with us, Sebastien Remortan and myself today to review our H1, 2016, results. These results are fair reflection of all the bits and pieces surrounding Accor Hotel, including a contracted business environment, ongoing optimization of our asset portfolio and our ambitious strategy regarding digital and new businesses.

So, let's get started on all of that on Slide 3. So, you can see on that slide that the first semester was very busy at Accor Hotel as we keep transforming. Dedicated team of Accor and FRHI spent extensive hours preparing for the transaction close, including integration, implementation of initial synergy. Growth is now effective and was materially supported by our shareholder at the AGM last July 12th with more than 98% support. There was also a range of acquisition in new businesses, the most salient being onefinestay that was closed last May. As you know, we took minority stakes in Oasis Collections and Squarebreak earlier in the year.

At the same time, we carried on with the transformation of HotelInvest. Two major operations were achieved, the transfer of 12 Ibis assets to Huazhu in China and this was closed in January. And then 85 assets were sold and transferred back to the Grape Hospitality entity in partnership with Eurazeo which has become our largest franchisee as of June 30th, as this was the plan. In the meantime, we turned the project to turn HotelInvest into a subsidiary, which we had publicly announced two weeks ago. So, that was the top of the recurring program we executed with additional single assets being restructured over the period.

As for HotelServices also saw a lot of activity with record semester for expansion as we added close to 20,000 rooms into the system. The Marketplace also recruited hotel at full steam with now 1,600 independent hotel that have joined, of which 1,100 are already online, as of today. Meanwhile, the digital plan continues to get traction, in line with the plan. All this was achieved in a quite complex environment with economical, political, social turmoil and in some of our key markets, to start with France. We detail that going on.

So, financial takeaway on Slide 4, the key takeaway from H1 results are actually a reflection of all what I discussed. On the operating side, these results are shaped by a good momentum in the majority of regions and strongly deteriorated situation in France, Belgium and Brazil. In total, revenue for the semester was at 2% on a like-for-like basis, with Q2 being roughly in line with Q1. EBIT came down to 239 million, 4% -- minus 4% like-for-like on the back of incremental OpEx on our digital plan investments in new businesses and foreign exchange. We will detail all of that later on.

EBIT margin was a bit below H1 2015 on the same drivers. As for HotelServices, it keeps benefiting from a very fast expansion, as gross volume reaches 6.3 billion, i.e. a 5% growth at constant exchange rates. As it has been the case since last year, the solid operating performance of HotelServices is affected by our digital strategy. HotelInvest, which is more geared towards Europe, and France in particular, generates another strong performance with 100 basis point EBIT margin improvement versus H1 2015. This reflects the ongoing transformation of the portfolio, as well as strong momentum in Germany and Spain, which more than offset the French and Belgium situations. As for net debt, it stood at 511 million by June end, following various acquisition that we will detail later on.

So, moving to slide 5, and coming back and giving you a little bit more granularity on the record growth, 90% of the total new supply was added through a franchise and management contract affecting, once again, our continued strong brand equity and attraction for owners. Note that 6% of foreign lease expansion was actually leases on EBITDA in Latin America which with limited operational gearing.

The segment breakdown is balanced with 26% of luxury and upscale room, one third in midscale, and 42% in economy. That breakdown is very well in line with what we have seen in previous history. 50% of the new supply was added in the Asia Pac region, which, combined with MMEA and Latin America represents 80% of the total room addition. The fastest-growing brand last semester was Novotel, with 19% of the room occupant, ahead of Ibis Styles and Pullman. The Accor Hotel network reached 524,000 rooms at the end of June.

We thought we would give you a little bit of granularity also on the portfolio now that we owned FRHI. As you can see on slide 6, the combined systems offer close to 570,000 rooms with an improved balance between regions. The largest move is for Americas, where we increased from 10% to 13% of the Group network. The second largest move is MMEA from 11% to 12%. Asia Pac is stable at 26%. And our exposure to France and Europe in general further diminishes. Transformation; we'll definitely carry on going forward in the view of our new room pipeline, which grows to 1,074 room and is close to 1,000 hotels, most of it being outside of Europe. As for hotel, the FRHI pipeline is what we call committed, which means widely secured over the next four or five years.

A few word also on our loyalty program that keeps gaining momentum. We have added 3.8 million new members, bringing the total program to 28.4 million members at the end of June. Le Club Accor Hotel now represents 31% of the total room in our system, growing period after period. And the OnlyOn program, which offers exclusive rates to club member on our direct platforms, also proved to be a real success writing more direct online bookings.

Consequently, we also enjoy an increase in what we call active members, which means the people that stay, who have one stay over the last year as well as repeater, i.e. with a minimum of two stays in the last 12 months.

So, going now more into the numbers, I'm on slide 8, and we start with revenue with the bridge between like for like and reported numbers. Overall, we observed the same pattern as in Q1 with a mild RevPAR improvement over Q2 of 1.6%, driven by price. Revenue reached 2,598 million in H1, i.e., a 2% like for like increase.

Expansion, including hotel investment, comparable expansion acquisition, lifted revenue by 1.7% or 47 million. Disposals reduced revenue by 5.2% or minus 143 million. This is mostly driven by sales and franchise or managed-back operation closed last year [indiscernible] which will stop playing in H2. But then we will have the impact of the great portfolio, which will probably compensate. Currency effect remained negative at minus 3.2% in line with Q1. Note that this should clearly worsen in H2 with the strong increase of the euro against most currencies.

In total, reported revenue was down 4.7% in H1 versus 5.7% in Q2 2015. In more detail on page 9 by business line and regions, we can see that, as usual, HotelServices outperformed HotelInvest, which is related to two factors; larger exposure to non-European market. And, secondly, the fact that like for like revenue includes, as usual, our asset light expansion.

At the regional level France is the only region with a negative growth, down 2.6% in H1. The drop is attributable to HotelInvest that represents a much greater exposure to Paris than HotelServices. Paris was penalized deeply by terrorist attack and RevPAR was down 14% over the semester. Previously provinces remained steady with a 6% RevPAR growth that was lifted by the Euro football championship in June.

Performance remained sustained in all other regions with northern, central, eastern Europe, Mediterranean, Middle East and Africa being all in the 3% to 5% range. And this was in line with what we had expected, anticipated. Growth in NCEE was led by Germany and the UK, with respective revenue growth of 4.3% and 4.4% in H1. Iberica kept enjoying some recovery, like last year, with an 11.5% revenue growth over the semester. Last, revenue grew 1.7% in Americas, but please keep in mind that this performance was achieved in high [indiscernible].

One word of explanation on the increase in revenue from worldwide structure. This includes fast booking, as well as revenue coming from central ecommerce, that keeps improving as we get initial benefit from our digital initiative.

So, moving to profit, slide 10, and the EBIT bridge between H1 2015 and 2016. We can see the 4 million increase, the green 4 million increase, from operations as a very satisfactory achievement in a context that was the one that we all know in H1. Strong performances in NCEE and Asia Pac compensated for France and Americas and we'll see more detail in a minute. Disposals that affected revenue by 143 million are neutral at EBIT, which again demonstrate the virtue of our asset restructuring program, if need be. Digital placed on minus 20 million at EBIT with 6% on the Marketplace and 14 million of incremental impacts directly related to the plan. Other effects of expansion are actually neutral, with 4 million negative effect from onefinestay, offset by the benefit from some buyback at HotelInvest. Last, ForEx plays negatively and this is primarily coming from the sterling pound.

Let's turn now to Slide 11, where it gives a bit more color by business and by region. As we just explained, we see good resilience from operations, with an EBIT of 290 million, up 5% on a like-for-like basis versus last year. This underlying performance is a satisfaction from the environment with France being badly affected and EBIT reduced by only 4% like-for-like. Regarding France, you all saw the data across the semester, and it is fair to say that Q2 has not met our original expectation. It was penalized by many negative drivers including security concern, the social crisis in May and the euro football championship that was contrasted, bringing strong incremental businesses in province, but disappointing numbers in Paris. America region also saw a sharp decrease in profit driven by Brazil and HotelInvest.

The other regions continued to drive growth. And NCEE generated more than 50% of the Group EBIT over the semester, with UK remaining strong despite concerns on the London cycle and this is pre-Brexit. And Germany improving sharply versus Q1 as we had anticipated, and told you. Also remember NCEE has been the major beneficiary from the transformation at HotelInvest since 2014 following notably the Mont Park [indiscernible] transaction over the last years. As for MMEA, it was primarily driven by HotelInvest, which fully benefited from the continued strong recovery that we've enjoyed in America for four semesters now.

As for Asia Pac, which is predominantly an asset light region, it benefits at full speed from our fast expansion in the region. One word on worldwide structure. The drop at HotelServices is attributable, totally attributable, to our strategy including the digital OpEx that we were just mentioning for 20 million and onefinestay for 3 million. So, this explains the shift between the 1 million to the 26 million that you see on worldwide structure for HotelServices.

Also note that the EBIT for worldwide structure at corporate level dropped by 10 million, which is also related to off choices and the perimeter effect. And mostly off choices mean what we want to do in Huazhu, in [indiscernible], all these corporate initiatives.

So, now we go into more detail by segment and HotelServices. I am on slide 12. As we said, growth, volume growth 5% like-for-like to 6.3 billion, driven both by system and RevPAR growth. Consequently, revenue increases by 5.9%, at constant exchange rate. EBITDA margin benefited from sales, marketing, digital and loyalty. The KPI that we always show remained strong and actually improved by 70 basis points from 48.4% to 49.1%.

As we just saw with our EBIT bridge, digital OpEx increased by about 20 million versus H1 2015, which is a seasonal effect as the 2015 effects were pretty much back-end loaded following progressive implementation of the plan across the year. This will balance over H2. We are in line with the plan presented for the full year, i.e. 43 million of CapEx and 44 million of OpEx for 2016, which is an incremental 1 million OpEx charge versus the original plan, so very much in line. Note that HotelInvest represent 37% of the fees collected by HotelServices, which is a clear decrease that reflects the French, the Belgian, the Brazilian situation, and also reflects the decrease in number of assets at Hotel Invest in line with our strategy. The digital plan obviously weighs growth on OpEx and CapEx which affects negatively net operating income cash generation, which still reaches in fact 74.5%.

So, moving now to the HotelInvest segment, benefits from the strategy show very clearly at HotelInvest, as you can see on slide 13, we are very happy with all of that. Despite flattish like-for-like revenue growth of 0.5% in H1, the operating issues we already discussed, HotelInvest kept delivering sound profit improvement as EBITDAR, EBITDA, EBIT margin all grow steadily. EBIT margin reaches 6.6%, which is a record level for a first semester. Despite EBIT increasing from 133 million to 145 million, NOI is down on the back of incremental maintenance CapEx as a material fact. We decided we should take advantage of the distressed situation in some markets to renovate our hotels and, hence, the incremental expense.

This is also true for development CapEx, where we have selected investment in key flagship such as our soon to be opened Novotel in Canary Wharf in London and some AV renovation in large properties. This obviously affected cash conversion in the short term, but will bring high returns in the medium term. In total, as we deliver on the strategy, the contribution from owned hotels' NOI steadily grows to 65%. We get closer to the 75% benchmark that we mentioned as a midterm target back in 2013. As you can see on the graph on page 13, period after period we are getting to what we said we would do.

[Indiscernible] HotelInvest, we decided not to review the gross asset value of HotelInvest at the end of June in view of the upcoming process of creating a standalone legal entity. We will conduct the third-party evaluation by September end and we will disclose the numbers at our investor day in October.

So, going into more detail on the transformation, I'm on slide 14, and performances explanation about the cost values ownership structure. In a nutshell, EBIT margin improved sharply for owned and fixed lease hotels and decreased for variable lease hotel. This is explained by two factors, geographical exposure and restructuring. As for owned hotel, they permanently improved following buyback from previously leased properties in Germany, Netherland, Spain, which are all strong markets these days. They also benefit from some sale and managed back conduction of poor performing asset over the past 12 months. Fixed leases are predominantly located in Germany, which has been a very strong market across the semester, as you've seen. Then as much as fixed leases are jettisoned in downturn, they definitely offer strong profitability in booming market, which is the case today in Germany. The drop in variable leases is attributable to the strong exposure to France and Belgium and Brazil.

A few words in addition on the network. As we mentioned, we restructured around 20 hotel over the semester, including 85 hotel in Brazil and 12 with Huazhu. Hence, the portfolio passes a few milestones. We are now less than 1,200 hotel in total at the end of June, less than 600 variable leases, and less than 300 fixed leases. So, we are getting to where we said we would get. As said recently by Sebastien Bazin, when presenting the project to create a legal entity, we've done probably 85% of our plan so far. And most of the remaining work is secure as far as HotelInvest is concerned.

Just a closing slide on results, which is the slide 15. We've commented the majority of these numbers. Two complimentary explanation. First, let me remind you that the negative revenue for Interco and corporate is in fact elimination of fees paid by HotelInvest to HotelService. The rest of the P&L is central cost.

Second, Group result are shaped by our global strategy, with HotelServices being affected by the digital plan, acquisition of new business line and HotelInvest being lifted by the asset restructuring program. Last, note that the 9.2% EBIT recorded in H1 translates into 10.5% if we were to restate from the digital plan. I'll leave the plan to Sebastien Remortan, so that I can rest for a few minutes, and then take back the conclusion.

Q - Sebastien Remortan

Absolutely. Good morning everyone. Thank you. We move to slide 16 to consider EBIT to net profit. A line on this table probably deserves a bit of color and that is the financial, one line, sorry, deserves a little bit of color and that is the financial expense, which increases from EUR32 million to EUR97 million.

The recurring financial charge is actually stable. As part of its real estate portfolio management Accor Hotels has negotiated a strategic deferred investment opportunity through a purchase option. And it concerns our new head office in Paris, where we have a call to buy in 2018. As interest rates were low at the time we signed this agreement, we decided to secure funding conditions in case the purchase option was to be exercised. And, in view of the environment, we hedged financing conditions beforehand to be protected from an increase in interest rates. So, until the purchase option matures, changes in market value of hedging are recorded in our P&L as financial results, but they do not constitute cash impacts, which is why, as you'll see in a minute, they know that -- they do not weight on recurring free cash flow.

This hedging represents a €41 million impact in our numbers in H1 and again its non-cash. We also hedged the cash part of the FRHI acquisition with a one-shot cost of about 10 million. Non-recurring item, which includes restructuring, impairments and gains and losses on disposed assets are negative by €19 million, which is an improvement versus H1, primarily driven by capital gains on the Huazhu and the Grape hospitality operations. Huazhu is 76 million, Grape is about 10 million. Then income tax, the decrease in line with PVT, and the tax rate remains roughly stable versus last year at around 28%.

Next slide, moving on to cash flow, Slide 17, FFO decreases roughly in line with EBITDA by about 40 million. Recurring free cash flow reaches 102 million, down 110 million on the back of increased CapEx, as Jean-Jacques highlighted, in the HotelInvest side. You should expect this CapEx level to remain consistent in H2.

Moving on to Slide 18 and net debt, before explaining acquisition and disposal in a second, I just want to highlight that change in working capital is mostly related to the corporate tax payment. Second, as explained, other cash elements are predominantly related to hedging on our new head office and the FRHI acquisition. In total, net debt stands at 511 million at June 30th.

So, let's now deep dive on acquisitions and disposal on Slide 19. First, let me remind you that the cash part of the FRHI acquisition, i.e. $840 million was cashed out on July 12th. And so it does not appear obviously in this chart. The 607 million spent in H1 are, buyback of assets at HotelInvest for about 212 million, typically including leased properties from Fransierre, Demure from Axane and Investco that were not part of the deal with Huazhu in the frame of Grape hospitality such as the Sofitel Biarritz, for example. Second, our investment in Grape, close to 70 million, and that is our stake in -- our 30% stake in that new entity. Then our ownership in Huazhu as we now own close to 11% of the company.

And, finally about a 160 million which is the consideration for onefinestay. Note that when it comes to Huazhu and Grape there is a pretty significant offset in disposals. Regarding Grape, we sold 27 assets and the business interest of 85 properties to Grape for a sale price of 146 million. And then we invested to own 30% of the total business. The consideration of Huazhu shares is made up of Chinese Ibis asset that were transferred to Huazhu and the 28% stake in our upscale and luxury business in China.

Coming back to our debt and, more broadly, our balance sheet situation on Page 20, so as said net debt reaches 511 million at June end. All things equal, debt will grow by about €800 million in H2 following the Fairmont Raffles acquisitions. Debt maturity remains about four years and cost of debt keeps improving in line with interest rates. As a reminder, we still benefit from an untapped credit facility of €1.8 billion. So, all in all, our total liquidity is €4.1 billion at June end. This was actually highlighted by the rating agencies which both confirmed their investment-grade rating on Accor with a stable outlook following the announcement of our project to convert HotelInvest into a subsidiary.

And, with this, I leave the floor back to Jean-Jacques.

A - Jean-Jacques Morin

Thank you, Sebastien.

A - Sebastien Remortan

My pleasure.

A - Jean-Jacques Morin

Before turning to conclusion, let's spend some time to reflect on what is the environment on this and this is slide 21. As Sebastien was explaining, as Sebastien Bazin was explaining back in February during our full year result presentation, we do live in a turbulent world. Our industry has been affected by negative catalysts which have hit hard travel in H1 and are likely to penalize us also on H2.

A cascade of terrorist attacks in Europe is driving away tourists at the height of the summer rush, casting a pall over hotel chain and luxury retailer as they are already grappling with the Britain's, sorry, vote to leave the EU. Terrorist attack in Paris, Brussels and recently Nice are keeping the leisure traveler away from France and Belgium. The strong drop in business we suffered in Paris in H1 was partly offset by the French provinces, but we still need a bit of time to fully assess the consequences of the Nice trauma in the province.

Brazil remains a very uncertain country. We will know by the end of August if Dilma Rousseff is impeached or not which is probably a prerequisite to any economic recovery Brexit, which we assume will create more uncertainty for the finance community than for any other, will still impact the hospitality industry, even though it is definitely early to assess the full consequences. For the short term, all we know for sure is the currency effect, which is likely to foster leisure travel to the UK.

The low sterling will also be reflected in our profits. On current foreign exchange, we estimate the impact to be negative by about 10 million for the rest of the year. Turkey is another question mark. Even though we have a very small presence there, the situation actually affects the border region and creates additional uncertainty. Germany was the latest country to get hit by a series of violent incidents, as we all know. And so all of this, we keep working, protecting performance and bottom line as much as possible and transforming our ops. That's the part that we do control and that's the part that we do as well as we can.

We move to slide 22. We started this presentation by highlighting how active we've been in H1. The odds are that we're going to keep moving in H2, as you see on page 22. FRHI is now part of the Group. And we are happy to say that we're confident regarding the benefits coming. Initial synergy will be delivered as planned, as soon as H2.

As we said before, we keep transforming HotelInvest's stock base and this will support our performances this year once again. At the same time, we'll move swiftly in our project to create a subsidiary. We will come back on that during our next Investor Day on 5 October.

As for HotelServices, it is implementing strong operating efficiencies to cope with the challenging environment we discussed, as you saw it out there in H1. Typically there has been a huge number of actions taken in France since the beginning of this year. Accor does have a solid record of executing on this matter. At the same time, we keep going fast. And we will probably post, this year, a record expansion. Last but not least, we keep enlarging our business scope to the wider hospitality space. As was announced yesterday, we have entered into exclusive negotiations to buy John Paul, which is the largest concierge business in the world, and in which will create outstanding opportunity in the luxury world, at once joining forces with the hotel and private-owned businesses.

The Company has changed drastically over the past years. It has essentially improved its real estate portfolio, got rid of many underperforming assets. It has massively diversified, from a geographical standpoint, with a better balance. It has opened new businesses, which have to capture, next new growth level. Accor is in a much better position today than it ever was to face the current headwinds.

Moving to slide 25 and closing on outlook, what we saw over H1 was a contrasted environment, with being strong, France, Brazil Belgium being challenged. Profit reflects these trends, together with ongoing effect from our strategy, lifting hotel investment temporarily waiting on hotel services. H1 saw a lot of turmoil. Unfortunately H2 started pretty much in the same vein. Recent events, like the Nice attack, will impact our businesses in a magnitude which is difficult to assess today. Last, we will consolidate FRHI H2, which will probably bring somewhere between EUR40 million to EUR50 million of incremental EBITDA share as business remains pretty well oriented for Fairmont Raffles and Swissotel today.

Based on all of the above, and taking into account the ongoing execution, but the lack of visibility on business over summer, and more broadly over H2, we anticipate the EBIT for the year to be in the range of 670 million to 720 million for the year. This range is wider than what we've been giving in the past. But in view with the many recent event across the world, and we'll need summer to better monitor the consequences. We will refine the range with our Q3 revenue numbers by mid October. Thanks for your attention and now the floor is yours.

Question-And-Answer Session


The first question is from Geoffrey d'Halluin, Natixis.

Geoffrey d'Halluin

Good morning Jean-Jacques, good morning Sebastien. Three questions from me please. First of all regarding the OpEx linked to digital in onefinestay. I guess, according to my calculation, and regarding what you have spent in H1, you have another EUR10 million in terms of digital in H2 and another EUR15 million to EUR20 million for onefinestay, just to confirm that figure for H2.

Secondly, what's your thoughts regarding France and Germany? What kind of slowdown have you seen in terms of booking revenues? And have you seen any slowdown in the rest of France, I mean in the provinces, excluding Paris following the Nice terrorist attack? And same thing is maybe for Germany. And thirdly, so you said you expect EBIT contribution of €40 million to €50 million from Fairmont in H2. How much is it in terms of synergies in this amount?

Jean-Jacques Morin

Let me start in reverse order; I'll start with the easy one. So synergy, the amount is 6 million for the -- our share, which is very much in line with what we anticipated. For France and Germany, Germany there is really no significant effect that we can see in our books at this juncture. For Nice, we have seen reduction of about 15% RevPAR since this thing happened. But it is very much, at this juncture, localized in Nice and we don't see any additional effect in other places, the rest of the province. As you know the rest of the province has been a strong driver for us of -- for France in total as we had RevPAR over H1 of plus 6% in Provence when we had the minus 14% for Paris. Now moving to digital OpEx, so that I am clear, the total number for H1 in term of cash is 43 million. The 43 million is 11 million of CapEx plus 32 million of expenses, right? For H2 the number is 45 million. It is 32 million of CapEx and 23 million of OpEx. And this is not including onefinestay. And onefinestay you can take, as a rough cut at this juncture that it is 1.5 million per month of loss. I hope it clarifies.


Thank you. The next question is from Vaughan Lewis, Morgan Stanley.

Vaughan Lewis

I've got a few questions, if that's alright. The first one on FRHI, are you going to give the historic figures for that business now? And with the 40 million to 50 million guidance for the second half, what would that be on a full year pro forma basis for 2016, please? Secondly, on the new business lines that are outside hotels, if we take all of those in aggregate, so onefinestay and John Paul and so on, it looks like broadly breakeven at the EBIT line in 2017? Does that sound about right? And then what do you think is the medium term EBIT potential for those businesses that you've acquired so far? And then thirdly, could you just give us an update on the marketplace initiatives? Beyond the number of hotels, can you give us roughly what sort of revenue it's generating and what the run rate should be into 2017?

Jean-Jacques Morin

So on -- let me start with your first question, which is on FRHI. So the 40 million, 50 million is a rough cut the H2 number. It's accounting wise it's the number as of 12th of July which is the date at which we acquired the business. But we can say that it is H2. You have, in FRHI, something which is very much in line with what we also see in Accor, which is some seasonality in the number between H1 and H2. H2 is stronger than H1. So my hunch is that there is 10 million less profit in H1 than what you have in H2. So that gives you, I think, the answer on what is the total for the year.

In term of -- you had a question on France and the new businesses. So on the new businesses, it's a little bit difficult to answer you at this juncture. OFS is clearly losing money and we continue to lose money, as we had said up to let's say, 2019, at the time that we have ramped up the business, which is today in fact six cities, and is planned to be in 2020 at around 35 to 40 cities. So that's what is the pattern for OFS. And it is not different that what we had discussed when we initially bought it. In term of JP on the other hand, JP is today a strong growth company with a good earnings. And their EBITDA margins are somewhere I would say low 20%, somewhere between 15% to 20%. The exact number historically has been 17%.

And then for the number on the marketplace, the numbers on the marketplace, we are growing the pipeline from basically nothing back at the end of last year, to 1,600. If you were to guess, were to guesstimate what is the volume of activity of this 1,600, we are probably in the ballpark of 10 million of volume. But you need to be a little bit careful in the extrapolation; if you want to do an extrapolation, because it's an exponential growth. The way it's going to work is that we are today, I would say, refining, getting better at the cycle time that it takes us to be able to connect on these hotels. And so those numbers will very significantly grow over the coming period. So that's where we are, to be very candid.

Vaughan Lewis

Sorry [multiple speakers], on that, total transaction value in the first half is it, or.

Jean-Jacques Morin

Yes, yes.

Vaughan Lewis

Okay, great. Thank you.

Jean-Jacques Morin



The next question is from Jarrod Castle, UBS.

Jarrod Castle

Thank you and good morning gentlemen.

Jean-Jacques Morin

Hello [indiscernible].

Jarrod Castle

Hello, can you hear me?

Jean-Jacques Morin

Yes, yes. I was just saying hello.

Jarrod Castle

Okay, great. Yes, just in terms of the UK, you seem to be outperforming the market, so just want to get a bit of color on why and how. Secondly, can you give some color in terms of your business segments across the Group, and by that I mean how bookings are looking in terms of leisure, business and also group bookings. And then lastly, just looking into H2, besides the Olympics, are there any calendar events that we should be aware of? Thanks.

Jean-Jacques Morin

So the Olympics is obviously a very good one. We've got about 30 hotels in Rio and they are very, very full. So I think this is going to help the earning performance of Brazil in term of absolute number. Granted that, by the way, I'll make a comment on that. In Brazil, everything being equal, we are doing great. Everything being equal, we are really doing good, but anyway that's not, so that's. Besides that, I think in France you've got a relatively good calendar. You've got [indiscernible], you've got the motor show which is coming. You will also benefit, some way, somehow, not so much from a calendar effect but from the fact that H2 of last year was pretty poor.

In Germany, in fact you will also have a good calendar, because we had a good calendar in H1, but there are some more fairs coming up, and notably a car show. So the year for Germany is a record year in term of number of fairs. And you've seen that reflected, in fact, in the nice result that we delivered on Germany, and also in general term. In term of performance in the UK, I'd like to believe that we're good, but to answer you in a more pragmatic manner, I think, in the UK, we've done a lot of renovation. And we are now getting the fruit of that, and notably in the province. Besides that, today we still have a very nice occupation rate in London. We have above 80% in June. So the high level of occupancy rate, the fact that we have been renovating some of our properties and we also did purchase, if you recall, Amaris some months ago, all of that is driving a nice performance in the UK. So I think that would be the answer.

Jarrod Castle

Thanks. And anything just in terms of your customer profile between the group bookings, leisure and business bookings, when you look at the network, how things are looking?

Jean-Jacques Morin

Yes. I'll let Sebastien answer so that then you work a little bit at last.

Sebastien Remortan

At last. Alright. Typically you need to separate France from the other geographies. For all other regions what we see is fairly stable in leisure versus business, in group bookings and so on. France is different because, as you understand, what is penalizing the French market is typically, I would say, fear on travel. So what we see is the segments which are widely impacted are the ones who actually have a choice of destination. This is leisure and at some point that's going to be business groups. So typically, if you think of a conference, if you're organizing a conference for a company, do you want to be in Paris today versus Vienna or Barcelona? That's a good question. So what we have seen is a huge impact on leisure travel in Paris, actually much, much milder when it comes to business travel. And when it comes to business, the most affected segment was definitely MICE. So that's what we see; that is typical to Paris. And again, for the other regions, the trends are very, very stable across the board.

Jarrod Castle

Okay, thanks very much.


Thank you. The next question is form Vicki Stern, of Barclays.

Vicki Stern

Yes, hi. A few questions from me. So you called out the onefinestay loss and the digital impact in the bridge. So I think the total of those two comes to 23 million. I think the other thing in there is soft booking within worldwide structures, so was that an EBIT decrease of about 4 million year on year, because I think the total swing in worldwide structures was about 27 million from where you were in 2015. And if you could also just say what the outlook there is as well. Second question, you helpfully gave the H2 outlook for total digital costs. Can you just remind us what the H2 digital costs were last year compared with the 33 million of OpEx you're talking about for H2 this year? And then, finally, I appreciate it would be very difficult to forecast RevPAR, but can you give us just a sense as to what you have seen at the bottom and the top of your EBIT range?

Jean-Jacques Morin

So your computation is correct, Vicki, what you described. As far as sales booking and digital, what I would like to do is that, since so, when I go to depth in those numbers on the 5th of October, I would postpone the discussion of more details to that point in time, if that's okay with you. In term of the digital numbers for H2, the equivalent OpEx H2 2015 would be 27 million. And in term of us commenting on the range of EBIT, I guess your question is -- what exactly, Vicki?

Vicki Stern

Just to know what -- obviously it's a wide range because the range of outcomes are really significantly big. Just what is at the bottom and at the top in terms of RevPAR range?

Jean-Jacques Morin

We don't really look at it like that. The assumption that we do at the bottom is that, in fact, the situation in France would not further improve. We would -- we assume also that Brazil, the Gilmar, consequences of vote, would be negative to Brazilian business, both as short term and long term. We assume that there would be an impact coming from what happened in Germany over the last couple of days and then, potentially, propagation of that across Europe. If I want to maybe try to nevertheless answer your question more directly, I would say the following, 720 million assumes a RevPAR of 3%, 670 assumes a RevPAR of close to zero.


Thank you. The next question is from Tim Ramskill, Credit Suisse.

Tim Ramskill

Three questions from me please. The first is, can we just go into a little bit of detail on the rent cost within HotelInvest? That seems to have moved very substantially from -- by about €43 million in the first half, which surprised me slightly, given you've actually got fewer owned hotels in terms of your pie chart for the first half of this year than last year. So maybe you can just talk about what's driving that? Second question is, obviously business has been very acquisitive. Just a view as to whether now you need to take time to consolidate and bed in everything you've done, or whether you've still got appetite to do more? And then the final question, I know a couple of people have about Fairmont and its performance, but since the acquisition, given trading in various markets, do you have any change at all to your two, three year profit expectations for Fairmont, or are they exactly as they were at the end of 2015?

Jean-Jacques Morin

In term of Fairmont -- I always start with the last question, then I remember it. In term of Fairmont, in fact the trading of Fairmont is very good over H2. And this is coming from the fact that they have large resorts in Canada and there is an effect coming from Canadian dollar versus U.S. dollar, which you may have seen that it's quite significantly depreciated. And so you've got a flow of people going, in fact, into those resorts which are huge resorts, and into which we make good money. So I think that's on the trading of Fairmont currently.

In term of numbers going forward, as we just acquired the company like 15 days ago, I think I'd like to get the benefit of spending more time with the times for the budget process, in order to better understand. But you may recall that we had said that it would be earnings accretive at the end of the second year, on an exit prime rate basis. And we have, at this juncture, only positive vibes regarding what we see in FRHI.

The team is good. The synergies are being executed. The relationship with the various parties are extremely sound; nobody has been denouncing any contracts. So I think all of that is going in, I would say, the right direction. So there is no reason and the contrary, to believe that what we have been disclosing and explaining in term of growth back on 8 December, when we announced the acquisition, is going to go in any other direction. This is all good, I would say.

In term of the acquisition, I think, Sebastien has been on air a couple of times lately, saying that, for hotel services, we really needed to think about the model. He mentioned that in the call back in February. He's been mentioning it in a couple of interviews lately. And the quote he says lately is that, in five years, 30% of the businesses would be coming from origin or activities that we don't have today. So what it means is that we will continue to be intelligent and taking opportunities as it presents themselves. And John Paul is the last example of that. It has been very well received and I think it's going exactly in that direction of us thinking about the leisure business model going forward and trying to get an advance versus what the rest of the world does. So I think that tells you what we plan to do.

In term of rent, it's a good technical question that you're asking. There is a first effect which is coming from activity, because, as you know, we've got variable rental, variable leases. And so the variable leases in our world are in two places; one is France and one is Brazil. And guess what, France and Brazil are just very bad, hence we do get a significant credit on rents; it's about €10 million, to quantify. Then the other thing which is happening is that currency is helping us, because this is a cost. And you know what is not good on revenue is typically good on cost. So we do get, probably like again another 10 of favorable benefit. And then again our GDP and then Brazilian reals are driving that. And then the last one is the one that you would expect, which is disposals. So we've been disposing of [indiscernible] so all of that is happening.

Tim Ramskill

Okay, that's great. Thank you.

Jean-Jacques Morin

Sure, sure.


Thank you. We have no further questions.

Jean-Jacques Morin

I must have been boring everybody.


I am sorry we do have a follow-up question from Vaughan Lewis of Morgan Stanley.

Vaughan Lewis

Hi. Just one quick follow-up please. Of the 6.3 billion hotel services total volume, can you give us a rough split of that between Accor channels and how much is through OTAs, please. We've got this 31% from your loyalty scheme; so if you could give us the rest of the direct bookings that would be great. Thanks.

Jean-Jacques Morin

So since this is the last question, I give it to Sebastien, so that I don't seem like I'm under-polite.

Sebastien Remortan

Well, it's going to be a short answer. You know that we don't really disclose this kind of things. And what we've been saying is that digital sales keep growing and growing. They're now getting close to about 40% of total room sales in the Company. And the mix has actually been quite stable between OTAs and direct web distribution, at around 50/50. So again, we'll deep-dive into this in October, but that's the big picture.

Vaughan Lewis

Great, thank you.

Sebastien Remortan

You're welcome.


Thank you. There are no further comments.

Jean-Jacques Morin

Okay, good. Thank you everybody for listening to the call and your questions and looking forward to seeing you soon. Bye, bye.


Ladies and gentlemen, thank you for your attendance. This call has been concluded; you may now disconnect.

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