Skift Take

Accor's exposed to Europe's ailing economies, and is now moving away from its traditional base towards Asia. Also "asset-light" model of makes it more of brand operator that owner, which makes sense.

Accor, Europe’s biggest hotelier, plans to cut costs, expand in emerging markets and move towards franchising or managing hotels for others in a bid to boost profit margins and cope with weak trading in its main markets.

The world’s fourth-largest hotelier makes over 70 percent of its sales in Europe and is more exposed to the region’s ailing economy than larger rivals InterContinental, Marriott and Starwood.

The group, whose brands range from the luxury Sofitel chain to budget Ibis, said on Wednesday its strategy would boost its operating profit margin to over 15 percent by 2016, from 9.3 percent last year.

However, some analysts had hoped for more, and Accor shares were down over 4 percent in afternoon trading.

“We believe this new group margin is hardly stretched and quite disappointing,” said Bank of America Merrill Lynch analysts, who had hoped for a target of about 18 percent.

The majority of Accor’s hotels are owned or leased, generating lower profit margins and returns on invested capital than franchised hotels or those managed for other parties.

The group, which sold its U.S. Motel 6 chain in May for $1.9 billion, set a target in August to operate 80 percent of its rooms under franchise or management contracts by the end of 2016, up from 56 percent.

On Wednesday, it spelled out the details of the strategy, which it said would involve the restructuring of 800 hotels mostly in Europe, as well as the expected benefits.

Along with boosting profit margins, the move to a less cash-consuming business model would allow it to cut net debt by 2 billion euros, it said.

Accor also set a target to generate 50 percent of its earnings before interest and taxes (EBIT) from emerging markets by 2016 against 15 percent at the end 2011, with plans to expand in Asia as well as Latin American markets such as Brazil.

In addition, the group said it would seek cost savings of 100 million euros ($134 million) between 2013 and 2014.

Accor said its 2012 EBIT reached 526 million euros, against its forecast for 510-530 million and in line with analysts’ average estimate. That was a like-for-like rise of 3 percent from 515 million in 2011, restated for the sale of Motel 6. [Full earnings here in release (PDF)]

Accor’s performance, which reflected a rise in room rates across every segment and robust demand in emerging markets, echoed positive trading updates from its global rivals.

World number one InterContinental on Tuesday posted an 11 percent rise in 2012 profit, underpinned by a strong U.S. business and expansion in developing markets.

Marriott also reported better-than-expected quarterly results as room revenue rose, aided by rising international travel and higher rates, and the hotel operator said it expected per-room revenue to rise further in 2013.

Accor raised its 2012 dividend by 17 percent.

At 1415 GMT, its shares were down 4.1 percent at 27.87 euros.

($1 = 0.7487 euros) (Editing by James Regan and Mark Potter)

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Tags: accor, earnings

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