Accor Reports First Half 2009 Results

In an extremely weak economic environment, Accor’s consolidated revenue for the first half of 2009 totaled €3,410 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, 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 (earnings before interest, taxes, depreciation, amortization and rental expense) 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 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 €72 million, out of the announced €120-million target for the year.

Accor confirmed 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 €25- 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 amounted to €924 million in the first half of 2009, down 15% 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 €37 million out of the full-year target of €80 million.

It represented 27.1% of consolidated revenue, compared with 29% 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-forlike.

EBIT fell by 43.0% to €242 million as reported and by 39.0% like-for-like. The fact that some rental expense is indexed to revenue helped to save around €15 million over the period.

Operating profit before tax and non-recurring items stood at €182 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 €114 million, compared with €264 million in first-half 2008.

The net loss, Group share, which came to €150 million, was impacted by €194 million in asset impairment losses (of which €118 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 €53 million in restructuring costs, primarily related to Group reorganization programs.

In first-half 2008, the Group reported a net profit, Group share of €310 million, lifted by €130 million in capital gains on asset disposals.

Funds from operations declined to €378 million from €487 million in first-half 2008.

Net debt stood at €1,961 million at June 30, 2009, after €193 million in expansion expenditure in the Hotels and Prepaid Services businesses, €77 million in asset disposals and the payment of €201 million in dividends. Net debt also includes two non- recurring items: the acquisition of an additional 15% interest in Groupe Lucien Barrière for €269 million and the payment of €242 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 €1.2 billion carried out in the first half, the Group has €1.8 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 debt4 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.

JULY 2009 - HOTELS

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.

OUTLOOK - HOTELS

In the hotels business, Accor is not expecting any major improvement in business in the second half of 2009.

The plan to reduce operating costs in the owned/leased hotels will be stepped up to €150 million from €120 million, to ensure that the response rate holds steady at 35%.

Accor’s Board of Directors has approved Chairman and CEO Gilles Pélisson’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.

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