High Quality First-Half 2008 Results for Accor

France-based Accor Group’s first-half 2008 results reflect the impact of the strategic initiatives deployed since early 2006. Disposals of non-strategic businesses and restructuring of real estate to improve profitability

To refocus the Group on its two core Hotels and Services businesses, a number of non-strategic assets have been sold, for a total of EUR1.4 billion.

As part of the Hotels business’ “Asset Right” strategy, hotel ownership structures have been changed in a commitment to improving return on capital employed and reducing earnings volatility. This process has generated nearly EUR4 billion since 2005.

This strategy has also benefited Accor shareholders, who have had EUR2.4 billion returned to them since 2006 in the form of share buybacks and special dividends.

Revenue declined 6.2 percent (EUR249 million) year-on-year, due to a loss of 12.6 percent (EUR507 million) in revenue from asset disposals. Operating profit before tax and non-recurring items rose by 3.6 percent as reported, reduced by 4 percent (EUR14 million) due to asset sales and 9 percent (EUR35 million) due to the return to shareholders.

On a like-for-like basis, operating profit before tax and non-recurring items increased by 16.0 percent, and by 25.0 percent excluding the impact on financial expense of the return to shareholders.

Net profit stood at EUR310 million versus EUR596 million in first-half 2007, a 48.0 percent decline that primarily reflected the EUR255 million decrease in capital gains. Operating margin, improved by 1.6 points over the period.

Return on capital employed, at 14.5 percent at June 30, 2008, has improved by 1.7 points since June 30, 2007. The Group has disposed of EUR749 million in US Economy Hotels assets and EUR653 million in non-strategic assets, while at the same time focusing on higher return businesses like Economy Hotels in Europe, with a 22.8 percent ROCE, and Services, with a 21.0 percent ROCE at June 30, 2008.

Accor is now relying on the two businesses - Economy hotels in Europe and Services - that are low cyclical businesses and account for nearly 70 percent of EBIT compared to 44 percent in 2001. Those two activities proved strong resilience during the last cycle (2001-2003). In first half 2008, their combined margin improved by 1.0 point.

As a result of those transformations, the full-year target is to report profit before tax and non-recurring items of between EUR910 million and EUR930 million, reflecting a 16 percent increase in profit before tax for the year (like-for-like and excluding the impact of the return to shareholders) which takes into account a more uncertain economic environment.

Anticipating an economic environment that might remain difficult in 2009, Accor will implement an EUR75-million cost savings plan over 2009 and 2010, covering particularly corporate overheads, organization of head offices in Latin America and the United States, marketing expenditure, purchasing, and new IT projects.