Accor cut its profit forecast for the full-year last week, a move that helped its share price to drop slightly, by just over 1%, on the day of its interim figures announcement.
But an overly negative perspective is undeserved given that profits were still expected to grow by 10% in the second half, as against 25% in the first half, and, outside of the US and southern Europe, demand was holding up.
The forecast for 2008 is now profit before tax of between Eu910m and Eu930m against last year's total of Eu907m. Until last week's statement, profits had been expected to come in at Eu940m.
Nonetheless, the expected increase in like-for-like profits for the full-year is still 16%. As Accor said, the 10% rise in the second might be less but it is still significant.
Another striking feature of the numbers was just how well trading has been holding up. Hotels historically lag the overall economy by six months or so but a year into the credit crunch and the numbers are still robust.
The trends for July showed revpar at upscale and midscale hotels in Europe up 3.0%, economy hotels in Europe up 1.7% and only the US economy hotels in negative territory at -3.0%. With the US, Accor pointed out that the summer was predominately a leisure demand period and so far it had been leisure customers where demand had been weakest.
Perhaps most surprising was the strength in the UK, which Accor admitted surprised it as well. Accor's two main markets of France and Germany were both strong with Spain, Italy and the Benelux being the weak spots.
During the results presentation, Accor was keen to emphasise its defensive nature. It pointed out that 67% of its EBIT in the first half came from services or economy hotels in Europe. This compares to 44% of EBIT from these two sources back in 2001.
The company also revealed it was seeking to make Eu75m savings in overheads, Eu50m in 2009 and the rest in 2010. Few of the cuts would be of staff, with the exception of the already in train cutbacks in the US following the Red Roof sale and in the reorganisation of Latin America.
The main savings are expected to come from better purchasing, a trimming of marketing expenditure (partly from scaling back the higher recent spend involving brand launches) and more efficient information technology. The cost of redundancies would be minimal, said the company.
But Accor's real story is its ongoing transformation, refocusing on services and hotels. It has shed Eu1.4bn of non-strategic assets since 2006.
And it has also sold Eu4bn worth of hotel property since 2005 as it pursues its "asset right" strategy. This year it is to make Eu1bn of disposals, having completed sales of Eu482m, signed Eu119m and on course for a further Eu377m.
A couple of the most recent deals are the Sofitel Amsterdam which was a Eu92m sale and manage back struck in May at 18 times 2007's EBITDA or Eu505,000 per room.
The more recent sale and manage back is the Sofitel Paris Le Baltimore, completed in early July for Eu27m which is 13 times 2007's EBITDA or Eu345,000 per room.
Such deals, particularly a number of portfolio transactions, have resulted in owned and fixed lease hotels accounting for just 44% of Accor's portfolio compared to 65% back in 2001. The target for 2010 is to have owned and leased at just 23% and managed, franchised, or variable leases accounting for 77%.
The fruit of these changes is to make the company less cyclical and improve margins. EBITDAR margin was up 0.8 points and return on capital employed is almost at the 15% target, having reached 14.5% compared to 12.8% at June 30 last year.
The worries about cyclicality stem from a slowdown in some parts of Accor's empire, notably the US. Like-for-like sales in the US were flat, although thanks to the Red Roof sale EBITDAR was down 38.9% to Eu109m. But the like-for-like EBITDAR margin improved by 0.2 points. Across all hotels, margin improved 0.6 points to 31.1%.
The most impressive numbers, however, come with return on capital employed. CFO Jacques Stern described the 22.8% ROCE achieved by economy hotels in Europe as "a fantastic result". Even upscale and midscale are in double digits with 11.9% and US economy hotels are at 9.8%.
Accor was also bullish about its pipeline. This has grown in the six months to June 30 to 101,000 rooms. The 23,000 new projects signed in the period was 10% higher than in the first half of last year.
A big push is currently under way into China where there are currently 63 hotels open with a pipeline of a further 86 hotels. The first half saw 24 new contracts signed in the country.
The expansion is being accompanied by a major brand restructuring. Sofitel's repositioning is in progress with 19 hotels under the flag adopting other Accor flags or leaving the Accor network since early 2007.
The new upscale Pullman brand numbered 20 at the period end with Accor bragging that the first-half revpar was up 3.5% (although this is also partly a judgement on the poor standard of the Sofitels that much of this network has been created from).
A new collection of hotels, called MGallery, is being launched this month. These are hotels that are too small and boutique to be Sofitels or Mercures. The scale niche is at the top end of the Mercure brand.
The first couple of properties adopting the MGallery classification – Accor is calling it a label rather than a brand – are Grand Hotel Cabourg and Le Royal Lyon. The target is to have 40 hotels in the collection by 2010.
"We are very focused on segmentation rather than addressing the market with broad brands," said CEO Gilles Pelisson during the results presentation. There is little marketing going behind the collection. A total of 15 Sofitels will switch, being rebranded under their own names.
Also this month, Accor is launching a new loyalty programme across all its brands. At launch it will be rolled out to 2,000 hotels in over 80 countries. The scheme is to be entirely online.
Separately, on August 27, Accor's board put out a statement that after extensive talks with Colony and Eurazeo, which combined currently hold 21.6% of the company's shares, the board had noted there was full support for Accor's expansion strategy and there was no intention to seek control of Accor.
The chairman of Eurazeo's management board, Patrick Sayer, was appointed onto Accor's board, giving Colony and Eurazeo a total of three seats.
HA Perspective: The take-away for many investors from Accor's results was that of a far more cautious tone. But looking at the basic numbers it is hard to see a firm basis for such a bleak outlook at present.
Clearly, there is a downturn ahead but Accor is forecasting growth, and it remains, at least for the rest of the year, as double digit.
Accor has, like major rivals, pursued a strategy of reducing its cyclicality by moving out of ownership. And it is the most exposed of its rivals to the resilient European economy hotel sector.