Muzi Li
Xinyi Wang
Laura Petit Walter Camille Davenel December, the 17th, 2012

Corporate Finance :

Financial analysis of Accor

camille.davenel@gmail.com
Table Of Contents

I) Introduction 2 II) Economic environment 2 1) Gross Domestic Product (GDP) 2 2) Interest rate 3 III) Industry environment 5 1) Life cycle of Hotel Industry: 5 2) Hotel industry tendencies 5 3) Identify and positioning with competitors 6 4) Research & Development Fees 7 5) Competitors & Hotel industry ratios 7 IV) The company: Accor 7 1) SWOT Analysis: 8 a. ACCOR/IHG/Starwood 9 V) Global Analysis of ACCOR 10 1) Year by year 10 a. 2009: 10 b. 2010: 11 c. 2011: 11 2) Analysis of ratios 12 a. Return on Equity (ROE) 12 b. Net Profit Margin 13 c. Asset turnover 14 d. Financial leverage multiplier 15 e. Total debt 16 VI) Conclusion 17 VII) Bibilography 18 VIII) Annexes 19

Introduction *
2011 ended on positive statistics concerning hotel groups’ growth: every leader is engaged into a worldwide run, because their bank account strength depends on a geographic balance between risks and opportunities. Important hotel groups have enhanced franchise development in 2010 and have increased their number of rooms, some going beyond 600 000. For several years now, Intercontinental Hotel Group is the world leader, but it is followed by three others American groups, Hilton Worldwide, Wyndham Worldwide and Marriott.
However, a European (French) group has been able to find its place in this competitive market, and by being the 5th hotel group, ACCOR is the group we have chosen to analyze. It is the most accessible one, with its well known brands like Mercure, Ibis, Sofitel or F1 and the competitors we chose are IHG (due to its leading position) and Starwood being the 7th hotel group.
In this report, it will be shown the important aspects which influenced ACCOR during the last 3 years and how it is going to affect a potential decision of buying it or not.

Economic environment
Gross Domestic Product (GDP)

World growth in real terms is 4.2% in 2011, down from 4.7% in 2010. Real GDP growth in advanced economics is just 1.6% in 2011 and 6.3% in emerging and developing countries/
Sovereign debt and government budget deficits have dominated the news in 2011, particularly in the Euro zone. The state of government finances in advanced economies is widely recognized as the key challenge facing the global economy.
Growth of world trade will moderate but global imbalances remain wide. World trade fell at a rapid pace during the Great Recession but the recovery was also swift. (Chart 1 2)

According to the International Monetary Fund list, those are the following GDP that could concern hotel industry (in millions of US $) * 1st: European Union with 17,610,826 * 2nd : USA with 15,075,675 * 3rd & 4th : China and Japan with total of 13,164,687
It represents the market value of all final goods and services from a nation in a given year and shows that USA, Europe and Asia are the main actors on the business market.

Interest rate

Europe
The interest rate of the European Central Bank in 2011 goes down from 1.25% to 1.75% by the end of the year. Among them, interest rate from 1.25 quickly down to 1.0, And it has remained from January to July. The rate from July (1.0%) quickly goes down to 1.75%, and keep so far. Throughout 2012, total ECB cut benchmark interest rate twice, drop is 0.25%. This chart shows 2011 European economic situation is not optimistic, by the influence of European debt crisis, the sluggish European economy as a whole. (Chart 3)

During 1999-2012, the ECB benchmark interest rate changed from 3.0% in 1999 to 2.5%. Then after six times rise to 4.55% in 2001 which is the highest points in nearly 13 years. From 2001 to early 2003, cut benchmark interest rate for seven times to 2.0%, and continues in 2006. After eight times rising for interest rates, at the end of 2007 benchmark interest rates went to 4.0%. From the end of 2008 the rate from 4% quickly went down to 1.0% in 2009. From 2011 to 2012, after a few times rise and rate declines to a historical low point of 0.75%.

USA
The FED (Federal Reserve System) interest rate has reached an historical high point on 8.0% in 1991, the rate floating up and down in nearly 20 years after that. The USA implemented the Quantitative Easing Monetary Policy, so the rate keeps at 0-0.25%. And the government also promised to maintain the ultra-low interest rates until the middle of 2015 at least. (Chart 4)

Asia
Japanese central bank’s interest rate reached 6% in 1991, since then the rate has declined annually. And the rate kept an unchanged ultra-low level on 0.1% and implemented an extremely loose monetary policy, in order to deal with troubled Japan economic deflation and stimulate the economy recovery continually. Meanwhile, the Japanese central bank believes that the speed of economic recovery may stay slow. This means in the long term that the yen will keep in depreciation and interest rates will remain in a low level for a long time. (Chart 5)
Chinese central bank interest rate floated up and down for 2% in 7 years until 2012. In the former three years, interest rate rises to 7.5%. Combined with the deflation in 2009, China government came out some loosing policies which brought the decrease of the interest rates. Then, to cope with inflation, the central bank raised the interest rates in June 2012. (Chart 6)

The ECB rate has declined to a historical low point of 0.75%. And the same has happened to the FED and the Japanese central bank .Compared with other two places, Japan has the lowest interest rate . With interest rates in several major economies already very low (and set to stay that way for the time being), central bank and government officials are now resorting to other, less commonly using measures to directly intervene in the market and influence economic growth .In case of inflection, China has a extremely high interest rate which reaches 6%.If an international company wants to expand the Asia market, loaning from Japan is the best idea.

Several countries that have implicitly or explicitly fixed their exchange rates to the currency of another country and whose inflation rates are higher than those of the foreign country, often experience persistent current account deficits and eventual devaluations of their currencies. Devaluation often brings a recession and inflation and thus pushes the economy into an inflation devaluation spiral, causing a serious setback in economic development. Other developing countries grow exceptionally fast and often face the opposite pressure on their currencies. A high economic growth rate is most likely accompanied by a high investment rate and high export growth as well. Successful exports produce current account surpluses, resulting in nominal appreciation pressure on the currency unless the central bank intervenes in the foreign exchange market and accumulates foreign reserves. Even if the intervention maintains the fixed exchange rate, unsterilized intervention results in inflation, and the real exchange rate appreciates anyway.
Chart 1

Chart 2

* * *
Industry environment 1) Life cycle of Hotel Industry: *
Hospitality products and services move through four successive stages: creation, growth, maturity, and decline. The model has been extended to describe individual hotel and restaurant firms and the entire hospitality industry as well, suggesting these businesses follow the same four stages (Hart et al., 1984). Creation is the initial stage when the new business or product is introduced to the market. It is during this period that the marketplace judges its initial value.
Growth is marked by a rapid increase in size (volume of products sold such as the number of hotel rooms or when additional restaurants built) and maturity reflects a stabilizing of size (sales, number of employees, etc.).
Decline occurs when the organization begins to shrink in size. Complete decline occurs when efforts to reenergize it fail or are not implemented.

High Relative market share (cash generation) Low Market Growth Rate
(Cash usage)
Stars |
High

Low
? | Cash generation and cash usage to finance their growth | The products will need a lot of cash to finance their launch and are not raising much | Cash Cows | Dogs | The firm has a strong position for its products on a low growth market. Maturity phase, with a lot of cash generation and few cash usage | The firm has a low position on this low growth market, it is the decline phase. The product isn’t generating cash but use much. | Hotel industry tendencies

The first results from 2010 indicate that the improvement seen in the final quarter of 2009 is continuing. For, according to the April 2010 Interim Update of the UNWTO World Tourism Barometer, international tourist arrivals are estimated to have increased by 7% in the first two months of 2010.
Growth was positive in all world regions during the first two months of 2010, led by Asia-Pacific (+10%) and Africa (+7%).
The pace of growth was slower in Europe (+3%) and in the Americas (+3%), the two regions hardest hit by the global crisis, and where economic recovery is proving to be comparatively weaker.
EUROPE
After 2 difficult years, European industry has reborn, according to Eurostat, with 1, 6 billions of nights in 2010 (which represents an increase of2, 8% in comparison with 2009. The real regrowth happened at the end of the first semester of 2010. The number of nights increased in most of European countries; the highest have been noted in Estonia (+14, 1%), Leetonia (+11, 6%), Lithuania (+11, 1%) and Malta (+11%). Then, five countries succeeded to gather 70% of the entire bookings: Spain, Italia, Germany, France and Great Britain.
2011 finished with positive performance indicators in the entire Europe; the RevPar increased by 5, 5% which demonstrates the improvement of the attendance and the progression of average rates.
USA
According to the HOST Study, each of the three key performance metrics, including occupancy, average daily rate and revenue per available room, reported decreases during every month of 2009.
2010 has been the beginning of the recovery for the American Hotel Industry, entirely fueled by increased demand, while rates remained flat.
According to Randy Smith, Chairman and co-founder of STR “There is no question that the past few years have been extremely difficult for the hotel industry, and while a number of properties have gone under or are still in deep financial straits, the industry overall continued to bounce back during 2011”.

ASIA
Asia-Pacific (−2%) showed an extraordinary rebound. While arrivals declined by 7% between January and June, the second half of 2009 saw 3% growth, reflecting improved regional economic results and prospects.
The Asia Pacific region has been the fastest growing tourism region in the world, Tourism is one of the most important sectors in a large number of Asia Pacific countries. Increases in economic growth, disposable income and leisure time, political stability, and aggressive tourism campaigns, among other factors, have fueled the significant growth of tourism.

Identify and positioning with competitors *
The main industry is Accor, the 5th group in hotel industry. It is a French group which occupies the whole hotel market worldwide.
The competitors which have been chosen are Intercontinental Hotels Group and Starwood, both American Groups, 1st and 7th in the hotel groups rating.
By positioning in comparison to its competitors, Accor had to find and develop its products distinctive advantages.

ACCOR | IHG | Starwood | Technologic & Ecologic innovations.Becoming the main reference in hotel industry | Operating system focused on the biggest markets and segments | Working globally and all across all teams, respecting communities, associates, partners and the environment. | Highlighting of the new brand “Ibis Mega Marque” to facilitate the openness. | Creation of distinctive brands focused on products and people | Acting to build lasting connections and loyalty. |

Research & Development Fees *
Accor doesn’t really have a R&D program, but it has established an intranet network where they can gather employee’s ideas (journal du net), Starwood neither.
IHG dedicated huge R&D fees in mobile phones: applications, mobile site in order to anticipate the trends and clients expectations.

Competitors & Hotel industry ratios * 2011 | ACCOR | IHG | Starwood | Europe | US | ASIA | Occupancy Rate | 65,45% | N/A | 72,8% | 66,4% | 60,2% | 66,8% | RevPar | +3,5 % | +6,2% | + 11,5% | + 12,35% $92,80 | +8,2% $62,79 | +9,8% $94 |

Evolution between 2010 and 2011 | ACCOR | IHG | Starwood | Revenues | +5,8% | +9% | +10,9% | Operating Profit | +30,2% | +26% | +5% | *
The company: Accor
Accor is a group which main product is the hotel industry. It was also a service industry at a time, like food/catering industry, or events and even education with a Hospitality school. But since 2010, Accor decided to stop the service industry and to be fully committed to the hospitality. It is now a 100% hospitality industry.

Accor’s market is very wide; it goes from the luxury to the economic market, with an emphasize on the economic market with its new concept: Ibis Mega Brand. This new brand architecture brings together in one family the ibis, ibis Styles (formerly all seasons) and ibis budget (formerly Etap Hotel) banners. The objective towards the middle segment market is to be flexible to adapt to the local market. The luxury market is an on-going growing market, especially in the Pacific-Asia with the Pullman hotels.

Accor’s objective for 2012 is to create a brand focus to boost the competition. Moreover, the group focuses on the new technologies, and the ecology movement to attract the customers of its time.
The sales have been growing in 2011, with a recovery of the activity in a economic crisis time, especially in Europe. Furthermore there has been an increase of benefit of 32,6%.
Accor has been created in 1967, it is today a 45 years old company. In 2011 the group held 4426 hotels on five continents. The total worth of those liabilities is 3 257 million euros, and its assets are worth 8 000 million euros.
The head office finds its idea from its employees. They created an intranet network in which the employees suggest their ideas and innovations online. More than 3200 workers have expressed about 9000 ideas. 3.000 suggestions have been applied and about 150 generalized to the group scale.

1) SWOT Analysis:

Strengths : * Present in 92 countries, over 4400 hotels and 530 000 rooms * 1 of top hotel operator worldwide & employer * Years of know-how & expertise in hospitality industry * 5th worldwide group * Focusing on online sales * Forecast system optimizing sales * Launch of the Accor Club Loyalty program in order to retain its clients all around the world * ACCOR has set up a huge debt management (reduce in 2011) * New hotels and rooms are created every year in order to position ACCOR in the entire world | Weaknesses: * Competitors also use forecasts * Accor caters to all segments, so it is difficult for customers to see Accor as a brand * Accor’s positioning can change depending on the client’s experience. Its image will be different for a Pullman client or a Ibis client |

Opportunities: * Hotel management education in many countries and bring international level service * New package for customers * Sustainable & inclusive growth * IHG has a weakness in its geographical concentration (top 20 countries have over 80% of the world’s room) US=25% => IHG vulnerable in the event of recession * Starwood only focused on luxury brand and US, sensitive to the changing fortunes of its domestic market, vulnerable to any potential global aquaturns | Threats: * Starwood has 871 hotels, 266 00 rooms, 7th group: * 25 vacation resorts & residential properties * Preferred guest program, use of latest technology * Consolidate its presence in foreign markets in A-P, ME, and AF&LA. * IHG: 1st group, innovation and high R&D, loyal customers management team, brand equity, financial position pricing, reputation management, unique product, raise money through tis debt. Emerging markets & expansion. 4480 hotels, 100 countries, 72nd in FTSE 100-> launch of EVEN. * Main competitors: best western, Cerdant, Choice int, Hilton, IHG, Marriott, Starwood… about 600 000 rooms | *

ACCOR/IHG/Starwood

Segment/Group | Accor | IHG | Starwood | Luxury | Sofitel luxury hotels, So Sofitel, Sofitel Legend | Grand continental, Even Hotels | St Regis, The Luxury Collection, W Hotels, Le meridian, Westin Sheraton | Upscale | Pullman, M Gallery, Grand Mercure | Staybridge Suites, Hotel indigo, Hualuxe international Hotels & Resorts, Crowne Plaza | Aloft, Element, Fourpoints | Midscale | Novotel, Novotel Suite, Mercure, Adagio | Holiday Inn, Holiday Inn Express, Candlewood Suites | | Economy | Ibis, Ibis Styles, Ibis budget, Adagio Hotel F1 | | |

ACCOR
Segment: luxury to economy segments
Target groups: business travelers, leisure travelers belonging to luxury, upscale, midscale and economy segment.
Positioning: Global, powerful brand that provides innovative, high quality service to all hotel customers and partners.

IHG
Growth: 26% growth in operating profit: 559million$
Revenue: 1768million$
Investment in accelerated growth strengthening its brands with a decrease of its debts.

Global Analysis of ACCOR 1) Year by year a. 2009: *
As showed before, 2009 has been a difficult year for the hotel industry and it will be demonstrated how it influenced ACCOR’s results. Referring to the ACCOR report, it is mentioned that their hotel activity turnover decreased by 10,10%. The change rate also affected the turn over (111 million of euros), linked to the euro reinforcement face to the English pound, the Brazilian Real and the 50% Venezuelan Bolivar devaluation. Then, the ASSET RIGHT strategy has not been helping with the release of 1,8% of the hotels.
The turn over decreased by 11,7% for the middle and upscale ranges and by 5,7% in economic hotel industry. The occupancy rate diminished by 6 points in every segments, the average rate also went down by 8,4% for the upscale range and the Revenus Per Available Room (RevPar) loosed 13% in every category.
It can be seen that ACCOR’s revenues are higher than IHG ones (5500 million more), however, their net income is less stable than those of Starwood and IHG. In 2009, it has been negative due to high expenses (depreciation, amortization, administrative and operating expenses which represent 90% of the sales). They also have a higher percentage of current assets than in 2010 and 2011, meaning that their investments were done on short term. Moreover, their liabilities represent 70% of their assets, which means that their investments are mainly financed by their debts, the half being short term. It signifies that they borrowed money in order to finance their higher current expenses (those expenses come from the world crisis). It explains why their retained earnings are negative: they chose not to retain net earnings to reinvest them in the business later or to pay their debt (-2,40% of total assets). In 2009, ACCOR chose to reassure its shareholders, by not asking them to invest (their earning per share by being negative show that the company chose not to allocate profit to its share of common stock. It also demonstrates that ACCOR’s profitability is negative and that they preferred to give more dividends to their actual shareholder’s than finding new ones.

2010:
If 2009 has been a bad year, 2010 appears to be a profitable year, even if their sales revenues are less important than 2009 ones, but the 2010 net income is higher (+ 315 million of euros). Then, it must be highlighted that ACCOR is allocating 92% of its revenues to its general expenses, but they seem to be compensated by a gain of more than € 4 000 million due to external incomes. Those incomes, as it will be explained later come from the opening of 214 hotels (25 000 rooms ; +76million €) and the positive impact of change rates (+200 million€). It is also explained by ACCOR itself, which shows that there has been a high increase of every brand margins and in particular the upscale ones (Sofitel and Pullman); finally average prices are growing too on principle markets.
In 2010, ACCOR chose to invest more in long term assets (+10% comparing to 2009), therefore they equally allocated those investments through their debt and their shareholder’s equity. In 2009 they only used debt to get financed but this year they have been looking for more investment from shareholders, so their share gained value (+17€). In the same way, with their cash flow increasing and their self-financing increase, they chose to retain 41% of their earnings in order to reinvest them in the future, that’s why the dividend decreased of 59%.
After such an increase in 2010, ACCOR was expecting to go back to a normal trend in 2011; we will show how it appeared.

2011:
2011 seemed to be the sign of stability, after the huge increase of 2010 net income. The net income of 2011 decreased of 98% in comparison with 2010, however it represents an increase of €315 000 millions comparing to 2009. In 2011, ACCOR has diminished its non recurring expenses in accordance to its debt management: current liabilities have increased comparing to 2010, but long term ones have decreased by 14,8%. It has brought the decrease of €678 millions of their debts. Moreover, ACCOR has also reduced its shareholder’s equity comparing to 2010 which is linked to the handover of Lenôtre and Group Lucien Barrière, in order to focus on reduce their debt and to focus on their hotel management only. This debt management diminish the earnings per share (- 15,92 comparing to 2010), and their cash flow in Operations stays stable, while the financing one is increasing. It means that ACCOR has more cash flow that can be allocated to immediate needs. Finally in 2010, ACCOR chose to retain some of their earnings, but in 2011, they didn’t need to keep their cashflow for the next years. This appears in the decrease of retained earnings (-10% comparing to 2009). It shows that 2011 is the year for reducing their debts and ascertaining the future with new investments in more hotels and rooms in the entire world, following the ASSET light plan. ACCOR is still not as stable as its competitors Starwood and IHG which show higher and more stables net incomes, but its dividends and its revenues are higher than Starwood’s and IHG. It must be taken in consideration while the three are compared.

2) Analysis of ratios a. Return on Equity (ROE)
Definition:

(Net Income / Equity). This ratio measures the firm capacity to generate profits using its equity. It let see how the firm generates growth with every dollars invested. It can be called rate of profitability.

1st level of analysis:

The general trend from 2009 to 2011 shows various evolutions of the three competitors, meaning that each of them has different growth of their profit and their equity. First fact, IHG is leading concerning the Roe. However from 2009 to 2011 IHG’s ROE is decreasing, Starwood’s seems to be almost stable (average of 15%), and ACCOR is the less stable one, by increasing per 40% from 2009 to 2010 and decreasing in 2011 to reach less than 1%.
The current trend (2011) proves that IHG remains the leader reaching 86% while the two others are much lower (less than 20%).

2nd level of analysis:

We can assume that ACCOR seems to be quite stable (less than 5% of ROE in 2009 and 2011) but a special event happened in 2010 (peak of 85%).
ACCOR annual report of 2010 has shown that they had a high rate of turnover (+7,1%), a high increase of revenues (+82,4%) and it can be explained by the “Split Operation” which brought € 3 600 millions. It appeared thanks to the sale of 48 hotels while the group keeps managing the brands during 12 years or more. This transaction had a positive impact of €282 million (after taxes), which reduces their debt. This operation highlights their willingness to focus on their real job, hotels operating.

By looking at their figures, it can be estimated that ACCOR has higher revenues than Starwood and IHG, however it also has high equity whereas Starwood and IHG have lower ones. It means that ACCOR needed a lot of investment from its shareholders to finance his growth, and it is demonstrated by their low Return on Equity. They have almost as much revenues than equity. However, the Common Time analysis shows that revenues are increasing by 11% from 2009 to 2011 and their equity increases by 16%. It means that they need more money to invest than what they actually raise. It is said that ROE is one of the most important ratio; however, in this case, by having a low profitability rate doesn’t mean that ACCOR is not healthy. It depends on ACCOR financial policy.

b. Net Profit Margin
Definition:

(Net Income / Revenue *100). It measures how much out of every dollar of sales a company actually keeps in earnings.
Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 20% profit margin, for example, means the company has a net income of $0.20 for each dollar of sales.
It is an indicator of the company’s pricing strategies and the cost control. The net profit margin can be used to overtake competitors via a pricing war.

1st level of analysis:

From 2009 to 2011, the three again has different evolution, IHG is leading the trend by reaching 26%, while Starwood and Accor remain under 10%. IHG’s Net profit margin is increasing by 13%, while Starwood is increasing by 7% from 2009 to 2011 and ACCOR ‘s Net profit Margin reminds again their hotel sale in 2010 (+83%).
The current trend shows that IHG is still the leader, by 18% and ACCOR is much more lower (less than 1%).

2nd level of analysis:

As explained in the definition, the lower the profit margin, the higher the risk. And the profit margin can be used to overtake the competitors by a pricing war. As we can see, in 2010 the profit margin is very high, and has increased of 64,44%.
Accor profit margin in 2010 was of 60%, it means that for every dollar or euro they earned, they kept 60cents. It is a pretty good profit margin, especially when compared with its competitors, which are situated at 25% for IHG, and 6% for Starwood.
This can be explained by the recovery of the economy after the 2009 crisis, and even more by an occupancy rate superior to 70% in 2010, henceforth the group was able to increase its prices, and beat hands down its competitors.
Looking at the earnings of a company often doesn't tell the entire story. Increased earnings are good, but an increase does not mean that the profit margin of a company is improving. For instance, if a company has costs that have increased at a greater rate than sales, it leads to a lower profit margin. This is an indication that costs need to be under better control.
Then, one solution to increase profit margin is to lower the expenses and increase the net income. This is what have been doing Accor by leasing its walls and made huge savings, which allowed them to increase its profit margin.

c. Asset turnover
Definition:

(Revenus/total assets). Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover.

1st level of analysis:

As a general trend, we can see that the three companies’ asset turnovers are increasing. Accor is the one who have the biggest growth from 2009 until 2011: about 0.20. Then IHG is very stable, it stays at 0,60. Finally, Starwood increase, but has a decrease phase in 2010 by 0.02.
It can be conclude that Accor has overcome its competitors in 2011 when it reaches 0,76 whereas its competitors stand 0,15 lower than it. As explained in the definition, the higher the number the better. 0,76 is a pretty good level, especially if we consider that 2 years ago it was at 0,60. We can expect it keeps increasing with the same trend for the next years.

2nd level of analysis:

2011 is a good year for Accor. The company has reach its goals and even overcome them, thanks to a steadily growth all year long on each of its segment, i.e. an increase of the prices and the demand, especially in 2011.
In fact, the demand kept on being high is the main European market, except on the south europ (Portugal, Spain and Greece crises), and stay very strong on the US market and in the emerging countries. Those last one are the important places to focus on nowadays to develop a company.
The high and middle segment already had recovered in 2010, but 2011 confirmed this recovery. This recovery is especially due to the brand Novotel and Pullman.
Now for the economic segment, there was an excellent performance not including the United States of America. As explained in Accor 2011 annual report, since 2010, this segment benefits from the development of the franchises, so with “royalties” in progress, it obviously create incomes for Accor. Also, the report revealed that 2011 is marked by an occupancy rate superior to 70%, which lead to an increase of the prices. The two main economic brands were the most affected: Etap Hotel and Ibis budget.

To talk about the USA, Motel 6 turnover has increased of 4,3% thanks to an improvement of its prices at the second semester. But the growths are less than expected due to a handover of assets and an exchange rate unfavorable. However, Motel 6 opened 55 franchises in 2011 and carry on its economic model transformation.

To conclude, Accor went on its efforts on costs management in 2011. The unique central distribution system of the group represents for the first time 60% of the rooms sales in 2011. Accor has improved its operating performances and register a transformation rate better than the objectives.
The essential cause of improvement of asset turnover is due to the progress and the very good dynamic of the economic segment, as well as the change of the Accor model in “Asset light”.

Financial leverage multiplier
Definition:

(Total non-current liabilities/total shareholder’s equity). It is the degree to which an investor or business is utilizing borrowed money. Companies that are highly leveraged may be at risk of bankruptcy if they are unable to make payments on their debt; they may also be unable to find new lenders in the future. Financial leverage is not always bad, however; it can increase the shareholders' return on their investment and often there are tax advantages associated with borrowing.

1st level of analysis:

The general trend shows that the financial leverage of the three competitors has the same evolution from 2009 to 2011: they all decrease at a different rhythm. More precisely, IHG used to have a high degree of leverage in 2009 (19,42) due to important non-current liabilities in comparison to their equity. Then it decreases until 5,24 in 2011, nearer from Starwood and ACCOR which stay behind 5 from 2009 to 2011.

In 2011, it can be seen that the three competitors have quite the same level of financial leverage. It means that they all have tried to reduce the impact of their debt on their company.

2nd level of analysis:

From the figures, it can be demonstrated that ACCOR has reduced its noncurrent liabilities by 44% from 2009 to 2011, however their equity has slightly increased by 16% between 2009 and 2011. It means that ACCOR has chosen to finance its development through its shareholders equity rather than its debts.
If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing.
Borrowing money helps to save assets and to secure a return on it, only if the debt cost is inferior to the profitability of the economic asset. If the debt helps the ROE to increase, the firm value will be improved.
In the case of ACCOR, from 2009 to 2011 the financial leverage is diminishing (-1,49) and the Return on Equity is increasing (+10%). It means that by reducing their debt, ACCOR has succeeded to improve its ROE. Shareholder’s equity has increased and the earnings per share have also increased from 2009 to 2011 (+1,39€), meaning that ACCOR has preferred to raise the amount of earnings per share in order to find more shareholders so that they can finance their development. This policy appears also in the decrease of dividends per share : from 2009 to 2011 they have lost 40 cents, meaning that with the increase of their shareholders equity, they have to pay them less.

Total debt
Definition:

(Total Debt / Total Assets)
The total debt ratio shows what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load.

1st level of analysis:

As a general trend, it can be noticed that the three competitors have the same evolution of their debt ratio: the three are starting at a high level in 2009 and they decrease in 2010 and 2011. IHG is losing 12 points, Starwood 10 points and ACCOR 21 points; it shows what had been said in the first part : ACCOR has launched a debt management policy. It is also linked to the financial crisis which happened in 2009, companies had to borrow money in order to be able to go on running their business, but after they tried to diminish their debt in order to decrease their financial risks.
In 2011, ACCOR has the lower debt ratio comparing to IHG and Starwood, but it seemed that it increased slightly (1%) between 2010 and 2011 linked to the fact that ACCOR’s assets are much lower than its liabilities comparing to 2010.

2nd level of analysis:

Considering figures, it must be highlighted that IHG’s current assets have increased from 2009 to 2011 while their debts (long term and current have decreased). For Starwood and ACCOR, it appears to be the same trend. It means that they all have been financing current assets which helped them to reduce their debt. ACCOR chose to sell some its assets in order to decrease its debts (handover of Lenôtre and Group Lucien Barrière), but at the mean time they also opened new hotels and rooms.

Conclusion
Would you buy Accor, or not ?
In France, one of the Landmark of the stock exchange and one way of investing in blue chip is to refer yourself to the CAC 40. In fact, the CAC 40 is the main stock index of Paris stock exchange. This index is calculated from the 40 more actives companies on the French share market. This index is often adjusted, with adding or removing companies and is also calculated every day nonstop. Among the best firms of the CAC 40 we can find Suez Environment, EDF, Peugeot PSA, Accor, Axa, BNP Paribas, Danone, l’Oréal…

So yes, we would definitively buy Accor. Here is why: * First, it is one of the leader of the market, fifth to be exact, IHG coming first. It is a blue chip to bet on because Accor can evolve with its time and the market. As we demonstrated at the beginning even if 2009 has been a difficult year, they have been able to start over and recover. * Even if the ROE in 2010 is reaching a peak, it must say that Accor has a stable ROE when comparing 2009 to 2011. It represents a stable company with lower risk. Very unstable ROE imply too much risk. We can say that Accor is a safe company to bet on. * Then, its Net profit margin is quite low in 2011, but it is higher than 2009 which shows that ACCOR is reacting in order to increase its profitability. In 2010 they were the leader on the market thanks to a great occupancy rate and they were able to increase their prices henceforth made a lot of profit. Also, the asset turnover of Accor has overcome the competitors and keeps on increasing since 2009 so it is heading toward a good future. * Its debts are decreasing and their financial leverage is decreasing reaching 2,12, which means that ACCOR is able to use their financing with relevance; they are reducing their financial risk and attract more shareholders every year. * Finally, 2011 is a good year and it gives a good outlook for the following years.

These are all the reasons why we would buy Accor. It is a stable company, capable of adapting to all situations and with a good potential for the future. If ACCOR succeeds to impose its brands on the diverse continents, they will raise their revenues and maybe win some places into the hotel group ranking.

Bibilography * http://www.travel-impact-newswire.com/2012/01/str-global-releases-world-hotel-performance-results-2011/#axzz2FKvBw0qa * http://connect.phocuswright.com/2011/01/five-year-us-hotel-occupancy-%E2%80%93-average-rate-%E2%80%93-revpar-comparison/ * http://www.accor.com/fileadmin/user_upload/Contenus_Accor/Finance/Pressreleases/2011/FR/20110824_cp_s1-2011.pdf * http://www.kpmg.com/fr/fr/issuesandinsights/articlespublications/press-releases/pages/20110919-bilan-et-perspectives-pour-les-chaines-hotelieres-francaises-2010-2011.aspx * http://www.tendancehotellerie.fr/articles-breves/banque-finances-economie/2259-article/resultats-ihg-2011-croissance-de-26-du-benefice-d-exploitation * http://www.veilleinfotourisme.fr/bilan-hotelier-europeen-2011-entre-satisfaction-et-interrogation-84014.kjsp * http://www.lefigaro.fr/conso/2011/02/28/05007-20110228ARTFIG00705-l-hotellerie-europeenne-se-ressaisit.php * http://www.travelpulse.com/us-hotel-industry-total-revenue-rises-75-percent-for-2011.html * ACCOR annual report for 2011, 2010, 2009 * IHG annual report for 2011 * Starwood annual report for 2011 * ACCOR Consolidated Financial Statement and Notes for 2011 and 2009

Annexes
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