Analysis of The Three Financial Statements and Ratio Analysis

A project by (following the alphabetical order of surnames):

Rita Gucciardi, Laureline Palmade, Cecilia Varela, Iulia Voinic

Accounting Analysis for Businesses in the Tourism Sector Degree in Tourism

Universidad Rey Juan Carlos

Table of Contents

Accor’s History ..................................................................................................................... 3

Accor Brand Portfolio ....................................................................................................... 6

Global Situation of the Hospitality Industry ............................................................. 9 Key Findings .................................................................................................................................. 9 Global and Regional Performance ......................................................................................... 9 Competitive Landscape ...........................................................................................................11

Marriott ................................................................................................................................................... 11 Hyatt ......................................................................................................................................................... 11

Future Performance .................................................................................................................12

Overview ............................................................................................................................. 13 Variation of Total Assets, and Relationship between Total Liabilities and Total Equity .............................................................................................................................................13 Analyzing the five steps of the Income Statement .........................................................16 Evolution of Net Cash From Operating Activities (NCOA) ...........................................22

Financial Statements and Ratios Analysis .............................................................. 23 Balance Sheet Analysis ............................................................................................................23

Liquidity Ratios 2010-2013 ............................................................................................................ 23 Working Capital in % 2010-2013 ................................................................................................. 24 Turnover Ratios ................................................................................................................................... 27 Asset Turnover ..................................................................................................................................... 28 Debtors and Creditors Turnover Periods ................................................................................. 29

Analysis of Income Statement ...............................................................................................33 Return on Sales % (ROS) .................................................................................................................. 33 Return on Assets % (ROA) .............................................................................................................. 33 Return on Equity % (ROE) .............................................................................................................. 34 Gross Profit Margin ............................................................................................................................ 34 Growth in %........................................................................................................................................... 35 Over Sales in % ..................................................................................................................................... 37 Earning Per Share (EPS) ................................................................................................................... 39 Dividend Per Share (DPS) ................................................................................................................ 39 Price Earning Ratio (P/E) ................................................................................................................ 40

Cash Flow Analysis ....................................................................................................................41 Evolution of Net Cash From Operating Activities (NCOA) and Free Cash Flow ........ 41 Cash Flow Liquidity Ratio ................................................................................................................ 42 Quality of Income Ratio .................................................................................................................... 43

Comparison with Competition and Sector .............................................................. 44 Comparison with Meliá, NH and Sector .............................................................................44

Conclusion .......................................................................................................................... 47

Appendix. Financial Statements and Tables (Magnitudes and Ratios) ........ 48

References .......................................................................................................................... 67

Accor’s History Accor, worldwide known hotel chain is a Paris based Hospitality enterprise, is currently ranked among the top 5 leading hospitality groups. Accor provides hotels for every budget, from offering 5-stars hotels as Sofitel to a low budget ones, represented by ibis brand. The early days of Accor starts with Gerard Pelisson and Paul Dubrule, opening their first hotel, Novotel, in northern France nearby Lille, on the side of a busy road. French hotel industry back in those days was majorly covered by rural inns or very luxurious hotels in the city centers, while roads or important access sites as airports were not taken into account. Dubrule decided to build an American highway inspired hotel together with Pelisson setting a medium price range for its rooms. The opening was possible through Pelisson’s contacts in order to secure the bank loans. The success of this opening was settled due to the opportunities that the European market offered back then, which was at the time quite unexploited. After the first opening of Novotel, few struggles in legislation came but however soon there were hotel openings along the airports or at the seaside and mountain areas. The company’s specialty has become expanding through variety, offering possibilities for every need. Back in 1973 the Ibis brand was created and the first hotel under this brand opened the following year. In 1975 the company acquired Mercure hotel chain, which pushed the company into city centers and the business travel market. During the late 70s the Novotel was the main hotel chain in Europe with 240 hotels in Europe, Africa, South America and Middle East. In 1980s Accor invested in Jacques Borel International, owning restaurants and Sofitel luxury hotel chain, however soon the Pelisson and Dubrule bought Sofitel. This hotel was aiming at leisure and business travelers with a taste for urban lifestyle, nearby airports and positioned strategically nearby important tourist areas. Sofitel made it to Accor’s higher end. The company as well started to venture foreign markets, as trying to penetrate (though failing) the American market, which by then was saturated. Despite of this unsuccessful move, Accor opened Accor Academy, investing heavily on training and exploring new technologies. During the 80s, the company has also purchased Africatours, the largest tour operator for Africa, which became the third largest investment of the company after hotels and restaurants. In 1985 the company has developed a new brand called Formule 1, a one-star hotel chain without reception nor staff, restaurant offering a bathroom for every 4 rooms, setting for truly competitive and budget prices directed to youngsters and young families with low resources. The success of this chain was enormous which pushed Accor to have another 30 establishments under construction around 1987. In 1986, Accor reached 2$ billion in revenue and 32$ million net profits. Novotel present in 31 countries by then was the main source of profit while Sofitel had a hard time facing competition in the luxury market. However Accor remained in the top due to its quick expansion and fast moves in the European market.

In 1987, there was another idea for the future of the brand, this time focusing on elderly housing providing through Hotelia a 24h of services. In 1988, Accor invested in the important French fast-food chain, France Quick, launching the Free Time fast food chain. The company was with no doubt expanding and acquiring more recognition, however the bid that took place for the Hilton Hotels empire as well as the merger with Club Mediterranée were not successful. One of its biggest moves in the American market came with the purchase of the Motel 6 hotel chain, in the early 90s, for around 1,3$ billion. This has made Accor the second largest hotel company in the world (talking about rooms). Motel 6’s success during these times was related to Accor’s possibility to pay cash and the purchase of company-owned properties. Accor started a hotel rebranding back in 1993 in order to eliminate Pullman Hotels International chain (acquired in 1991) and expand its Sofitel and Mercure together with the restaurant chains. In 1994 Accor merged its own travel agency with Carlson Travel Network, calling the joint Carlson Wagonlit Travel, owned half and half. The company suffered a slowdown in mid 90s due to the crisis in the travel industry as well as its liabilities accumulated but soon found funds from Prince Al Waleed. The business has started to get rid of the debt and raise funds for more expansion through selling some real estate secondary elements of the business. Despite this strategy, which was aiming to focus on the hotel business, the other business Accor was managing was gaining more and more position in the market. Eventually, the hotel business remained Accor’s principal source of presence and recognition. Now Accor divided its hotel business in 2 categories, business (Mercure, Novotel, Coralia, Sofitel and leisure (Motel 6, Ibis, Formule 1, Etap Hotel). In 1997 the two chairmen, Pelisson and Dubrule, reorganized the management of the company by reducing their involvement in decision-making. In this same year, Accor has started to restructure in order to reduce liabilities through workforce reduction and selling properties in North America and Europe. However the story was not over, the group has made another important move in the American market buying Red Roof Inns, an upgrade of Motel 6. During the early 2000s, Accor introduced finally its luxurious brand, Sofitel to North America in major cities as Chicago, Huston, Dallas, Los Angeles, Miami, New York, Washington D.C. and San Franciso, opening a total of 254 hotels of which 12 were Sofitels. Another important thing to mention for this period is the launching of the first website, Accorhotels.com. Starting 2001, the group has started to focus on the Asian market and expanding through the continents as well as launching a new brand called Suitehotel especially designed to meet comfort and functionality. The company teamed with Hilton International and Six Continents to launch a new reservation system called WorldResEurope.

During this time hard times hit Accor’s main competitors, leaving the group as a strong pillar in the market hoping for more expansion and aiming to close the year 2003 with 4000 hotels worldwide. The group has almost made it, closing 2003 with 3894 hotels opened at the time, while the American budget brands and the other services (restaurants, casinos, travel agencies, etc.) were suffering a decrease while the European luxury and economy brands. In 2011, Accor introduced its new slogan ‘’Open new frontiers in hospitality’’ while rebranding its umbrella. The group has also started a partnership with Europcars and sold its stake with Group Lucien Barrière for 268 million euros and planning on a new expansion with Mercure brand through UK using the franchising model. They also promote and unveil a new strategy in order to rebrand its economy brand ibis: ibis style and ibis budget. In March 2012, Accor opens its first Mercure hotel in Russia, hitting a new record in expansion and a healthy increase in revenue due to the new management system of franchising. In May the same year, the group sells Motel 6 for 1,5 billion dollars allowing the business to reduce its net debt by 780 million euros. As of year-end 2012, the consolidated hotel base totaled more than 450,000 rooms, of which 37% were located in emerging markets and 57% were operated under management or franchise contracts. In 2013, Accor re-emphasizes the group’s two core competencies, i.e. asset management and services to owners, by separating their functions, their missions and their targets in order to build a better performing business model. Nowadays, the world’s leading hotel operator in the economy and budget segment with over 1,700 hotels is celebrating today its 1000th ibis hotel around the world. Accor is the largest hotel group operating on French and International market

Accor Brand Portfolio Accor’s brands are divided in 14 branches, serving budget, economy, midscale, and upscale and luxury markets. The actual brands are: Sofitel, Pullman, MGallery, Grand Mercure, The Sebel, Novotel, Suite Novotel, Mercure, Adagio, ibis, ibis Styles, ibis Budget, hotelF1 and Thalassa Sea &Spa.

Sofitel: These hotels are made with the intention of providing the clients the French luxury and the best things about its culture mixing art, comfort and modernity. This chain started in 1964 and joined Accor in 1997, it has 120 properties in 40 different countries.

Pullman: Upscale lifestyle hotel brand, they are a new generation of Accor. It is formed by 89 resorts along 26 countries based on a warm welcome and a customized treatment to provide

the clients all their needs being there for business or leisure. MGallery: Its full name is Mercure Gallery, and it’s a collection of 50 hotels in 21 countries with a luxury architecture and design. They have a strong relationship with the culture and heritage of the places where are located, and they try to transmit a unique and memorable experience to the visitor.

Grand Mercure: This chain is mainly located in Asia, they are an upscale collection of hotels and apartments and they are known by different names depending on the country, in China its name is Mei Jue, while in Indonesia it is Maha Cipta.

The Sebel: The Sebel is a brand of apartments that offer the clients an independence and control in luxury places where they can feel like being home. There are a total of 19 apartments in 2 countries and with more than a thousand of rooms.

Novotel: Novotel counts with around 400 hotels and resorts in 58 countries, in the main international cities of business and touristic destinies. They are all homogeneous, provided to facilitate the needs of the travelers enabled for working activities and offering services like child spaces, rooms for meetings, relaxing areas and a kind team of employees.

Suite Novotel: Suite Novotel offers as its name says suites of 30 �2 enabled with many amenities like the Boutique Gourmande and the loan of a car. It has more than 3500 suites in 9 different countries.

Mercure: With more than 750 hotels in the city, the beach or the mountains, Mercure is the only midscale hotel brand that combines the strength of an international network with a strong quality commitment and that offers a warm welcome and treatment to their clients, and experience related to

the culture of their locations, showing its own personality. Adagio: Offering modern and spacious apartments with a fully equipped kitchen, and as well hotel services in urban locations for extended stays, based on attractive tiered pricing from fourth night onwards. The brand provides two product ranges: Adagio, contempory midscale aparthotels at the heart of Europe’s leading cities; and Adagio access, economy range, functional aparthotels located on cities’ doorstep. Ibis: European hotel economic leader, offers the ultimate comfort: a new innovative bedding designed by the ibis Research Department, a comfortable and well-equipped room, modern and design welcome areas. Caring and efficient, ibis ensures the highest level of service of its category: a 24 hour reception,

breakfast from 4:00 am to midday, light meals served round the clock and a non-stop bar. An ISO 9001 certified guarantee of quality and illustrated by the "15 minutes satisfaction" contract. With more than 983 ibis hotels in 58 countries, whatever the reason for your stay, ibis has the hotel you are looking for!

Ibis Styles: A non-standardized economy and design brand aimed at all those who are looking for “the best of the best”, ibis Styles offers an all-inclusive package, with room rates including breakfast and Wi-Fi access. Situated in the heart of cities and in other major centers of activity, each establishment has its own

distinct personality and reflects a colorful, bright and energetic brand spirit with a hint of humor. Ibis Budget: Accor’s benchmark brand in the budget segment. This nifty, casual brand offers a simple, no frills solution and has made essential comfort at a budget price central to its thinking. With more than 500 hotels in 16 countries, ibis budget offers its guests comfortable rooms with fluffy duvet and pillows, free WI-FI (except in Australia) and a gourmet breakfast buffet. In 2012, ibisbudget redesigned its public areas with a focus on optimizing these lively spaces in a nifty, playful way and creating a warm, friendly atmosphere.

hotelF1: Offers access to 238 budget hotels all over France. Sleep well in a trio room or a duo room from €19 a night. In business for over 25

years, hotelF1 (former Formule1) offers clean, convenient rooms for 1, 2 or 3 people at the lowest price, 24/7. Thalassa Sea & Spa: Prestigious seaside destinations, breathtaking scenery, and premium teams of health and beauty specialists, 14 beautiful destinations in France, Italy, Morocco, and Bahrain.

Global Situation of the Hospitality Industry The global hotel industry is reaching new heights prompted by strong growth in tourism flows globally. Sales continue to shift towards emerging markets at the expense of developed markets, especially Europe. However, the hotel industry now grapples with the rise in peer-to- peer lodging, with Airbnb leading the market. Going forward, technology will shape the industry with regards to distribution, marketing and guest experience.

Key Findings

Recovery persists: In 2013, the global hotel industry achieved its fourth year of consecutive growth with sales of US$480.8 billion.

Industry Dynamism: The global hotel industry saw great dynamism in 2013, marked by Hilton’s IPO, Marriott’s brand launch of Moxy and the acquisition of Protea, Hyatt’s move into the all-inclusive space and everyone’s pursuit of millennials.

Peer-to-peer a problem?: As peer-to-peer lodging grows in awareness, companies such as Airbnb repeatedly made headlines, especially with its valuation of US$10 billion, sparking conversations about its impact on hotels.

Luxury troubled in China: Despite their focus on China, luxury hotels are facing challenges with the government’s crackdown on corruption and a slowing economy.

Business travel on the rise: Business travel is expected to continue to grow faster than leisure between 2013 and 2018, which will help hotels increase sales.

Western Europe struggling: A slow economy and oversupply are undermining Western Europe’s leading position in the global hotel industry.

Innovation: Global hotels are reaching out to a new generation of travelers by embracing mobile technology, incorporating social media and updating the design and style of their brands.

Non-stop growth: Hotel sales are expected to grow every year over the period to 2018, prompted by increased tourism flows and higher spending business travelers.

Global and Regional Performance

In 2013, global real GDP growth slowed slightly, falling from 3.1% in 2012 to 3.0% in 2013. Many regions still struggled with low output growth as the global recovery took longer than expected to gather steam.

Tourism flows maintained an upward trend in 2013, mainly driven by the increased growth stemming from emerging markets.

Domestic trips outperformed arrivals between 2009 and 2013, as tourists opted to stay closer to home and spend less money. In emerging markets

with strong economic growth, residents took their first domestic trips, which contributed to positive results.

Global business trips, including arrivals and domestic trips, grew by 39% over 2008-2013, to reach 2.2 billion trips. Global leisure trips experienced 35% growth during the same period, with 7.3 billion trips in 2013.

Domestic trips grew strongly in Asia Pacific and Latin America as these

economies were not as impacted by the global recession in 2009 and more people travelled for the first time. Asia Pacific also led in growth for arrivals over the past five years, while Western Europe experienced the second fastest growth. Although the regional economy suffered, Western Europe is a must-see destination for global travelers.

The global hotel industry grew by 4% in 2013 to reach room revenues of

US$480.8 billion, this being the industry’s fourth year of consecutive growth.

Asia Pacific and North America were the main drivers of hotel value sales

growth in 2013 thanks to strong demand and in the case of North America, low supply growth.

Although Western Europe continued to account for the bulk of global hotel sales, it experienced a sales decline of 1.4% in 2013 as a weak economy continues to dampen demand for hotels and intra-regional travelers increasingly turn to budget options.

Meanwhile, Eastern Europe recorded the highest value sales growth in 2013, 9.5%, followed by Latin America. Eastern European countries benefited from a revival in European intra-regional travel.

The hotel industry is preparing for the next generation of guests -

Generation Y (those born between 1981 and 1990). With Generation Y consumers entering their peak working years, global

hotel companies are reaching out to these travellers by embracing mobile technology, incorporating social media and updating the design and style of their brands. To promote these changes and attract Generation Y to

their brands, hotel players are shifting towards more digital marketing and user-generated content.

Growing up connected, and bored with traditional marketing techniques, it can be difficult to reach Generation Y, with many not particularly brand loyal.

Although travel is a high priority for this generation, it also suffers from high unemployment, with many still living at home.

Competitive Landscape

Marriott Marriott remained the largest global chain and saw its global share increase by 20 basis points in 2013, to reach 5.3%.

A strong revPAR performance prompted by high occupancy rates and favourable industry supply trends in the US and abroad helped sustain revenue growth during 2013.

The fact that business tourism fully recovered also positively impacted Marriott’s results, mainly in the US.

Starwood also benefited from a stronger economy in the US, particularly with its Sheraton and Westin brands. However, it experienced strong growth in China and the United Arab Emirates where the company continues to expand.

Occupancy rates in Europe remained high for Starwood Hotels, despite the weak economic environment.

Accor Group, ranked fifth globally in 2013, saw a 10 basis points decline in its global share to reach 2.6%. The decline related to the economic weakness in Western Europe, which had a direct impact on operational results.

Accor brands fared better in the economy than in the mid-priced/upmarket segment and were particularly successful in the UK, Germany but less so in France in 2013.

By 2015, Accor plans to expand its luxury and upscale portfolio - Sofitel, Pullman, MGallery and Grand Mercure - from 300 to 400, with a strong focus on Latin America, the Middle East and Asia Pacific.

Hyatt In November 2013, Hyatt Hotels introduced two all-inclusive resort brands, Hyatt Ziva and Hyatt Zilara, in Mexico. The initiative aims to capitalise on the fast-developing all-inclusive segment and further gain penetration in Latin America.

Additionally, it will enhance its loyalty programme by providing more leisure destinations for redemption, giving the company the ability to introduce this model globally in other resort destinations and introduce new guests to the Hyatt brand.

However, there are risks with this move. Demand is highly dependent on the US market and competition is strong from regional and global

companies. Hyatt has little experience in the all-inclusive market and replicating an “asset light” model is very difficult with all-inclusive resorts.

Hilton currently has 10 all-inclusive properties worldwide - five in Egypt, two in Turkey, one in Costa Rica, one in Puerto Vallarta and one in Jamaica. Meanwhile, Viva Wyndham has six branded all-inclusive properties - three in the Dominican Republic, two in Mexico and another in the Bahamas.

In addition to Hyatt Ziva and Hyatt Zilara, three further all-inclusive resort brands are expected to be introduced in 2014 and 2015.

Future Performance Although a great deal of economic uncertainty still exists, global real GDP growth is expected to be positive and steady over 2013-2018.

More balanced than in 2013, growth will be driven by renewed economic prospects in developed economies in 2014. Global real GDP growth is forecast to be 3.7%, an 80 basis points increase on the 2013 figure.

Domestic tourism will continue to outperform international tourism between 2013 and 2018, mainly driven by the increased domestic flows in emerging markets.

In absolute terms, Asia Pacific is expected to lead in growth of domestic and international trips, due to its strong economic performance.

Business travel is expected to continue to increase, experiencing faster growth than leisure travel between 2013 and 2018.

Asia Pacific is likely to lead growth in the category, giving the hotel industry ample opportunities to cater to business traveller demand in the region.

Mounting tourism flows driven by higher spending business travellers will positively impact hotel sales, which are expected to grow every year over the period to 2018.

Hotel companies will continue to adopt the latest in technology and

integrate it into every aspect of their operations, to further boost guest experience.

Mobile technology plays a crucial role, leaving the control at the hands of guests.

Asia Pacific is expected to surpass Western Europe to become the largest region for hotel value sales in 2014. This is much sooner than previously anticipated.

Despite a slowing economy, China is still expected to experience continued growth in sales and rooms over 2013-2018.

The Eurozone’s economic sluggishness is expected to cause Western European hotel sales to stagnate in 2014, before beginning a recovery in 2015.

The industry is still waiting to see what type of regulations will be introduced and the impact they will have on supply.

Overview

Variation of Total Assets, and Relationship between Total Liabilities and Total Equity With this analysis we are aiming to provide the reader with side-by-side information on Accor’s assets, liabilities and shareholder’s equity for the time lapse between 2010 and 2013, with the final purpose of developing a trend analysis. The monitoring of the Total Assets, Total Liabilities and Equity of the balance sheet has special interest in measuring or determining the liquidity of Accor as a business. Liquidity is essential for the ability to pay the debts in a timely manner. The variation between the three mentioned elements for Accor for 2010-2013 are the following presented in the graph. All data presented in € Millions.

From the chart above we are able to notice the following changes:

From 2010 to 2011, the Total Assets are decreasing (from 8678 to 8000) mainly because of the decrease in non-current assets and especially the gross property, plant and equipment. From what we can see when looking at the Total Liabilities is that they decrease as well (from 4729 to 4232) with a main decrease in total current liabilities and other current liabilities. Meanwhile, the Total Equity decreases only from 3949 to 3768 millions, which is a quite stable change. The most important change in the Equity comes from “the additional paid-in capital”, which escalated from a negative figure to a highly positive in 2011 due to the plans purposed for the hotel group for its changed schedules in 2012. We can therefore conclude that a bigger part of the assets is financed by the equity, while some of the short term and long term debts are being repaid.

2010 2011 2012 2013

Total Assets 8678 8000 7560 7060

Total Liabilities 4729 4232 4571 4304

Total Equity 3949 3768 2989 2756

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From 2011 to 2012, the Total Assets are once again decreasing (from

8000 to 7560) because of the net property, plant and equipment (PP&E) that have been fluctuating through the years. The Total Liabilities for this period are suffering an increase (from 4232 to 4571) due to the current liabilities by the company most likely related to their expansion in Australia, New Zealand and Brazil, which headed to acquisitions of Mirvac and Grupo Posadas. The Total Equity however, for this year, we can detect a noticeable decrease (from 3768 to 2989) linked to the plummet loss in Net Profit (from 27 to -599) because of the sale of Motel 6 to Blackstone, agreement closed on October 2012. Important point to mention for this period and linked to the operations of expansion is the fact that the inventories increased 6 points (from 41 to 47).

In 2012, Accor opened more than 38000 rooms, excluding Motel 6 (which we have previously mentioned it was sold) hitting a record, while most of these new rooms were operated by franchise agreements in emerging markets, which we can see impacted in the intangible assets account that fluctuated (from 373 to 1104) until the end of the year.

From 2012 to 2013, the Total Assets are decreasing (from 7560 to 7060)

due to the decrease of non-current assets and a change in the intangible assets. Talking about assets, we have still a healthy growth that started back in 2011 in terms of total cash related to the group’s transactions and selling. The Total Liabilities are going to decrease a little (from 4571 to 4304) because of the big decrease in current liabilities; Accor has started to get rid rigorously of their short-term debt in relation to the year 2012. Total Equity has seen a decrease much modest than the one of the previous period (2011-2012) and an important point to make here would be the great increase in Net Profit, which escalated from loss of -599 in 2012 to a profit of 126 in 2013 December 31. Also important to mention is the additional paid-in capital received from the investors, which decreased drastically (from 2676 to 1729) which could be explained by the prosperity of the company after revitalizing its brands and hotels.

2010 2011 2012 2013

Total Current Assets 3123 2962 3081 2972

Total Current Liabilities 2714 2382 2772 2359

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Working capital’s year to year variation

From the graph, we can observe how for the year 2010 and especially 2012, the assets and liabilities were having a risky closed relation, the Working Capital is seen affected, and meaning that this is decreasing significantly. We can observe how the Working Capital of Accor has been changing up and down as a rollercoaster for the period between 2010 and 2013, with two peaks in 2011 and 2013, which were healthier figures in comparison with 2010 and 2012, when these figures decreased. The decreasing of the figures in 2010 and 2012 signify a deteriorating health since there is less cash for capital expenditures. The way to know how good or bad the company is doing would be measuring the relation of the Total Current Assets and Total Current Liabilities, as these show a significant difference between them, and while the Assets are surpassing in good amount

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Working Capital

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the Liabilities, the company is liquid enough. In the case of Accor, we can see however how in 2013 the figures are showing a good healthy prospect.

To conclude, the company has a good liquidity without problems in the short time and maintains enough assets to cover their current debts. The year that shows the greater worrying figure, 2012, it can be explained through the rebranding and renovation of ibis brand from 2011 as well as the expansion and massive openings.

Analyzing the five steps of the Income Statement Step 1: Revenues – Cost of Sale = Gross Profit 2010 2011 2012 2013 Revenue 5948 6100 5649 5536 - Cost of Revenue1

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Gross Profit 5948 6100 5649 5536

In the first step of the Income Statement analysis, we are able to observe the decrease on Gross Profit over the years despite a slight increase in 2011. As general rule, the Gross Profit is the first level of profit of a business; hence we spot an increase when the Total Revenue increases as well, as in the year 2011. What made 2011 so special in revenues?

Expansion, thanks to opening 38700 new rooms, part of 318 different hotels, the performance recorded for 2011 has actually exceeded the first objectives with a €108 million addition to the revenue

1 Since we are analyzing the statements of a Hotel Company overall, we will consider there are no Costs of Sales or Cost of Revenue. However Accor reports some costs related to the activities of the F&B services in their Restaurants in Hotels. We will consider these costs 0.

2010 2011 2012 2013

Gross Profit 5948 6100 5649 5536

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Changes in the scope of consolidation, from the deployment of the asset-right strategy of Accor which has reduced revenue but reported growth by 4,3%

The currency effect Like-For-Like, rising revenue by 5,2% The upscale-midscale hotels occupancy (f.e. ibis family hotels)

Step 2: Gross Profit – Operating Expenses = Operating Income (EBIT) 2010 2011 2012 2013 Gross Profit 5948 6100 5649 5536 - Operating Expenses2

5502 5570 5123 5000

Operating Income (EBIT)

446 530 526 536

For this second step in analyzing the Income Statement, we are looking at the Operating Income, which is equal to Earnings Before Interest and Taxes (EBIT). This will give us an idea about how efficient and profitable Accor is, taking into account that these quantities are actually representing the earning power from the ongoing operations before any interests or taxes are applied. It can be seen that Accor is doing quite good, maintaining this amount quite stable through the years, despite having a little decrease in 2010 that might be due to higher expenses. As we can see the Gross Profit is quite high comparing to 2012 and 2013, however the expenses are higher than the mentioned years. The year 2010 was overall a good year for Accor that was on ongoing recovery process since the first half of the year, from the crisis of the hotel industry. During this year the

2 Operating Expenses amounts in the table are reporting: Operating Expense, Rental Expense and Depreciation&Amortization accounts.

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biggest drivers for the company were the hotels hosted in countries as United Kingdom and Germany, together with France, though the figures were hold back due to the crisis of Spain and Italy for instance. The Operating Expenses suffered a growth in 2010 due to Other Purchases and External Charges in which may fall the devaluation of the Venezuelan Bolivar Fuerte. Step 3: Operating Income +/- Non Operating Revenues & Expenses = Income Before Tax (EBT) 2010 2011 2012 2013 O.I (EBIT) 446 530 526 536 - Net Financial Expense

134 97 75 92

+ Share of Profit 22 5 17 2 - Reconstructing Costs

31 40 40 133

- Impairment Losses

284 113 119 89

+ Gains and Losses (hotels)

4 60 11 68

- Gains and Losses (others)

35 19 81 33

Income Before Tax (EBT)

-12 326 239 259

This third step consists of adding or subtracting the accounts or operations that are not extremely important for Accor in order to find out the earnings before taxes. Once again here we can appreciate, as mentioned in the previous step, the decline of year 2010. For a more explicit result, consult the graph under.

2010 2011 2012 2013

EBT -12 326 239 259

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Once again we can relate this graph with the effects that the market price change has possibly affected the growth in 2010, as the devaluation of the Venezuelan Bolivar Fuerte. Step 4: Income Before Tax – Provision for Income Tax = Income From Continuing Operations 2010 2011 2012 2013 EBT -12 326 239 259 - Provision for Income (Income Tax Expense)

392 274 143 121

Income From Continuing Operations

-404 52 96 138

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-404 52 95 138

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Step 5: Income From Continuing Operations +/- Non Recurring Items = Net Income 2010 2011 2012 2013 Income F.C.O. -404 52 95 138 - NonRecurring Items3

4014 2 (679) +1

Net Income 3610 50 -584 139 In this step of the Income Statement analysis, we can obtain the results of the income before the nonrecurring items charge (these are expenses that will occur only once due to an unpredictable event). Once again we see how year 2010 is having the biggest decrease.

In this final step, taking into account basic knowledge of accountancy, we know that if revenues are increasing but costs of revenue are increasing more than the increase in total revenues, the Net Income would be affected and decrease. What happened with Accor? At the beginning we mentioned how we won’t take into account any Cost of Revenue since we have considered Accor as a solely hotel company, but the truth is that there do are certain costs of the revenues earned due to the fact that hotels operate as well restaurant services, where costs are appearing from managing Food and Beverage department. Let’s take a look at the costs reported by Accor from 2010 to 2013 that would be included in the Total Operating Expenses. 2010 2011 2012 2013 Cost of Revenue

399 391 388 406

Revenue 5948 6100 5649 5536

3 Non Recurring Items are referring to the account of ‘’Net Profit or Loss, Group Share from discontinued operations.

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2010 2011 2012 2013

Net Income

Net Income

In the following chart above we are able to see growth in Revenue vs. Cost of Revenue, which will give us the reason why Net Income is affected in 2010 increasing and why in 2012 decreasing.

We can see that the smaller amount of Costs of Revenue against Revenue happens in 2010, reason why the Net Profit is at its highest. In 2011-2012 (in chart 2011) however we can see the drastic change where the difference between Costs and Revenue is bigger, holding more costs than revenue in percentage of growth.

The data from the chart of 2010 is actually valid for the period of 2010-2011, the date for 2011 is for 2011-2012 and for 2012 is actually valid for the period 2012-2013. That is the reason why 2013 does not appear, though is included in the chart.

2010 2011 2012

% Difference of Growth Revenue vs Costs of Revenue

-4,56 6,63 6,64

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% Difference of Growth Revenue vs Costs of Revenue

% Difference of Growth Revenue vs Costs of Revenue

2010 2011 2012 2013

% Growth of Costs of Revenue 97,99 99,23 104,64

% Growth of Revenue 102,56 92,61 98,00

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% Growth of Revenue

Evolution of Net Cash From Operating Activities (NCOA)

NCOA is decreasing slightly between 2010-2011 and 2011-2012 and increase then rapidly, between to 2012 and 2013. Eventhough the FCF follows the same pattern, in 2011 it decrease from 95 to -41 to increase to 95 in 2012. If we compare it to the net Income which is really low in 2011 and negative in 2012, we can say that their numbers are not made up. Moreover, because the NCOA is still positive, we can conclude that the reason why the FCF is so low during those two years are not linked to the operating activities.

2010 2011 2012 2013

NCOA Evolution 850 746 709 855

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NCOA Evolution

NCOA Evolution

2010 2011 2012 2013

Free Cash Flow 95 -41 90 304

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Free Cash Flow

Financial Statements and Ratios Analysis

Balance Sheet Analysis Starting to analyze Accor’s financials, the Balance Sheet information is the first one we should take into account, having a closer look at the main variations and compare the years of study chosen for analysis, from 2010 to 2013.

a) Vertical analysis=> percentage of each grouping of assets or liabilities in

relation to total assets: CA>CL; debtors+cash & bank = CL; equity=30-50%

of total liabilities

b) Graphical representation of balance sheet

c) Horizontal analysis=> compare BS to different date with trend analysis

(divide line by the same line from base year)

Liquidity Ratios 2010-2013

Between 2010 and 2013, current assets increase even though they decrease slightly in 2012. But because the main activity is in the services, they receive the payments fast and they pay their suppliers late, which means that having a low working capital is not necessarily bad. The quick ratios are increasing year after year and they correspond to the sector’s average (around 1): Accor can meet its short term debts. The low result for the current ratio was in fact due to the stock, which is not taken into account in the quick ratio, as it is not easy to liquidate. To finish, the cash ratio, also increasing on the period, and with a result higher than the sector average (0.3), confirms the fact that Accor is liquid and that it can pay its debts on time.

2010 2011 2012 2013

Current Ratio 1,15 1,24 1,11 1,26

Quick Ratio 0,84 1,06 1,04 1,22

Cash Ratio 0,43 0,59 0,69 0,83

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Current Ratio Quick Ratio Cash Ratio

Working Capital in % 2010-2013

The working capital over assets ratio is increasing on the period 2010- 2013, with a decrease in 2012. This is a good sign as it shows that the company’s liquidity is improving. The working capital over Current liabilities is following the same path than in for the previous ratio, which means that the company is liquid. However, they are lower than average (between 50-100%), this can be explain by the same way than for the current ratio: as being part of the service sector, Accor may have some special agreements regarding its payables and receivables, which means that a low working capital is not necessarily bad.

2010 2011 2012 2013

Working Capital Over Assets 4,71 7,25 4,09 8,68

Working Capital Over CL 15,07 24,35 11,15 25,99

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Gearing Ratios 2010-2013 Part 1

The gearing ratio on the period 2010-2013 is slightly increasing, but stays within the rate range of the sector (0.4-0.6), which means that the company doesn’t have too many debts. The self-financing ratio is decreasing which shows, as we saw above, that is getting more and more debts. However, the ratios are all situated within the sector’s range (0.7-1.5), which is good. The distance from insolvency is also good as it is superior to 1, even though it decreases slightly over the years. The permanent financing ratio is stable over the year, and quite high, which shows that the company is relying more on its permanent sources of financing than on the Long term Liabilities. However, from the increase of the debt observed in the gearing and the self-financing ratio, and from the slight decrease from the permanent financing ratio, we can say that Accor has taken long term debts to pay its projects. Unfortunately, according to the repayment ratio, which is constantly decreasing until -2.08 in 2012 to increase just above 0 in 2013, Accor may have some difficulties to repay its loans.

2010 2011 2012 2013

Gearing Ratio 0,54 0,53 0,60 0,61

Self-Financing Ratio 0,84 0,89 0,65 0,64

Distance From Insolvency Ratio

1,84 1,89 1,65 1,64

Permanent Financing Ratio 0,69 0,70 0,63 0,67

Repayment Capacity Ratio 3,79 1,13 -2,08 0,56

-3,00 -2,00 -1,00 0,00 1,00 2,00 3,00 4,00 5,00

Gearing Ratio Self-Financing Ratio

Distance From Insolvency Ratio Permanent Financing Ratio

Repayment Capacity Ratio

Part 2

In this second part of the gearing ratios analysis of Accor, we can see how the Average Cost of Debt is maintaining quite constant along the years while the Average Cost of Capital is growing highly in 2012 (from 9,44 to 14,34), meaning the company pays its debts on a basis where the cost of the funds used to finance the business are too high in 2012. This might be related to the fact that Accor suffered ongoing changes in 2012, with less revenue than in 2011 and more economic instability related to the Western European crisis. Part 3

2010 2011 2012 2013

Average Cost of Debt Ratio 4,71 4,88 4,37 3,86

Average Cost of Capital Ratio 10,86 9,44 14,34 9,17

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2010 2011 2012 2013

Interest Cover Ratio 3,33 5,46 7,01 5,83

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Interest Cover Ratio

Moving on to the Interest Cover, we can see Accor has reached its peak in 2012 when the interest expenses were down to 75000, while the income before interests and taxes was 526000. This situation provoked the company’s ability to pay more interests on the outstanding liabilities than usually, the debt expenses were payable. This result indicates us that despite Accor struggling to pay its debts in 2012 (when the repayment capacity was negative), the company didn’t have any problem paying its expenses, this being a good sign.

Turnover Ratios Part 1

From the graph we can observe how the quantity of sales generated by Accor’s non current assets was greater in 2013 and this meaning that there were less noncurrent assets involved in the generation of the sales, which might be a result of the ongoing asset-light strategy the group has started to persuade after discussing the wish of franchising and managing hotels rather than owning them. The strategy and as the results show, will allow the business to accelerate pace with limited capital investment. Due to this also the annual depreciation charge is getting smaller every year while the accumulative depreciation, obviously grows, this will produce the effect of the longer age of fixed assets as seen in 2013. Lastly we can also see how the Current Asset Turnover maintains itself between 1,80 to 2 during these years, while the group operates with less assets, the ratio decreases in 2013 from 2,06 in 2011, to 1,86.

2010 2011 2012 2013

Fixed Assets Turnover Ratio 1,07 1,21 1,26 1,35

Average Age of Fixed Assets Ratio

6,06 6,43 7,15 7,23

Current Asset Turnover Ratio 1,90 2,06 1,83 1,86

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Fixed Assets Turnover Ratio Average Age of Fixed Assets Ratio

Current Asset Turnover Ratio

Part 2

The quantity of sales generated from the inventory decreased in 2012 due to the fact that the company has seen affected in terms of revenue, this being not in accordance with its stock that was growing for the period of 2011-2012. However the stock decreased in 2013, due to the asset-light strategy and the model acquired by the company of operating under lower inventories, while at the same time the revenues in 2013 has been decreasing comparing to the other years (we have 2010-2011 and 2011-2012 with lower inventories and bigger sales). We could say that Accor for 2012-2013 has been holding its stock longer than 2010-2011.

Asset Turnover

2010 2011 2012 2013

Stock Turnover Ratio 145,07 148,78 120,19 131,81

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Stock Turnover Ratio

2010 2011 2012 2013

Asset Turnover 0,69 0,76 0,75 0,78

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0,72

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Asset Turnover

Asset Turnover

This ratio is a way to measure Accor’s profitability and how efficiently is the company using their assets to generate revenue. We can see that overall the turnover is quite stable but had a great peak in 2013 most likely due to the higher occupancy rates along the hotels, which means more revenue through less used assets. It is said that the ideal result should be around 1 meaning that Accor would use their assets efficiently, while we can observe that the company is approaching to one through the years as the assets are lower and the revenues of the group are higher due to its structural changes.

Debtors and Creditors Turnover Periods Part 1

We can see how Accor is taking more time lately to collect its debtors while it has no creditor payment period since there are no costs of sales considered for hotel business.

2010 2011 2012 2013

Debtors Collection Period 22,95 21,72 25,97 25,71

Creditors Payment Period 0,00 0,00 0,00 0,00

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Part 2

Back in 2012 Accor used to hold more loans than equity, holding the biggest difference between them when compared to the other years. This has been summing up to the fact that by 2012, the company was holding more trades payable related to hotel restructuring and rebranding than receivables. In 2012 we have encountered with more inventory than other years, making the dependence on the creditors smaller than before, mainly because Accor recorded a new record of openings of ibis hotels without acquisition of these properties, with a total new rooms opened of 38085, in 266 hotels worldwide.

2010 2011 2012 2013

Debtor/Creditor Financing Ratio

0,78 1,73 1,60 1,50

Stock/Creditor Financing Ratio 16,38 15,56 13,00 14,18

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Debtor/Creditor Financing Ratio Stock/Creditor Financing Ratio

Current Ratio, Debt Ratio A closer look at the financial status of Accor will help us understand better the situation of the company, for that reason the next three points analyzed will give us a better perspective of the liquidity and ability to meet the non-current liabilities. Another way to measure Accor’s liquidity for the 12 months would be the representation of the Current Ratio, which related once again, Current Assets and Current Liabilities, measuring the force of the Assets against the Liabilities for the following 12 months.

The Current Ratio is dividing the Current Assets by the company’s short-term debts or Current Liabilities. An ideal result for this relation would be a ratio approximately to 1. Judging from the graphic above, Accor is doing good, maintaining the ratio slightly above 1 for the whole period of time from 2010 to 2013. However we can see clear fluctuations and increases in 2011 and 2013, as we have previously seen in the Working Capital, these years have meant a decrease in Current Liabilities for the company (from 2714 to 2382 for the 2010-2011 period and respectively from 2772 to 2359 for 2012-2013 period). Lastly in this section we will analyze the Debt Ratio, which will enable us to measure the capacity of the company to cover its long-term debt, or Non-Current Liabilities.

2010 2011 2012 2013

Current Ratio 1,150700074 1,243492863 1,111471861 1,259855871

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1,25

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Current Ratio

Current Ratio

The Debt Ratio is represented in percentage and as we can see from the figures, Accor doesn’t exceed the 100% in none of the years studied but increases significantly in 2012 and 2013 due to the project that Accor has been diving in. These increasing figures are an effect of the decreasing Total Assets and the high figures of Total Liabilities, as seen in the following figure. The higher the percentage of the Debt Ratio, the riskier the company will be perceived as. Accor has taken advantage from the years 2010 and 2011 to use the low Debt Ratio as an opportunity to borrow at no dangerous rate.

2010 2011 2012 2013

Debt Ratio 54,49412307 52,9 60,46296296 60,9631728

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Total Assets

Total Liabilities

Analysis of Income Statement

Return on Sales % (ROS)

This ratio measures the performance of the company regarding its sales from each euro of revenue. We can see that this chart is quite similar to the Net Income, evidently. We can see the highest profitability was back in 2010, when the costs were reduced and the revenue was the quite high.

Return on Assets % (ROA)

2010 2011 2012 2013

Return on Sales (ROS) 60,69 0,82 -10,34 2,51

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Return on Sales (ROS)

Return on Sales (ROS)

2010 2011 2012 2013

Return Over Assets (ROA) 41,60 0,63 -7,72 1,97

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Return Over Assets (ROA)

Return Over Assets (ROA)

This ratio measures how Accor have been using their assets in order to get their revenue. This ratio basically gives the answer to the question of how many sales are generated from each euro inverted into assets. We can see how once again 2010 exceeds.

Return on Equity % (ROE)

This ratio is actually measuring how Accor relates its Net Income through the Equity. The graph shows how in years like 2010, Net Income is quite high, for that reason the return on equity also reaches great limits contrasting with 2012, when we have a greater amount of Equity from the stockholders rather than gains in Net Income. This is also the year when Accor does one of its biggest changes as we have mentioned at the beginning of the analysis. In relation with Return On Assets, it is said that the company is doing better, obviously, when ROE is bigger than ROA. We can see that Accor is doing well and indeed for all years except 2012, their ROE is bigger with a significant different than ROA, which means that there is debt to be paid.

Gross Profit Margin Since we have discussed that Gross Margin is same amount as Revenues because there are no Costs of Revenue theoretically, Gross Profit Margin is then 100% in all cases.

2010 2011 2012 2013

Return on Equity (ROE) 91,42 1,33 -19,54 5,04

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Return on Equity (ROE)

Growth in %

What we are going to analyze here is the percentage of growth of the main accounts of the Income Statement. For what that concerns the year 2010, Accor recorded an important decrease in Sales, Operating Income (EBIT), as well as in EBITDA, if compared to 2009. However, in 2011 the company seemed to experience a slow recovery from the previous year, as the three above-mentioned accounts are slightly increasing, with Operating income having the highest growth (Sales +2,56%; EBIT +18,83%; EBITDA +5,45%). In 2012 the hotel chain has again a decrease, even if not that significant as in 2010, but a warning sign for the company. Sales keep decreasing in 2013, while we have a small growth for the other two accounts.

2010 2011 2012 2013

Sales Growth -14,68 2,56 -7,39 -2,00

EBIT Growth -24,92 18,83 -0,75 1,90

EBITDA Growth -19,41 5,45 -8,41 1,76

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Sales Growth EBIT Growth EBITDA Growth

2010 2011 2012 2013

EBT Growth 91,67 2816,67 -26,69 8,37

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EBT Growth

Income Before Tax starts 2010 with a significant decrease with respect to the previous year, while reaching its peak growth in 2011, with a considerable increase. The following year, 2012, the EBT experiences again a decrease, until the recovery of 2013, even if in small percentage (+8,37%).

The trend analysis of the net income is fundamental to understand the performance of the company and its profitability. Accor recorded a considerable increase and improvement in its performance in 2010, when the company reaches a high net profit (3610), after a net loss of 265 in the previous year. Unfortunately, the hotel chain has afterwards recorded from 2010 to 2013 negative growth, due to losses from discontinued operations, even if always avoiding a net loss.

2010 2011 2012 2013

Net Income Growth 1462,20 -98,61 -1268,00 123,80

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Net Income Growth

Over Sales in %

The net profit margin (EBIT/Sales) measures how successfully a company manages its business cycle and expresses Operating Income as a percentage of Revenues. The company is, after paying the expenses related to the business, as a good performance, reaching the highest management of the operations in 2013, when the EBIT represents 9.68 % of the net sales. After attending the depreciation and amortization expenses, EBITDA also reaches its highest percentage over Sales in 2013, while EBT records a significant recovery from 2010 in 2011. The Return on Sales, calculating by dividing the Net Income by the Sales, is telling us about the profitability of the Hotel Chain. In 2011, it increases in comparison to previous year, as for each euro of revenue, Accor has a net income of 0.82%, while it shows a bad and worrying performance in 2012, as for each euro of Revenue, the company records a net loss of 10,34%. Eventually, in 2013, the profitability has a net increase, as for each Euros of Revenue, Accor presents a profit of 2.51%.

2010 2011 2012 2013

EBIT Over Sales 7,50 8,69 9,31 9,68

EBITDA Over Sales 14,79 15,21 15,05 15,63

EBT Over Sales -0,20 5,34 4,23 4,68

Net Income Over Sales 60,69 0,82 -10,34 2,51

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Financial Leverage: Debt-To-Equity Ratio

As we have seen there is a difference between Accor’s ROE and ROA. In order to explain it better we will need to have a look at the financial leverage, which will help us understand to which extent will Accor rely on debt financing. We see that the higher rate of Financial Leverage is on 2012 and 2013, when indeed Accor has its highest rates of liabilities with fewer assets (that is the main difference with the year 2010). A higher debt-to-equity ratio typically shows that a company has been aggressive in financing its growth with debt. Services, utilities and the industrial goods sector, also tend to have higher debt-to-equity ratios. Considering Accor is included in the services industry, we will consider a ratio of 2 as high, so we can actually say that the current ratio of Financial Leverage of Accor is stable and not risky for now. According to Accor, its Debt to Equity is of 0.72 times. This is 13.25% lower than that of the Services sector, and 17.24% lower than that of lodging industry.

2010 2011 2012 2013

Financial Leverage 1,20 1,12 1,53 1,56

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Financial Leverage

Earning Per Share (EPS) This will measure the amount of income that is generated by each single share of Accor held by its investors.

The Earning per share in 2010 was equal to € 15,94%, while only 0.12€ in 2011 and with a negative value in 2012 to recover again in 2013.

Dividend Per Share (DPS)

This ratio shows the amount of dividends paid every year for each share of stock held by investors. We see that for Accor, the year 2013 recoded its highest ratio, when the shareholders were able to receive from their shares €0.80.

2010 2011 2012 2013

Earnings Per Share (EPS) 15,94 0,12 -2,64 0,55

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Earnings Per Share (EPS)

2010 2011 2012 2013

Dividends Per Share (DPS) 0,62 0,65 0,76 0,80

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Dividends Per Share (DPS)

Price Earning Ratio (P/E)

This ratio is a valuation ratio showing Accor’s current share price compared to its per-share earnings. We can see here how the market is recovering; however according to the financial standards, the negative P/E are not applicable. A low P/E value suggests that an investor needs to pay a low amount for each dollar of earnings made by the company. This could be used by investors as a sign that the given asset is undervalued and a potentially good investment at current levels. A relatively high P/E value is used to suggest that investors will need to pay a high amount for the company's earnings, which can then be used to suggest that the asset is relatively expensive and that it may be a good idea to wait for a better entry. The year 2011 has been a strikingly positive because of the small amount of shares outstanding compared to the other years.

2010 2011 2012 2013

P/E Ratio 2,09 164,58 -13,73 61,80

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P/E Ratio

P/E Ratio

Cash Flow Analysis

Evolution of Net Cash From Operating Activities (NCOA) and Free Cash Flow

NCOA is decreasing slightly between 2010-2011 and 2011-2012 and increase then rapidly, between to 2012 and 2013. Even though the FCF follows the same pattern, in 2011- it decrease from -20 to -99 to decrease to -104 in 2012. If we compare it to the Net Income, which is really low in 2011 and negative in 2012, we can say that their numbers are not made up. Moreover, because the NCOA is still positive, we can conclude that the reason why the FCF is so low during those two years are not linked to the operating activities.

2010 2011 2012 2013

NCOA Evolution 850 746 709 855

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2010 2011 2012 2013

Free Cash Flow -20 -99 -104 207

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Free Cash Flow

Cash Flow Liquidity Ratio This ratio will evaluate if enough cash is generated from selling inventory and offering services. Similar to Cash Ratio, this will evaluate the short-term liquidity of the company. A ratio above 1 will indicate enough liquidity and less than 1 will warns inadequacy.

We can see that Accor has been improving during the past 4 years starting with a sign of not enough liquidity to lifting up to 1,18 in 2013. Back in 2010, Accor had high Current Liabilities and its lowest Marketable Securities, which drove the figure to a decrease.

2010 2011 2012 2013

Cash Flow Liquidity 0,73 0,89 0,93 1,18

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Cash Flow Liquidity

Quality of Income Ratio If the quality of income ratio higher than 1 usually indicates high quality earnings, while the ratio lower than 1 is considered to indicate low quality earnings.

We can observe that Accor hasn’t always had a good quality of income, as for instance in 2010 and 2012 due to the instability that the renovations and the high debts. In 2012, Accor had a loss in their profit of -584, which explains the extreme fall in this ratio.

2010 2011 2012 2013

Quality of Income 0,24 14,92 -1,21 6,15

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Quality of Income

Comparison with Competition and Sector

Comparison with Meliá, NH and Sector Liquidity Comparison The current Ratio of Accor compared to its competitors and the sector is higher, which may make us think that Accor might not be managing its resources efficiently for a maximum return. The quick ratio is of course also higher than average and represents 96% of the current ratio, whereas for the competitors and the sector’s average it represents 79%. From this we can conclude that Accor doesn’t have as much stock than the others, probably due to its sale of assets to replace them by franchisees. To finish its cash ratio is also way higher than the average sector (0.33) and its competitors (0.55 for Meliá and 0.3 for NH). From those results we can say that Accor doesn’t have any troubles to receive payments from its debtors. Gearing Comparison If we compare the gearing ratio of Accor to NH and the sector average, we can say that it is slightly higher, which shows that it has a little more debts. Its ‘’competitor’’ Meliá, however, has a higher gearing ratio than Accor (0.65). Regarding the self-financing, it is lower than the sector and NH (0.64 against 0.76), but higher than Meliá (0.53), this means that they rely less on the Equity than the competitors. Regarding the Distance from insolvency ratio, here again Accor is slightly lower than NH and the sector, which mean that it is less solvent. However, considering the small difference, this result is quite good. The Permanent financing ratio of Accor is lower than all its competitors and the sector, which means that it holds too many Current Liabilities. To finish the repayment capacity ratio is a lot lower than Meliá and the Sector (2.55 and 2.022) which shows that Accor has a lower profit and that it may be difficult for it to repay its loans (which we have seen above is composed of 40% current liabilities). Turnover Comparison Starting with the comparison of the fixed assets between the chosen companies in relation to the sales generated by these assets, we can clearly say that Accor is leading since it owns less fixed assets yet it generates higher sales through the usage of smaller amounts of fixed assets. The ratio of Fixed Asset Turnover is bigger than the other’s which tells us that the group is managing their non-current assets accordingly. Both Meliá and NH, being smaller groups of hotels yet ratio is considerably smaller in relation to the generated sales.

It is good to remember that Accor had a healthy 2013 with improved revenue for hotel openings worldwide and strengthening of their brands especially midscale and economy. The average age of these fixed assets has been smaller when compared with Meliá, NH and the sector, which is explained through the fact that Accor has been selling some of its hotels, so the costs of these have been removed from the accounts. Accor has recorded 7,23 years against the 11 – 12 for the comparison groups and sector. Now switching to the comparison of the current assets in relation to the sales generated through the usage of these, we see that Accor has clearly a higher ratio than Meliá but lower than NH and the sector meaning that Accor has a relatively smaller amount of current assets (cash, receivables, inventory, etc.) that what the sector would suggest, especially due to its light-asset strategy. If we consider Accor as a massive hotel group operating worldwide we can realize how effective their franchising strategy has been (which has been recorded as a 91% for 2013). However it is seen how Accor is operating under the sector average, getting less revenues from its current assets than from its fixed assets. Accor should invest more in current assets to receive more revenue, which is not the ideal situation. However the analysis of the stock turnover tells us one last thing about Accor, the group is generating quite a bit of revenue when compared to the sector and Meliá and NH, meaning that despite of the worse positioning with its current assets, the company does make good use of its inventory which is also a current asset as we have previously mentioned. This high result has meant that Accor has been investing less in its inventory but getting higher revenues through little effort. But… If the sector average is correct, in this situation would mean that Accor might have a low inventory (since the ratio is 131,81 and the sector is 20,13) that might lead to facing problems when demand is growing. However it is improbable since the group is opening new hotels every year with a remarkable speed. Accor in 2013 has been known for making the difference through the increased demand and an Asian expansion of franchised hotel properties. Net Income Growth Comparison Accor’s Net Income shows a better performance over the competitors for 2013. ROS Comparison As we can see from the results of the ratio, Accor has a return on sale whose value is quite similar to the average sector (2,51% for the Hotel Chain and 2,9% for the industry), meaning that our company has a return of profitability for each sale made that is not too lower in comparison to the ideal values of the

hospitality industry. The other two companies, Meliá and NH show a negative amount, mainly due to a negative growth of their net income. ROA Comparison According to the values recorded, Accor is managing efficiently its assets, as the return of profitability out of the assets has a positive amount, even bigger than the average value for the sector in which it operates. Once again, Meliá and NH show a bad performance, as their productivity coming from the use of asset is negative. ROE Comparison Accor group is the only hotel chain that presents a high return on Equity, meaning that the shareholders are receiving a profit out of the net income, while there is no data available for the competitors. Cash Flow Comparison The free cash flow cannot be compared to the sector since the average is missing, however comparing Accor with Meliá, we need to remember that these are not competitors and have a very different number of operating hotels, expansion, growth, history, etc. Taking all these things into account and not forgetting the size of these two different hotel groups, Accor is seen to have a higher ratio due to the fact of holding more cash, marketable securities and net cash from operating activities related to the short-term liabilities, however reminding how small Meliá is compared to Accor, we can see that the latter is obviously more able to purchase, pay dividends and reduce debt since also the debt is smaller in this case than Meliá’s, though compared with Accor we could say Meliá is doing quite well too having into account their size. Also when looking back at the Cash Ratio, we see Meliá approaching Accor with a 0,55 versus a 0,83, meaning they are holding a good quantity of cash compared to their current liabilities.

Conclusion

Accor is currently leading the market in hotel operations in Europe and on

the worldwide scale, with 470,000 rooms in more than 3,600 hotels in 92 countries. Under the leadership of the CEO Sébastien Bazin, Accor has redesigned its business model around two divisions – HotelServices and HotelInvest – with a view to boost operational efficiency and sustainable growth. HotelServices, which goal is to maximize fees, speed up CRM and loyalty-building drives, shift the group deeper into the digital realm, and roll out a strategy in each segment to bolster the Group’s brands and HotelInvest, to establish the leading hotel investor in the economy and midscale segments in Europe, focus on cash-flow generation and reduce result volatility, optimize CAPEX (Capital Expenditure) allocation strategy and support Accor’s development by investing selectively in properties. This vision is based on a simpler and more agile organization, specific performance indicators, and a structure built to maximize operational performance and create value for every one of the company’s stakeholders. From the analysis of Accor’s financial statements we have just done, we observe with details the group’s future vision and intentions, together with the reports and press releases. In 2012, they invested in new markets (such as South America), meanwhile, they were continuing with their light-assets policies through franchisees. Those points could explain the fact that their liquidity ratios were higher than those of the competition and of the sector and that there indebtedness is higher. However, the general good results of 2013 linked with those of the ROA and ROE, show us that Accor is taking the good decisions to maximize the use of its assets and generate the maximum of profit. We’ve also seen how the company has been majorly affected by the crisis in Western Europe during the past years, especially the sales that have been decreasing from Southern European countries, as Spain, Italy and even France, for instance. However, Europe is still recovering and each day is a growth for Accor slowly getting back in the French market building strong revenue. The analysis however gave us an idea about the actual situation of the company, which is at the moment prospering, and still in need to find a balance between the debts and the assets management.

Appendix. Financial Statements and Tables (Magnitudes and Ratios)

Figure 1 Ratios

Figure 2 Ratios

MAIN MAGNITUDES 2009 2010 2011 2012 2013

CA adj 3123 2962 3081 2972

CL adj 2714 2382 2772 2359

AHFS 813 386 156 61

Cash&Cash Eq 1143 1370 1878 1928

Financial Inv

W.C. adj 409 580 309 613

TA 8678 8000 7560 7060

CL 2714 2382 2772 2359

non CL 2015 1850 1799 1945

TE + L 8678 8000 7560 7060

Equity 3254 3949 3768 2989 2756

Net Profit -265 3610 50 -584 139

CA 3123 2962 3081 2972

Net Profit 3610 50 -584 139

Dep&Amort 429 398 326 328

CL with interest 373 205 124 829 514

nonCL with interest 2475 1783 1593 1552 1718

Interest Exp 134 97 75 92

Dividends P 249 155 269 189

Share Capital 680 682 682 684

EBIT 594 446 530 526 536

Revenue 6971 5948 6100 5649 5536

Total nonCA 5555 5038 4479 4088

Total CA 3123 2962 3081 2972

Acc Depreciation 2598 2561 2331 2373

Depreciation 429 398 326 328

Inventory 41 41 47 42

Trade Receivable 1350 374 363 402 390

Trade Payable 709 634 642 580 611

Trade Credit 671,5 638 611 595,5

Trade Debtor 862 368,5 382,5 396

ST Loans 20 26 34 32

Average Debt 2848 1988 1717 2381

EBITDA 1092 880 928 850 865

EBT -144 -12 326 239 259

TL 4729 4232 4571 4304

NCOA 850 746 709 855

TCL 2714 2382 2772 2359

Gross Profit 5948 6100 5649 5536

Income Continuing

Operations -404 52 95 138

Marketable Sec 1059 1279 1752 1796

Asset Turnover 0,69 0,76 0,75 0,78

Gross Profit Margin 100 100 100 100

Financial Leverage 1,20 1,12 1,53 1,56

Share Outstanding 225838 227107 227266 227613

EPS 15,94 0,12 -2,64 0,55

DPS 0,62 0,65 0,76 0,80

CAPEX 621 690 544 459

Free CashFlow -20 -99 -104 207

Cash 84 85 122 132

CashFLiquidity 0,73 0,89 0,93 1,18

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