After the acquisition

Aneta Cichla, ‘Eurobuild Central & Eastern Europe’: Some significant changes lie ahead of you. The contract concluded at the beginning of the year with Accor has made Orbis one of the largest hotel operators in Central and Eastern Europe. What are the company’s plans for its new portfolio?

Gilles Clavie, president of the management board, Orbis hotel group: The transaction we concluded with Accor on January 7th has great potential for Orbis. This does not just cover the purchase of 38 hotels operating in six countries, but it also includes a master franchise contract giving us the exclusive right to represent Accor’s brands in 16 countries. Orbis will have the exclusive rights for a period of at least ten years. So, under the agreement we will not only be managing the chain but also adding to the network new hotels under Accor’s brands. It will make it possible for us to strengthen our position as the largest hotel chain in Central and Eastern Europe and become Accor’s business platform in the region. We will be managing newly-acquired hotels that are already generating high margins. Our efforts are focused on the development of the offer of the acquired facilities and increasing their value. We are mostly working on the optimisation of the distribution system and on the integration of all the channels for reaching the client, We are improving our loyalty programme, strengthening sales activities and coordinating operational management. This is the first step. The next one will involve the development of the synergy between facilities in various countries and cities. We have already identified that such similarities do exist. We want clients who stay in one of our hotels in one of the countries to have wide and easy access to what we offer in other countries. We are trying to make our portfolio more visible and desirable to guests so that they can get to know our brand and the various places where our hotels are located.

The finalised deal not only involves business opportunities but also the challenge of integrating the entire portfolio. How will you cope with that?

Immediately after the closure of the transaction we established a separate company mainly focused on the management of the local teams in different countries. We have set up two decision centres for the newly-acquired hotel bases, choosing their locations on the basis of market similarities. In Budapest we have an office responsible for decision making for the Czech Republic, Slovakia and Hungary. A similar office responsible for the Romanian, Macedonian and Bulgarian markets now operates in Bucharest. This is a strategic decision related to the management of the entire portfolio, a holistic approach to the assets held, designed to uncover the synergies and establish the common denominator for the hotels as well as optimising the offer in every possible area. We are paying particular attention to Poland, the Czech Republic and Hungary, because there is a lot to be done here. We are also looking carefully at Bulgaria, Romania and Macedonia, where we can see growth potential. Furthermore, we have identified the most important projects in terms of the possibility of creating additional value and growth potential and have also started initial activities addressed to this. I cannot disclose too many details at this point. The existing hotels acquired from Accor are mainly located in capital cities: Prague, Bucharest, Budapest, Sofia, Bratislava and Skopje. They are managed by our employees, thanks to which we have experience of the local conditions and the competences necessary for functioning on those markets. As far as the planned hotels are concerned, these are at different stages of preparation. We are applying an asset-light development strategy for the new hotels, involving franchise or management contracts. In some negotiations over franchise or management contracts they are at their final stage.

The new portfolio includes hotels in countries where you have not previously operated: Bulgaria, Hungary, the Czech Republic, Romania and Slovakia. On top of that there are the markets where you have the right to represent Accor. What hotel experience have you gained in these new locations?

We view the new markets through the main cities where our facilities are located. In these countries the gross domestic product currently amounts to 2–3.2 pct and at the same time they are those that suffered most during the 2008–2009 crisis. However, it is gradually becoming clear that they are reviving and gaining strength. The largest cities, with the exception of Prague and Bucharest, i.e. the tourist and business centres, could be compared to the Warsaw market. In Macedonia we will mostly be operating under an asset-light model.
In Sofia we have a strong partner and we believe in this cooperation. The Prague market is stable. In Romania we are seeing an improvement in results and good prospects for the future, in spite of the fact that the market there is much smaller than in other countries.
Hungary is maintaining strong GDP growth, which has a significant impact on prices; however, it needs to be emphasised that when talking about Hungary I mainly mean Budapest. Our results for the last quarter of 2014 were good, particularly in Poland, which gives us hope that we will also do better than previously expected this year. We are focusing on increasing occupancy at weekends on all the above-mentioned markets, because this has a negative impact on the ARR (average room rate), which is calculated by combining the weekly room rate and the weekend room rate. However, we will certainly be investing in the existing chain in all the countries and improving our facilities. We believe that there are such possibilities, particularly in Budapest and Prague. Next, we will focus on the Romanian market, mainly Bucharest. In addition we will be gradually implementing the latest concepts for the F&B zone (food and beverages) to our hotels. Three new restaurants concepts are being introduced: Novo Square for the Novotel chain, IBurger for the Ibis hotels and Winestone for Mercure. According to our observations, the new formats have been well received by clients and we will be continuing their development: Novo Square for the entire Novotel chain and Winestone for Mercure in selected locations.

Apart from new business areas the company has also acquired two new brands: Pullman and MGallery. What are your plans for these brands?

Pullman is a top shelf hotel brand. It offers better standards and the hotels operating under this brand have well-developed conference areas. We have one such hotel in our portfolio, which operates in Bucharest. Another is being developed in Riga, under the asset-light model based on a franchise agreement – and that will be launched at the beginning of next year. It is a strong brand that we want to develop further.

MGallery is a chain of boutique hotels that are more lifestyle-oriented. MGallery hotels operate in Budapest and Prague. Such a product requires a good, strong investor, a specially selected location and access to suitable clients, but we will be looking at the opportunities for developing hotels under this brand in new locations.

You have recently been vigorously building up the Mercure brand in Poland. I mean your hotels in TriCity, Bydgoszcz, Kraków, Bucharest and Marijampolė in Lithuania. Will the company be mostly focusing on the development of this concept now?

We have been trying to grow our business with an asset-light strategy. Mercure and Ibis Styles are the two brands most suitable for this formula because they are relatively flexible and conversions are possible. As far as new hotels are concerned, we take into account every
possibility. Everything depends on the location and the specific needs. There are such places where particular Accor brands should be developed, such as in Wrocław, which doesn’t have an Ibis – or Gdańsk, where the first Ibis in the TriCity is to be opened. There is room for such a concept in these places and there is interest from potential partners. We have recently opened a Mercure hotel in Bucharest (Mercure Bucharest City Center) under a management contract and we will be developing this brand because it suits the market needs there. It is the similar case with the Ibis hotels, which we have four of in Romania. We are also planning to increase their number and modernise the ones that already exist. What is characteristic for the Orbis group is the financial discipline. We are trying to increase the value of our properties as much as we can within the budget planned, since each investment needs to provide us with some growth and returns.

But now you are phasing out the Orbis brand. Why is that?

The history of the cooperation of Orbis and Accor is long. The companies signed their first master franchise agreement in 2000. The fact that the first Novotel opened by Accor outside France was located in Warsaw, the current Novotel Warszawa Airport in the mid 1970s, confirms the significance of Poland. Accor wanted to strengthen its position on the Polish market and Orbis had quite a large chain – mainly under the Orbis Hotels name, which was not a standardised brand. Because of this the Accor group decided to enter Poland in a more decisive way through Orbis, which needed support and broad cooperation in terms of distribution. So the first few rebrandings of the company’s existing hotels started. Now the company’s basic business is the development of such brands as Mercure, Ibis,
Ibis Styles, MGallery and Pullman, which are very popular in Europe and all over the world. Orbis is the exclusive representative of Accor group’s brands in 16 countries, so we do not have to develop and maintain a separate hotel brand. Besides, Orbis Hotels did not have a strong enough position, which is vital nowadays. It didn’t have such a good reservation platform, either.

Are you planning to develop the chain through the construction of your own hotels?

We have already announced our intention of building our own Mercure in Kraków (200 rooms) and Ibis in Gdańsk (125 rooms). We also have a plot in Szczecin, where we are carrying out profitability analyses for a new project. Three hotels under the Orbis Hotels brand are in the process of being rebranded. Following a thorough modernisation, Orbis Gdynia was transformed into Mercure Gdynia Centrum, Posejdon will become Mercure Gdańsk Posejdon, Orbis Magura will be Ibis Styles and Orbis Wrocław will be transformed into a complex of two hotels: Novotel and Ibis Styles. Our own projects are treated very individually by us and to tell the truth we are laying the emphasis on refurbishment and increasing their value. For us this is very important because our shareholders expect returns on their investment and dividends. However, we are choosing each site very selectively each time. The same goes for development based on franchising or management contracts – we always look for the suitable investor. We have twenty contracts signed under the asset-light model. Even if the hotels have not been announced or constructed, which proves our capabilities.

You mentioned modernisations. What will be the investment expenditure for the company in the region this year?

We currently have over 100 hotels in our portfolio, which we are continuing to adjust to market requirements. We are implementing new IT solutions, altering them to suit the chain’s requirements, and putting emphasis on the improvement of our product. The funds for this purpose come from capital expenditure, a proportion of which is earmarked for basic modernisation work and which is always around 4–5 pct of our annual revenue. For additional investment projects connected with the development of hotels,
the expenditure needs to be increased. Last year in Poland the expenditure on modernisations amounted to PLN 48 mln, whereas the amount for development projects was PLN 64 mln. In total this means over PLN 112 mln was spent on fixed assets.

Technology is being increasingly integrated with the hotel business. Is this also the case with your group’s network?

Client behaviour has significantly changed recently. The number of people booking accommodation in our hotels has mostly been growing thanks to websites. Now almost half of our entire turnover is generated by guests who have found us online and booked online using our global booking structures and distribution channels. This is why we will certainly be continuing our cooperation with reservation portals. As an Accor partner we are also taking part in an investment plan the company announced in December last year. One of its pillars is the development of mobile solutions. With this technology it is possible to book a room, make a payment and obtain confirmation via text messages, including the number of the room reserved. Furthermore, it is not necessary to check out in person – this can also be done online. Accor’s development and technological investment programme, which amounts to an outlay of EUR 225 mln, will take place over a period of five years. The systems planned as part of the strategy will be targeted at three groups of users: guests, employees and business partners. One of the latest solutions is the smartwatch accorhotels.com app, which will allow users to manage their reservation, inform them about the online check-in option, and provide them with detailed information about the hotel, e.g. the Wi-Fi, car park, spa or swimming pool. We will be able to benefit from this because we are involved in the development of this project.

Finance manager behind the steering wheel

Gilles Clavie began his professional career at Eridania Beghin-Say in 1993 and held various financial positions of responsibility. In 2001 he joined the Accor Group in Paris as reporting director for the business and leisure hotels segment. He was the financial controller of Accor from 2004 through 2010. Gilles joined Orbis as a member of the executive committee of the company in January 2011. He was responsible for strategy, management control, IT systems implementation and asset management. He also set up and headed the property management committee, which concentrated on an in-depth analysis of various investment projects in the area of development, asset management, construction and maintenance. He was appointed president of the management board and CEO of Orbis on June 27th, 2014.

Engaged to Accor

On January 7th, the Orbis hotel group signed a contract with its strategic partner, Accor to purchase 46 hotels (including eight planned ones) in six countries in Central and Eastern Europe: Bulgaria, the Czech Republic, Poland, Romania, Slovakia and Hungary. The hotels in operation include eleven own hotels (1,974 rooms), 17 leased ones (3,573 rooms), eleven operating based on management contracts (1,685 rooms) and seven franchised ones (821 rooms). The hotels operate under the Sofitel, Pullman, MGallery, Novotel, Mercure, Ibis and Ibis Budget brands. Three quarters of the hotels are located in capital cities. Furthermore, Orbis will be a representative of the Accor chain until 2035 and for ten years it will have exclusivity rights in this respect in 16 countries of Central Eastern and South-Eastern Europe: Bosnia and Herzegovina, Bulgaria, Croatia, Montenegro, the Czech Republic, Estonia, Lithuania, Latvia, Macedonia, Moldova, Poland, Romania, Serbia, Slovakia, Slovenia and Hungary. The value of the transaction amounted to EUR 142.3 mln, 80 pct of which came from bank loans, while 20 pct was the Orbis hotel group’s own contribution.