Accor SA (OTCPK:ACRFF) Q3 2022 Earnings Conference Call October 26, 2022 12:00 PM ET
Company Participants
Jean-Jacques Morin – Deputy CEO and CFO
Conference Call Participants
Vicki Stern – Barclays
Jarrod Castle – UBS
Leo Carrington – Citi
Andre Juillard – Deutsche Bank
Alex Brignall – Redburn
Ali Naqvi – HSBC
Operator
Hello, and welcome to the Accor 2022 Q3 Results. [Operator Instructions]
I will now hand over to your host, Jean-Jacques Morin, Deputy CEO and CFO, to begin today’s conference.
Jean-Jacques Morin
Good evening, good morning, ladies and gentlemen. Very happy to be with you today for this presentation of our Q3 2022 revenue. Before we start the presentation and as usual, for the sake of clarity, we will continue to provide the RevPAR variation by region versus 2019, and we will do that up to the end of this year. As for revenue figures, we provide both the variation versus Q3 2021 and Q3 2019 in the document.
Without further ado, let’s move to Slide 3, where you’ve got the Q3 2022 highlight. On the left, just to start with the activity dimension of it, you can see here that we’ve got the Q2 2022 activity, which is now well above 2019. You may recall that in Q2, we reached a level by which we were at above the level of 2019 in terms of RevPAR and we are now 14% above the level of 2019 in Q3.
And you see that slowed all geography as we will detail later on. The second point of highlight on the activity is, there was a net unit growth acceleration. We reached 2.4% over the last 12 months and that confirms that we are on track to reach our net unit growth guidance at around 3.5% for the year 2022.
These performances illustrates the continued hospitality recovery. We knew summer would be good. We were expecting summer to be good and I think two points I’d like to highlight here, is that in September and in October, we did confirm the return of corporate on MICE and the other element to take into account here is that there is still a upside potential in Asia, notably in China, in Southeast Asia, because they are still in the dynamic of the overall regions trailing, and we expect to see those benefits coming – popping up in 2023.
So on the right side, how does that activity translate in numbers. The Group revenue reaches €1,149 million, which is an increase like-for-like of 83% versus Q3 of last year, and 9% above Q3 of 2019.
As for EBITDA, the combination of robust summer activity, as well as the benefit of the Sales, Marketing, Distribution Investment that we discussed with you when we published H1 2022, and all of that combined with some discipline, makes us confident that we will be on the high end of the €610 million, €640 million EBITDA range that we communicated back to you at the end of September.
And STO, Service to Owner, which was subject of many discussions at the end of July will be breakeven in H2. So, as we are entering in 2023, the Group can leverage supportive operational level on top of the business recovery that I just went through, a strong pricing power and also cost inflation mitigation plan in the hotel as inflation is a subject of many, many industries today.
If you move to the second Page, we detail here the RevPAR over the various geography. And what you see is that the RevPAR performance is clearly driven by prices, the orange part of the graph that you’ve got faced to you. And when you look at the RevPAR sequentially, I mean sequentially every region goes up by around 10 points. We also see some occupancy recovery and so you see that again on the table faced to you. If you go by region, in South Europe, the RevPAR of Q3 is 11% above 2019. That is a 9 point sequential improvement quarter-on-quarter.
France had a strong summer period, as we were expecting and what is very visible now is the performance of Paris, which translate the fact that international guests have now returned. And that performance in Paris is lined up with the performance in France. There is no more a dichotomy between the dynamic of the two. In September, corporate recovery drove an occupancy level which is now close to the pre-crisis level, 2019 level.
Northern Europe, you find about the same type of trends, 9% above 2019, 16% sequential improvement, significant improvement from Germany, which had been trailing the rest of Europe as they went out of COVID a bit later than the other countries in Europe, and UK behaves like France, i.e., there is now no more differential between the France and London.
If you move to Asia, again here a sequential improvement to the tune of 9%, but Pacific further strengthened. So Pacific is largely Australia and it ends up 15 points above 2019 level in Q3. Prices is very much driven – performance, sorry, is very much driven by prices and you see some bubbling around cities that start to recover too.
Greater China showed some improvement, but you see, when you look at the period of total, that there still volatility as the zero-COVID strategy remain strictly applied. So on the one side, you do have some restrictions easing that have been occurring, whether in Macau, in China or in Hong Kong. On the other hand, strict application of the zero-COVID case today volatility as it has been doing for the last two years.
Southeast Asia reported a recovery versus Q2 of about 10 points, so 10 points of improvement sequentially to end up at a negative RevPAR versus 2019 of minus 21%, hence the point I made that there is potential, both in China, but also in Southeast Asia of further recovery everything being equal.
In IMEAT, which include India, Middle East and Turkey, their Q3 RevPAR is 68% above 2019, a significant job which is boosted by very strong summer in Turkey, boosted on top of that by the inflation that you’ve got in Turkey. UAE was 17% up in Q3 and you will see a continued good performance from UAE in Q4 as the FIFA will now take place in Qatar over the second part of Q4 or the second part of the year. Saudi Arabia is still negative at minus 14% below 2019. And then you’ve got some seasonality, because as usual the religious calendar of Saudi.
When you move to America, the Q3 RevPAR is 12% above 2019 and that is a 7% sequential improvement, again just as Q2. So same dynamic here. Brazil performance is volumes. They are the only region which has an occupancy rate today which is above the level of 2019. So they have recovered the occupancy of the pre-crisis level. North America reported a stable RevPAR above 2019 level with good pricing power. So that’s about the region view of the RevPAR.
If we now move to the second lever, which is the net unit growth. The last 12 months net unit growth is now at 2.5%. That means that the Q3 that we just closed is the best ever in terms of opening in the Group. The acceleration is driven by three factor. I mean first-off Asia. Asia is a key driver in the net unit growth for the Group, has been, continues to be, and so the activity rebound during summer was largely due to China.
The second reason is still very strong and will continue to be very strong number of conversion. We are now year-to-date at the conversion rate on properties of 50% of the opening, so much, much bigger number than anybody in the industry. Reason three is that we had some one-offs in term of churn in H1.
You may recall the COVID year portfolio we have discussed, and we are now back to a normalized level of churn at around 2%, 2% plus and that also explain the number that you see for the end of September. So all of that together, we confirm the guidance at around 3.5% net unit growth for 2022.
What is also a point we would like to make today is that, the people on the ground, the developer on the ground, see asset owner showing appetite for the positive long-term prospects of hospitality industry, and this notably when you compare them with other real estate investment classes and so despite some tough interest rate environment, we see the prospect in term of development very solid.
All of that drives the pipeline to remain stable at around 212,000 rooms, with an Asia Pacific, which as customary is about half of the pipeline and upscale and luxury which is getting and always larger share of the pipeline, it’s now accounting for a little bit more than 40% of the pipeline, just as restaurants, it was about 1/4 of the pipeline four years ago, 25%.
If we now move to the revenue and I am on Page 6, you can see here the breakdown by segments, the segment reporting. So in Global, Accor revenue is up 9% to the tune of €1,149 million. The like-for-like increase versus Q3, 2021 is 83%. If you have to look at the same figure in reported figure, it would be even bigger because of the strength of the USD versus most of the currency in the world.
It will be to the tune of 95%. If you look at the segment of Hotel Services, revenue is at 9% again, and you are 84% above Q3, 2021. That reflects the RevPAR rebound and I’ll detail the M&S fees in the next Slide. As for Service to Owner, we reached a level of €566 million, which is up 8% of Q3 2019. So very much what you would expect.
Moving to Hotel Assets and Other, revenue was up 6% versus Q3 2019, or 76% versus Q3 2021. Same rationale that the one that we described back in H1 and Australia, which is about 50% of that segment, which is doing very well, and notably because of stronger leisure demand in coastal areas and as I was mentioning before, recovered period-after-period in Australian city, in the large Australian city, which had been tailing in term of performance as it depend on corporate demand. And on the other side, Brazil, which is having as I mentioned before, various activity this year and so is also helping the growth on Hotel Assets.
If you move to the deep dive on M&F revenue, you can see here that versus Q3 2019, M&F revenue is above 2019 levels. The incentive continue to kick back, you had many questions over time on how the incentive would come back and I am very happy to confirm what we had said before, i.e., that we will be for the full year somewhere between 30% to 35%. You may recall, 35% was kind of the number for 2019, kind of the reference number for history. So as business is coming back, because we’ve got good pricing in the hotels, you’ve got a good bottom line at the hotel level, which kicks back to us in terms of incentives. Versus Q3 2021, again a strong rebound as you would expect, the revenue growth is 93%. So very, very steep recovery since Q2 of this year.
If you go to the last Slide, which is some takeaways here, I mean the RevPAR is above 2019. The levers, which is corporate events, Asia market, pricing power, I went through that. Net unit growth, we don’t see that as changing. There is demand on the ground, and so we’ll continue to fill up the pipeline with demand. EBITDA at the end – at the high end, sorry, of the guidance.
And the last point I would like to make is on the business profile of Accor. Business profile of Accor is today more resilient than ever. We continue on the asset for like the couple of milestone that we are still missing. So we just as you probably saw announced the sale, the disposal of the Sequana Headquarter in Paris and we think we will close that transaction between now and year end. The viability of Accor’s base has been worked upon during the COVID crisis. It was one of the theme that we worked on during the RESET project. And so, that’s definitely helping going forward.
And there is a lot of talk around inflation here and we just would like to say a couple of thoughts for what concerns Accor. First off, inflation is not the same depending on where you are in the world. The inflation that you face in Europe is not the inflation that you’re facing in places like Brazil, or places like Middle East and Africa. Middle East and Africa is in fact getting a lot of benefits coming from their capability to sell a bit oil and gas instead of Russia.
And Brazil is in fact not depending on the rest of the world neither for commodities nor for gas, neither for food. And so, two example of land regions in our portfolio where the situation that you see is not the situation that you’ve got in Europe. So, I think this natural hedging our first being in many, many places in the world, is paying off. It didn’t really pay off when there was a pandemic. But this is not a pandemic that we face here.
And the other element that I would like to say is, by the way, Europe is 50% franchised. So whatever may be the effect of inflation to the bottom line of the hotel, Europe is the place in the world where you’ve got the largest percentage of franchise business versus any other regions. We are in average at 30%, Europe is at 50%. So there is also here some kind of an hedging coming from the nature of the business that we do in Europe.
And then there is the work that we’ve been doing with our procurement teams in order to hedge the cost of energy by buying in advance, so basically getting some term contracts on energy purchases, which is most definitely going to help us in 2023. And last but not least, we are obviously putting all kind of measure in the hotel in order to reduce consumption, everything being equal. So lot of things that make us confident on how we will weather inflation going forward if it was to continue.
I think that’s the positive note I wanted – we wanted to give for this Q3 results and the floor is now yours.
Question-and-Answer Session
Operator
[Operator Instructions] The first question comes from the line of Vicki Stern from Barclays. Please go ahead.
Vicki Stern
Oh yes, hi there.
Jean-Jacques Morin
Hello.
Vicki Stern
Thanks for the color. Hi, thanks for the color there on sort of different profiles, different geographies and so on in terms of how to think about inflation. As you sort of weave that in and then looking into next year, if you could just help us a little bit on how to think about the cost that were in aggregates for your owners and how that should sort of weave its way into incentive fees, perhaps any sort of sensitivity you could give us obviously with some of those numbers at least in Europe being rather high?
And secondly, just on marketing costs into next year again, how should we be thinking about the sort of higher marketing spend in the first half, is that something that should recur at least into H1 next year or sort of – or will that €40 million or so should come out?
And then finally on cash returns, just again now how you’re thinking about the right leverage for the Group, obviously in a world where interest rates are rising, I guess we might have thought February would be the time to think about earnings and share buybacks, is that still the right way of thinking about it? Thanks.
Jean-Jacques Morin
Yes. I’ll take that one. I mean, the first one I’ll take is sales marketing, distribution and loyalty. I had said back in H1 2022 when we explained to you that we had over span and hence there was a deficit on the line in our segment reporting, which is called STO, Service to Owner, which includes sales, marketing and distribution and royalty, most of it is sales marketing spend and royalty.
And I have told you that we would be back to what is between called the normal situation, I breakeven by 2023. Where we are today is, we are at breakeven in H2 of 2022. So faster than what I had said. And for next year, the way to think about it is that you’re going to be positive on that line. So, I think that’s the answer on this MDR.
In term of inflation, there is two ways by which inflation impacts the account of Accor. There is one which is the inflation at the headquarter level, the people that work here and we kind of discussed it a bit in – at the end of H2, there are some IT costs, for example, there are some people cost and there is the portion of my revenue and hence my profit, that is incentive and that I earn as school fees from the hotel.
Because of what I explained and the fact that not everybody is impacted the same way by what’s happening in the world, if you do a complicated model, what you find out aggregating the various geography and their own peculiarity, is that if we are able to increase versus 2022 pricing by 5%, there is no effect what so ever with the current elements that we have on inflation on the account of the Group neither on the headquarter cost base inflation or the incentive which perhaps in into the M&F revenue.
So that’s kind of giving you the sensitivities and frankly, I was very happy by that result, which means that we have been working well on a series of dimension. So that’s super-macro level. Obviously, it’s not a call about income here and we’ll detail the result and income in – by the end of the year, but wanted to give you that kind of sensitivity to help for you model going forward.
In term of cash return, Vicki, I think mechanically because the EBITDA is a positive number, that the recurrent figure will be a positive number. And so there will be a mechanical dividends, mechanical in the policy. We said that there is a mechanical competition by which 50% of the recurring free cash flow is an ordinary dividend.
And so as we will generate recurring free cash flow this year, there will be a proposal by the Management team to do a dividend for the result of 2022 in 2023. On top of that, you raised another question which is a potential share buyback and so we will talk about that when it is time, but for sure what you can remember here, is that there will be a dividend in 2023 coming from the performance of 2022.
Vicki Stern
Thank you. Can I just follow-up on the inflation point, that’s really helpful with the 5%, just on your own direct costs to sort of breakup the parts, would you still be factoring in something like about the same sort of increase as we’ve seen this year, maybe €50 million into next year, or has that changed?
Jean-Jacques Morin
No, I mean if you – if you recall what I said in H1, I kind of said that we want for an average inflation, everything being compounded for 2022 of 5%. I think something on 5%, 5% plus is a good number for the cost base with what we know the world is heading towards, probably a little bit more, I would say closer to 7%. I think that’s what I would use at this stage in the discussion.
And remember what I said and where I was explaining why there was a deficit too, is what matters here is how much of that inflation on the cost base you are able to find back through an increase of prices in the top line and what is super comforting here, is when you look at the performance of Q3.
Our average pricing has being 23% above 2019. So there is pricing power, because everybody is facing the same thing. So that’s why I wanted to reassess and reaffirm that it’s not only a question of the cost base, but it’s also a question of the fees and your capability to earn more fees through the inflation in the pricing that needs to be accounted for, hence the sensitivity I gave you on the 5%. Does it makes sense?
Vicki Stern
Very helpful. Yes. Thanks a lot.
Jean-Jacques Morin
Sure.
Operator
The next question comes from the line of Jarrod Castle of UBS. Please go ahead.
Jarrod Castle
Great. Good afternoon, everyone.
Jean-Jacques Morin
Hello.
Jarrod Castle
Hi. I’m interested just to get your view, you’ve done 2.4% net unit growth. You’ve had both Hilton and IHG come out with this, how do you see the industry growth at the moment in some of your core markets firstly?
Secondly, just looking at 3Q, obviously incredible room rates are getting at the moment. Occupancy is still a little bit further to go, but is this intentional, I mean in terms of revenue management? So, I guess what is holding occupancy back? Is this something besides revenue management holding it back, i.e., could it be business travel or lack of staff?
And then just lastly, you’ve upped the guidance to the top end of the range, is this very much on the revenue side or also somewhat on the cost side in terms of towards the €640 million of EBITDA? Thanks very much.
Jean-Jacques Morin
Yes. I mean on the EBITDA guidance, let’s start with the last one, because I still remember it. On the EBITDA, this summer – we had said this summer would be strong. I mean the summer was just gorgeous. The level of activity that we had at summer and the pricing level that we had on summer was just astounding. And I call it summer because it was summer in the North Hemisphere, but it was not summer in every part of the world. Latin America was not summer.
Nevertheless, I was just mentioning that we never had such a high occupancy rate in Brazil than we had since 2019, we are above 2019 level. So I think here, the demand has being extremely strong and that’s also why you know, we are confident that that’s going to help making us on the other part of the fork.
On the other hand also, Jarrod, as I was explaining in H2 and in H1, and I know it didn’t necessarily was well perceived, but we did let in fact a lot of cost go in H1. Because H1 was made of two very different quarter. On the one side, you’ve got the quarter where your RevPAR is minus 25% and on the other side, Q2, your RevPAR is 0%. So, when you add up the thing, it’s a 10% except that it is very, very different.
The one thing we did not wanted to miss was the rebound. So I did let go everybody to do whatever it takes to not miss that rebound. We don’t need to go that far today, because we’ve again reached a much more normalized level and hence the short answer to your question is, top line is better and we’ve put back some, I would say framework discipline on how much you can plan on distribution, sales and marketing and so that’s also helping STO to be back to breakeven, because it’s still was a minus €90 million in H1, if you recall, so very significant improvement on STO. And it’s also – it has also been, sorry, helping drive the top line that you saw in the [indiscernible] because the RevPAR of Q3 is just a very, very, very good number.
You had a question also on what we see in terms of development. I think today, Europe has been, although the crisis, behaving quite well really. I think if you look at this Slide by geography, Europe has never have been a very strong element of the absolute development, but it has been a steady element of the development.
And so in Europe because of the conversion and all of that, we see a continued demand, strong demand and that is not going to change. The element which is fluctuating is two ways. One is, Middle East and the other one is Asia. Middle East has already recovered. And in fact, the demand in Middle East, this is very, very true for luxury and it is now – is very strong.
And I was mentioning to you the mix that you have on luxury and lifestyle versus the rest of our portfolio, a large part of that is driven by the demand that exists in those markets, and is pushing us on – pushing us forward and increasing hence that level of activity. The joker, the element which is tougher, has been tougher is Asia. The reason for why in fact the numbers were weaker for the last two years was Asia, because Asia was basically closed and so if it is closed, why open room, right. And it is by the way still trailing the rest of the world in term of activity.
Hence in my view, this is a situation which is going to correct itself slowly next year and the coming months and hence the potential of those regions, which if you recall, was the largest driver of net unit growth and pipeline in history, hence the fact that I mentioned the pipeline in Asia being 50% of the total, that portion is the one that we still have to model and understand. It has been doing very well over the second part of the year. You can see Southeast Asia also coming back, and we need now to see how China and Southeast Asia will be at next year, and that’s going to make the difference.
Jarrod Castle
Great. Do you have any comments on the industry unit growth? Sorry.
Jean-Jacques Morin
Industry unit growth, that’s just – you mean net unit growth?
Jarrod Castle
Yes, exactly. Just a —
Jean-Jacques Morin
Yes. That’s – which is the net unit growth. One, sorry, the one from Europe history. The one from Asia will recover and is recovering and China is a question mark and the one for Middle East has already recovered and is very much slanted towards in fact luxury and lifestyle.
Jarrod Castle
Okay. Thanks.
Jean-Jacques Morin
Sure.
Operator
The next question comes from the line of Leo Carrington from Citi. Please go ahead.
Leo Carrington
Thanks. Good evening. Might I just ask three questions. One a quick follow-up, in terms of the pipeline evolution, the activity in lifestyle and luxury, do you see the same trends that you’re seeing in Middle East begin to spill-over into other regions? So what you think or is there a very pronounced regional mix right now?
Secondly, in terms of the – and perhaps I’ll collapse my last two questions together. I mean in terms of the pricing power, do you see similar trends for your business customers and midweek demand as you do the weekends? How do you see the – how do you see the pricing power in that amongst your business room – for your business room nights? And then how do you see this evolving into November and December, what do you think the longevity of this pricing power can prove to be through the rest of Q4?
Jean-Jacques Morin
Yes, on – just on the longevity, if I just look at the result of October, because we already are very much advanced in the months of October and I have also a very good view on November and because it’s tomorrow. We see the same kind of trends, i.e., a very strong pricing power in our hands. As you know, the difficulty of the industry is to project it much further, because of the way people booked, so beyond the two months’ time, I don’t have a lot of backlog which is coming in, in advance and hence the judgment is much tougher, but we don’t see today any slowing down.
So it’s something to be monitored, that we monitor daily. But you would have a very good RevPAR in the month of October, in the month of November, in the month of December and this is going to be supported still by a very nice pricing power.
In term of – by the way your other question which is a very good one. We see a re-bouncing between the weekend and the week, and all of that comes from what has been happening with the COVID, with people now working differently and so people staying in reality long and coming, for example, over the weekend to do their week into a given place for work and not coming in enough for just one day during the work week.
And so, there is this so called mixing between business and leisure, which has been kind of smoothing in fact effects that were existing before the differences between weekend and the rest of the week. And so this is continuing. And I don’t see why it would fundamentally change. You see more and more people coming back to the office, but you would never see something which is going to be back to the level people used to work in 2019. Some industry are still very, very much working offline and notably anything related to technology.
In terms of lifestyle and luxury, I insist on Middle East, because that’s the portion which has been buoyant. And again remember, Middle East and Africa in a world has been the region that came back at from COVID the fastest. And so that’s also probably part of the reason. But we do see a lot of leaves in Asia.
We have for example, some lifestyle hotel now in Australia, Mondrian. We have also some openings in Paris, again Mondrian, as an example Hoxton. And so you see some of those brands kicking in, not only in Middle East and Africa, but it is true that it is very much today Middle East and Africa. I mean you’ve got to say is of let’s price up in December, we will open the Mondrian in Singapore, we have the Maison Delano in Paris which is probably going to open now in October. And you’ve got Faena that we are signing in Buenos Aires. So there is a couple of things here that are going in that direction.
I think the one point I didn’t make to go to the previous question that I should highlight is, remember the number of rooms that you open is one element of the equation. But what really matters is the fee that you generate. And so, when you look at what we call lifestyle and premium is probably today 70% of the pipeline right. And that 70% that’s lifestyle to human life and that 70% is the valuation in fees. So, I just told you that it was 30% in volume, but it is 70% plus in fees.
And I think that’s the portion that you need to take into account in how you may judge how we develop the business going forward, because there is a mix change. I mean we won through creating that lifestyle platform, we won through the acquisition of more less than premium kind of brands over the last three, four years. I mean, started with some, but it has continued with Movenpick, it has continued with other brands like TwentySeven and so on and so forth.
And so that is going to help in the future, because it means that your pipeline is getting richer. So, just the 3.5% or whatever does not necessarily translate. If I do all my openings in China, it is not going to do the same thing to my bottom line, that if I do all my openings in a nice SLS in Dubai. And so I want to insist on that, because you may not see the same trends in every of the people in this industry. Is that making sense?
Leo Carrington
Yes, that’s very clear. Thank you.
Jean-Jacques Morin
Sure.
Operator
The next question comes from the line of Andre Juillard of Deutsche Bank. Please go ahead.
Andre Juillard
Good evening. Congratulations for this strong publication.
Jean-Jacques Morin
Thank you.
Andre Juillard
Two question if I may. First one was on ADRs, do you have any visibility on 2023? Any negotiations with corporates or tour guides or OTS which could give us some flavor about what is going on? I know it’s difficult, but any information here would be welcome. And the second part – the second question, sorry, would be on the €200 million saving plan. Could you give us an update on that side and which part you could confirm, because correct me if I’m wrong, but during the H1 results, you were saying that’s part of this saving would be impacted by inflation. So any information would be welcome. Thanks.
Jean-Jacques Morin
Yes. On the corporate discussion, I think the one thing which is in my view extremely positive is that, all the discussion that we have, people do take the argument of inflation in the discussion, so there is no rejection from anybody that inflation cannot be part of the discussion, and by the way, it kind of makes sense economically, but they are taking it.
So to me, that’s a very positive thing and that’s also why with what I have in my hands, I feel comfortable about the ADR going into 2023. After that and I – on the commitment of volumes, there is never really any firm commitment on volumes, I mean it’s mostly envelopes and so it’s not as if any of those things are like cast in concrete, if you will. But on the pricing on the other hand, it’s a good thing that we are able to keep the same kind of rates and adjust them for inflation.
For your other points about reset, as I’ve been saying, like a broken machine, we have done all the actions and we have done all the severance of many people unfortunately, and it has costed us a lot of money, and it was a painful path of any manager of life, it’s not only people, but it is in our business a lot of people. And so the €200 million versus 2019 are basically done. There is a little bit still that we’ve got to do between now and here on. And you know, there is a little reminder, that will only kick-in in the P&L in 2023, something to the tune of €20 million. But €180 million of it will be the exit run rate of 2022.
What I was saying, when we went through the H1 discussion is that, because of the 5% of inflation that I mentioned, and if you do a very simple math on the basis of €1.3 billion of cost base, which was our cost base back in 2019. So you just do something where you put a bit of inflation in 2021, 5% in 2022, you find out that half of the €200 million would be eaten by the inflation on the cost base.
And so going forward, the big question is unable to get the 5% I was mentioning on average room rate. And hence, us sitting in the fees that I collect, the increase that I see on the cost base in the future. So, that’s really where we are on reset in macro terms. So the saving and the plans have been done and they have been very much helping us weathering all the bad news that happened during this year in term of the inflation and turbulences in the world. And I don’t think we’re going to need as much of it going forward, because I think we want to be able to continue to increase the pricing.
Andre Juillard
Okay. So if I understand well, the fact that prices are strongly at, thanks to inflation, partly thanks to inflation, means that we should have a positive effect of more or less €200 million on the cost base?
Jean-Jacques Morin
Yes, you will have a portion of the €200 million on the cost base, absolutely. I’m guessing today, just make – to make it clear, let’s keep something that everybody will be able to remember, use €200 million because I’m considering that there is a portion of what I have, which is going to be lost through inflation because of what happened this year, but there is a net benefit to be modeled coming from reset going forward.
Andre Juillard
Okay. Thank you.
Operator
The next question comes from Alex Brignall of Redburn. Please go ahead.
Alex Brignall
Hi, thanks so much for taking the questions. First one is on the profitability of the STO business. You previously talked about a potential mid to long-term EBITDA contribution. You’re obviously running ahead in terms of timing, but I wonder whether the cost savings that you’ve taken out has changed the long-term hopes or expectations on the contribution of that base.
And then just a second quick one, that there might not be a good answer to it, but just on disposals as to the trading conditions are much improved, is there anything further to say on the assets that you have intentions on disposing? Thank you very much.
Jean-Jacques Morin
What, sorry, just on the asset to make sure I catch your question properly. What asset are you discussing in term of disposal, sir?
Alex Brignall
Any of the remaining leases. And then of course the hotel assets which Accor invests, whichever —
Jean-Jacques Morin
Yes. I got you. I got you. I got you. I mean the Sequana will obviously add out the net debt position of the Company, because it’s a great transaction in terms of internal rate of return. I mean it was a good transaction and hence it will help in fact the liquidity and the net debt position of the – we have been mentioning €465 million of selling price in the press release. And so you’ve got against that a loan of about €300 million.
So can see here that there is a net effect which is a positive one. And the internal rate of return that you may have if you do a classical computation is a double-digit, way the double-digit kind of returns. So again here we may not do everything perfectly right all the time, but this one was a very good transaction in retrospect. So that’s on Sequana.
After that, what is left, what is left is two big things, one is Econo West, and Econo West performance is improving as you may have seen in the price and as you would expect, taking into account what I just explained on what’s happening in the European market in the utility. And so that one is a complicated transaction. We have anyway look at up to 2023, complicated because it’s a big number. And so this one when it comes, will be a significant effect again in term of cash in the Company.
And then the other one that we’ve got to continue working on is Mantra. On Mantra, we do a little bit of as we progress. Sorry. We have been work as we’ve been progressing. And what I mean by that is leases are living animals and so they come to end, and when they came to end, you can either renew them, transfer them, or basically not do anything with them and so the liability that we started with four years ago on Mantra, which was to the tune of about €300 million of debt on the balance sheet, has been reduced by €100 million.
So we’ve been working on it, but there are still some leases that we need to continue find ways of getting out. The amount that you can expect from the sale of a lease is not a lot of money. As much as I Econo West and Sequana are providing last bucket of money, a lease as you surely know doesn’t provide a lot of cash outlay when you sell it, but the benefit that you get is the reduction in net debt on your balance sheet, and more importantly the visibility and capability of reduced the viability of the results.
Today, the result of Australia are good. Also, because the reasons in Australia are coming home. So we were hit in 2020, 2021 significantly by the leverage of the leases in Australia. Today, it’s the opposite situation, hence the fact that I’ve been mentioning several times that the total asset profitability was in fact very good since 2021.
So, I think that’s kind of the answer to your – after that, there is not a lot that you need to – there is a couple of hotel that we still own, but not a lot. There is maybe less than 5, 6 that we still have, owning like one in Egypt, one in Mauritius, but not a lot. So this is not significant amount.
That’s a long answer, but it is an important subject.
Alex Brignall
Alright. Thanks so much.
Operator
The next question comes from the line of Ali Naqvi of HSBC. Please go ahead.
Ali Naqvi
Hi, good evening. Thank you for taking the question.
Jean-Jacques Morin
Sure.
Ali Naqvi
Just in terms of the pace of signings, how would they compare versus 2019 and what’s the sort of view in terms of going forward? Are any of your regions more or less exposed to developers and – due to the macroeconomic environment or anything that could potentially slow that down? And then the conversion level obviously this year has been pretty high, how do you think about that for the next year?
Jean-Jacques Morin
I think the conversion level is most definitely an argument positive that we have a lever, that we have many other players, because our convention level is to the tune of 50%, what I said earlier, year-to-date. It has been in history more like 40%. So we are seeing more conversion this year than we were seeing in 2018, 2019 and by the way makes a lot of sense taken into account what we know and the environment of the economical environment.
But also all the disruption that you got through supply chain, because building some hotels, it’s quite difficult to finish a hotel if you don’t have beds, for example. So it’s a full thing that you need to sell and so from time to time, supply chain can result for you a couple of nice surprises. I’ll make some kind of a weak out of it, but this is the daily life of people on the field.
So we’ve been seeing good conversion. And I think you will see continued good conversions. Because of the environment in which we are entering, getting financing is not easy and converting property is one way to resolve potentially for an asset owner, some of the financial issues that they may face. And so I think you are not going to see the rate of conversion slowdown in the future and it helps us develop better.
We have probably also in development in the same vein, think more about franchise assist manage, because it is faster as the cycle time to go and develop the franchise hotel, which is a very standard contract versus the managed hotel that requires more complexities in the negotiation, because of the larger added value that you may have. And so again, it depends what type of hotel, depends what kind of location, depends on many parameters, but that maybe for midscale and economy a lever that we’re going to use going forward more.
And on the signing and your question on the absolute level, we are behind 2019 in terms of signing. The signing level, the absolute signing level that you’ve got in the last 12 months is probably to the tune of 70% to 80% of what we used to do in 2019, rough numbers. And again, no surprise here as we are seeing an acceleration of the signing in the second part of the year. So the same with the net unit growth will continue to ramp-up, the same way you will see the signing last 12 months number continue to ramp-up mechanically.
Does that answer your question, sir?
Ali Naqvi
Yes. Thank you very much.
Jean-Jacques Morin
Yes.
Operator
[Operator Instructions] The next question comes from the line of Andre Juillard of Deutsche Bank. Please go ahead.
Jean-Jacques Morin
Andre, Andre, Andre, you make it twice.
Andre Juillard
Sorry, just a third one.
Jean-Jacques Morin
Go ahead, go ahead, go ahead.
Andre Juillard
About conversion, do you see any portfolio coming to your brands compared to initial trend which were more focused on individual assets, which would be a good sign on the attractiveness of your brand?
Jean-Jacques Morin
Yes, there are some discussions. I think I had mentioned to you, I believe when we did the H1 publication, that the Southwest portfolio in Australia was going to come, because I had the question of how are you going to figure out in H2, which is so much stronger than the H1. And so part of the answer there is, one big conversion, which has been the sort of broader portfolio in Australia. So that’s a good example.
Now, I must say, that’s the only one of significance that we had in the period of year-to-date, but there is a lot of little things ongoing. There is no large portfolio conversion that we are negotiating today, but these things come up and back and I think in all of this today, there is a lot of smaller ones that are happening, notably in Asia.
Andre Juillard
Okay. Thank you.
Jean-Jacques Morin
Sure. Okay. Listen, I think we are done. So, thank you very much for the listening and we look forward to see you in February for the year-end results. Thank you.
Operator
Thank you for attending today’s call. You may now disconnect.
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