Solmelia & Accor Ratios for 2007 (10 expected)

Solmelia

Accor

Profitability - 2 or 3

€m

€m

ROCE

Profit before finance cost

236.6

10.45%

1,210

22.78%

Capital employed

2,265.9

5312

CE =

Total assets

2,865.9

10,834

Current liabilities

(600)

(5,522)

2,265.9

5,312

Operating margin,

Profit before Interest

236.6

17.5%

1,210

14.9%

Revenue

1,350.7

8,121

ROOE

Profit before tax

179.1

17.4%

1,146

30.5%

Ord share cap & reserves

1,027.0

3,752

Efficiency - 1

Cap Empl Turn

Revenue

1,350.7

0.596

8,121

1.528

Capital employed

2,265.9

5,312

Gearing - 1 or 2

Debt to equity

Net debt

1,050.2

102.3%

278

7.4%

Ordinary share cap & res.

1,027.0

3,752

Interest cover

Profit before fin cost

236.6

4.1

1,210

18.9

Finance cost.

57.5

64

Cash Flow - 2

Quality of earnings

Cash from oper activity

348.0

211%

1,415

155%

Profit for year (after tax)

164.6

912

Debt service capability.

Cash from oper activity

348.0

33%

1,415

509%

Net debt

1,050.2

278

Investors - 3 or 4

Aver no. of shares in mill. (37.0/.20, 665/3.0)

185

222

Market price per share at year-end, in Euro cents

1,042

5,470

Market price per share at start of year, in Euro cents

1,501

5,870

Earn per share in c

Prof for year (aft tax & pref)

165

89.0

912

411.4

Aver no. ord shares

185

222

P/E ratio

Mark val per share

1,042

11.7

5,470

13.3

(based curr yr earn)

Earnings per share

89.0

411.4

Div per share in €c

Ord dividends paid

27

14.6

680

306.8

Aver no. ord shares

185

222

Div payout %

Ord div paid

27

16%

680

75%

Profit aft tax and pref.

165

912

Dividend Yield

Div per share

14.6

1.41%

306.8

5.61%

Mark val per share

1,042

5,470

Total return per share

Div + close val - open val

-444.4

-29.6%

-93.2

-1.6%

Open value

1,501

5,870

Solmelia

(15 + 1042 - 1501) / 1501

Accor

(307 + 5470 - 5870) / 5870

4(b)

Comments on Performance of Solmelia and Accor for 2007

Accor is by far the larger company. Its revenue of €8,121 million was 6.0 times Solmelia's €1,351

million, and its capital employed of €4,318 million was 1.9 times Solmelia's €2,296 million.

Based on the return on capital employed, the primary accounting measure of performance,

Accor was the more successful company. Its return was an exceptional 23% compared to a

more normal 10.3% for Solmelia. There were two main factors causing this.

Accor's operating margin of 14.9% was lower than Solmelia's 17.5%. Solmelia's higher margin

was due to relatively lower costs and higher prices.

However Accor was much more efficient in generating revenue from assets employed, with a

turnover of capital employed of 1.88 compared to only 0.59 for Solmelia.

Similarly, the difference in pre-tax return on equity, a primary indicator of accounting profitability

for the shareholders, was considerable. Accor earned a very high 30.5% compared to 17.4% for

Solmelia. These were higher than the ROCE above. Accor's return on its capital of 23% was

greater than the interest rate payable on its debt of 23% (64/278) and this boosted its return on

equity. Solmelia's return on its capital of 10.3% was also greater than the interest rate payable

on its debt of 5.5% (58/1,050).

In the area of financial gearing, Accor has much lower gearing. It had a very low net debt to

equity ratio of only 7% compared to a high 102% for Solmelia. It had a very high interest cover

of 18.9 compared to an adequate 4.1 for Solmelia. Neither company should have difficulty

meeting its interest payments.

Accor's cash from operating activities as a percent of profit after tax was 155% compared to

211% for Solmelia. Hence Solmelia's profits are of a higher quality as they bring in much more

cash than the accruals-based "paper" profit in the income statement.

Accor's cash from operations as a percent of net debt was 509%. Hence only 0.2 years (100/509)

of 2007 cash profits would enable the company to repay its debt. Solmelia's operating cash was

33% of its debt. Hence 3 years (100/33) of cash profits would be required to repay its debt.

The price-earnings ratio at 31 December 2007, based on that year's profit, was an average 13.3

for Accor, compared to 11.7 Solmelia. Hence the stock market is less pessimistic about Accor's

future performance.

The dividend payout as a percent of profit was a high 75% for Accor but only 16% for Solmelia.

The norm in Europe is some 40%. The dividend yield was 5.6% for Accor compared to only 1.4%

for Solmelia.

However based on the company's share price performance, 2007 was not a good year, and Accor

did much better than Solmelia. Accor's share price decreased during the year from 5,870 to 5,470

cents, a fall of 7%. This was due to reduced confidence in the company's future prospects.

However Solmelia's share price decreased by 31% from 1,501 cents to 1,042 cents.

Hence the total return per share (dividends +/- change in price) was a negative 1.6% for Accor

compared to a negative 30% for Solmelia.

Overall in 2007, Accor's accounting ratios were better than Solmelia's. Its share price also fell by

a much smaller larger amount. Solmelia needs to improve its profitability and reduce its debt,

which should lead to a recovery in its share price and price-earnings ratio.