TEXT-Fitch affirms Orbis SA at 'BBB+(pol)'; outlook stable

(The following statement was released by the rating agency)

Oct 04 - Fitch Ratings has affirmed Orbis SA's (Orbis) National Long-term rating at 'BBB+(pol)'.The Outlook is Stable.

The affirmation reflects Orbis's good trading performance in 2011 and the first six months of 2012 despite a weaker economic environment in the country and in Europe as well as its asset disposal programme which led to a material improvement in the group's cash position and credit ratios.

The rating continues to reflect Orbis's position as Poland's largest branded hotel business yet are constrained by the business small size and limited geographical diversification compared to Fitch-rated peers. The ratings also account for the sector operating risk resulting from exposure to cyclicality, being dependent on the overall economic environment, tourism, business and leisure travel. Although Fitch incorporates into Orbis's rating the benefits of being a subsidiary of the Group Accor, which holds 53% of Orbis's shares, such as brand awareness, transfer of know how and expertise, it continues to rate Orbis on the basis of its standalone credit profile considering the currently weak legal and strategic ties with its parent.

The group has continued to implement its new business model to focus exclusively on the hospitality business, develop its hotel portfolio based on an asset-light model and increase its economy segment positioning. Although the prevailing economic environment has slowed down the pace of implementation compared to expectations (87% of hotel portfolio in Poland still owned by Orbis), Fitch expects the new business model to ultimately improve profitability, reduce volatility and free up cash flows. However, this may also limit the expansion capacities of Orbis, as hotel portfolio development will be subject to finding new franchisees and hotels to manage that conform with brand requirements in a territory limited to Poland and the Baltic countries.

Orbis used the cash collected from non-strategic asset disposals to pay back its balance sheet debt in 2011, which resulted in the group's net cash position and an FFO net adjusted leverage of -0.6x at FYE11. Fitch expects the group's free cash flows (after dividends and capex) to turn negative in 2012 due to a one-off large capex related to the finalisation of previous development capex. However, low capital expenditure needs from 2013 onward should allow FCF to return to positive territory.

Orbis is Poland's largest hotel company with 56 hotels under Accor , Orbis and Holiday Inn brands and operations spanning upscale, mid-scale and economy segments.


Positive: Future developments that may, individually or collectively, lead to positive rating action include:

- Successful portfolio restructuring, demonstrated capacity to expand hotel network and improved geographical diversification

- Evidence of stronger links to the parent Accor justifying rating uplift or rating equalisation

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

- Sharp decline in trading performance as measured by Revenue per Available Room (Revpar)

- Aggressive shareholder friendly strategy resulting in sustained negative FCF - Substantial increase in leverage - FFO net adjusted leverage well above 2x ((Bangalore Ratings Team, Hotline: +91 80 4135 5898, Bhanu.priya@thomsonreuters.com, Group id: BangaloreRatings@thomsonreuters.com, Reuters Messaging: Bhanu.Priya.reuters.com@reuters.net))