Paris: Accor, Europe’s largest hotel group, forecast operating profit would rise this year as cost-cutting and restructuring efforts start to pay off and demand for hotel rooms improves in all regions outside its home market of France.

The company, whose 14 hotel brands range from budget Ibis to luxury Sofitel, predicted 2014 operating profit of 575 million to 595 million euros ($759-785 million), compared with an adjusted operating profit of 521 million in 2013.

The world’s No. 4 hotel group behind InterContinental, Marriott and Starwood is undergoing a reorganisation initiated by private equity specialist Sebastien Bazin, who took over as chief executive a year ago.

“In spite of a complex situation in France, the group is engaged on positive trends ... All conditions are there to push forward and deliver on our targets,” Bazin told a conference call with journalists.

Accor has been hit by a variety of problems in its home market, which generates 35 per cent of group sales, ranging from a rise in value added tax (VAT) to sluggish economic activity.

Business trends remained stable during the summer season with revenue per average room (RevPar) increasing in all regions except France, while initial indicators for August were also “encouraging”. But France was expected to remain sluggish.

FRENCH CAUTION “We do not anticipate a significant improvement in France in the second half,” Bazin said, adding the current political crisis in the country was a further hurdle.

France’s prime minister scrambled to put together a new pro-reform government on Tuesday, a day after the surprise eviction of rebel ministers who opposed budgetary rigour.

France has lagged other euro zone economies in emerging from a recent slowdown, fuelling frustration over President Francois Hollande’s leadership, both within his Socialist party and further afield.

“With what is happening today with the French government, I simply don’t know what is going to be ahead of me in the next four months,” Bazin told analysts.

Bazin was speaking after Accor posted a 17.6 per cent rise in first-half operating profit to 219 million euros, beating the average estimate in a Thomson Reuters I/B/E/S poll of 205 million. Analysts on average were expecting full-year operating profit of 597 million.

At 0830 GMT, Accor shares were up 0.7 per cent at 36.25 euros, outperforming the European travel and leisure sector index, which was 0.29 per cent higher.

“Full-year guidance sounds to us a bit conservative linked to RevPar growth, even if with the current situation in France we need to be cautious,” said Bryan Garnier analyst Bruno de la Rochebrochard, who has a “buy” rating on the stock.

Bazin took the top seat at Accor a year ago. His first move/shas been to split the company into two divisions — HotelServices and HotelInvest — to separate its operating and franchising business from its real estate ownership activity in a bid to bolster profitability.

Accor also said that HotelInvest had bought a portfolio of 13 hotels in Britain from the Tritax investment fund for 89 million euros, which it will fund entirely through debt.

Net debt stood at 259 million euros at end-June.

Accor’s shares have risen 7 per cent in the last two weeks, partially reversing declines in July, and are up some 5 per cent since the start of the year, outperforming a 1.8 per cent rise in the European travel and leisure index on hopes Bazin can improve the group’s performance.