Scandic Hotels Group AB (publ)

Thank you very much and good morning, everyone, and thank you for joining this presentation of Scandic's third quarter, 2023. As was just said, I'm Jens Mathisen. I'm the CEO of Scandic, and together with me, I have Åse Virén, who is our CFO. We will talk you through the quarters, as always, so let's jump straight into it, and please turn to page two. You probably already saw the results, but I'm very proud to present a new record quarter that is another proof of how we have become a more efficient and profitable and even stronger Scandic. With the continued sharp focus on commercial excellence and efficiency, we deliver an eventful quarter with all-time high net sales, stronger underlying results, new signings, and high guest satisfaction. Market development was solid with high demand from leisure in combination with a good start to the important season for corporate travel and meetings as well. We sold more rooms and more room nights than we did last year and occupancy increased to 71% in this quarter. This was actually an improvement from last year and slightly better than the performance of the overall Nordic hotel market. With high demand and continued positive price development in all our markets, REFPA reached new all-time high levels. The hotel market is resilient against the high inflationary environment, and hotel stays continue to be prioritized for both business and pleasure. Our net debt was at a historically low level at the end of the quarter, and with strong financial position, we keep high pace to grow the portfolio and to build a stronger Scandi. We have intensified collaborations with property owners and it's very satisfying to see how we are growing the portfolio. During the quarter, we announced a new Scandi Go signing with 221 rooms in central Stockholm, which we presented in the Q2 report. We also opened our first ScandiGo in Stockholm this quarter with great success and interest from both guests and property owners. This creates, I think, good conditions for our growth ambition in this growing economy segment. In September, we also signed an agreement for two new hotels in Helsinki. And we also recently announced an extended strategic partnership with Oracle and we are working at full speed to implement a complete cloud-based platform in all our hotels and central functions. This is a very important step in our strategy, which is totally in line with what we have communicated before, to improve guest experiences and create an even more cost-efficient operation in Tobin. I will come back to this later also in the presentation, but all in all, a very strong quarter. Moving on, please turn to page three, where you can see quarterly adjusted EBITDA development since the beginning of 2020. Excluding one-offs, adjusted EBITDA reached a new record level of 1.142 billion Swedish kronor, corresponding to a strong margin of 18.1% Compared with the third quarter in 2019, it's a margin improvement of 2.2 percentage points. It's pleasing to see how we are improving the underlying results while building a stronger Scandic. Including one-offs, we report an adjusted EBITDA of 1.173 billion Swedish kronor. The performance in the quarter was driven by continued solid market development in combination with commercial excellence, high efficiency, and an overall higher activity level within Scandi. Also, we'll, of course, talk you through the financial development later in this presentation. But please turn to page four. Here you can see the monthly market occupancy in the Nordic countries. The market development was solid in the quarter. with demand in line with last year. Scandic's occupancy rate, as I mentioned earlier, increased to 71% in the quarter, which is an improvement compared to the same period last year and slightly better than the performance of the overall hotel market in the Nordic. The good demand was mainly driven by continued high levels of domestic and inter-Nordic travel as well as international tourism. The occupancy compared with 2019 is explained by lower volumes of intercontinental travelers. However, this segment continues to recover. The market also had around 6% more rooms at the end of the quarter compared to the end of the third quarter in 2019. So please turn to page 5. This is market data for average room rates for Sweden, Norway, Finland and Denmark indexed to the corresponding month in 2019. Prices continue to develop positively and Scandic's average room rate in the quarter was 6% higher than in the same quarter last year and 23% higher than in 2019. Also note that Finland is lacking on the markets in September due to exceptionally strong prices in 2019. As we have mentioned before, Finland held the presidency of the Council of the European Union in second half of 2019, which resulted in very high room rates at that time, especially in September, October, and November. So prices is always a key priority for us, and with, I think, very solid occupancy rates which we are seeing right now, we ensure that we maintain our focus to drive prices also going forward. Please turn to page six. Here you can see the market's REFPA development index to corresponding month in 2019. The development was strong in the quarter, with Norway continuing to lead the way with a REFPA level that has been 33 to 36 percent higher than in 2019. Scandic reached a new record level with a REFPA of 933 Swedish kronor in the quarter, compared with 875 last year and 807 in 2019. We also, as mentioned, had 6% more rooms at the end of this quarter compared with the third quarter in 2019, which you need to add. Please turn to page 7. Our increased focus on growing pipeline is showing results. During the quarter, we have strengthened our position in Helsinki and signed an exclusive agreement for two new hotels with a total of 459 rooms. It's a Scandic Hotel and one Scandic Go. This is our first Scandic Go in Finland, and as I mentioned, we see great interest in our new brand in this fast-growing economy segment from both guests and property owners. which gives us quite good confidence in our growth ambitions within this segment. The new hotel will be located in the new unique event area called Garden Helsinki, a few minutes outside Helsinki city center. This is a growing and very key destination and a milestone in Scandic's and Finland's growth journey. The hotels are expected to open in 2028 and will be certified according to the Nordic Swarm eco-label before opening. During the quarter, we also announced a new ScandiGo signing with 221 rooms in central Stockholm, which we also highlighted in the Q2 presentation. Please turn to page eight. During the quarter, we announced two new signature collection hotels to strengthen our offer and to capture the growing demand from Leisure in the upscale segment. The hotels have been part of the pipeline for some time, and we are expected to open in Tromsø 2025 and in Aarhus 2026. I'm happy that we are strengthening the offer with another signature hotel in Norway and that we are now opening our first one in Denmark. Please turn to page 9, where you can see the pipeline. With a strong financial position and strengthening organization within commercial and business development, we keep a high pace to further grow and optimize the portfolio. At the end of the quarter, we had 1,499 new rooms in the net pipeline, which was 582 more than at the end of the previous quarter. I am pleased that we are strengthening our position in key markets as well as bringing our first ScandiGo to Finland. As I mentioned in the previous quarter, we are increasing investment for renovations as well of existing hotels to create a more competitive portfolio. And with our strong financial position, we are determined to get back to our target of maintenance capex of between 3-4% of net sales. With that, please turn to page 10. Earlier this week, we announced the implementation of the complete cloud-based solution Oracle Hospitality Opera Cloud. By connecting all our hotels and central functions on one platform, we will be able to create even better guest experiences and increase efficiency through improved steering, booking, and pricing. This will also allow our team members to spend more time creating value for our guests. One example of this is faster and smoother booking and check-in and check-out processes. We see excellent opportunities to explore more economies of scale and increase growth and profitability over time with this cooperation. We expect all our hotels to be up and running on the platform in the second quarter next year. With that, please turn to page 11 and I hand it over to you, Åsa, to take us through some of the financials.

Thank you, Jens, and good morning, everyone. Let's turn to page 12 and start off with the financial performance in the quarter. As mentioned, net sales increased by 5.2% to a new record level of 6.3 billion SEC. We also delivered a strong result with an adjusted EBITDA of close to 1.2 billion SEC, including one of 31 million SEC and this corresponds to a margin of 18.6%. In this quarter, one-offs included a one-time electricity contribution in Sweden and compensation related to housing for refugees in Norway. Last year, we had one-offs of 76 million SEK in the third quarter. If we exclude one-offs, the adjusted EBITDA reached a new record all-time high level of 1.142 billion SEC with a margin of 18.1%. This was an improvement, as Jens mentioned, by 2.2 percentage points compared with the third quarter in 2019. Thanks to our strong financial position, we have increased the activity level with focus on the overall IT landscape and the implementation of Opera Cloud, as well as the commercial development and the launch of Scandic Go. This was partly reflected in increased costs for the central functions in the quarter. All in all, this was a strong quarter driven by our commercial ability to capture good demand in our markets with continued high efficiency and cost control. I'm pleased with how we grow the business and how we have become more efficient and profitable over time, and for sure this will continue. We expect approximately 20 million SEK in the fourth quarter related mainly to Norwegian housing for refugees. And then please turn to page 13. We had a strong free cash flow in the quarter of 899 million SEK and 1.2 billion SEK year to date. Working capital was impacted by repayment of variable rent debts for 2022 of a little bit more than 700 million SEC and seasonality effects with a larger share of business customers and meetings in September. Altogether, we report a strong cash flow. As we mentioned in the previous quarter, we have had a cautious approach with low capex, but we are gradually ramping up and plan for higher expansion, renovation and IT capex from this quarter going forward. And let's please turn to page 14. We continue to reduce our debt level, which was at a historically low level at the end of the quarter. Net debt decreased to 1.9 billion SEK in the quarter and corresponds to a net debt in relation to adjusted EBITDA of 0.8 times on a rolling 12 months. Excluding the convertible bond, net debt only amounted to 336 million and the net debt in relation to adjusted EBITDA of 0.1 times. Net debt included 1.6 billion related to the convertible bond and 797 million related to deferred VAT and social security payments in Sweden. Due to the strong performance in the nine months of this year, A new rent debt of approximately 400 million SEK has been accrued for 2023. The majority of this will be settled, as you all know, during the first half of 2024. Our available credit facility amounted to 3.4 billion SEK and total available liquidity amounted to 3.6 billion SEK at the end of the quarter. Lastly, the convertible bond has its conversion price at 43.36 SEC and matures in a year from now in October 2024 with a potential dilution of 41.5 million shares. But as you all can see in the numbers, we have available funds to handle this. And then please turn to page 15. And here you can see the net financial items and impact from IFRS 16. Including IFRS 16, the reported financial net was minus 510 million SEK. Excluded for IFRS 16, the financial net was minus 67 million SEK. Non-cash convertible interest was 43 million, and interest payments on bank loans decreased as a result of our lower debt level. Ultimately, cash financial items amounted to 22 million SEK. So with that said, please turn to page 17 and back to you Jens for some final comments and what to see for the future.

Thank you very much Åsa and finally some comments and reflections on the outlook from my side. I'm very proud to conclude that Scandic is standing stronger than ever before. With focus and persistence, we have taken important steps forward to become a more efficient and profitable company with a very strong financial position, all while increasing guest satisfaction. The good momentum from summer months has continued into the fourth quarter, and we are on track for another strong full-year performance. So it's continuing. Based on the current booking situation, we expect a solid fourth quarter with occupancy on par with the same period last year, but at higher prices. We are highly prepared for the future and we are growing the business in a controlled manner with balanced investments and very high efficiency. I want to thank all our employees for their fantastic commitment and our owners and guests for their trust in Scandic. With that said, I think let's hand it back to operator for the Q&A.

If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Karl-Johan Bonnevier from DNB Markets. Please go ahead.

Yes, good morning. Congratulations to an excellent set of numbers and very good development in the market. Just to pick your brains a little first on the strong performance in the quarter and also you alluded to comparing it to the same quarter in 2019. Is it possible to maybe give us some sort of bridge in the way how you see the underlying performance in that kind of context? What kind of structural gains have you managed to create in the platform compared to pre-COVID?

Good morning, Karl-Johan, and thank you for the question. I think there's a lot of things we could say about it because we have been extremely focused at Scandic to become a stronger company after the pandemic. And we have been holding back when it comes to adding a lot of resources, especially above hotel level, meaning that we want to maintain a very high efficiency level also after to support, you can say, the improvement of margins going forward. So there has been a lot of prioritizations when it comes to resources. When that is said, I think we have also done a lot on hotel level. We are extremely strong in the commercial field right now. We have added quite some resources to secure that we are on top of of, let's say, the market when it comes to gaining and taking advantage of the opportunities, both from the online sales, OTA partnerships, and also from the good cooperation we have with both corporate and leisure guests in locally market. So there's a lot of initiatives that we have been doing, but we have mainly had a large focus on becoming a stronger company on the cost side and and be agile and speedy when it comes to the commercial activities. And then what also we said in this call, and as you hear, it's now we start talking about our partnership with Oracle, which is to move to a cloud-based solution. We have actually been working on that for approximately a year. So we have been working on preparing ourselves for this and negotiating the right agreement with Oracle and now we have already started this transformation, meaning that we will be done by first half next year in moving all our hotels onto a cloud-based platform. That also adds a lot of opportunities going forward. So Scandic is doing quite a lot of good stuff right now, and it sees in the numbers that we are quite successful in getting a result out of it.

Definitely. And coming back to the Oracle implementation, is there a system kind of gain coming out of it on the cost side? Or you alluded to a lot of opportunities to drive efficiency on the hotel level. Where is the gains, if you put it like that?

Over time, it will be both because the system itself is actually cheaper than the old platform. So cost-wise, there's a gain immediately on that. But you can say when you look forward, this allows us to add and both attach and detach different kinds of systems to the cloud-based solution, meaning that we can add a lot of features when it goes forward, especially for the guest journey, speeding up the check-in, check-out phases. This makes it possible to even include mobile keys for the rooms and electronically solutions for checking in, checking out on your mobile as a guest over time. That will save cost in the receptions, of course, because over time more and more people will do that themselves. And it also has a lot of commercial advantages because we can give customers possibilities for ancillary sales opportunities, book your restaurant, do you want to upgrade for the next room category, etc., which we can do much easier electronically. So there will be a lot of commercial offsides, but also it's a more cost-efficient system.

Excellent, and I guess it creates scalability for you when you now start to look at expanding the portfolio again to be much more focused.

Yes, and we call it internally One Scandic, but I can even spread that to you on this call, because what we call One Scandic is that we want to benefit from being as efficient as we are and taking the best of everything. and take the best version of all things we do and do that all over. So we are extremely focused across the management team to secure that we continue to find opportunities to become even stronger, even though we have come far.

And one can also add to that that I don't think that this is kind of one or two booms to improve margin. We are in a volume business, so it's rather that finding the nitty-gritty things, doing good work together with our colleagues every day, I think that is important to bear in mind. That's the way we actually work with the margin every day.

Turning to your Q4 outlook, it sounds like it's very much a continuation of what you have seen in Q2 and Q3. Could you allude a little to maybe what you see on meeting bookings and pre-bookings and similar kind of things? Are we back to similar patterns as pre-COVID? Is that kind of visibility you got now?

It's always difficult because you still see some differences. Like I mentioned, we're still lacking some of these big congresses, for instance. And we also compare with 19, if you look pre-pandemic, we compare with 19, which was extremely strong in Finland due to this EU presidency. But overall, we see in general booking pattern, We see a very stable trend, which you have seen also in the third quarter, and this continues. So we expect us to be in line or maybe slightly above, but I would say very close to be in line on occupancy, but definitely on higher prices. And we maintain a huge focus on being more efficient in the operation. Then you need to bear in mind, all of you, that we created nearly 1.2 billion in occupancy. in this quarter and it's a very large and strong quarter Q4 is quite a small quarter so remember that you know if you take the the result in Q4 it is as one quarter maybe a bit less than just the month of September result wise so we should definitely get the best out of it and we have a lot of focus But it is not the quarter that will make it or break it for Scandic. This is a fairly small quarter.

Very good execution in the high season, no doubt. Do you dare to raise the outlook to 2024? What are you planning for? What are you hoping for? And how are you preparing for it?

We are preparing a lot and these initiatives on the digital side enables us to benefit even further for efficiency gains in the operation, which of course also is preparing for anything that might happen in the economy. I think you should bear in mind that when you look into the economy and all the concerns that we see on the share market and stock market right now, then look at the different sectors. And right now, globally, the hospitality sector is doing extremely well. Maybe not on the stock price, but definitely on the result side. So we keep up very high momentum. We keep up a high momentum in the industry. And there's still a willingness to prioritize, you know, traveling and and events uh as as a person rather than spending on on some other uh private stuff so so it's holding up both for businesses and and for lesha and and when we look into next year uh that is what we expect uh but of course we we prepare for any adjustment that might come and and scanning has proven uh during the last year that we are extremely fast in in adapting uh so if we see a decline in one or two percentage point on the top line versus expectations, we immediately can adjust on the manning side and on the cost side. So we are well prepared.

Sounds promising. One last for me, just looking at the new segment go and then also that you're starting to expand the signature segment again with listing a couple of the assets you have in your room portfolio into that segment. What kind of potential do you see for the two segments? So to say, if you're looking at the, say, maybe Nordic context, how many go hotels would you be able to fit in without, say, diluting your current Scandic franchise and similar kind of things for the signature operations?

Without setting a timeline on it, we see potential of maybe 70 to 80 hotels over time, how long that will take us. But maybe in the Nordics, some 70 to 80 hotels, we see there's room for that in the market in the next coming, let's say, 10 to 15 years. but of course the market develops it could be that this change and that the opportunities grow even further but right now we see that without diluting on the current business so we see great growth potential within the region excellent sounds promising thank you very much and all the best out there thank you very much as a reminder if you wish to ask a question please dial star 5 on your telephone keypad

there are no more questions at this time so I hand the conference back to the speakers for any written questions and closing comments

Thank you very much, Operator, and thank you all for dialing in. I understand that you are overwhelmed by the strong results we are delivering and the positive outlook. So if you have further questions, please, you know where to find us. Just give us a call, and I wish you all a great day on behalf of both me and Osa. Thank you very much.

Thank you.