Scandic Hotels Group AB (publ)

And good morning, everyone, and thank you for joining this call of Scandic's fourth quarter presentation. My name is Jens Mathisen. I'm the CEO of Scandic and right now also the acting CFO of Scandic until our new CFO, Pierre Christiansen, joins us, which is actually only in a couple of weeks from now, 1st of March. With me here today, I also have the head of investor relations, Rasmus Blomqvist, and also the VP of business control, Mathias Lundqvist. Those are both here to support the Q&A session if needed be. Today I will guide you through the quarter and also the full year result and give you some comments on the outlook as usual. So with that, let's jump directly into page two for some highlights. I'm very satisfied with the performance in the quarter. That concludes another strong record year for Scandic. The positive momentum that we saw from the third quarter also continued throughout the last month of the year with good demand from both corporate and leisure travelers and also from meeting and event business. And with strong commercial focus and high efficiency, we improved net sales and delivered a solid result in the quarter. Occupancy and average room rates increased across all our markets compared to last year, and we performed slightly better than the overall market. One of the highlights in the quarter was the announcement of the implementation of OpaCloud, a complete cloud-based IT solution that will enable us to excel within digitalization, commercial, and the ways of working. Backed by a strong financial position, we have accelerated the pace to take the guest journey to a new level and to improve overall efficiency. The rollout of the new system to all hotels and central functions is progressing according to the plan and will be completed before summer this year, as we have also announced earlier on. We see great potential taking Scandic's guest journey to its next level. For example, we have high ambitions with our leading loyalty program, Scandic Friends. We want to increase conversion and engagement and improve the member experience through a more personalized and relevant program as well as new exciting partnerships. Moreover, we have ambitious plans for our other booking channels such as web and app. You will hear me talk much more about this in the coming quarters as well. So we are investing more in these areas to bring Scandi to yet another level. Another highlight was the recent signing of our new hotel in Nuremberg. We will continue to expand in Germany and we are now intensifying our efforts by strengthening the business development team in the region to capture the opportunities. I'm pleased about the successful payback we did of around one third of the convertible bond. This creates substantial value for all shareholders by significantly mitigating the extent of a potential dilution. The offer was completed at balance level, fully subscribed and entirely settled in cash. Moving to some comments on the result in the quarter, please turn to page three. where you can see a quarterly adjusted EBITDA development since the beginning of 2020. We are reporting an adjusted EBITDA of 451 million Swedish kronor compared to 476 million Swedish for the same period in 2022. Excluding one-offs, the result was good and in line with last year. I'm very satisfied with the performance given the higher pace of development in building a stronger Scandi for the future. I will provide further comments on the result, of course, later in this presentation. Please turn to page four for some full year highlights. We achieved another record-breaking year with net sales and adjusted EBITDA reaching all-time high levels. Excluding one-offs, our performance resulted in an improved adjusted EBITDA margin of 11.4%, well above the target of 11%. The market remains resilient, and it's evident that people are prioritizing experiences, travel, and hotel stays, whether it's for business or for pleasure. In addition to our strides within digitalization, we successfully launched ScandiGo, our new brand targeting the fast-growing economy segment. ScandiGo is an important growth enabler and also the Let's say interest from the property owners is very, very high on all our markets, which is promising for our future growth. As mentioned in previous quarters, we are increasing the activity level within portfolio development to reach a maintenance CapEx level of 3% to 4% of the net sales already now in 2024. We had a strong free cash flow of 1.8 billion Swedish for the year. This was actually higher than total net debt, including the convertible at year end. Despite the higher pace of development and the cash buyback of the convertible, we further decreased the debt level throughout the year. Scandic's financial position is strong. with a net debt to adjust the ratio well below our financial targets. Lastly, the board's recommendation not to pay dividends is linked to the approaching maturity of the convertible bond later this year. Our priority is to maintain as high flexibility within the financial situation as possible while also investing in Scandi to enable faster growth and improve profitability. The dividend policy is one of our financial targets and we aim to resume paying out dividends as soon as possible. So all in all, I'm very, very proud to deliver yet another record year. Please turn to page five. Here you can see the monthly market occupancy in the Nordic countries. The market development was favorable in the quarter with demand slightly higher than last year. Scandic's occupancy rate increased to 57.9% in the quarter, an improvement compared to the same period last year and slightly higher than the overall Nordic wholesale market. For the full year, Scandic's occupancy increased by 3.7 percentage points, reaching 61.4%. Additionally, We sold just above 8% more rooms than in 2022 and slightly more than in 2019. There's still promising long-term recovery potential in certain segments. The number of guests from Asia and Europe are not back at the pre-pandemic levels. And the market for larger conferences and congresses are also, and the trade shows, they have not fully rebounded. So there is definitely a potential for those. Please turn to page six. 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 4.1% higher than last year and 17.4% higher than in the fourth quarter of 2019. As for now, we expect continued positive price development in 2024, supported by a solid market situation with continued good demand. Please turn to page 7. Here you can see the market REVPAR development index to corresponding months 2019. The development was good in the quarter with all markets above 2019 levels. Norway continues to perform strongly with REFPA between 24% and 36% higher than in 2019. And Scandic reported a REFPA of 734 Swedish kroner in the quarter, which was 5.5% higher than in 2022 and 9.2% higher than in 2019. Please turn to page 8. We continue to strengthen our presence in Germany and in the quarter we signed a new 311 room hotel in Nuremberg that we will take over on the 1st of March this year. This is our first hotel in the growing city and the hotel was recently fully renovated and reopened in the fall of 2023. With its top location in the city center and great meeting facilities, we will have an attractive offering to both corporate and leisure travelers. As for all of our hotels, sustainability is a central part of Scandic, and the hotel will be certified by the Nordic Sworn Eco label. We now have seven hotels and close to 2,500 rooms in this important growth market of Germany. Please turn to page nine. We also announced a long-term agreement and rebranding of the 174-room Holiday Inn City Center Hotel in Helsinki that we have operated under a franchise agreement with IHG since acquiring Restell back in 2017. The rebranding to a Scandic Hotel will be completed in 2025 and the landlord Exilion will undertake a complete renovation of the hotel expected to start in September this year. Once reopened, Scandic will recertify the hotel by the Nordic Sworn Eagle label. The hotel has a great location in the middle of Helsinki, next to the central station and tourist attractions. Please note that this hotel is already part of Scandic's hotel portfolio today, but as you heard, as a franchise hotel. Please turn to page 10. where you see the pipeline. We are making good progress signing new hotels, and we have noticed a growing sense of optimism in the market and in our discussions also with the property owners. By the end of the year, we had 2,138 new rooms in the net pipeline, accounting for around 4% of the total portfolio. This marks a substantial increase more than doubling the number of rooms in NetPipeline compared to year-end 2022. To further improve guest satisfaction and optimize both growth and profitability, we constantly evaluate our portfolio for extensions or exits. And during the quarter, we left two hotels, and we plan also to exit two more hotels in the current quarter. Please turn to page 12. and I will take you through some of the financials here. So when you look at the financial performance for the quarter, our net sales increased 3.5% and reached 5.4 billion Swedish kronor, and we deliver a solid result of 451 million Swedish. Excluding one-offs related to repayment of some state aid in Germany and Norway, as well as some contribution from housing from refugees in Norway, we deliver a good result in line with last year. Given the higher pace of development, which is partly reflected in the higher central cost for the quarter, I'm pleased with the performance and how we maintain high efficiency throughout the organization while investing more in the future. So looking into 2024, we anticipate group costs around this level per quarter, which you see in the fourth quarter. It's according to plan, and it's in line with our strategy, building a stronger Scandic for the future. I also want to remind you that we had a positive one-off last year in the first quarter of around 40 million Swedish kronor. and we don't expect any notable one-offs in the first quarter of this year. Please turn to page 13. Both net sales and adjusted EBITDA reached a new all-time high level, with all markets improving compared to last year. Net sales increased 14.1% to almost 22 billion Swedish kronor, and with a slightly improved adjusted EBITDA of 2.6 billion Swedish kronor. Adjusted for one horse, we deliver a strengthened margin of 11.4% compared with 11.1% in 2022. The performance was driven by a strong commercial focus and high operational efficiency. Please turn to page 14. In the quarter, free cash flow amounted to 549 million Swedish, and we report a strong 1.1 billion Swedish kronor. in free cash flow for the year. Working capital was negatively impacted by the repayment of variable rents debt for 2022 of 715 million Swedish kronor. And for 2023, variable rent debt amounted to 430 million, which let's say the majority of this to be settled and paid back during the first half of 2024. So backed by our strong financial position, we are going to return to a maintenance capex now and a level ranging between 3% and 4% of net sales yearly. Additionally, as we have more openings also in 2024 and 2025 compared to last year, we expect somewhat higher expansion capex. I want to highlight that only around 50% of the planned maintenance capex is committed at current state. This gives us very good financial flexibility. Please turn to page 15. Some additional comments on the financial position and the convertible bond. We continue to lower the debt, and comparing with year-end 2022, we lowered net debt from around 3 billion Swedish to 1.5 billion Swedish kronor. Including the convertible, we had a net debt in relation to adjusted EBITDA of 0.6 times. This is significantly lower than our target of between two to three times. Available credit facilities amounted to 3.4 billion Swedish, and we had a total available liquidity of 3.5 billion Swedish kronor at the end of the year. Our financial position is, in other words, very strong. Lastly, a few more words on the convertible. The bond has its conversion price of 43.36 Swedish kronor and it matures in October this year, 24. With the buyback, we reduced the extent of potential dilution from 17.8% to 12.7% of the total share capital. The potential dilution effect in terms of number of shares decreased from around 41 to now 28 million new shares. That's a significantly lower potential dilution in total, and given our strong financial position, We have available funding to handle a non-conversion scenario if that becomes necessary. With that, I would like to give some concluding comments on the outlook. So please turn to page 17. We believe in an overall good Nordic hotel market in 2024, supported by continued solid demand and positive price development. The year has started off stable. with booking levels in line with last year, but at higher prices. I want to remind you all about the earlier Easter holidays this year compared to last year. Easter is now in March compared with April last year. For the first quarter, we therefore expect slightly lower occupancy level than last year, but at continued higher prices. After two record years in row, we are commercially and financially stronger than ever, Our ambitions are very high, and we are now accelerating the pace of development to take Scandic to the next level. With my over 15 years of experience in this company, I'm confident that the initiatives that we are now driving within IT and commercial will lead to greater digital transformation in the next two to three years than what we have seen in the past two decades. Now we really are laying the foundation for the future and we expect to see financial gains from this already in 2025 and ahead. Focus for 2024 is now to deliver on our strategy to improve and grow the portfolio and to maintain a high pace within digitalization to create better guest experiences and higher operational efficiency. At the same time, it's important that we keep a sharp focus on the commercial and operational performance, making sure that we drive prices well, while also working with high efficiency and cost control. With that, I would like to take the opportunity to thank all of Scandic's team members and all our guests for another fantastic year. So thank you, and back to you, operator, for the Q&A.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Julid from Deutsche Bank. Please go ahead.

Good morning and congratulations for these good results. A few questions, if I may. First one about Finland. What is the trend you are recording at the moment in this country, which is close to Russia and probably suffers from more tension compared to the rest of your locations? So could you give us some more color about what you are seeing in this country? Second question about the mice segments. You were saying that you were still not back to the level you were in 2019. Could you also give us some more detail about the trend you're seeing and the pipeline of the events you can see in the Nordics? And third question about the convertible bond. We've seen that your frugaceous regeneration was pretty good, that your leverage is very low. So could you give us also some more visibility about your intention, considering that the bond is now in the money, which means that it could be converted. So what is the plan? Thank you.