Scandic Hotels Group AB (publ)

Thank you, speaker, and then good morning, everyone, and thank you for joining us for Scandic's first quarter presentation. My name is Jens Mathisen. I'm the CEO of Scandic, and I will walk you through the quarter, the first quarter results here together with Per Christiansen, our CFO. So if you please turn to page two, then we dive into the quarter's highlight. Overall, we had a stable start to the year. The first quarter is seasonally weak, as you know. and accounts for a small portion of the full year. Additionally, the quarter was impacted by significant calendar effects due to the early Easter holidays that falling in March this year compared to April last year. The second quarter has started off good with bookings for May and June in line also with last year. So the underlying demand is very solid. Market occupancy for January and February was higher than last year, and prices continued to develop positively. So altogether, the market conditions are good. The lower net sales and results compared to last year were mainly due to the calendar effects as mentioned. And additionally, we also faced some strikes in Finland. And I also want to highlight that the first quarter last year included a substantial positive one-off compared with almost no one else in this quarter. Supported by a more positive macroeconomic backdrop with inflation and rates coming down, we note a more optimistic sentiment. The interest from property owners is high and we have a lot of ongoing discussions on how we can grow and optimize the portfolio. On that note, highlights in this quarter were the opening of our first hotel in Nuremberg in Germany, and that we signed our second ScandiGo in Finland. I will also give you some more comments to this, of course, later in this presentation. Our digital transformation journey continues as planned. The rollout of the new cloud-based IT solution, the Oracle Hospitality Opera Cloud, will be completed before summer, as earlier announced. And I'm very excited about how we will support our journey going forward with this one as we see great potential for improving the guest experience as well as achieving operational efficiency gains. Lastly, Scandic's financial position is strong with a net debt to adjusted EBITDA ratio of 0.9 times on rolling 12 months. So all in all, a stable start to the year. with a promising outlook. Moving on to some comments on the result in the quarter, please turn to page three, where you can see quarterly adjusted EBITDA development since the first quarter of 2021. We reported an adjusted EBITDA of 33 million Swedish kronor compared to 170 million Swedish for the first quarter last year. This corresponds to an adjusted EBITDA margin of 0.7% compared with 3.8% in the first quarter last year. As mentioned, the lower result is mainly due to the early Easter and strikes in Finland and some one-offs. Additionally, we have a higher pace of development compared to last year. We keep a sharp focus on efficiency and cost control throughout the organization, and we are well-organized and prepared for the upcoming busy spring and summer months. Per will provide further comments on the financial performance later in this presentation. Please turn to page four. Here you can see the market occupancy in the first quarter on both this year and last year in the Nordic countries. In January and February, market occupancy was solid and slightly higher than last year. However, looking at March, it is clear how the early Easter affected occupancy, especially in Sweden and Norway, but also some in Finland. The markets occupancy rate for the first quarter was 52.9% compared with Scandic's occupancy rate at 51.9%. The main reason for the low occupancy in this quarter is totally due to the early Easter. Additionally, we performed better than the market in the first quarter last year, which was an especially strong quarter for us with larger meetings and events due also to pent-up demand from the pandemic. This makes the first quarter of last year a tough comparable quarter. As mentioned earlier, the second quarter has had a good start, and our performance in April will fully offset the Easter effects, and we don't expect this to have any impact on our full-year performance. Market demand is very solid, and the overall booking situation is still good and in line with last year. Domestic and intra-Nordic travel is at high level, and there is still recovery potential in the longer term for intercontinental travel, which actually continues to improve, but from lower levels. We also expect demand for the larger conferences and congresses, to bounce back to pre-pandemic levels, although it is really difficult to estimate exactly when that is fully back. Please turn to page five. This is market data showing average room rates for Sweden, Norway, Finland, and Denmark indexed to the corresponding month in 2019. Prices have continued to develop positively with Scandic's average room rates in the quarter being 2% higher than last year and 15% higher than in the first quarter of 2019. We expect continued positive price development supported by a more positive macroeconomic situation and continued high interest for travel and events. Please turn to page six Here you can see the market's REVPAR development index to the corresponding month, 2019. For the full quarter, REVPAR increased 2.2% in the Nordic markets compared to last year, and by 9.5% compared to the first quarter of 2019. Scandic's REVPAR decreased slightly compared to the first quarter last year, which I also referred to earlier. Please turn to page seven. During the quarter, we announced the signing of our second ScandiGO in Finland, with scheduled opening in late 2025. The hotel offers 144 rooms and it's located in central Oulu, which is northern Finland's largest city. This region is attractive for both leisure and business travelers, and the hotel will serve as a great complement to our existing portfolio in the city. Furthermore, this region lacks hotel opportunities and options in the economy segment. With increasing tourism year-round, Scandic Go is ideally suited for travelers seeking to explore the city and its surrounding landscape. Please turn to page eight. Our journey in Germany continues, and in March we opened Scandic Nuremberg Central, a takeover that we announced in the previous quarter. This hotel has had a promising start and overall our hotels perform well in the German market. Germany is an important growth market for Scandic and I'm confident to say that we note increasing interest and respect for Scandic as a brand in the region. We are step-by-step building our brand and awareness in the market, and we have also recently strengthened our business development organization to capture the growth opportunities we are seeing. Please turn to page 9, where you can see the pipeline. We're making good progress signing new hotels, and by the end of the quarter, we had 2,267 new rooms in the net pipeline. representing around 4% of the portfolio. We continue to optimize the portfolio by leaving hotels with limited potential. During the quarter, we exited two hotels, Scandic Ringsåker with 176 rooms in Norway and Scandic Imitage with 120 rooms in Denmark. Additionally, we have one more planned exit of a hotel in Denmark coming up with 129 rooms. I want to emphasize that we have strict requirements for new deals in terms of expected profitability and returns. We are not making any exceptions when growing the portfolio. So consequently, we may lose negotiations at times, but this approach is important for building an even stronger Scandi with higher margins and return in the future. So please turn to page 11 and I would hand it over to Per to walk you through the financial part.

Thank you Jens and good morning everyone. Let's dive into the financial performance of the quarter. As mentioned, the first quarter is seasonal week and makes a relatively small contribution to the full year. Moreover, the significant calendar effect and lower one-offs make this quarter quite difficult to compare to the same period last year. In total, looking at calendar effects, they were estimated to have a negative impact of net sales by around 4% to 5%. This includes both the Easter effect in March and the leap day effect in February. And the Easter effect had most impact on the largest market in Sweden and Norway, as previously showed by Jens. Additionally, the quarter was further affected by strikes in Finland, and they began in mid-February and ended in the beginning of April. Despite that, Finland actually delivered a quite decent quarter. Net sales amounted to 4.4 billion SEK compared to 4.5 billion SEK same period last year. And looking at the results for the quarter, we reported the adjusted EBITDA of 33 million compared to 170 million last year. And bear in mind, in the first quarter last year, we had a 41% million SEK positive one-off and compared to six million positive one-offs this quarter. Including one-offs, the adjusted EBITDA margin was 0.6% compared to 2.9% last year. At this moment, we don't expect any new one-offs going forward, and I want to remind you that we had a positive one-off effect of 20 million SEK the second quarter last year. The overall higher activity in the company and development pace in Skandik is partly reflected in the higher group cost in this quarter. Please turn to page 12. This slide shows free cash flow per quarter and a rolling 12-month basis. Supported by our strong financial position, we have increased the investment pace to grow and optimize the hotel portfolio. Investments in maintenance increased to 150 million SEK compared to 67 million SEK last year. This is mainly related to ongoing renovations at hotels in Copenhagen, Stockholm and Göteborg. We expect maintenance CapEx to reach under more normalized levels going forward and for the full year in the range of 3% to 4% of net sales. Expansion CapEx increased to 94 million SEK compared to only 17 million last year. The increase was mainly related to the opening of the Scandec nearby central as mentioned by Jens. Working capital. in the first quarter and was further impacted by repayments of variable rents debts from last year of 220 million. And also we expect another 210 million to be paid in rent debts in the second quarter this year. All in all, free cash flow on rolling 12 month amounted to 1.4 billion SEK and for the quarter we reported negative cash flow of 733 million. Lastly, I want to highlight that there is only around 50% of the planned maintenance that is committed, and this gives us quite good financial flexibility going ahead. Please turn to page 13. This is the net debt adjusted EBITDA on rolling 12 months. And at the end of the quarter, our net debt amounted to 2.3 billion SEK. That includes the converted bond of 1.1 billion SEK and just over 700 million SEK in related to deferred VAT payments and social security contributions in Sweden. Including the converted bond, our net debt adjusted to EBITDA ratio was 0.9 times. This is significantly lower than our financial target, which ranges between two to three times. And currently we have a total credit facility of 3.4 billion SEK and we had total availability of liquidity of 2.2 billion SEK at the end of the quarter. This means our financial position is strong and we have high flexibility. And with that, I want to hand over back to Jens for some concluding remarks and outlook.

Thank you, Per. So all in all, we are concluding a stable start to the year, which you see now in page 15 here. I'm optimistic about the overall hotel market and how it looks into this year, 2024, supported by a more positive macroeconomic backdrop, solid travel volumes, and also event calendar. Our performance in April looks promising so far, and we expect to fully compensate for the Easter effects. Bookings for May and June are on par with last year, And for the second quarter, we expect slightly higher occupancy levels and room rates compared with the same quarter last year. So backed by our strong financial position, we will gradually increase investments, as Per also mentioned, in the growth of the portfolio and maintenance, and we will keep a high pace of development, building a stronger Scandic. We will also have a very sharp focus on efficiency and cost control throughout the company, while also ensuring that we are well organized and prepared for the important and busy spring and summer months. I would like to thank you all for joining in and attending this presentation. And we will now open up for the Q&A session. And with that, let's hand it back to you, operator.

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 Adela Dashian from Jefferies. Please go ahead.

Yes, good morning. My first question relates to the developments that you're currently seeing in the end markets and specifically with the comments in the report that mentioned a rather favorable outlook for even the spring and summer months. What type of, I guess, what customer base, customer groups are driving that outlook and And how great is the visibility now as you're getting into the later months of this year? I know that things changed quite drastically during the pandemic. Are you back to having a more, I guess, is customer behavior back to normal now? Or, yeah, what's your view there?

Yeah, thank you, Adela. First of all, yeah, you're totally right. I think we... We had a lot of discussions after the pandemic, especially about, let's say, the first year after, where we talked about what is actually pent-up demand and what is, let's say, a balanced and rebalanced normality in the booking patterns. And what we have seen for, I would say, quite some time is that the domestic markets are very strong. So we have had a very strong domestic market in all our regions, What is positive to see when you look a bit ahead now and look into both Q1 and the coming quarters is that actually the latter part of Q1 we see increasing activity or levels from the inter-Nordic travelers. So inter-Nordic has actually gone up a bit in the last part of, let's say, the last quarters. So now really what is, let's say, back to pre-pandemic levels or even a bit above is domestic and inter-Nordic traveling. And that is very encouraging to see when we are so large in the inter-Nordic part of the region. So what is lacking still is, of course, some of the European and mostly some of the intercontinental traveling. The intercontinental traveling is still growing a bit, but it's coming from low levels, so When I say it's growing, it might come from some 70% or something versus before, and then it goes to 71% or 72%, but you see month by month it's actually bouncing back a bit. So definitely we are lacking some of the Asian traffic, whereas the U.S. has been very strong, and there's still something left to bounce back to when it comes to the European travelers. Maybe a lot of answers to the question, but to try to explain it, all in all, the summarizes, domestic, inter-Nordic, very strong, Europe and intercontinental still growing, but from lower levels.

Okay, very interesting. Thanks for that. Then maybe also on, I guess, 2024, especially in the Nordics, is a year that is packed with a lot of shows. There's a lot that's ongoing in the market here, and we've heard from other peers and just market signals that the hotel prices are actually spiking during those periods where we have artists coming to arenas around the region. How are you able to capitalize on this? And are you seeing a similar type of development?

Yes, absolutely. And you're right. I think when you look at total events, last year was also a very strong year when it came to events. If you look, for instance, at Sweden, we saw Coldplay playing also at Copenhagen and they had like four shows in Gothenburg, and that was extremely strong for Gothenburg last year. When you look at this year, Gothenburg is much weaker this year when it comes to events, but Stockholm is much stronger. And of course, the difference is that we have nine hotels in Gothenburg. We have 30 hotels in Stockholm. So for us, Totally, it might be a bit positive, of course, that Taylor Swift is coming to Stockholm and not Gothenburg. Because, of course, when she is here, you know, it's not only with Scandic, it's all of the capacity is sold out. And I think it's, of course, a sensitive discussion because there's definitely a lot of people that might think that we take too high prices when we have events like that. But it is about the capacities and the demand in the market. When we have a situation where the whole city is sold out, then prices go up. And you take whatever you can in order to optimize your business. And we do so as well. So for sure, it's very, very interesting for us when we have like big, big superstars coming to some of our big markets like Stockholm. So in that respect, yes, we have good expectations, especially for May where this is happening and you also have You know the Melodifestival coming, which is in Malmö, and that has a positive effect on Copenhagen also when that is coming. So events are very good for us. And I think the year is still young. Hopefully there will be even more concerts. I hope that Gothenburg will win some concerts. Otherwise it's a weak year for Gothenburg compared to last year. But Stockholm looks very promising.

Great. Would you then say that you're kind of back to being able to control pricing levels more proactively than in the last two, three years due to the weakness in demand during the pandemic? And as a result of that, should we expect you to have better control then of your your cost base and also some ability to increase the profitability from here on out?

I think in all fairness, I think Scandic has been good. And I think also historically we have been good at handling the balance between prices and how, let's say, the development in the cost levels has increased. So we are offsetting the increases we see and handling the increases we see on the cost side. And I think we have a very, you see it normally also when there's a lot of activity, Scandic is very strong. We are good at taking market shares when levels are high. So normally we take market shares in Q2 and Q3 due to the fact that we are good at this part. And we also, we are not discounting on family rooms in the summer if we know that all family rooms will be sold out anyhow. and that we have done for the last couple of years. So if you see how strong midsummer has become versus years back, I've been part of this industry for a long time, and normally July was a terrible month for us, a lot of guests, but we didn't really make money in the industry. The last couple of years, July is a strong month for us, and that is, of course, because we dare to take the prices linked to the demand and the requests from the guests. So I think we are pretty good at this. But I am pretty sure that we will also continue to balance this in a very good way. And as long as cost goes up, we need to adjust the prices. And I think the whole industry is very focused on securing that to protect, let's say, our margins and results.

Perfect. I'll step back into the queue. Thank you very much.

Thank you.

The next question comes from Karl-Johan Bonnevier from DNB Markets. Please go ahead.

Yes, good morning Jens and Per. It would be good if you could just start by maybe you can help us quantify how big you saw the easter effect being in the quarter and maybe also the finish effect and what it did for your top line and your EBITDA.

So first of all, I think we estimate Easter to be 4-5% and thereby it's like on top line some 200-250 million on turnover negatively from arts. and then positively for April. So Easter effect has some. We have an extra day this year in February. That is, of course, positive. But the Easter is negative with, you know, a whole week of Easter being pushed into March. So that is, I would say, 200, 250 million in turnover from that part.

Yeah, and you would probably assume a conversion of around 40%, so maybe... round figure could be 80 million on the bottom line.

Excellent, thank you. And if you look at the Finnish strikes, what kind of impact do you think that got for you?

If you look at the quarter as such, I think we actually come out of the quarter pretty okay, even with strikes going on. So I think we have good control in Finland of the efficiency levels and the cost control. But on top line, it is estimated somewhere between, I would say, 30 and 50 million SEC on top line. And then with this conversion, as Pierre mentioned. So It might be up to 50 million that is lacking from that. It's not a strike with Scandic. It's a strike with the harbors, and it was difficult to get in and out and things like that for the country, and that had an impact on the whole industry. But I think even with this, you see quite low occupancy in the quarter of Finland, just below 50%. I think we come out actually pretty well with good cost control.

And it sounds like the underlying performance is quite excellent. And looking at the discussion you had before on summer outlook and similar kind of things, with basically now everything seemingly normalizing, if you put it like that, the occupancy is still though slightly below historical level. Do you feel there is an increasing risk now that you will see much more campaign activity in the market that might impact general prices and when maybe competitors try to take market share and make use of the high prices to balance the low occupancy?

It's a very interesting question. I don't fear that this will happen because I think mainly for the strong quarters we do not discount or panic just to get in a lot of guests because we know summer is on very high levels. And we know that the family rooms are sold out. So we have a clear strategy for handling that part. We saw a bit of it in the first quarter where you can always win an extra point on the top line and REFPA if you pay a lot of extra commissions to the OTAs and things like that. And Scandic don't go down that road because it can be extremely expensive to bought the last point on the REFPA. So we are more focused on securing that we have a very stable and balanced way of dealing with this both top line and the prices and securing that we are defending a very strong result. So I think we are not shaking on the hand and we are having a clear strategy and I'm really not sure that the market would react negatively because we see demand is rebounding. We see that the request from the intercontinental and European travelers is growing, and we continue to see strong demand from domestic and inter-Nordic. So I think that as long as we have good demand, it will also hold up prices.

Excellent. You mentioned OTA and I noticed in the annual report that when you gave the data for 2023 that you had a slight increase in OTA delivery and slight decrease in your own platform's execution. Was it any particular thing that affected last year or is that the trend you will expect continues, so to say?

We saw last year, we saw increased travelers. If you look at last year, we saw increased travelers from, you know, some of the international guests, especially we saw, you know, increase from South and Europe, which is interesting. It might be too warm in the midsummer. So travelers from Spain, Italy and France, they seek more to the north and they come more through OTA channels than direct bookings. And this is part of the reason you can say also why Scandic is investing now a lot in the digital journey going forward. We upgrade a new loyalty program. We come with a lot of new features, also a new web later this year. that actually will capture some of this to make it more attractive to go directly to Scandic because you get advantages you won't get by booking through the OTA. So I think we're handling this also with the strategy going forward, which we have announced to all of you. So I'm very positive about how we will handle this going forward. I'm not really worried that we will see a huge change between OwnWeb and OTAs. But when I mention it, you can always try to do campaigning through the OTAs to get an extra point on the top line. But that can be expensively bought. So I think we try to balance this.

Excellent. And just one final, you mentioned very proactive discussions with property owners in Europe, including your starting remarks, Jens. Could you see that that could drive your portfolio pipeline of new rooms in a meaningful way in, say, over the next couple of years? Or how would you see that translating into growth opportunities?

No, but for sure, I definitely feel that and see when I'm together with my business development people, you know, in this organization, I was in Berlin at the IHIF gathering last week where we saw, you know, a lot of people from the industry, kind of all the industry is gathered. And first of all, there's a lot of respect for Scandic in the German market, but also internationally, There has been a lot of respect for how we have been handling cooperation between us and landlords during pandemic and after pandemic. We never miss the payment. We have a very constructive dialogue all the way through between us and landlords. And the way this has been handled is, of course, over time putting up a very good reputation. So Scandic is seen as a very strong and solid partner. So I won't mention all the other competitors we have in the market. For sure, there's some that has been acting differently than we did. And that has created a good trust in Scandic. Another thing is when you look at our performance in Germany, when we look at how we are doing in our properties in Germany, we are growing in Germany. We opened our seventh hotel. And all of our seven hotels are in the top in the comp sets we're having. So I have to say, when I look into this, we are likely either number one or number two in the comp sets in each of these markets, which is very interesting. This shows that we have a very strong position. And also the NPS is very high, so the reputation and brand recognition is very high in the German market. So this is more and more being recognized And therefore, I think more and more property owners are seeking towards Gandic and opening up interest and dialogue. And we see an increased interest, especially from the German, but also in the Nordic region.

Splendid. And I saw you also quantified the ambition for GO to be about 1,000 to 1,500 rooms per year. How long out do you think it will take before you can reach those kind of numbers? Are we talking the late 20s here or is it something that could happen in the next couple of years or so?

We just in the last quarter signed another hotel in the Finnish market. We have ongoing dialogue with civil. Hopefully both this year and next year we will deliver pretty close to these targets and then of course it will be growing the more that the industry sees how these hotels will perform in the markets. We have a good start like we mentioned in the first hotel in Stockholm and the second will open during the summer. And so, yes, I think interest in ScandiGo has definitely grown. But also, as I mentioned before, when ScandiCast has a very good reputation, it also drops to the ScandiGo discussion. So we have more ongoing discussions, and I expect to sign more deals this year. Sounds promising.

Good luck out there and all the best. Thank you. Thanks.

The next question comes from Jamie Rollo from Morgan Stanley. Please go ahead.

Thank you very much. Morning, everyone. Just back on the demand environment and the sort of near-term trading, the statement says you expect Q2 to have slightly higher occupancy and room rates. And I'm just thinking with the sort of 4% Easter benefit and some of the events in May, like Taylor Swift and Eurovision, I mean, should we not be thinking about more like mid single-digit rev par for Q2?

It's an interesting thought. What we estimate, Jamie, is we estimate definitely that April will offset the easter effects from March, which means that April, already now, we are pretty far into April, and it looks that April will handle that situation. And when we look into May and June, They are on par with last year. And I have to remind everybody that last year we had a lot of events as well. We had a lot of concerts and things like that. So yes, May looks very good because May has a lot of events. But May last year was also strong. So you need to compare year to year. We also had two peers comment early on. and a one-off effect of 20 million last year in CO2, which we don't have this year. But all in all, we expect a growth, a slight growth in the quarter for the occupancy, and we continue to see increasing prices. So it's a bit early to give that precise estimate. I think you will do your estimates, but I think we definitely try to benefit from the growing demand and request for wholesale rooms. If that continues, then you will see it also in the prices and that's what we are aiming for at least.

Okay, thanks. And then just in terms of what that might mean for margins, Annie Bedard on the second quarter, I mean, could you get to last year's second quarter EBITDA margin with the benefit of Easter this year, sort of 13.5% or so. Would that make up for the Q1 shortfall?

We normally don't guide for the EBITDA percentages, but what is clear is that we continue to invest a bit more in this digital journey. This also moves into the next quarter, and we also have had this one-off effect of 20 you need to put in. But I think in the underlying business, we're definitely doing everything we can to protect margins, and for sure we have a clear ambition to, when we do all these initiatives now, on the digital side, this is also to support everything that is happening in the market. We have had quite a lot of impact on the cost side during the last couple of years with high inflation and I think we have managed to balance it out. Going forward, we need to benefit from some of these digital initiatives to support the margin. both on the efficiency gains on the operational side, but also on the commercial side towards the guests. So all in all, I think we do a lot of right stuff and initiative that hopefully also over time will support a growing margin. But we need to do the investments before we can see the clear gains.

Thanks. And then just finally, could you just please bring us up to speed on plans for the remaining convertible projects and options to buy back shares, increase dividends, etc.

I don't know if you want to take that.

Yeah, I think we're not guiding on whether or not to buy back the convertible bond. I guess right now in this situation we have not announced anything around it and we don't see... That's happening in the short term at least. And of course, if things could develop differently, it could be a thing to look into. But right now, we're not looking into that. And when that has concluded, of course, we will look into our financial position and discuss what to do with that situation, whether we have 1.2 billion cash or not. We are in the position that we can handle every scenario right now. So I think that's what we're aiming for.

Great, thank you very much.

The next question comes from Raymond Koo from Nordia. Please go ahead. Raymond Conordia, your line is now unmuted. Please go ahead.

Oh, sorry. Can you hear me now?

Yes. Good morning. Good morning.

Sorry. Yeah, morning. So first question, in the days when you have your hotels fully sold out, like with Taylor Swift, how does that compare to a normal week for those hotels? Like is one fully sold out Taylor Swift weekend day equivalent to say normal three weekend days? Or how can we get a better grasp of that dynamic with your dynamic pricing and all?

Well, it's definitely a very positive thing when some of these big events are happening. The impact for a city like Stockholm, which is huge, is of course there's also a lot of hotels in Stockholm, but it has quite a large upside for every day when she's in the city and we are sold out. We normally haven't guided for the precise, but as an example, when we have a big event in Gothenburg, it might hit us positively with some four or five millions for one event on the result. So every day is pretty strong. So when it's Stockholm, it should be a bit higher, slightly higher. So when she's coming, it has an effect on the result during that weekend. And then you always need to compare when these events are hitting us, because the best thing is, of course, if they are being put in in a period of time where you normally have a week period, where you have like a holiday, soft weekend or something, where we have lower occupancy or lower paying guests. But these events coming up in May will definitely have a positive impact on the results.

Got it. Just on the maintenance Capex, if you could provide an update of that in relation to sales. How much is already planned and do you still expect to end up at around 4% for the full year?

I think I mentioned a little bit during my presentation. I think we expect to go back to normalised levels around 3-4% and you saw the increase now in the first quarter and then of course there's a bit of pent up demand in some areas and some areas where we can still delay it a little bit but I should say that over time you should expect 3-4% and maybe this year could be also with the ramp up, you know, in the higher range rather than in the lower range.

Yeah, got it. And so also beyond 2024, you think that 3-4% sort of is valid?

Yeah, we think that we have a clear target of doing what we need to do and we take our responsibilities in order to secure that we don't have let's say a product that are dropping in quality. When that is said, we really don't want to have a higher level than before. So the target is definitely to optimize everything within purchasing and the technical services efficiency on handling these renovations. to spread it over years. We might have a year where we are a bit above the 4%, but all in all we should be around or just below 4% as a target. That is what we aim for.

Got it. That makes sense. And just one final one regarding the Finland strike there. What sort of do you see in terms of impact here in Q2 considering that it sort of drew over to April here?

I think it was a couple of days so I mean we haven't you know concluded April yet in the books so I think it might have some effect but not you know a little bit early to say.

Yep makes sense okay thank you very much I'll get back in line.

Thank you.

The next question comes from Julid from Deutsche Bank. Please go ahead.

Good morning, gentlemen. Three questions, if I may. First one about inflation, both on the prices and the cost. Could you give us some more color about the evolution of the labor cost, the food cost, and the development cost? Second question about the competition. Historically, the Nordic market was mainly driven by you guys and Residor. what are you seeing in terms of new developments and main competitors from all over the world? Are they putting some more pressure and investing more in the development of the Nordics, or do you see a relatively stable situation? And last one, if I may, about the risks. Regarding the geopolitical situation, do you see any significant risk raising in some countries? And I'm especially thinking about Finland on that side. Thank you.

Thank you. If I start with the first question, I'll hand over to you. I think in terms of the inflation, we see some sort of CPI in the session on the rents around 4%, maybe. And salary negotiations are in the Nordics around 3% to 4%. Some still ongoing. And then I guess for energy costs, we see prices are changing, but of course, as we also write in our annual report, we also do hedges so that both price could differ from actually what we pay in certain periods. But of course, we want predictability in that area. And otherwise, I think it's, as we said before, we are a little bit increasing central costs to support the development of the company So, of course, that has other effects than inflation itself, so to say. And I think Jens mentioned a bit how we will then handle the prices toward the consumer. And, of course, our goal is to transfer as much as possible to the consumer. But as we discussed before, it's a... It's a supply-demand equation rather than just that. But we have shown during this quarter that we're able to increase prices and trying to cover for the cost increases.

And I can also say, Tim, that when you compare with the F&B, I think we have been, maybe that was an area where we at least had an extra eye and really looking at how would the let's say, development going on from consumer behavior. Because of increased prices, would the consumers then spend less in the restaurants or come less to the restaurants? And that was a clear topic, I think, globally, that how far can you take it because eventually it hits the consumer's And I think when I look at the beginning of this year, it has started off pretty stable within F&B still, which means that people are still prioritizing. They need food, but they also prioritize to go out and visit restaurants. So the activity level in the restaurants are stable. So that has helped us in handling the cost increases we have seen in F&B. And we see lower pressure on cost increases in F&B beginning of this year compared to last year. And that is also because of competition in that field. So right now, it seems that it's a situation within F&B we will be able to handle. To your next question about the competitors, I think from a global perspective, we don't see a lot of of international players really active in the Nordic market still because it's a lease market and a lot of players don't like it internationally. And when we see the fragmented hospitality sector in the Nordics, it is really fragmented. Scandic is number one. We are the largest in the region and we have a market share around 15%. So you see a lot of local mid-sized and smaller players that also are in the market. So it's quite fragmented, I would say. And we don't see a lot of international players coming in. We have seen a few more Marriott coming into the market, but that is with local partners that then do a franchise with Marriott, such as Moxie or some of their brands. So I think the Nordic seems to be continuing as a very... you could say, stable region in also a lease market, which we all like.

And I think for the last question, there are questions around, you know, geopolitical risk. I guess we said earlier around, you know, Asia not coming back. I think we think that is a little bit of a background that's coming from the war in Ukraine or to travel from Asia to Finland, for example. And of course, that affects traveling. I don't know if you want to fill in more here.

No, but I think, of course, as long as the war is going on in Ukraine, I would say this awful war going on, then that will impact Finnair's traveling over Russia to Asia. But when that is said, we are seeing, let's say, that the intercontinental traveling is slightly growing month by month. And we definitely see that the U.S. has been very stable. And we also see a growing demand, especially from the southern part of Europe. Germany has kept up a good level, an activity level. Germany is a big market, especially into Denmark, and that is keeping up the pace, even though even Germany have had their local struggles. So I think all in all the situation on the demand side is very good into the Nordic. It also seems that we have an upside going in the long term when it comes to the climate, because it seems that it's a bit warm in the south part of Europe in the midsummer. And there we become more and more attractive because the temperature is stable in the Nordics. And even in the winter, we have seen now for a few consecutive years that the Alps are lacking snow. And that is not really good for that part of the tourism. But when you look at the northern part of the snow situation, all the ski resorts in Sweden and Norway and Finland, there we have had very good snow situation for all the years. So it might be an upside going forward that this region is actually good when it comes to these climate developments.

Thank you very much.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you very much, operator. And I just want to say thank you all for dialing in and listening in and asking your questions. As always, if you come up with something after this, you are free to contact us. You know where to find us. And we look very much forward to a very interesting year and looking forward to speak to you after our Q2 results. coming up. We wish you a great day and speak to you soon.