Scandic Hotels Group AB (publ)

Thank you very much and good morning everyone and thank you for joining us for Scandic's presentation. My name is Jens Mathisen, I'm the CEO of Scandic and with me I have Per Christiansen who is our CFO and together we will walk you through the quarter. So please start on page two. We deliver a good second quarter market conditions are stable across all our markets and We also have good demand and increasing prices. Net sales improved and we report a strong result with higher margins compared to the same quarter last year. I'm very pleased that our sharp focus on control is making an impact in this quarter, which you see. With the economy also stabilizing in most of our markets, we are observing an improvement in the sentiment among property owners. We are maintaining a high pace to expand our pipeline, and we are also investing to create an even more competitive offering. During the quarter, we reopened a large and newly renovated hotel in Stockholm. and we also continue to optimize the portfolio with some exits. GO is expanding, and last week we announced two new signings that I will come back to later on in this presentation. Another highlight is that we have now refinanced our loans. We have secured a long-term financing that reflects the strategic agenda and strong financial position. And of course, Pierre also will come back to that later on in this presentation. Lastly, the bookings for the third quarter looks promising with demand in line with last year and positive price development. So let's move into the quarter and look a bit on that on page three. On this page, you can see the quarterly adjusted EBITDA development since the first quarter of 2021. We report a strong result with an adjusted EBITDA of 841 million Swedish kronor compared to 772 million Swedish in the second quarter last year. This led to an improved margin of 14.3% up from 13.6% in the same quarter last year. The stronger result is mainly due to improved efficiency and cost control. And I'm very pleased with how we managed our operations and controlled the overall working hours in the quarter. Also in this area here, we'll come back on some more financial update later on. Please turn to page four. Here you can see the market occupancy in the second quarter of both this year and last year in the Nordic countries. During the quarter, market development remained stable with overall good demand. Calendar effects due to Easter holidays falling in March this year and April last year had a positive impact on the quarter. And Scandic's occupancy rate improved from 63% in the second quarter last year to 64% in this quarter. Our occupancy rates for the quarter were slightly higher compared to market occupancy for Sweden, Finland and Denmark and in line with the market in Norway. Please turn to page 5. This is market data showing average room rate for Sweden, Norway, Finland and Denmark indexed to the corresponding month back to 2019. The market average room rate continued to develop positively with a year-on-year growth of around 3.2%. Scandic's average room rate increased by 3.4%. We expect continued positive price development, a more stabilized and predictable economy in the Nordics overall. Please turn to page 6. Here you can see the market's REFPA development index to the corresponding month, also back to 2019. REFPA developed positively compared with last year and are above 2019 levels on all markets. Our REFPA increased by 5.2% compared with the second quarter last year. So Scandic's year-on-year REFPA growth was higher than the overall market growth in Denmark and in line with the market growth in Norway. In Sweden and Finland, we had a slightly lower REFPA growth. Sweden experienced a mixed market situation this quarter. Demand in Stockholm and Malmö was boosted by the event calendar featuring Taylor Swift and Eurovision. However, Gothenburg, where we have a strong position, is temporarily struggling due to a weak calendar overall on the event side. Additionally, Gothenburg has seen a notable increase in new capacity over the past few years. Finland had a weak start to the quarter due to strikes. Additionally, demand from international leisure travelers and corporates in Helsinki where we hold a large market share is impacted by the still ongoing geopolitical situation and the shutdown of airspace over Russia. That said, Finland picked up very good, especially in June, where we see a big increase. We always adapt and optimize our operations to match market, ensuring a healthy profitability. The margin improvement you see in Finland this quarter is a good example of that. Please turn to page 7 where you can see the pipeline. The portfolio activity is very high right now and we have increased investments in expanding and maintenance to grow and improve the overall portfolio. Some examples of activities in the quarter were the reopening of Skandik Södrakayen with 323 rooms. The hotel had completely been renovated and also had a very good start. During the quarter, we also left three hotels with a total of 412 rooms to further optimize the portfolio. Preparations for the opening of our second ScandiGo are in full swing. The hotel, which is centrally located in Stockholm, will open in early October. By the end of the quarter, we had 2,200 new rooms in the net pipeline. So a good development on that side as well. Please turn to page eight. Here you see ScandiGo and how we continue to expand ScandiGo. I'm very happy to announce the two new signings that we did in the beginning of July. We have now signed a new ScandiGo in Gothenburg with 176 rooms and one in Umeå. Both hotels are scheduled to open in 2026. In both cases, we will convert office buildings into hotels and the conversions actually allows us to expand ScandiGo brand rapidly, and it's a perfect fit also for this concept. Both hotels will be situated in attractive central locations and are a great complement to our offering in each of these cities. The ScandiGo pipeline now totals close to 900 rooms, which represents almost 50% of our growth pipeline. With that, I would like to hand over to Per. Please turn to page 10.

Thank you, Jens, and good morning, everyone. All in all, this was a good and stable quarter. Net sales increased by 3% to 5.9 billion SEK compared to 5.7 billion SEK in the same period last year. Calendar effects had a positive impact in this quarter. However, the public holidays in May also had a negative effect on demand for meetings and events. We deliver a strong and improved result. The adjusted EBITDA improved to 804 compared to 772 million last year. With a strength in margin of 14.3% compared to 13.6% last year. This improvement is mainly a result of higher efficiency across our market and overall good cost control. market situation with high demand in Stockholm and Malmö do a strong event calendar while the market in Gothenburg had a rather tough quarter with few events the underlying development in Sweden is solid and despite the lower demand in Gothenburg we deliver slightly higher result than last year Norway is performing well tough demand for meeting and events were a bit softer and than expected in the quarter. However, the overall market situation is stable and the booking situation is good for the third quarter. Finland had a weak start to the quarter with demand in April, but picked up well in June due to an active market with more events and increased demand from corporates. Finland also faced a tough comparable quarter as they had hosted the Hockey World Cup in May last year. And I want to say that the Finnish team have adapted to the market situation with optimizing our operations to improve and ensure a healthy profitability. The overall higher activity level and development pace within commercial and digitalization is partly affected in higher group cost compared to last year. Lastly, we want to remind you that we don't expect any one-offs going forward and also remind you that we had positive effects of 31 million in the third quarter last year. Let's turn to page 11. The slide shows free cash flow for the quarter and on a rolling 12-month basis. We report a fee cash flow of 463 million in the second quarter and minus 270 million SEC for the first six months of the year. Compared to the last year, we have increased the investment pace mainly in expansion and maintenance as well as in IT. For the first half year, investments in maintenance increased to 368 million SEC compared to 169 million last year. This was mainly related to ongoing renovations at hotels in Stockholm, Copenhagen and Gothenburg. As we have mentioned before, we expect maintenance CAPEX to reach more normalized levels for the full year and be in the range of 3-4% on net sales. Expansion CAPEX increased to 107 million compared to only 18 million last year. This was mainly related to the opening of Scandic Nuremberg in Germany. We also now have higher COPEX for IT, which relates to overall higher activity levels in digitalization and commercial capabilities. Working capital in the quarter was impacted by repayments of variable rent debts from last year, totaling of 210 million. And we do not expect any more rent debts to be paid in 2024. All in all, free cash flow on rolling 12 amounted to 1.2 billion SEK. now have a strong financial position we only have around 50 percent of the maintenance topics being committed this provides us with good financial flexibility please turn to page 12. this is the net depth adjusted to EBITDA on a rolling 12 basis net depth amounted to 1.7 billion sec at the end of the quarter that included the convertible bond of 962 million and 675 million deferred VAT payments and social contributions in Sweden. Including the convertible bond, our net debt adjusted to EBITDA ratio was 0.7 times, excluding the convertible bond ratio was only 0.3 times. Our financial position is strong, and in the beginning of July, we refinanced our loans, which creates a high financial flexibility going forward. Please turn to page 13 for more details about the refinancing. We have successfully carried out a refinance with a group of banks, effective from the 1st of July. It amounts to 3.25 billion SEK, with the possibility to expand an additional 500 million SEK. This facility is set for a three-year term, with the potential to extend it for an additional two years. We have now secured long-term sustainability linked terms that align with our strategic agenda and reflect our strong financial position. This financing provides us with the flexibility to manage the different outcomes of the convertible bond. Please turn to page 14. The bond matures in October 8 and we want to provide a brief update. In 2021, we issued the bond with a total nominal amount of 1.8 billion SEK and a conversion price of 43.36 SEK. Last year, we did a buyback amounting to 590 million. And as of today, we have a pre-conversion from investors in the bond of 532 million. This brings the total outstanding debt as of today to 678 million SEK. With that, I would like to hand back to Jens for some more final comments.

Thank you very much, Per. And for some comments on the outlook, especially, I would say, for the rest of the year, we expect a continued solid hotel market in the Nordics. Household demand for travel and leisure activities remains high and should be supported by a more stabilized economy in the Nordics overall. July started off positively. On current bookings, we expect a good third quarter with occupancy in line with the last year and slightly higher average room rates. We are maintaining a steady pace in growing and improving our portfolio, and I'm pleased with the progress of expanding the ScandiGo brand. Just before the summer, we also completed the implementation of Oracle Hospitality Cloud of all our hotels. This provides us with good and solid and robust platform to build upon for the future and will further improve our ways of working. We're also driving many exciting initiatives within commercial to further improve our loyalty program and booking channels, such as the web and app. And I look very much forward to speaking more about this once we are ready in the fall. All in all, we are concluding a good quarter with strong results. in the middle of a very busy season and our focus remains very sharp on maintaining high efficiency while delivering exceptional good guest satisfaction. I would like also to thank everyone on this call to join us on this presentation and let's now open up for the Q&A session. So 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 Andre Julid from Deutsche Bank Equity Research. Please go ahead.

Good morning, gentlemen. Two questions for me, if I may. First one about clientele. Did you see any significant evolution of the type of clientele you have at the moment? And especially, did you see a start or beginning of return of the Asian clientele? Second question. Could you give us some more color about the FNB component in your revenues and do you see any significant evolution? Third question about development. You have a decent pipeline, more than 2,000 rooms, but do you see any opportunities for additional development and especially some management contract results and leasing contracts. And last question, could you give us some more color about the convertible bond and what you think about the optionality that people could take or that you could push for? Thank you very much.

Thank you very much, Andrea. And first of all, we have seen you started to ask for the Asian market development. I think right now, Asian market, we see slight improvements, but still, I would say, slow pickups, especially due to the fact that into the Nordics, you still need to go south. You can't really go over. and through Finland and Helsinki like they normally did from the Asian market. So, yes, we see slight improvements, but it's on very, very low numbers. We see much larger improvements from U.S. market. U.S. has been very strong in the last couple of weeks, especially into Copenhagen, where we have seen a lot of Americans coming in. So it seems that especially Americans are very happy with the Scandinavian market right now. To your questions linked to the F&B area, it's very stable when it comes to meetings. So meetings is kind of, flattening out and stabilizing. Of course, small differences between the months of them, but when we look into the autumn, it looks very stable as well with the booking pattern for that area. For restaurant and bar business, it is also stabilized and stable. We see it right now, of course, a lot of guests. It's a leisure season, lots of kids and families. But the average spend is also stable. So we don't see a huge drop in the spending in the restaurants overall. So I would say It's not big, big changes within that area. Slightly on the meetings, of course, something we expect. We're still on a lower level than pre-pandemic levels on meetings. It picked up well and has stabilized somewhat below on total numbers. We see some months which is above, but overall slightly below. And we also anticipated that. That's why we also announced the ScandiGo brand with no meeting facilities. And over time, this will be handled, you can say, by us increasing rooms more than we increase the average meeting rooms. When you look at the pipeline, we have additional opportunities. Yes, absolutely. We see a lot of activities right now also to convert office buildings. We just announced to go hotels, which is both office buildings that we convert. And discussions going on, I would say both in the Nordics, but also in the German market where we right now have several discussions on opportunities in the German market. It seems that our brand has really done well also outside the Nordic. And that means that more and more owners are reaching out for these discussions. It is still more on the lease than it is on management. But definitely management and even franchise is something that we are discussing whether we should do more in the future. But right now it's more... Good thing is also that some of the least discussions in the non-Nordic market is not only fixed leases like normally the German market is a more fixed lease market. But we have also several discussions, which is on variable rent, which is the same as we know from the Nordics, which is good. So I think that is mainly it. I hope I answered all the questions on there. Otherwise, that was a bit on the convertible.

Yeah, I can take that one. I guess the main scenarios on the convertible bond with the current share price is, I think, that we will... see some probably more pre-conversions and the rest will convert on the day it matures. I think with the current share price it will be quite expensive to do buybacks. So I guess that's at least my main theory at the moment.

Okay, thank you very much.

Thank you.

The next question comes from Raymond Koo from Nordea. Please go ahead.

Good morning. I also have a couple of questions. I think I'll take them one at a time. The first one, I was sort of surprised by the margins you had there quite high. Could you elaborate a bit more about what is behind this?

Mainly, Raymond, it's linked to us holding a very sharp focus on both cost and efficiency. Top line development, which is 3.1 and with the pressure from costs, both on salaries and lease and energy, etc., then it's very, very important for us to keep a very sharp focus on the efficiency. And we have really succeeded doing that in all our markets. So we see markets with very good control of the work hours, which is, of course, the major area for us when you have like nearly 20,000 team members working. So it is actually due to a lot of hard work from the organization, which is very good, but also because we are very on securing that we are a stronger company, like we have said, than before pandemic. So we want to be a better company when it comes to delivering on the efficiency. So it's mainly due to that.

Got it. And is it then fair to say that you're operating at the lower sort of cost base and fair to assume or expect better margins for the remainder of the year also given same level of sales as last year? Or how should we think about like H2?

It's very important for us to be, because if we do not get, let's say, the same health as we did the last couple of years with very high growth rates on the top line, let's say the top line only growth with some 3% on price and limited on occupancy, then, of course, we need to be even stronger on the operational model and the efficiency. So, yeah, we continue to keep a shape. Also in the autumn. And then we also do a lot of investments, which I'm also proud that we actually in this number even have investments for the digitalization growth that we are doing. Also on OPEX. It's not only CAPEX. So we have talked about that before and we continue to do that in the next couple of quarters. And like Piers said, be aware that last year we had some one-off effects in Q3, which we don't have this year, so that you need to take into account. But overall, yeah, we will continue to focus on a high efficiency level.

Yeah, excellent. And speaking of CAPEX, could you there provide an update on where do you see the maintenance CAPEX and total investment CAPEX for the full year land in relation to sales?

We have always said that we should be, you know, some around, we will be closer to the 4%. We have said between 3% and 4%, but it's also very important that now we have a very good cash flow. We have almost no debt. And so we can actually increase the investments in the portfolio, which we do, and which you also saw in the last quarter. So I would say between 3% and 4% still, but maybe closer to 4%. But we steer this very closely linked to the cash we generate and we still have opportunities to increase or decrease a bit if needed be in the latter part of the year.

Got it. And finally, when you look at Q3, your biggest quarter, how does the event calendar this year compare to last year?

I think a very, very good and important question because Gothenburg is having a very low calendar this year for events. Lastly, it was maybe extraordinarily strong because they had you know, six concerts, big concerts in Q3 and this year no concerts. On the other hand, it seems that Stockholm is picking up better like we had in the last quarter with Taylor Swift. We also have in Bruce Springsteen and others in this quarter. So it seems that Stockholm is better than last year and Gothenburg is still below. And I'm talking about these two because that's where we see the major changes. Copenhagen, Oslo, Helsinki is more in line with the normal years.

Okay, brilliant. Thank you so much. I'll get back in line. Thank you.

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

Yes, good morning Jens and Per. Per, I'm going to pick your brain a little on the cash flow here, looking at the LPM trend particularly, and you alluded to that the quarter was still impacted by delayed payments or timing indifference from last year. If you quantify those kinds of timing things that are now not coming back, how much would that have been on an LTM basis? And what more might be there for the future, so to say, that we should have in our mind?

I mean, we had 210 million here in Q2, and we had a similar amount in Q1. So I don't have numbers in front of me of Q4. I think if you take out these type of numbers from the rent payments, I think we will be on a more normalized level. And I think, as Jens said, the maintenance copies will be around 3 to 4%. And I guess the new capacity will take a little bit. If we sign something now, it will not hit this year. It will hit future years. So I think you probably will go back to a more around as a trend probably.

But when you look at it, there is no more legacy timing effects that should be hitting the cash flow from here on.

No, no.

Excellent. And when we turn to the new financing agreement, Does that give you now full flexibility to enact on share buybacks, go back to paying dividend and all these kind of things?

Yes, yes, yeah. We have no, you know, when the bond has matured, which have some, you know, some limitations connected to it. No restrictions, so it's more up to us to... decide on what to do with the cash, you know, paying dividends or buybacks or more investments in Capex. It will be fully our choice.

And when we look at the financial target of two to three times net debt BTA, obviously with the likely full conversion of the convertible, you will be substantially below that. And even if you go back to more normal kind of Capex and these kind of things, I guess That will not consume the amount of cash that will get you up to that gearing level. So how do you see the capital allocation after all these kind of things have happened?

I think we, like we have mentioned before, I think that we will definitely come back with, let's say, the future targets on the financial targets after the convertible bond is being dealt with. So somewhere after that, we will give you updated numbers on our targets for the future. But you're definitely right. It is very unlikely that we will see debt levels of two to three times EBITDA. What is very good with this new financial position that we have, very low debt and a very good agreement with our lending banks, gives us a very, very high flexibility, which we didn't have in the old agreement in the same way because it was done with some restrictions during the pandemic. So, of course, this is a very long agreement. It is a three-year agreement on another two years. And it has, let's say, not the same constraints or restrictions on it that we had on the old one. So even if we want to grow faster and invest more in more growth, we can also do that. Buybacks, definitely, and dividends, everything is up to us, kind of, with this agreement, which is very good.

But if I jump a little, is there any reason that you should be managing Scandic Hotels at, say, net debt VTA level of below one going forward?

I would say that let's come back to that, because I think for a company like ours, you know, as long as we look at this also depending on the interest rates and with interest rates coming down, then yeah, definitely we don't see a problem with having a NIP-DEP even above one, but you know, let's wait and see once we see now the interest rates start to come down and we handle the rest of the convertible bond, then we will come out with some targets for where we think this range should be in the future. But this is definitely not something that concerns us. I think we have agreement and the bank agreement and with all the strong development we do in the company and increasing if it does and everything you know we are really delivering strong then it's up to us to decide where we think the money is being invested best and that is of course to bring shareholder value and we will work with with three scenarios on this one, which is open and discuss which one of these we should use or in which combination with dividend buyback and growth. But for sure, we are very focused on delivering shareholder return.

Sounds promising, even though I thought it would have been a good timing to already have those kinds of things maybe communicated at this stage. But I'll be not impatient with you on that one.

No, but it is coming up so fast this time. So you will see, you know, when we have the next quarterly result in Q3, then we are done and dealt with all the convertible bonds. So then you can pick on us again.

So good. And Jeff, coming back to the goal segment, obviously interesting to see when you now are getting property owners excited by converting office buildings and that obviously should strengthen that pipeline going forward. Could you just elaborate how your pitch sounds to the office property owners to get them excited about going down the goal route and doing the investment to convert office buildings to hotels?

But I think it almost... handles itself because right now there's a lot of property owners with a lot of office space that are available and they need to find alternatives for this. And it's not always easy to convert into private housing and things like that. So they're looking, should they rent it out for a lower rent or should they look at alternatives and hotels have a good future. It's also expected that this industry will grow year on year like 3% in average in the Nordics in the coming years. So this is definitely an opportunity. So right now it's both us picking on them and trying They understand the opportunities, but it's also themselves that are actually coming to us right now in all these markets that we are in with several opportunities. So I would say the list of discussions are much longer now than it has been ever, especially also on the go, which is good. find deals that are just because we have one or two opportunities, we are really signing the best deals that we find in the markets. So that's why you see also the last two signings are very, very good locations. And as long as we find good locations and right terms and conditions, then we are, of course, eager to expand the pipeline.

And when you look at these properties and how we're going to convert it in Umeå and Gothenburg, do you know what kind of investment level the property owner will be required to do to convert these properties?

Yeah, we know that, but I think they should communicate on their side of that because most of that lies on that and we pay our rents in this. So we just know that our investments in these hotels are lower in average than it is compared to a Scandic where you have a lot of kitchen and back offices and large... public spaces and meeting rooms and bars and gyms, etc. In these ones, it's rooms and a ground floor with limited back offices. So the investments on our side are much lower per square meter than it is on an average Gandy.

It will be exciting to follow. All the best out there.

Thank you very much.

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

Thanks. Morning, everyone. Three questions, please. First, have you seen any material benefit from the sort of heat in Southern Europe and the sort of switch in demand to Northern Europe? I know you've not got many resort hotels and you're saying Q3 occupancy flat, but any sort of signs of of sort of demand displacement in the holiday segment. Secondly, I was quite intrigued by your comment that you think the shares are too expensive to buy back, I think you said. If you could elaborate a little bit on that, please. And then finally, quite a lot of talk about the strong profit margin performance in the second quarter. But I think East has had quite a big impact. And if we look at the first half overall, revenues were up about 1% and EBITDA fell 7%. So the question is, if we look at the second half of the year, consensus is for something like a 4% increase in revenue year on year to 22.4 billion and broadly flat EBITDA to get to 2.56 billion. How do you feel about the second half implied revenue growth and profit performance in consensus, please? Thank you.

Yeah, but first your question about the leisure segment and let's say there's a lot of, at least in the Nordics right now, there's a lot of campaigning on Caucasian and things like that. You know, really to show the rest of Europe that the Nordics are pretty cool. Both cool to visit, safe, but also because we don't have, you know, the high, high temperatures as you see in the Southern Europe. We have seen in the last couple of years, let's say, a growing trend from Southern Europe, from Spain, Italy and France into Scandinavia. But remember that these markets are normally fairly small in total numbers. But yes, we have seen increases. Now we have very limited numbers for this summer season because it's kind of the last few weeks of June and the first weeks now of July. This will be something we will be able to communicate much more in details for the summer. But it seems that we are very attractive and there's a growing interest into the Nordics from Southern Europe, but also from especially U.S., I would say. U.S. seems to have a lot of guests flying in. We have more direct routes and airlines flying to U.S., And because of that also, you know, especially Copenhagen, Stockholm has seemed to be very attractive for Americans. We also saw in June a high increase into Finland and Helsinki from the U.S., which is very promising. Both South and Europe, we expect much more also in the coming years.

also during winter time so that is positive when you when we talk about share buyback pair you can maybe yeah I assume you thought about when I talked about the convertible bond and what I said was that it will be expensive to do the similar buyback we did with the convertible bond because we have to pay both the premium on the convertible bond buybacks, as well as help the short sellers that have their position, which means that the total cost for doing buybacks, as we did in the past, is very, very high. When we did that, the share price was much lower. But we have now, since the AGM, a mandate to buy back shares of 10%. And that is a different question when the bond has matured that to actually buy back shares from the market. So I think that there's two answers to that question. That makes sense.

Thank you.

And then the last was a bit on first half and second half. And I think it's a very good question. I think what is obvious right now is that we see growth in the market. We see we are growing the top line. But of course, it's not 5%, 6%, 7% growth. It is a very stable occupancy and slightly growing rates. So I think also for... we are cautious about these expectations. I think summer has started off well, but it's very, very important for us to maintain our high focus on the efficiency and cost control, at least to secure that we deliver the cash flow that we want to deliver and which is expected in the market and also both margins and results. So I think It's very difficult really to be more precise, but right now the best thing we can do is to predict a very continuing stable level, which we see in the inflow in the booking pattern, and thereby also concentrate on operating the company with high efficiency, and that's what we're doing.

Okay, 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 thank you all again for dialing in. As for me, I would say you can imagine that we are very satisfied with delivering such a strong result, which we did now in Q2, and also have a very good outlook for Q3. So all in all, a good and stable situation for us. I want to wish you all a fantastic summer and look forward to speak to you all again at the latest in next quarter result, which is in October. So until then, have a great summer all.