Scandic Hotels Group AB

STO:SHOT

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, welcome to the Scandic Hotels Group Q1 2018 Report Call. Today, I'm pleased to present CEO, Even Frydenberg. [Operator Instructions] Speakers, please begin.

[Even Frydenberg]

Thank you very much, operator, and everyone from Stockholm. Thank you for joining this presentation of the first quarter results for the Scandic Hotels Group. As usual, with me today are our CFO, Jan Johansson, who will take you through the financial parts of this presentation; as well as Henrik Vikström, our Head of Investor Relations. Please now turn to Page 2 for a brief summary of the first quarter. Our sales increased by 22.5% in the first quarter, and this was mainly driven by a combination of more hotels in operation and the acquisition of Restel, which we completed, as you know, at the end of 2017. Our like-for-like sales growth was marginally negative, down 1.2%, but the sales growth was negatively impacted, of course, by the fact that Easter this year fell partially in March. We estimate that the calendar effect for the group was around 4%, and the underlying sales growth is estimated around 3% for the quarter. As we mentioned in our Q4 report, we took immediate action to adjust our cost for the lower occupancy in Stockholm, and we can clearly see positive effects from that in the first quarter. In general, we are pleased with the internal cost control in the first quarter, and we are, of course, committed to continue to adjust cost quickly to respond to potential changes in the market. The integration of Restel continues at full pace and is going according to our plan. We started the rebranding in February, and as of today, 17 of the acquired hotels are now already operating under the Scandic brand. We expect the whole rebranding part of the integration to be completed by the end of Q2 this year. We have identified cost synergies in a number of areas that we expect to be able to start extracting towards the end of this year. In January, we relaunched Scandic Friends, the Nordic region's largest hotel loyalty program, and we also launched Scandic's first app. The new program includes a number of new partnerships, improved benefits for our guests and more ways of spending accrued loyalty points. Please now turn to Page 3, where you can see the market's RevPAR development in the Nordic countries. The market RevPAR growth was marginally negative in Sweden, Norway and Denmark in the first quarter of 2018. In Sweden, the market RevPAR growth was down by half a percentage point, largely in line with the year-on-year trend that we saw in the fourth quarter. In Norway, market RevPAR was down by 2.2%. However, as we know, Norway historically has always been more impacted by the move in Easter. So when adjusting for calendar-effect growth, we would expect this to have been positive. In Denmark, RevPAR growth was slightly negative but an improvement over fourth quarter, still with some tough year-on-year comparison to Q1 2017, as you can clearly see on the graph. We do not yet have reliable market data for the full quarter of the Finnish market, but for January and February combined, the market RevPAR growth was around 8%, and it was clearly positive also for the full quarter. The trend has remained positive in all the main cities in the Finnish market. If you now turn to Page 4, you can see Scandic's RevPAR development in local currencies and on a like-for-like basis for the first quarter of 2018. [ Group basis ], our like-for-like RevPAR was down by 1.6%, but we estimate the overall negative calendar effect for the group to be approximately 4% for the group, with 7% to 8% in Norway and 3% to 4% in Sweden and smaller effect in the other countries. In Sweden, our like-for-like RevPAR was down 3.7% and relatively unchanged adjusted for calendar [ effect ]. The underlying trend was pretty much the same as those we saw in the fourth quarter with some pressure in Stockholm due to last year's capacity increase and a much more stable development in the rest of Sweden. In Norway, our like-for-like RevPAR development was down 2.8% but up by around 5% when you adjust for the Easter calendar effect. In Finland, the like-for-like RevPAR growth was up by 5.3%, while total RevPAR in local currency was down by 11%. The difference is explained by the fact that the Restel hotels are now all included, and Restel had approximately 20% lower RevPAR than Scandic's other Finnish operation. In Q1, Restel accounted for just about 50% of our revenues in Finland. We saw a continued positive RevPAR development in Germany, up by 7.6% in the first quarter and up 5.4% like-for-like for the first quarter. Please turn to Page 5 next. We're very pleased with the pace, the process and the results of the integration of Restel so far this year. We started the rebranding actually in February, and we have, at present, rebranded 17 of the former Cumulus hotels. The full rebranding of the Cumulus portfolio is expected to be completed already in June. A condition for the regulatory approval of this Restel transaction was that we would divest 3 hotels in Finland: one in Kuopio, one in Pori and one in Lahti. Two of these hotels came from the Restel portfolio, and one, the one in Lahti, was already a Scandic-branded hotel. We are on track to divest these before the end of 2018. At this time, we have already identified cost synergies within marketing and sales, procurement and IT, and we expect results to see some benefits from these towards the end of the year. As expected, the Restel portfolio did not contribute to adjusted EBITDA in the seasonally weak first quarter. In addition, 2 of Restel's larger Holiday Inn-branded hotels are currently closed for renovation and have therefore not yet contributed to the results. Over time, the main potential for this transaction is still on the revenue side. We believe that it will be possible to drive both rate and occupancy when Restel becomes fully integrated into Scandic's strong sales and distribution system. It is encouraging to see that the market conditions remain positive in Finland, as it has become a significant market for us now. In the first quarter, Finland accounted for about 24% of Scandic's total revenues. Please now turn to Page 6. We opened 4 new Scandic hotels with lease agreements for a total of 800 rooms during the first quarter. In January, we opened Scandic [ Lilleström ], a conference hotel just outside of Oslo on the way to Oslo Airport, and this hotel has had a very good start. We opened Scandic Helsinki Airport, also a new hotel with 150 rooms in an excellent location next to the passenger terminal at Helsinki's Vantaa Airport. The Scandic Museumsufer in Frankfurt, Germany is now also fully up and running and with a great start. This was a takeover, as you know, from Wyndham, and it is our fourth hotel in the German market and our first in Frankfurt. Finally, we also took over the operation of Scandic The Mayor Hotel in Aarhus in Denmark, a hotel that we used to run a few years ago and is now back after a renovation. If you now turn to Page 7, you will see that we had an existing portfolio of 47,000-plus rooms at the end of the first quarter, and the pipeline amounts to close to 5,000 rooms, which corresponds to some 10% of the existing portfolio. Of these, we have approximately 1,200 rooms that will be opened during the remainder of 2018. And also finally, to note on Monday this week, we had just announced a new hotel in Helsingborg in southern Sweden with 180 rooms that is expected to be opened in 2021. It should be noted that 3 of the hotels in the pipeline are existing hotels in Finland that are closed for renovation: Scandic Marski in Helsinki that will be opened again in 2019, and 2 previously mentioned important Holiday Inns from the Restel portfolio, one which will be opened again this year and one in 2019. In addition, the 3 hotels that we will divest in Finland affects the total pipeline negatively by about 400 rooms. Approximately 1/3 of our pipeline is in Copenhagen where we will open 1 hotel per year between now and 2021. So that is my short summary. With that, I hand over to Jan, who will take you through the financial part of the presentation.

[Jan Johansson, Chief Financial Officer]

Very good. Thank you, Even. Yes, I will go down through the most important factors in our financial performance, and we'll start on Page 9 where we have summarized some of the financial key ratios [ done ] for Q1. And you can see here, and also Even mentioned here, that the record-high growth number of 22.5% in the Q4 -- in the first quarter, and that is despite the negative calendar effects. We will come back to the negative calendar effect a little bit later. On total, they have been negative with 4% points, which we estimate here. And as we can see here also, we have a like-for-like growth -- posted like-for-like of minus [ 1.2% ]. So if you were to adjust for that, you would arrive on a positive underlying like-for-like growth. You can also see our adjusted EBITDA fell almost SEK 40 million to SEK 115 million. This is more drama. We will come back to that later on also. With regard to Restel, I repeat what Even said and what is important [ is that this ] does not yet contribute to adjusted EBITDA, which is perfectly normal given our planning and given the normal seasonality of the Restel business. The integration cost SEK 24 million. You might say that is quite low. We are according to plan, and I'll repeat our guidance that this should not cost more than SEK 150 million for the year, and we should have actually executed that ahead of Q3 then from an accounting point of view. You can also see here that the [ splice, the chart configuration ] of Restel, we are still within the target of the [ internal that we've moved out to at an ] average. Although Q1 is a tough quarter from a cash flow perspective, we have [ reduced the ] seasonal buildup of working capital. Before coming to the income statement, a few words on the supply and demand balance in our main markets, Norway and Sweden. We would have hoped to have this also for Finland here, but we don’t have the data yet to provide that. Starting with Sweden here. We can see on looking at the graph here, you can see that there is a slight imbalance between supply and demand, and that is something which we saw already in Q4. This is coming from the Stockholm area. The rest of Sweden, [ if noticed, you would regard to this ] that we have kind of a favorable balance between supply and demand. Of course, calendar effect is impacting the demand numbers negatively. Concentrating a little bit on Stockholm, market occupancy was down 5% in Q1 compared with last year, and that is also results from the available rooms were up 6.5% in the corresponding period. And rest of Sweden, as I mentioned, have a more favorable balance between supply and demand. Turning to next page, Page 11. Looking [ just ] at these numbers, they look very unfavorable with the kind of a negative balance here, but I need to explain that. When it comes to supply -- and that is primarily then explained by Bergen area, where there have been a [ capacity buildup ], also 1 more hotel in [indiscernible] this year. Comparing with last year, the supply was negative as there was hotel taking away from the market. We believe underlying demand is good, but the calendar effects are distracting the numbers. If we would only look into January, February, the market RevPAR was actually up 3%, 3.5%. This is not as high as it has been last year. But as I said here, that the last year's numbers was helped by the fact that there was [ capacity taken ] away from the market. So with the exception of Bergen, we believe there's a good balance between supply and demand in Norway. Moving down into Page 12, where we have an overview of our sales analysis. Also there, we have some negative numbers, but our interpretation here is that the underlying like-for-like sales grew if you would exclude calendar effect. It's positive in [ 4 of our ] markets. In average, a little bit down compared with earlier quarters are positive -- stayed positive in our market. We have calculated the calendar effects to be 7% to 8% in Norway and between 3% and 4% in Sweden and minor effects in the other markets. Growth numbers [ are of course helped by ] positive effects from a weakened Swedish krona. When you account for the portfolio additions, [ here you can see SEK 750 million ], 2/3 of that or SEK 480 million is coming from the Restel. So there is -- it's not been insignificant effect from the rest of the portfolio additions [ as ] the deals we made last year and the new openings we have been -- done so far in Q1. And those will, of course, continue to impact us positively later during this year. A few comments then on [ Page 13 ] when it comes to development side by segments. First of all, you can see here that we have increased sales in all of our segment despite the negative calendar effects and the slightly weaker underlying like-for-like growth. When it comes to the [indiscernible] Sweden, we have a decline as you can see here with some SEK 23 million, negatively impacting our calendar effects, [indiscernible] we'll reverse in the next quarter. Stockholm occupancy level is negative for the adjusted EBITDA, and I just talked through the reason behind that. However, rest of Sweden, it's going very well here. We have also cost actions successfully implemented, and that -- those mitigates a lot of the imbalance we have between supply and demand now, primarily [ then ] in Stockholm. Going over to Norway, heavily impacted by negative calendar effects, which should also be [ now ] reversed in Q2. However, underlying, we have a lower occupancy in [ Lilleström, ] Norway due to the higher supply in that area. Finland, Restel effect, we talked about that, no profit contribution on adjusted EBITDA level. However, the like-for-like units that helped the old Scandic units are doing well and underlying, we have actually done an increase in margin and result in Finland. [ Other Europe, comp ] Copenhagen in tough comparison, and we have a slight [indiscernible] RevPAR in Copenhagen. We have had a reasonably good start of the new hotel in Museumsufer in Germany though, with recent [indiscernible]. Central costs and group adjustments, we have a onetime positive effect from electric with hedging drop of SEK 7 million, which is impacting the number. And all in all, this is then leading up to SEK 115 million, which is SEK 40 million less than last year. Yes, going into our income statement in brief. I think we have gone through most of the important things in adjusted EBITDA already there. And once again, done. We are impacted by the calendar effect, which will then of course be reversed in Q2. With regard onto earnings per share, we have a negative effect from financial leasing. You remember when we consolidated Restel that we have 11 leaseholds there, which classifies as financial leasing. And this is of course a noncash effect, but it impacts our numbers negatively. When you look at adjusted [ EBITDA, the EPS, ] we have actually then excluded those effects [ that has a level of, let's say ], comparable number for us in the [indiscernible]. And the other sectors impacting our net result and EPS, which is important. And, let's say, we have higher preopening costs this quarter compared with earlier years due to the high activity we are having now with new hotels, we have also, as we have mentioned before, the integration of the SEK 24 million. And those will remain during Q2 and Q3. We have also higher depreciation this quarter than comparing with the earlier, and that is of course mainly explained by the inclusion of Restel. The [ positive thing ] is that interest net is almost unchanged despite the fact that net debt is almost SEK 1.3 billion higher than the same period last year, and the reason for that is of course that we have a much more efficient financing in place this quarter than the previous period, last year. Then I would like to go through some effects from financial leasing, and this is important due to the fact that this will impact [ our number ] more and more. So this is kind of a little bit of an appetizer to IFRS 16, which will come into fully next year into our numbers. As I mentioned, 11 [ leaseholds ] in Restel, which classifies as financial leasing, is [indiscernible] balance sheet with approximately SEK 1.7 billion, and we have made a table on Page 15 where we have explained the effects in the income statement of this application, what you can actually see here. What we have done, we tried to simplify things is that we have our adjusted EBITDA. It's -- we have excluded the financial leasing effect from that. So that kind of fee rate is constant despite the fact that the implication of all of the financial leasing here. But we have a cause and effect in EBITDA, which is positive, due to that ramp already classified as depreciation and financial costs. And you can see here also that the net effect is negative, and that's due to the financing component here. It's quite a high yield at the beginning as when we buy a [indiscernible], as we did with Restel. These are classified that we have entered into leasing at the consolidation basis. But the next financial components [ have diminished ] over time. And the impact, over time, will [ get soft ]. In the [ long, long run ], it's a three-way effect on the profit and loss.And I'm happy to answer more questions on that later on. And then finally, on our balance sheet readiness here. As I've said, the cash flow is negative, impacted by the high investments in the period and also the seasonal buildup of working capital as you can see here. This is quite normal for this industry that we have the seasonal impact of working capital that would reverse in the second half of the year. With regard to CapEx, it will be, as you see here, where we have higher CapEx than last year. Of course, when you [ look upon our ] leverage of 2.6, it's still within the targeted interval. However, of course, our ambition is to try to reduce that, as we believe it's very important to have increased financial flexibility to be able to act in the market when there are opportunities. And with that, that finalizes my part of the presentation. [ I now ] hand over back to Even.

[Even Frydenberg]

Okay. Thank you very much, Jan. So we'll start to wrap up the presentation. If you take a look at Slide #17, which we highlight some quotes on the outlook. We expect continued positive underlying like-for-like sales growth, excluding the calendar effect also in Q2, but possibly at a slightly lower level than Q1. The RevPAR in Stockholm is expected to remain under some pressure due to the capacity increase in 2017 until we get to the year-over-year comparison time, which is during Q3, while we expect better RevPAR development in the other parts of Sweden. We do see potential for continued positive underlying development in our other large markets, Finland and Norway. Restel is expected to start contributing to adjusted EBITDA in the second quarter, as Jan mentioned. The rebranding of the Restel portfolio is expected to be completed by the [ end of June ]. So going forward, we are naturally operating -- sorry, maybe if you turn to Slide 18. So here you can see some of our key focus areas going forward. We are operating in an environment and a business where market conditions clearly change rapidly and frequently. And we remain very focused on securing cost efficiencies throughout our operating portfolio and to be able to adapt rapidly to changes that we see. Naturally, the focus remains on the Restel integration and to ensure that we start to extract revenue and cost synergies as soon as possible. We will continue our focus on finding digital opportunities for customer facing and those that will support further operating efficiencies. And of course, we remain focused on ensuring that the customer is in the center of everything we do and that we work [ collectively ] to further develop our products and services. So that concludes our presentation, and I'll hand it back to you, operator, for Q&A.

[Operator]

[Operator Instructions] And our first question comes from the line of Karl-Johan Bonnevier from DNB Markets.

[Karl-Johan Bonnevier]

Just to clarify the guidance a little for me, considering that this is Easter effect going back and forth. And then what kind of base are you talking about when you're talking about, let's say, the like-for-like growth in Q2 compared to Q1? Is it the 2% to 3% [ positive ] you are talking about as being the base?

[Jan Johansson, Chief Financial Officer]

The base which we are looking on is actually what we did. The technique we are using here is actually looking into the same January-March, and then comparing that with our estimates again during April. And then we consider that as being the calendar effect. And we express this in percent units.

[Karl-Johan Bonnevier]

And when you look at -- say, if you take the like-for-like thing with the number we saw for Q1, was it 1.6%, 1.7% minus and then add back the Easter effect, then you get to what you -- we should consider being the base in that kind of statement?

[Jan Johansson, Chief Financial Officer]

Exactly.

[Karl-Johan Bonnevier]

And then we have to do the similar thing around, take that slightly lower number, then add on the positive Easter effect for Q2 to get to what you should think I'm close to reported numbers, I guess?

[Jan Johansson, Chief Financial Officer]

Exactly. So I mean, it was quite easy that -- [ it's not extremely drama ] in the market, you should of course arrive on a higher number for Q2.

[Karl-Johan Bonnevier]

Excellent. Then when you talk about the Restel integration, it sounds like it's gone pretty smoothly so far. When you talk about you're starting to extract the real synergies out to getting the room inventory into your distribution system, is that a question now for the next 2 or 3 quarters and starting to extract that the impact already this year? Or do you see this being a measure more for 2019?

[Jan Johansson, Chief Financial Officer]

I think what is coming, first and foremost, I think, it's about the systems here, putting the systems in place to get the [ finance ] in place and things like that and also then to see [ that we have the ] organization in place. If you talk with the cost side, then the synergy's there. We believe that they will start to surface during the second half. So I mean, we should have a margin support from the cost synergies already this year in quarter 3 and quarter 4. But I think when it comes to that, to say it's more -- I mean, it's also about how we -- they -- I mean, many of their corporate contracts, they have already been entered into and so on.

[Even Frydenberg]

Yes, I think -- Karl-Johan, I think you need to think about -- we're saying with 17 hotels out of the 33 had been done. So if we finish by middle of the year with the changes of the systems and the integration into our system, it's going to take the hotels and our teams a little bit of time to fully explore the opportunities both from a sales distribution and from a revenue management point of view. As Jan pointed out, many of the hotels are under contract with companies and hotels for the current year. So I think we will see some but most will probably be coming as these contracts run out and people get more comfortable with our systems and taking advantage of our systems. So I would hope the revenue uplift rather into next year.

[Jan Johansson, Chief Financial Officer]

Yes, that's a pretty one. If you would have asked me about how we view the cost synergies, then we would have said that we [ are seeing this ] more positive now than earlier.

[Karl-Johan Bonnevier]

Excellent. Excellent. And when you now have a chance to [ going through the chain ] in more detail and, I guess, in looking through the details of the numbers for all the different components of it, have you -- say, are you more encouraged about what you have acquired? Or have you found a lot of skeletons in the closet?

[Jan Johansson, Chief Financial Officer]

No, I don't think we have found [ -- there's so many ]. But I think there are -- as I said, I think on the cost side, we are a little bit more -- we've seen a bit more opportunity now than we actually saw in the beginning. And -- I mean, we have to remember the structure of the deal, what the [indiscernible] -- I mean, naturally, what we will have -- the kind of synergies you have, they are, of course, in marketing and sales when we go to 1 brand instead of 2 brands, so [of course there are clear synergies ]. And the third natural arena is also, of course, IT as, yes, you are [indiscernible] structure. And that takes some [ license costs ], et cetera, et cetera. But we've been able to have [ 4 areas -- have purchased ]. And that's procurement, where we actually see more opportunities now than when we saw during the [indiscernible].

[Karl-Johan Bonnevier]

Excellent. And Jan, I must ask you one question about the financial lease kind of sector, as well. Do I understand it right that you're, for the moment, just required to look at the fixed lease part of your contract, not the variable part? And is that something that will change with the -- your existing portfolio also coming into this in 2019?

[Jan Johansson, Chief Financial Officer]

No. It's -- when I -- I think what is -- will be happening is, I mean, there. And we -- of course, we are currently preparing for this. I will not give any numbers. But of course, it did so that the fixed commitments, which we're having could be -- should be considered as we have owned these assets, and that's basically this figure with behind our IFRS 16. So that's not a variable component. How can you capitalize that? That would require to have a crystal ball. So I think that is not something which is really possible to do in a good way. But of course, there will be significant also -- I mean, as you can see here, the fixed part of the rents or the guaranteed part of the rent is 70% of the total rent. So of course, this will be a big amount. And that's also the reason why we're talking a little bit about it here because we -- I think it's important to get a sense how this impacts the numbers. So then this, actually, comping to our numbers to 100% next year. I mean, then you already have a profound understanding what was happening with the key ratios.

[Karl-Johan Bonnevier]

Excellent. And I guess, to understand you there as well, all the numbers that you talk about being adjusted in your reporting are adjusted for financial leases at this stage?

[Jan Johansson, Chief Financial Officer]

That's exactly the approach we're having, so -- which means that the adjusted EBITDA should be consistent, and it should not be impacted by the financial leases. So -- and then the same with net debt, it's also excluding the financial leases. But our most important key ratios or financial objectives, they should be isolated from the financial lease effects.

[Karl-Johan Bonnevier]

Excellent. And, Even, I just to check with you as well, looking at the development in Stockholm and how it took you a little by surprise in the Q4 financial development at least. It feels like you're now a little more secure about what's going on and what kind of impact it will have on your own operation and that you're in -- more in balance with the development. Is that the right interpretation?

[Even Frydenberg]

Yes, absolutely, Karl-Johan. I think we've already seen the Q1 numbers, that the actions that we have taken as a company and the actions that are being taken on a daily basis in the hotels, that they are working and they're paying off. And clearly, this is something we are going to continue to [ flex ] as we see how the market continues. But we feel pretty comfortable because we still see the -- it's still a positive demand trend in the market, even though at a very low level compared to history. And we don't, as you said, after Q4, we don't see any major new capacity coming into the Stockholm City in the near future. So yes, we feel that the situation now is stable. Q2 will still be challenging because we have to remember that this capacity increase really started towards Q2 and into Q3 of last year.

[Karl-Johan Bonnevier]

Excellent. And just one final question. Looking at Scandic Friends, you obviously relaunched that during the quarter. What has the feedback impact been on it so far? And how many members do you have in the program now?

[Even Frydenberg]

Yes. We are -- the feedback from the existing membership has been very, very positive. In particular, with the new app, which of course is available for everybody, but it improved the dialogue with our Scandic Friends even more. And the ratings there are very, very positive. And of course, this is an agile type of development. So we keep upgrading the app regularly. And it's still early going. So when we come a little bit later in the year, after Q2, we will give some more specific statistics on this look. But the feedback is very positive as we sort of set a new benchmark in the Nordic countries.

[Karl-Johan Bonnevier]

And you are still around 2 million, 2.2 million, 2.3 million members?

[Even Frydenberg]

Yes. We are -- again, because we focused on relaunching the program and educating our existing members. We have not been very active at recruiting more members. Yes, that certainly will come as well. So we are between 2.2 million and 2.3 million, if I remember off the top of my head.

[Operator]

And our next question comes from the line of Andreas Lundberg from ABG.

[Andreas Lundberg, Research Analyst]

Starting with the loyalty program here again. Could you describe more in color what's the new functions or features are? And what's the key advantages for you guys are with the new program?

[Even Frydenberg]

Yes. I mean, we're -- as you can see on the website, all the key benefit. But here, the point is that you will earn your points based on the revenue you have spent, so that won't change. We made it, in principle, a little bit easier to move between the level 1 and the top levels. We have introduced a lifetime loyalty for those that get to that level. And for the top levels, we also have introduced the fact that, in principle, it's a last-room availability. Not for all levels, again, for top levels so that you don't always get stuck when you try to redeem your points. There's also some additional services like using of the gym in our hotels when you -- even when you don't stay in the hotel, that are for certain levels. So it's quite a long list. So we will be happy to actually share that list with you, Andreas, if you would like that.

[Andreas Lundberg, Research Analyst]

Yes, please. And has this [ today ] help you get business from [indiscernible]? Or do you use traffic to such sites?

[Even Frydenberg]

Well, that's certainly one of the reasons that we and our peers in the industry do this. For us, it's a little bit too early to, as I said, put metrics around it. It was just relaunched in the end of January. So when we get a little bit further into the year, we'll give some more specific statistics on it. But clearly, this is another way to lock in our regular customers for sure but also other customers and get them to book directly with us and give them access to things that nonmembers would not have.

[Andreas Lundberg, Research Analyst]

And then back on the Stockholm question. I mean, how can you mitigate the supply growth here in the near term?

[Jan Johansson, Chief Financial Officer]

I mean, it's a little bit -- I mean, when it comes down -- I mean, we know the capacity, but, of course, I mean, it's just a short-term variation in the [indiscernible]. But I think that when you have this [ opposite key exchanges ], when you have this [ half-moving exchanges ], of course, you can never meet the [ gain ] to 100%. So it's impossible with the operation leverage [indiscernible] in the business. And I think also there -- I mean, you need to be consistent in your service proposition. I mean, there is really a mix for how much cost you can take away without jeopardizing the customer service we have. But I think you need to have a little bit all-for-one, one-for-all mentality in this because, I mean, if we have staff in some areas, we need all the [ campers ] need to support here. You could have destinations where everything is positive and so on but [ then I think ] we need to help each other here. So [ it's kind of a ] consistent profit development as possible. There will always be variation in supply and demand. We should improve our ability to adapt to that, and a part of that equation is actually to foresee those changes.

[Andreas Lundberg, Research Analyst]

How is it affecting pricing or competitive behavior?

[Jan Johansson, Chief Financial Officer]

Not so dramatic as we see it here. I mean, of course I think it's good to have a corporate base, where you have an [indiscernible] on fixed pricing, which is, of course [indiscernible] there, so -- but, I mean, this is [indiscernible] occupancy [indiscernible].

[Andreas Lundberg, Research Analyst]

And lastly, can you share anything on [ how ] books look like in the Stockholm region here in the coming months or quarters?

[Jan Johansson, Chief Financial Officer]

I think -- I mean, if you look into -- from an external perspective, I think, I mean, May is -- it's a highly interesting month because it's [ locked over them ] and so on. So -- I mean, there will be more activity in the markets, May, June. That is normal this part of the year. And I think it's about our, I have to say, ability to capture as much as possible of that. [ That's correct. ] And I think the issue [ sometimes that you have -- you know ] that you have certain days that will always be extremely difficult to get the hotel rooms because there are so many [ things happen ] at the same time. So I think that's a little bit about our ability to be -- to try to be good in the space where there are not so much underlying demand. And that's I think the most critical thing here. I mean, to sell a hotel room when you have lots of events. That's not that [ difficult because ], I mean, we have to do it well when it's difficult.

[Operator]

And as there are no more questions registered, I'll now hand back to you speakers for closing comments.

[Even Frydenberg]

Well, thank you very much, everybody, for joining us today, and look forward to catching up with you individually over the coming weeks and months. And we'll talk otherwise in about 3 months' time. Thank you, everybody.