Scandic Hotels Group AB

STO:SHOT

Earnings Call Transcript 2022-Q1

[Operator]

Welcome to the Scandic Hotels Group Q1 2022 Report. Today, I am pleased to present Jens Mathiesen, the CEO; and Åsa Wirén, the CFO. [Operator Instructions] And please note that this call is being recorded.

I'll now hand you over to Jens Mathiesen.

[Jens Mathiesen, executive]

Thank you very much, and good morning, everyone, and thank you for joining this presentation of Scandic's report for the first quarter of 2022. I'm very happy to be here together with our new CFO, Åsa Wirén, who joined Scandic in the beginning of March. It feels really great also to have you here for your quarterly report. So welcome to you as well.

Please turn to Page 2 for a brief summary of the quarter. The first quarter ended on a positive note after a weak start to the year. Our markets were severely impacted by the temporary restrictions in the beginning of the year, but we saw a rapid improvement, I would say, as expected in February and March as the restrictions were gradually lifted.

Scandic's occupancy rate more than doubled from around 25% in January to 53.5% in March. We have seen continued underlying improvement so far during April. We expect also our occupancy rate in the month of April to be in line with March despite the negative effect of Easter falling in April. And we also expect to enter May with a run rate in occupancy of around 60%.

We will have a high activity level in the coming months. We have recently opened 2 new hotels in the Swedish market, and we will introduce another 5 hotels in May and June. It is, of course, very encouraging that we can launch these hotels during a period of good demand in our markets.

Please turn to Page 3. Our adjusted EBITDA was negative in the first quarter due to the weak start of the year, but results did turn positive in March. And development in the quarter was very much in line with our expectations. As you can see in the graph, the first quarter is always seasonally slow for us with low activity in the beginning of the year. If we compare a bit with 2019, our record year so far, Scandic's adjusted EBITDA exceeded SEK 2 billion for the full year, but we only generated around SEK 160 million in the first quarter of that year.

Please turn to Page 4. Here, you can see monthly market occupancy in the Nordic countries. We have seen a similar pattern in all countries with a rapid improvement from the beginning of last summer that continued in October and November. Thereafter, we saw a slowdown in December, and that continued also into January with occupancy rates of around 25% in all markets. There was a significant improvement in February as restrictions were gradually eased during the month. So occupancy levels in February were clearly higher in the end of the months than in the beginning. In March, occupancy rose to close to 60% in Norway and Denmark, just above 50% in Sweden and slightly below 50% in the Finnish market.

Please turn to Page 5. This shows Scandic's total number of occupied rooms on a 7-day rolling basis. You can see on the yellow line that shows development in 2022 that there has been a very positive development from low levels in the beginning of the year, and that has continued into April. And it is now more or less at the same level as in April 2019. We need to then mention also that Scandic has approximately 4% more rooms in operation now than we had at the same time in 2019.

The temporary drop that you can see in mid-April is explained by the Easter effect, both in 2019 and in 2022. You can also see that May and June are normally on higher levels than March and April. As we have said before, we have a solid booking situation for the coming months, and we do also expect to see a clear benefit from much more event activity in our key destinations during the summer compared to the previous years.

Please turn to Page 6. We continue to see a positive trend in room rates as well. This shows price development based on market statistics indexed to the corresponding months in 2019. We are now basically at Index 100 in the Swedish, Finnish and Danish markets while Norway is around 115. So all in all, prices are back to where they were in 2019, which I think is very encouraging. Pricing is very much a key priority for us. We need to continue to drive price so that we make sure that we compensate for the underlying cost inflation, both near term and in a longer perspective.

Please turn to Page 7. We are opening a large number of hotels in the coming months, and some of these openings have been postponed from last year. We are happy with the timing of these openings as we now can introduce these hotels and strengthen our offering in a market with positive demand development. We will, in total, open hotels with almost 2,000 rooms in the second quarter, while we will exit 2 hotels. So our net portfolio will expand by around 1,600 rooms or 3% in Q2.

The first hotel on this slide is Scandic Kiruna in the Northern Sweden with 231 rooms that was opened in April and is -- it actually replaces the old Scandic Ferrum that has been closed on the same day. We have also Scandic Göteborg Central in Gothenburg with 451 rooms that will open soon. A hotel with a fantastic view of the river and the harbor of Gothenburg with a flexible meeting and conference facility.

On Page 8, you can see Scandic Spectrum, the upper left corner, a new build hotel in Central Copenhagen, then actually, will be the biggest hotel in our portfolio with 632 rooms. And we will also open Scandic Nørreport, which you see on the upper right, with 100 rooms in Copenhagen. The third picture shows Scandic Oceanhamnen located by the sea in Helsingborg in [ 1000 ] Sweden with 184 rooms. And the last 1 shows Scandic Holmenkollen just outside Oslo that will reopen after a total renovation and extension.

Please turn to Page 9. By the end of first quarter, our net pipeline amounted to 3,341 rooms, with most of it being related to 2022. And 1 of them, Scandic Kiruna has already been opened in April. We have postponed the opening in Macherei in Munich to the second half of this year. And we have also reduced the number of rooms in Scandic Aarhus Harbour from 485 rooms to 350 rooms as the hotel has been reconfigured.

We have a clear ambition to add hotels to our pipeline this year and to grow the business over time. But we are not stressed by this. We are coming out of an extreme period. And our main focus right now near term is to ensure that we become as efficient and resilient as possible so that we can grow from a position of strength.

I should also add that around 15% of our lease contracts expire during 2022, and the first half of 2023. So we are putting a lot of focus on renegotiations of these contracts right now.

With that, I hand it over to Åsa, who will take you through our financials.

[Åsa Wirén, executive]

Thank you, Jens. It's great to be here. Let's take a look at our divisional results for the first quarter on Page 11. And please keep in mind that the first quarter is the seasonally weakest quarter for Scandic.

Net sales amounted to SEK 2.7 billion, and that is an increase by almost 200%. The average occupancy was 39.1% in the quarter compared to only 17.5% last year. The increase in occupancy, of course, impacted our adjusted EBITDA, which was minus SEK 237 million, an improvement from the minus SEK 775 million in the very weak Q1 last year.

Our results included direct state aid of SEK 63 million and that was mainly in other Europe versus SEK 247 million in Q1 last year. We expect to receive limited additional state aid in Q2 about SEK 50 million, and that is all related to historical periods. The result was positive in Norway, however, negative in the other segments.

In Norway, we received wage subsidies of about SEK 90 million in order to retain staff and to avoid redundancies. The company's quarantine in operations in Norway were discontinued during the quarter and from mid-March, partially replaced by income from housing for refugees from Ukraine. Approximately $30 million of adjusted EBITDA in Norway is estimated to be -- to come from income from rooms related to the quarantine-related operations and from housing for refugees from Ukraine that were not used. After what we've heard, a weak start of the year, adjusted EBITDA turned positive in March.

So if we then turn to Page 12 for some comments to our cash flow during the quarter. As we communicated in the Q4 report, working capital development was approximately SEK 600 million, too strong in the fourth quarter, and that was due to payment delays between December and January, final rent settlements, et cetera. As such, working capital was negative in the quarter by a little bit more than SEK 400 million. What we see is that working capital development should gradually improve during the remainder of the year and Scandic has negative working capital, and we are -- historically had a positive change on a full year basis.

Total CapEx amounted to approximately SEK 200 million, of which SEK 145 million was expansion CapEx, and that was related to our openings, as Jens mentioned. We expect to remain relatively high also in the second quarter since we will open several more hotels. All in all, net cash outflow of almost SEK 1 billion, that was in line with what we expected internally.

So on Page 13, we highlight a few items regarding our financing. Our net debt increased to SEK 4 billion at the end of the quarter. We have continued to amortize on our credit facility reduced by SEK 108 million to SEK 5.8 billion in Q1. In total, we have actually amortized SEK 814 million since October 2021. Our credit facilities matures in December 2023. And as to working capital, we had a liability related to VAT and social costs of about SEK 500 million by the end of the first quarter, and we received another SEK 175 million in April.

It has now been decided that the liability should be repaid gradually over a period of 4.5 years starting October this year. And the convertible loan matures in October 2024. The conversion price is SEK 43.36. And the potential dilution is 41.5 million shares.

So if we then turn to Page 14 for some clarification of our financial net in the P&L compared to the cash flow. The reported financial net was minus SEK 453 million, but was only minus SEK 109 million, excluding the effect from IFRS 16, that is calculated interest on our lease debt. Noncash interest on the convertible bond amounted to SEK 36 million. And the actual paid financial items amounted to SEK 55 million for the quarter.

So over to you again, Jens, for some conclusions.

[Jens Mathiesen, executive]

Thank you very much, Åsa. And finally, maybe a few comments on our near-term outlook on Page 16. As we have shown in this presentation, the underlying improvement has continued after the first quarter and we expect occupancy in April to be in line with March despite the negative effect from Easter that was falling in April this year. Underlying demand is robust, and we have a good booking situation for the coming months. And the hotel market will benefit from much more event activity during the summer this year compared to the last year's.

So all in all, we have a positive view on the market development in our coming year. And we have an attractive and well-invested portfolio that is being improved by several new openings during this year. Scandic Hotels continued to improve our efficiency in the recent years, and we are putting a lot of efforts into further strengthening the resilience of our business model in order to ensure higher and more stable earnings over time.

And with that, I hand it back to you, operator.

[Operator]

[Operator Instructions] Our first question comes from the line of Stefan Andersson of SEB.

[Stefan Andersson, analyst]

A couple of questions. Just firstly, a clarification maybe, I guess you might have said this, but on the opening costs on Q2, should we expect a similar level as in Q1, that did you say?

[Jens Mathiesen, executive]

You mean the preopening cost or the CapEx costs?

[Stefan Andersson, analyst]

Exactly. Preopening costs. Preopening costs that you book in the P&L.

[Jens Mathiesen, executive]

The preopening cost will be a bit higher in Q2 since we have more openings in the quarter than in the past or last quarter. We only had 1 opening in -- which was Örebro in March, then we have 6 openings in total, including Kiruna and the coming 5 in the quarter. So we have more preopening costs in Q2.

[Stefan Andersson, analyst]

Yes. But I think historically, you also took some preopening costs a couple of quarters ahead of the actual opening. So just so that you're not -- it's not like we're going to have 6 times by end of the Q2.

[Jens Mathiesen, executive]

Exactly, Stefan. Thank you for remembering that exactly. No, we have a lot of, let's say, the preopening cost is already in place since we also, you can say, Kiruna, most of that was also already taken in the last quarter because we opened in the first days of April. So you're right, that's the case.

[Stefan Andersson, analyst]

Then another question, okay, we'll discuss that in a long time. But remembering back from the days among COVID residual there was a classic comment that ramping up the hotel, getting up to normal, could take 3 to 4 years to establish it into the community. But that's, of course, very, very dependent on the demand in the market and your position and all that. What -- I fully understand it's a difficult question. But what would you say the ramp-up period for hotel for you guys are at the moment? I know Continental was up and running within like months. So I understand it's different, but if you could maybe elaborate on that and the openings you have.

[Jens Mathiesen, executive]

You can say that, Stefan, what we normally do is we include this in our -- the whole model of the hotel. So we have different, let's say, ramp-up contracts. So for some of these contracts, we have like, let's say, an opening period with a lower lease level, and most of these contracts will increase the percentages and the guarantees over the first 3 to 4 years meaning that we have a ramp-up also on the lease level. So that is kind of included in the model.

And then if you look at the top line, I think we should expect a fairly quick introduction to the market because a lot of these hotels are being opened in some of our, I would say, key destinations where we see quite a huge demand popping up right now. So opening a huge hotel in Gothenburg for instance, or opening in Copenhagen, in Munich, that is quite a strong markets in general.

So I think we will not come with any excuses that this will take us a long time to introduce these hotels to the market. I expect these to be introduced into the first year or 2 and normalize during that period also, so on the same level as all the hotels.

[Stefan Andersson, analyst]

Then on the personnel side. Sorry, if I missed, if you already touched on this, but I understand it's difficult to find personnel. And of course, you've been ramping up and ramping down a little bit on probably on restrictions. How do you see that at the moment, is it panic? Or do you think you have it under control?

[Jens Mathiesen, executive]

I couldn't say -- definitely, it's not a panic. And I couldn't say either that it is, you would say, from a market perspective, totally under control because there will be a huge demand also for seasonality employments during the summer, where a lot of amusement parks, et cetera, are seeking for people from our industry. So that will definitely increase the demand for people.

I think if you look overall, we have just above, I think, 500 vacant position at Scandic right now. And that you need to compare with us being at around 15,000 employees right now in the organization. So it's -- of course, you can look at the percentage of 500 versus the 15,000, it is something that we will handle. You can see from your analyst point of view, it's good maybe because then we need to run a bit faster. So conversion wise, it's positive. But of course, long term, we need to secure that we have the needed staff. Otherwise, they will be tired.

But I think we will handle it. Some of these open position is still related to some of the later openings in the quarter. And that is also, you'll say, very interesting for applicants to look for positions in new openings normally. So I think we handle it and -- but so far, it is not definitely panic. But in certain areas, we are finding more than others. You know the history of us all seeking for chefs, for instance, that is an area where the whole market is lacking shifts. So that will be a fight for those.

[Stefan Andersson, analyst]

Okay. And then my final question is you mentioned your renegotiations there. I'm a little curious on what you think that you could achieve? I mean it should be a good opportunity in a way to do the renegotiations given where the market is. On the other hand, you also have the inflation coming through and the property owners are struggling a little bit with interest rates. So I'm a little bit curious what you're aiming here? Are you aiming at improving price, if you call it, that percentage is paid? Or is it flexibility or where -- what are you hoping for in these renegotiations?

[Jens Mathiesen, executive]

You could say, the normal way of steering this is, of course, if inflation is high, then we normally see that we do shorter agreements for 1 or maximum 2 years. If the inflation is low and balanced, then we will do longer agreements with the unions. So I would expect, if it continues on high level inflation, then we would expect to see shorter agreements maybe only agree for a year, if that was your question related to that. [indiscernible] It was on leases?

[Stefan Andersson, analyst]

On your leases, sorry.

[Jens Mathiesen, executive]

Okay. Sorry. I read it to the -- I misheard you because I thought you were referring to the employment contract. So for the leases, I think that's -- I think the situation is fairly good. I think we have been through now a long crisis where everybody has seen that we need to find solutions also for handling you could say, a collapse in the market. And that is something that we are spending quite a lot of time with our renegotiations.

I would say a lot of these lease levels are being extended on either the same levels or even some of them fairly lower levels. But all in all, we also introduced new hotels in some of the capital markets, which, of course, has higher lease levels. So all in all, you shouldn't expect on the leases that you see much changes on the overall lease percentages. I think we will manage to stay around those levels you know.

What we then also want to include is, like I say, collapsed clauses and mechanisms that is handling as guarantees if something occurs or happens in the market in the coming many years. And if you look at the lengths, we look at the same length as normal. We -- it is very different, but we are still open to negotiate the lease contracts of both 10, 15 and 20 years as long as the terms and conditions are right.

[Operator]

Our next question comes from the line of Jamie Rollo of Morgan Stanley.

[Jamie Rollo, analyst]

Can we just explore the working capital a little bit more, please? So SEK 440 million outflow in Q1 and clearly, you had -- you flagged the SEK 600 million. Is that SEK 440 million net of some of an inflow? Or should there be another SEK 160 million still to come? And Åsa, as you say, your working capital negative, there should be some inflows for the rest of the year. So just help us understand sort of net of all of that, what should be the sort of full year working capital change, please? I assume still is there anything outflow at the December point.

[Henrik Vikström, executive]

Yes. It's Henrik here. No, so the full SEK 600 million reversal is included in the first quarter. So there were some positive items as well. And as Åsa mentioned, we have negative working capital. In a normal year, you will see a positive change in working capital on a full year basis. So I mean, that item will gradually improve during the rest of this year.

[Jamie Rollo, analyst]

Okay. So in cash terms, still an outflow at the full year stage?

[Henrik Vikström, executive]

No, we didn't say that.

[Jens Mathiesen, executive]

No, I didn't say that.

[Jamie Rollo, analyst]

Okay. I thought you're talking about balance sheet numbers, not cash numbers. Okay. So in cash terms, that SEK 440 million will be completely offset in the remaining 3 months or 3 quarters of the year?

[Henrik Vikström, executive]

The change in working capital items for the full year will look clearly better than what it did after the first quarter. And in a normal year, as you can see historically, we've had a positive change in working capital.

[Jamie Rollo, analyst]

Okay. So this year, at the full year stage, there will be a cash inflow?

[Henrik Vikström, executive]

Well, I didn't say that. I said that in -- normally, we have a positive change in working capital on a full year basis. And there will be an improvement during the remainder of this year. But we don't give guidance on what exactly the change in working capital will be for the full year. But you should expect a gradual improvement during the remainder of this year.

[Jamie Rollo, analyst]

Okay. That's clear. And then in terms of the comments about May occupancy, did you say around 60% or at least 60%? Because I think in May 2019, you were more like high 60s or even 70%. So that implies a bigger sort of drop.

[Jens Mathiesen, executive]

Yes. I think if you look at May, let's say, comparing to May '19, I think it was some 68% or something. So you're right to that, Jamie. What we mentioned is that the starting point in the beginning of May will be a minimum of 60%. So the month, if it continues to increase like we've seen in the past, then I don't think we will hit the 68%, but it will be higher than the 60%.

[Jamie Rollo, analyst]

Okay. Makes sense. And then just finally, in terms of...

[Jens Mathiesen, executive]

I think, Jamie, just to, let's say, make it very clear also for your expectation. I think you will see that comparing to '19, that occupancy will be just below, I think, what you saw in '19, but you would see prices, which is above because we are increasing prices, and we see that already having an impact. So all in all, prices will be above '19 level and occupancy just below.

[Jamie Rollo, analyst]

Just on that price point, is the scope for Sweden, Finland, Denmark to sort of catch up to where Norway is in terms of double-digit rate versus '19? Maybe during -- well perhaps by the end of the year? Or is that optimistic?

[Jens Mathiesen, executive]

You can say that, of course, what we look at is, of course, what is the, let's say, the general cost increases, the inflation cost increase, and we need to cover for that as a minimum. And -- so what we do, we have a clear strategy of, let's say, handling all the cost increases through pricing. And then we work on -- of course, on the occupancy. It shouldn't hit the occupancy. And I think also the market is understanding that we as well as all other industries right now need to adjust pricing.

So I would say that you can almost calculate yourself what is the inflation on cost. If you compare to '19, we look at what is the 3 years -- last 3 years of inflation costs, we had a very low inflation in 2020 and 2021, but we have a very high inflation right now. And these 3, all in all, we need to handle into the prices as a minimum, and that's what we focus on.

[Jamie Rollo, analyst]

And just 1 more final quick numbers one. Could you please quantify the rent concessions and rent state aid for the remaining quarters of the year, please?

[Jens Mathiesen, executive]

I think for the -- if you look at the -- we estimate it for the, let's say, rent discounts, if you start with that, we have estimated for the full year approximately SEK 100 million or so. And we had I think only -- it was SEK 30 million in the first quarter or so...

[Åsa Wirén, executive]

SEK 35 million.

[Jens Mathiesen, executive]

SEK 35 million. So it's -- you can spread out the rest in the quarters, it's fairly limited, maybe SEK 65 million to SEK 70 million in the rest of the year in lease discounts. And the state aid, like Åsa was mentioning, we don't expect further state aid in the rest of the year, but we have something coming into the quarter related to the past quarter. And that amounted to -- was that SEK 60 million, SEK 65 million?

[Åsa Wirén, executive]

SEK 63 million.

[Jens Mathiesen, executive]

SEK 63 million.

[Operator]

Our next question comes from the line of Andre Juillard of Deutsche Bank.

[Andre Juillard, analyst]

Just an update on inflation because you were mentioning that you were expecting to replicate the inflation on prices. But are you just expecting to replicate that on prices? Or do you anticipate some stronger prices improvement? And if you could come back on the more detailed inflation on your operating costs splitting between wages, energy, rental and so on, that would be very helpful?

[Jens Mathiesen, executive]

Thank you, Andre. And then I can start and then, Åsa, you can support me. If you look at these different items, you can say, if you look at the salary cost increases, we, of course, see that there is an increased pressure from also current employees especially white collars and that. If you look at the blue colors, we have a union agreement, which is in place already. So we do have a system to take care of that with already negotiated agreements in Sweden and in Denmark. We have smaller increases in Finland of approximately 2%, and Norway is coming in a bit higher.

So all in all, that is not following the [ inflation ] cost to the food. So that might be putting pressure later on. If you look at that at what we do with the general cost increases, of course, all cost increases on food is put on prices, all costs on energy and linen, et cetera, we need to put on prices as well. We do though have also for energy, we do have a hedged energy. And Åsa, you can maybe mention a few comments to that, how we have hedged that.

[Åsa Wirén, executive]

Yes, we've hedged it for this year and also portions of the coming years. And it was so effective that the cost for electricity was at the same level as the same period last year, even though the prices were higher. So that was it. Thanks to our hedging.

[Andre Juillard, analyst]

What -- similarly maybe on energy. What is the proportion of electricity and what is the proportion of gas you have, if you have the figure?

[Jens Mathiesen, executive]

I don't think we have that exact split.

[Åsa Wirén, executive]

I know that electricity is about 50% of our energy costs.

[Jens Mathiesen, executive]

Yes, yes. Then the split of the rest is how much of that is cash and how much is -- I don't think we have the exact. But we can come back to the exact split. I don't think we have that here at least right now, that would be wrong statement. But energy is approximately 50% -- electricity, sorry, is approximately 50%.

[Operator]

Our next question comes from the line of Karl-Johan Bonnevier of DNB Markets.

[Karl-Johan Bonnevier, analyst]

A lot of good answers to my questions that I had here on my list already. But 1 or 2 more, if I may. Looking at the 15% of the lease contracts that you say now is expiring here during this year and early next year, are you looking to resign all of those? Or is there some sort of portfolio management within that space?

[Jens Mathiesen, executive]

No, we always move in positively to, let's say, with the willingness to sign and extend. And of course, we only extend and sign them if we get the right terms and conditions. I think a lot of these should be mentioned, a lot of these has already a huge turnover-based part. We do have a lot of this -- maybe half of the portfolio is almost purely turnover based with, I would say, with minor guarantees. We don't expect to change any -- or increase any guarantees other than the normal inflation.

So we do not increase either the percentages. We don't think that the time is right for that. We have even negotiated a few contracts now where we have adjusted a bit and decreased a bit some of the leases, but that's smaller things. Whether we're going to leave -- we have already announced some hotels that we are going to leave this year. So we will leave 2 hotels during the quarter. And whether we will leave these contracts is totally up to the terms and conditions. If we do not get the right terms coming on, then we will leave.

[Karl-Johan Bonnevier, analyst]

Sounds prudent, sounds prudent. But as you say, the base scenario is that you will basically keep the whole base of that.

[Jens Mathiesen, executive]

Yes. We want to, but if we get the right terms on conditions, we had, for instance, a few hotels now that we have been negotiating for the last period of time being signed these days as extensions. And we only wanted to stay with those if we got better terms and that we have actually managed to do. Otherwise, we would have left. So it's very clear that we will -- we need to continue to work on the whole portfolio to strengthen our resilience in the total portfolio. And we do not compromise on that. So we are willing to leave hotels if we do not think that they have the right margins and that we can't see that the terms are strong enough looking from our side.

[Karl-Johan Bonnevier, analyst]

And when you look at -- you had quite a positive phasing when you talked about strengthening of the new hotel pipeline also after the current starts that you see in new openings to rebuild the pipeline, so to say. Do you see that now in this current environment being more of, say, taking over existing hotels? And rather than going for new projects, I guess the project base out there is probably quite short for the moment after this pandemic, isn't it so?

[Jens Mathiesen, executive]

Yes, it is. And then you're right, I think in the coming, I don't know, 2, 3, 4 years, there will be limited, let's say, new hotels coming in, let's say, for new builds. And of course, that has also linked to all the bank agreements and then from the landlord side. But definitely, there's a lot of -- there's a lot of hotels, I would say, in the European market, which might shift hands after such a pandemic. Some are trying to consolidate even more and grow the company, and some might use the time to then sell out. So I think we will see quite a lot of hotels shifting hands during the coming 3 to 5 years.

[Karl-Johan Bonnevier, analyst]

So if the right kind of opportunities came along for, say, maybe speeding up the development of early German ambitions, would this be the right time for it? Or is it still too early for you?

[Jens Mathiesen, executive]

No, it's not too early for us. I think we have -- I think we actually -- after such a tough period of time, I think we have balanced out and I think we have handled the situation extremely well from Scandic's point of view. I think we have a fantastic exit point. We have a controlled cost base. And I think we have also managed to handle the financials during the year so that we do not have an overt situation in the company. I think that's very balanced looking at the precrisis EBITDA levels and what we expect to return to in the coming years.

So I think definitely Scandic is interesting in growing, but we definitely also look at the models and how to grow in a, I would say, a structured and balanced way, also looking at future needs of being able to handle changes in the market. Whether it's related to pandemics or wars or whatever, we will -- we are definitely looking at having a model that also can handle such a downturn.

[Karl-Johan Bonnevier, analyst]

Excellent. And just finally, looking at your -- the financial headroom you have. And I guess that headroom still comes with the cost. When do you see that you would have say, a slightly more normalized financial costs, so to say? Or how much more do you need to amortize before getting down to that?

[Jens Mathiesen, executive]

I think we will continue to -- as long as we continue to create strong results, which you also will see in the coming period, we will continue to amortize actually, and then, of course, we have -- like Åsa was managing, we have a bank agreement, which runs out by the end of 2023, and we are not the type of people sitting and doing that the last quarter or 2. So we will start that negotiation already later this year. And then, of course, terms and conditions will be negotiated.

[Karl-Johan Bonnevier, analyst]

Excellent. And good luck out there.

[Operator]

[Operator Instructions] And we have no further questions. Please go ahead, speakers.

[Jens Mathiesen, executive]

Then I would like to -- on behalf of Scandic, thank you all for joining our call of Q1 and looking forward to speaking to you soon. Again, if you have any questions coming up, feel free to contact Henrik directly, and we are willing to answer more questions that you might have. Otherwise, have a nice day all of you.

[Åsa Wirén, executive]

Thank you.