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Welcome to the Conference Call. [Operator Instructions] Now I will hand the conference over to CEO, Jens Mathiesen, CFO; Asa Wiren. Please go ahead.
Thank you, and good morning, everyone, and thank you for joining Scandic's presentation of our first quarter of 2023. As mentioned, my name is Jens Mathiesen. I'm the CEO of Scandic, and I'm here together with Asa Wiren, our CFO. And together, we will, of course, take you through this first quarter, but please jump into Page 2.First of all, I am very, very pleased to present a strong start to the year. Demand from corporate and leisure has been good with increasing prices, and we are operating our hotels with high efficiency. Current booking situation is good. And with today's news of the launch of Scandic GO, we are also accelerating our growth journey ahead. So all in all, this is a very strong start to the year.Looking at the numbers, net sales reached SEK4.5 billion, which is an increase of 66% compared to Q1 last year and just over 11% higher than it was in Q1 2019. We also delivered a strong result of SEK170 million which was SEK407 million higher than in 2022 and slightly higher than in 2019. During the quarter, demand from corporate and leisure was good. I would like to highlight that the demand for meetings and events was on a historically high level for first quarter, which is very promising and a promising start of the year.The occupancy rate in the first quarter was 53.5% compared with 39.1% last year. Also, please, of course, remember that last year was impacted negatively and affected by the pandemic restrictions in our markets. Room rates are on continued high levels on all markets, and we see a positive development of RevPAR driven by rates, so we report the RevPAR of SEK626 compared with SEK395 in Q1 last year. The free cash flow in the quarter improved and was stronger than expected, and we have a very solid financial situation that creates flexibility and enables us also to execute on our strategy. Of course, Asa will give you more details on this later in the presentation.We run our operations well with a sharp focus on efficiency that pays off. And I'm very satisfied also how we work commercially to meet the demand. We have a strong first quarter now behind us. And I think also with strengthening financing, we are picking up the pace in Scandic's development. Today, we also announced that we are launching Scandic GO, a new brand with a strong offering in the fast-growing economy segment, and I, of course, will give you some more details about that later in the presentation.But please turn to Page 3, where you can see the quarterly adjusted EBITDA development since the beginning of '21. Adjusted EBITDA increased to SEK170 million in Q1 compared with minus SEK237 million in the first quarter last year. And we also delivered an adjusted EBITDA margin of 3.8% compared with a minus of 8.7% last year. The overall performance was mainly driven by high efficiency and cost control in combination with good demand and increased prices. I'm also happy that all markets delivered a positive adjusted EBITDA in the quarter and that actually all our 10 hotels that we opened in 2022 are performing well and are all contributing positively to Scandic's group results.Please turn to Page 4. Here, you know this graph here, you can see the monthly market occupancy in the Nordic countries. The wholesale market has had a good start to the year with increasing demand throughout the quarter, and the demand was good from both corporate and leisure. And as I also mentioned, demand from meetings and events was on a historically high level for a first quarter. Domestic travel in our markets continued to be strong, well above '19 levels, and intra Nordic and European travel is at good levels in line with '19. We also note that intercontinental travel is picking up quite well and continues to improve strongly month by month, mainly driven by more guests from U.S.A. and from China. So overall, demand for wholesale stays and visits is good, and there's more potential for market recovery, especially from intercontinental travelers. So 2023 seems to be a strong year for the travel industry, which, of course, is very satisfying.Please turn to Page 5. This you also know, this is market data for average room rates for the Nordic markets, Sweden, Norway, Finland and Denmark. It's indexed to the corresponding month 2019. We continue to see rising room rates well above '19 levels. Scandic's average room rate was around 12% to 15% above 2019 levels in the first quarter. And based on the current booking situation, we expect prices to continue to improve in the second quarter. The big question is, of course, how much can prices continue to increase? But despite macro headwinds in the short term, we see no signs of a weakening of the market. So good demand from [ leisure ] travelers and corporate with particularly increasing demand from meetings and events should continue to drive prices as well.Please turn to Page 6. Here, you can see the market RevPAR development index also to the corresponding month of 2019. All markets are above '19 levels with Norway continued to be the strongest market. Scandic's RevPAR for the first quarter was SEK626 compared with SEK395, as mentioned in the beginning in '22 and versus SEK599 in 2019. Please note that we also had close to 4% more rooms at the end of this quarter, the first quarter, compared with the end of the first quarter of 2022 and just over 8% more rooms than in the first quarter of 2019.Please turn to Page 7. We continue to strengthen our position in Germany. And on the 1st of March, we opened Scandic Frankfurt Hafenpark, which is located in a prime location, just a few minutes walk from the European Central Bank in Frankfurt. Scandic Frankfurt Hafenpark, which has 505 hotel rooms, 14 conference rooms and event space of up to 570 people, is a fantastic addition to our portfolio in Germany. The hotel has been designed to accommodate many types of events and meetings. The timing of the opening is good with strong demand for meetings, and I'm very pleased that we already have had very good booking levels from the beginning. As for all our hotels, sustainability is also a central part of the new hotel in Germany in Scandic Frankfurt Hafenpark. So this hotel aims to be certified by the Nordic Swan Ecolabel when this labeling is introduced in Germany later this year. So this is now our sixth hotel in the German market, and we now have 2,150 rooms in Germany.Please turn to Page 8. This was the pipeline at the end of the quarter. As we mentioned before, we have a strong focus on growing the pipeline. With the launch of Scandic GO and our improved financial position, we now have a high pace to ensure growth while optimizing the portfolio. So we continue to work a lot with the portfolio. since the previous quarter, as mentioned, we opened Scandic Frankfurt HafenPark with 505 rooms. And we also announced plans to exit 5 smaller hotels with a total of 731 rooms. So as we already are on the note of speaking about our pipeline and focus on growth, please turn to Page 9 for today's announcement about Scandic GO.We are very happy at Scandic and proud to finally talk to you about Scandic GO, which will be launched after the summer. We are now taking a position in the economy segment, the fastest-growing segment in the industry. By launching Scandic GO, we aim to, over time, establish and take a leading position in this segment in our markets. Scandic GO has been in the works for quite some time since it was postponed during the early stages of the pandemic. This is a strategic investment for Scandic, and we have utilized the time carefully to continue to improve and build on the concept as well as adapting to a new market situation. I'm confident that we have announced a brand and concept that shows our clear objective to boost our growth rate, attract a new generation of wholesale guests as well as adding more hotels to our pipeline. Scandic GO is a new brand with a sustainable, smart and lean offer in the fast-growing economy segment. And it's a perfect complement to Scandic's full-service offering that broadens the addressable market. This means also a great growth potential as the economy segment represents only about 5% of the wholesale market in the Nordic countries compared to about 15% in the rest of Europe. With a high share of room revenue and less food and beverage, Scandic GO will also support higher margins and be more capital efficient than the average Scandic hotel. We have a target to sign between 1,000 and 1,500 new rooms per year on average and to establish a leading position within the segment. Our first Scandic GO hotel opened now in September in Central Stockholm on Upplandsgatan.And with that, I'll pass over the word to our CFO, Asa Wiren, who will take you through our financials.
Thank you, Jens, and good morning, everyone.If we then please turn to Page 11 for our financials. Starting off with the financials for the quarter, as Jens mentioned, we reported a strong first quarter with increased net sales and improved results. Net sales increased by 66% to SEK4.5 billion compared to the first quarter last year. We also delivered a strong result with an adjusted EBITDA of SEK170 million, which is SEK407 million higher than in the first quarter last year and also slightly higher than in 2019. The adjusted EBITDA margin increased to 3.8% compared to minus 8.7% in the first quarter last year. The result was mainly driven by higher net sales and an increased efficiency. All markets contributed with a positive adjusted EBITDA in the quarter, and it is satisfying that our sharp focus on efficiency and cost control keeps paying off.The adjusted EBITDA, excluding one-offs, improved to 2.9% compared to minus 12.5% in the first quarter of last year. This quarter included one-offs of SEK18 million for compensation related to housing for refugees in Norway and an additional SEK23 million in compensation for a delayed opening of a new hotel. The total one-off in the first quarter last year was SEK128 million. In Q2, we expect one-offs with a positive adjusted EBITDA effect of around SEK20 million, and this is related to continuing housing for refugees in Norway.If we then turn to Page 12 and look at our cash flow. The free cash flow improved to minus SEK356 million compared to minus SEK997 million in the first quarter last year. The cash flow was better than expected, mainly driven by higher net sales and a stronger result and an underlying positive development of working capital. Working capital was negatively impacted by the previously communicated repayment of variable rent debts for 2022 of SEK450 million, a further approximately SEK270 million in rent that are expected to be paid in 2023, mainly during the second quarter. Excluding the effects of repaid rent debt, the development of working capital was positive, mainly driven by increased operating liabilities.We can continue to Page 13. And as Jens mentioned, also, our financial position has strengthened during the last quarters. At the end of the quarter, net debt corresponded to 1.2x adjusted EBITDA rolling 12 months. This was in line with the debt level at the end of 2022 and an improvement compared with year-end 2019 with a net debt adjusted EBITDA amounted to 1.7x. At the end of the first quarter, net debt amounted to SEK3.4 billion, including SEK1.5 billion related to the convertible bond and SEK880 million related to deferred VAT payments and social security contributions in Sweden. Excluding the convertible bond, net debt in relation to adjusted EBITDA amounted to 0.6x. Our available credit facility amounted to SEK3.4 billion and total available liquidity amounted to SEK2.2 billion at the end of the quarter. And as we communicated in the previous quarter, we completed a refinancing in the beginning of this year. And as you all are aware of, we have the convertible bond with conversion price at SEK43.36 that matures in October next year with a potential dilution of 41.5 million shares.And then if we turn to Page 14. Here, you can see the net financial items and impact from IFRS 16. Including IFRS 16, the reporting financial net was minus SEK522 million. And if we exclude IFRS 16, the financial net was minus SEK91 million. Noncash convertible interest was SEK40 million, and ultimately, cash financial items amounted to minus SEK47 million.With that said, please turn to Page 15. And Jens, I'll hand it back to you for some final comments.
Thank you, Asa, and we can jump to Page 16 for some concluding remarks. We are very optimistic about the market development in general and in short term and despite macroeconomic headwinds, we see no signs of a weakening in the market. People continue to prioritize meetings and traveling whether for business or pleasure. Based on the current bookings, we should expect good demand in line with last year for the spring and upcoming months. We expect occupancy levels for the second quarter to be on par with second quarter last year, but at higher room rates. We also expect a good quarter for meetings and events and continued high efficiency in our operations overall. We have a great momentum, as you also can hear in Scandic. So we really look forward to an exciting year of 2023.With that, I would like to take the opportunity also to thank all our team members for a good first quarter, and thank you all for participating here. But over to you, operator, for the Q&A session.
[Operator Instructions] The next question comes from Adela Dashian from Jefferies.
A few questions from me. The first one relates to the current occupancy rate. I do appreciate that, obviously, it's increasing versus last year. But I believe it's still 5 percentage points or something like that, below pre-pandemic levels. Could you explain what it is that's holding you back from being back at pre-pandemic levels, especially since you're not experiencing any decline in demand due to the market uncertainty. So what's missing here?
Yes, absolutely. Let's start with that question, Adela. And a very good question and important to highlight because when you compare with Q1 2019, we have 8.2% more rooms in the operation. So you need to take that into account that we have much more rooms in operation than we had in 2019. So totally, you can say we are actually selling more rooms than we did at that time with the low occupancy. So that is, of course, one of the impacts. And one thing that is also impacting us still and where some of, let's say, the opportunity lies is that we have seen month-by-month throughout the last 12 months, a growth from intercontinental travelers. And I think at the end of the quarter, international travelers from U.S.A. and Asia is at index some 85 or so, 85, 86 versus '19. So that is still a gap that's holding us back. If we look at the occupancy from the closer markets, domestic is much higher than '19 into Nordic and European is back on '19 level. So all in all, despite the Asian and long-haul traffic, we are doing very good versus '19 levels on occupancy. That means selling more rooms for these markets than we did before.
Okay. Great. And then on the comment about demand for meetings and events being at historically high levels, is it historically high levels for being Q1 or just generally historically high levels?
For Q1. And it should be higher and we should continue to grow due to inflationary increases as well. But we really see we have had so much talk about meetings and events whether that was like a pent-up demand after pandemic. Now we have like 12 months since we reopened after pandemic. And we continue to see even in the, let's say, the booking pattern for the coming period an extreme stabilized booking pattern when it comes to meeting and events. So they are really back.
Okay. Great. And then finally on Scandic GO, I saw in the press release that you mentioned that you're targeting 50 cities. Are all of these 50 cities in your existing markets today? Or could we see an expansion further into Europe per se?
Yes, you're right. We say approximately 50 cities. It is the major cities and capital markets and the major cities and regional cities in the existing markets, including Germany and Poland, when we talk about these 50 markets. There's, of course, a lot of potential also growing with Scandic GO hotels into the German market. And then everything, let's say, into new markets is in addition to that. This is in the existing, let's say, markets where we operate in 6 countries today.
Okay. And then just finally, on your comment about, I appreciate the target of wanting to open between or having 1,000 to 1,500 new rooms per year. Are we talking about existing hotels that you're making into Scandic GO concept? Or is this going to be new lease agreements for brand new buildings?
This also a very good question, Adela, because it's not if we convert an existing Scandic hotel into Scandic GOs. These 1,000 to 1,500 will be new rooms to our portfolio. But it will be a mix of taking over existing properties, which will be totally renovated, converted into Scandic Gos or it will be new builds as well. So it's a combination of those 2. And we have a lot on the desk right now, and that's quite a high interest, I can tell you between us and the landlords to really develop into this segment. Everybody understands that this is a bit underdeveloped in the Nordics versus European market where it's on 15% of the total market and only 5% in the Nordics. And we also see as a fact that the economy segment is the fastest-growing segment in Europe, and it is expected that this will continue. So of course, this is a huge opportunity for Scandic to tap into and take a leading position in the home markets and also grow further outside the Nordics.
And on competition there, is it similar to what you're experiencing in your existing portfolio? Or does it differ?
I think there's more local competition, you can say, if you look at the economy segment, there's popping up local competition here and there, but nobody has taken a clear Nordic position. And we are pretty ambitious when we say this that we want to take that position. We are the largest operator in the Nordics, and we expect that also over time to be in this segment. So we have a clear position we want to take.
Please state your name and company.
Karl-Johan Bonnevier from DNB Markets. Congratulations, Jens and fantastic development in Q1 and good to see that you are back in full working order also in a seasonal weak month. Just continuing on the previous GO thing to start with. If you're looking at the hotel portfolio you have now and when you announced this, say, a couple of years back pre-pandemic when you wanted to go into GO, I think, you, at that time, highlighted maybe 8 to 10 hotels in your current portfolio that would fit very nicely into the GO concept. Is that the amount of conversion we should think about coming from the current portfolio?
When we have now really worked on the concept, we are still overlooking you could say how many potential conversions we have within the portfolio. It might be a few less than these 8 to 10. It might only be, let's say, 4 to 5 or something like that when we look into it today. But that's also because we think that we have been much more clear in how we have developed the concept. It is a concept, as you have read and know about that will have a very, I would say, interesting tool food offering in the ground floor, but not an a la carte restaurant. And it's with rooms above. There will be no meeting facilities, no spas, no pools, no gyms. So if you want to have all of that, you will go to a regular Scandic. So we have been very clear on how we want to be very, let's say, optimizing this part of the new portfolio. And then we also simply seen [indiscernible] since this, let's say, since we have been pausing this Scandic GO project, then you can say we have seen an increasing interest in both the segment and in signing up new hotels. So we have quite a lot of developers and operators from the Pandox and [ Baldor ] and Midstar and all of them, they are pretty interested in growing as well in these segments. So I think the interest is high. So we expect actually to be able to sign up quite some new hotels in the coming period.
And when you look at this, I guess, what you call office materialization of what one should call it, converting old office buildings that are unused in to a large extent. Would that be an interesting segment for the GO concept? Or would that be more for classical Scandic kind of hotels?
No, absolutely also for the good thing about a lot of these, they are centrally placed in good locations and pretty easy to convert quite a lot of them into efficient hotel. So that could absolutely also be a potential. And of course, we have had some years where the spaces of office buildings has been extremely high. Now we see that it's maybe more and more interesting to look at the hotel opportunities, and we can compete again with that with increasing room rates in the hospitality industry. So absolutely, that is also our potential.
Excellent. And also continuing on the room rates, you sound very positive and it would be good to hear your indication what kind of level of commitment you see from corporates and then renegotiating corporate contracts and get to those kind of price premiums also into those contracts?
Yes. And we see the effect of, of course, all corporate agreements that was renegotiated over the last part of last year and in the first month of this year, which is, of course, being uploaded. What is very interesting and also important for all of you to understand is that we, of course, get the question how much can we increase rates and prices? What is very interesting is that we are in Q1 at historically high Net Promoter Scores level, meaning that guest satisfaction index is higher in Q1 than what we have seen in a Q1 historically. So guests are very satisfied. It seems that we all accept that prices are going up. Salaries are going up on prices also going up. It is more expensive to travel and to live, but we prioritize it. And every analyst that are looking into this on a global and European scale understands that people tend to prioritize traveling and experiencing and still, we expect that we could be affected on restaurants, but really haven't seen it yet. So it seems that people really prioritize to explore and then they save on their new car or their new kitchen or something else like that in the private economy. So it is a clear priority for people to continue to travel. And that is what we also see in the booking pattern for the coming period.
And when you look at, let's say, particularly the corporate contract segment, have you noticed a huge difference how you negotiate contracts today compared to pre-pandemic and the cap commitments maybe the corporates are willing to do at this stage?
Yes. But I think I hate the word stabilized, but it's very stable because what does really stable say. But what is important is that we have not had corporate clients that were having like travel restrictions or discussing that they expected much lower demand. Everybody is expecting very stable demand. And then we actually see that the booking pattern has changed. People travel less in and out the same day with the airlines. So you see a huge decrease on domestic traveling and short traveling on airlines. But when they travel, they also stay a few days and they need a hotel. So I think that all of all, the combination of the traveling mix is holding up the good pace on the hotels. So we have seen that even in 2019 that where domestic traveling went down and we saw an increase. And this tends to continue. So traveling in general, is continuing to increase.
Excellent. Final from me, looking at your financial structure, obviously, getting very, very strong again. What kind of opportunities would you have for, say, an early retirement of the convertible bond to avoid that kind of dilution effect? And what kind of opportunities if you don't go down that to maturing it would you have for, say, share buybacks and so would your current financing agreement allowing you to buy back shares?
We have sent out material for the AGM, where we are asking for also the opportunity to buy back shares. So if you look into that material, it kind of sends a clear signal. So for sure, we are extremely satisfied with the way we have dealt with the situation that we have lowered our debt situation. So our debt levels are on historically low levels. So of course, we have much more, let's say, internal muscles to handle whatever cost we need to handle. So see this as debt and then you should worry less about like a full dilution of this until you know what we will do. But we have 1.5 years still, and we see a fantastic momentum in the market and positive outlook. So of course, as month-and-month go by, our balance sheet is just growing better and stronger and with lower no debt. So that's good.
[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Thank you very much, operator. And I just want to, on behalf of Asa and myself and on Scandic, thank you for dialing in, and I wish you a fantastic day out there and looking forward to speak to you again. If you have further questions, please give us a call, and we will be ready to assist you. Have a nice day.
Bye.