Scandic Hotels Group AB

STO:SHOT

Earnings Call Transcript 2020-Q2

[Jens Mathiesen, President & CEO]

Thank you very much, speaker, and good morning, everyone. Thank you for joining this presentation of Scandic Hotels' second quarter results. I'm here together, as the speaker said, together with our CFO, Jan Johansson; as well as our Investor Relations, Henrik Vikström. If you please start to turn to Page 3 for a brief summary of the quarter. As we expected, this was a historically weak quarter for Scandic. Our revenues fell dramatically and were down by as much as 86% year-on-year. We started to implement a number of quick and comprehensive cost-saving measures already in the first quarter to mitigate this negative effect from the drop in sales caused by the corona. Our total operating cost base was reduced by around 60% in the quarter compared to the same period last year. Despite the substantial cost reductions, we reported an adjusted EBITDA loss of just above SEK 1.1 billion. Our occupancy reached a record low level of around 6% in April, but we have seen a gradual improvement since then. And this trend accelerated in mid-June as the summer holiday season started in the Nordic countries. We can now conclude that the worst is behind us, and then we see a recovery, let's say, a slow recovery in the market, but this is obviously from very low levels. Our occupancy reached around 18% in the month of June and has been around 35% on average in the first 2 weeks of July. This improvement is, to a very large extent, driven by increasing -- or increased domestic tourism. It is, of course, encouraging to see a doubling in occupancy between June and July, even though we are still on levels that are only half of what is normal at this time of the year. We expect Scandic's occupancy to be around 40% during the remainder of the summer holiday season. We see a positive booking trend but our customers are booking with very short lead times. For this autumn, we are very dependent on our corporate business as well as normal. And we do still have very limited visibility on how that will develop since the lead times are [ these ] short. We have during the quarter, secured our financing through a rights issue on SEK 1.76 billion combined with an agreement with our lending banks to extend our credit facility by SEK 1.15 billion. So SEK 2.9 billion in total new financing. And with that, we now have available liquidity of SEK 3.6 billion, which will enable us to take us through this period of very low activity. With this financial position, combined with our strong market position and cost focus, we will be able to manage through this severe crisis and it gives us a great opportunity to further strengthen our position in the market when the market recovers and reaches a more new normal. We have a clear ambition to make Scandic profitable at a lower occupancy and RevPAR levels than before. And we will continue to reduce our operating cost to compensate for the government support for furloughed staff that will be reduced over time. I am convinced that Scandic should be able to exceed our adjusted EBITDA margin of 11% at RevPAR levels lower than what we saw in the market last year. If you please turn to Page 4. This page shows the monthly RevPAR development based on market data. As you can see, January and February were relatively normal months with slight positive RevPAR growth in Sweden, Norway and Finland and a small decline in Denmark, which was in line with what we saw in the last year. RevPAR turned significantly negative in all Nordic countries in March as the corona crisis hit our industry and reached its lowest point in April with declines of more than 80% in all markets. The worst week in Scandic's history was around Easter, in the second week of April. We have seen a gradual improvement since April in all the markets. If you turn to Page 5, here you can see the market occupancy development that shows a similar trend. Initially, we saw somewhat higher activity levels in Sweden in March and April due to less comprehensive restrictions from the authorities compared to the other Nordic markets. As the summer vacation period started, the strongest recovery was seen in Norway, where market occupancy went from 12% in May to 30% in June thanks to good demand development in several tourist destinations. On Page 6. To the left, we show 7 days rolling average occupancy for Scandic in the past few months. There has been quite a steep development or improvement, and average occupancy has approached 40% in compared to 5% to 6% only 3 months ago. There are very big variances in the portfolio. In general, hotels in smaller destinations have the highest occupancy and some of our hotels are actually fully booked. On the other hand, our hotels in the capital cities have been impacted by canceled events, closed amusement parks and restrictions on meetings and travel, et cetera, which has resulted in very weak occupancy. On the graph to the right, you can see the same data compared to last year's level. We are still very far from a normal level. In July last year, average occupancy for Scandic was between 70% and 80%. If you could please turn to page 7. Here we gradually started to open the hotels that had been temporarily closed during the crisis. When we presented our Q1 report in mid-May, a little more than half of Scandic's hotels were temporarily closed. All hotels in Sweden have actually been open all the time, while most were closed in the other Nordic countries as well as in Germany. We are now gradually reopening our hotels from now on and until the end of the summer. And today, some 80% of our hotels are open for business, and we expect more or less, all to be open by the end of September. Decisions to open can be taken relatively fast. It normally takes only 1 to 2 days to open a hotel and perhaps up to 1 week if we include the marketing-related activities to the opening. For obvious reasons, the opening of food and beverage are more limited than normal in our hotels. If you turn to Page 8, you can see our portfolio and our pipeline. And given the current extreme situation in our market, we have initiated a dialogue with our landlords regarding rent discounts for 2020. And we have already reached agreement with a handful of them, which is very positive. In a longer perspective, we will need to ensure that our lease terms are adapted to market variations and enable acceptable profitable -- or profitability at lower occupancy levels than earlier. Some 15% of the lease contracts in our portfolio expires by the end of 2022 and approximately 25% expires by the end of 2025. This actually gives us a very good opportunity to renegotiate at adjusted terms. At present, we have just below 53,000 rooms in operations, of which almost 50,000 is within our lease agreements. Our pipeline consists of some 5,700 rooms, which corresponds to 10.7% of our portfolio. Both the portfolio and pipeline are relatively similar to how it looked after the first quarter. We exited 2 smaller hotels in Finland with 159 rooms as the leases expired, and we decided not to prolong these. Of the hotels in the pipeline, we only have one new hotel scheduled for the rest of 2020, which is Scandic Pasila in Helsinki with 178 rooms with planned opening now in Q3. I think with that, I hand it over to Yana, who will take us through the financial part of the presentation.

[Jan Johansson, Chief Financial Officer]

Yes. Thank you, Jens. Yes, as you have heard here from Jens, we are of course, in a very complicated situation here. We believe that we have left the worst behind us. We have now entered into a recovery phase. And of course, focus will be to reach breakeven on a slow occupancy level as possible. I will focus my presentation on cost reductions, on where we are with that, on cash flow and finance position and then wrap up things with how we view breakeven levels going forward, now there -- when business recovers. Having said that, of course, Q2 has been characterized by extremely low occupancy. We have focused a lot on recapitalize the company to see to that we have a balance sheet which can get us through this storm or what we should call it. Having said that, even if we have finalized that, I would like to assure you that cash will be -- should continue to be the highest priority as visibility is very, very low in the business that is secured. If we then go to Page 10, you can see here that we have lost 86% of sales. It's an extreme number. It's probably the worst Q2 I ever reported. You can see here also that we have very few portfolio changes, which is actually good. We have not so many new hotels here. We opened one here, in Voss earlier this year. And luckily enough, it's a good leisure destination. And then we have one more, as you heard Jens said. 86%, that corresponds to an astonishing SEK 4.2 billion. We only recorded SEK 665 million in the second quarter. And we were actually saved by the last 3 weeks of June; a very, very high proportion of those SEK 665 million came in the last 3 weeks. You might recall that we were hovering around 6%, 8% in April and May. And the reason for the pickup is, of course, the domestic leisure, which started to take off in the mid of June. If we then go to the cost, which is on Page 11, you remember the SEK 4.2 billion in sales loss, cost has been reduced with SEK 2.4 billion as you can see here. There is substantial support from governments in this, a little bit over SEK 600 million. However, also just recently here the other day, we got another SEK 149 million approved from the Swedish authorities that will be taken into account into the Q3 numbers. And if that had been in the Q2 numbers, you have seen a cost reduction of almost 60%. Rent is, of course, a big challenge even if they have been reduced with a variable [ park ] amounting to 1/3, you can still see that it's a very high number here. Payroll, we have worked intensively with payroll. 4,000 people have left the company during Q2, another 7,000 people is under some kind of furlough from 20% up to 100%. It's different regulations here. We calculate the total contribution to around SEK 500 million in all the countries. Even though it varies, the methodology varies a lot between the countries. And you can see Norway and Finland is kind of an indirect support, where they take over the responsibility for the employees. So it's kind of a calculation we have done around SEK 500 million here. So -- and that is basically then half of the cost reduction here. That will probably change during Q3 and so on when we move and we'll see it depending on the volume here, we estimate that we will have governmental support at least through Q3. And then for Q4, it's an unknown for the moment. And also then when going into Q3, we have made a notice of 1,000 people also in Norway, and that has, of course, not yet impacted the numbers. Having said that, go over to segments, which is on the next page here. And of course, it's hard here to really analyze the underlying trend. You can see Norway stands out a little bit here with lower losses, and that is due to 2 reasons. One is better and good sales in the end of June. But also here, that we have been able to calculate the effect from -- or included the effect from support to fixed cost of SEK 100 million, which is taken into the Q2 numbers. The Swedish number here, it's a hefty negative number, excludes the SEK 150 million, which we recently got approved here. So if you include that, you will get a better picture of the underlying loss rate in Sweden. Having also mentioned here, Other Europe here, it's important here that in the region, we are very, very dependent on the big cities, and you understand now during this COVID situation that we are primarily hurt in the big cities. It's kind of a mixed picture which we have out there. We have in the tourist destinations and so on. It's quite okay, while we suffer a lot in the big cities. So Copenhagen, Berlin and so on is quite difficult as well as Stockholm right now. Central costs. It's the same number as last year, as you can see here. Underlying, we are -- have a 30% reduction that will be visible in Q3 and Q4 going forward. We have made some write-offs during Q2 on project costs, which have been capitalized before, and that has been taken away in these accounts then. And if we then go to cash flow on the next page, I mean, that has been really, really a struggle here. The main focus has been to try to defend the cash flow. This is actually better if you have [ Voss ] in April, these numbers, which we report in Q2 is actually better. And I think the work we have done with working capital here is the positive movement of over SEK 700 million. It's a combination of the rent deferrals, the agreements which we made with the landlords but also that we have worked very successfully with getting in accounts receivable and also working with the suppliers to a debt payment term, to this new, very, very special situation. Of course, this change in working capital is something which is temporary. We need to normalize that now during Q3 and Q4, putting a pressure on cash flow cost but it brought us time. It helped us through Q2 and enabled us to strengthen the balance sheet, which was so important for us here because that was really, really a cash strain here, as you can imagine, in April and May. So that was definitely the right strategy. For the second half now, we reiterate our objective to see for that CapEx is under SEK 700 million for this year. We have -- do have CapEx commitment, which we will fulfill for this year, but we will try to do that in such an efficient way as possible here going forward. And so net debt is actually now better than it was when we started the year, but we have then got one point -- more than SEK 1.7 billion from the shareholders, which landed on the account here on the end of June. And please also remember, positive working capital movement, which should be normalized then during Q3, Q4 and in the beginning of 2021. And also having said that, I think the important thing now with this balance sheet is to get us through this situation. So this doesn't mean that we will take on some new risk. So you [ typically ] see what I mean here. Very good. Go -- then we go to the next page and look upon where we are. We have had, recently, a very positive development in terms of occupancy. But we are not where we should be. When we -- first, on the EBITDA breakeven level, I would like to comment that this is an average throughout the portfolio. We have hotels which need much higher occupancy than this to reach the EBITDA breakeven. We have hotels which can reach it before. So this is an average throughout the group. We have the EBITDA. And of course, there is -- you can understand why we need also to have this discussion with the landlords in order to lower that level now temporarily. And that's the reason why we asked for their -- to help us to support the rents. I should also be clear that this level -- this picture illustrates a situation without any governmental support. And that is, of course, a situation which we should prepare for because that's the normal thing, that you don't get any support here. In order to get -- to count to a cash flow breakeven or somewhere close to 50%, we estimate, of course, we are doing our utmost now, to see to that level get as low as possible. And that's the work we are continue to doing right now. So -- but I think it's important to remember that we are on track to come closer to breakeven, and it has improved a lot the last couple of weeks here, as you can see here. But the visibility, as Jens said, was -- is low, and it's very hard to predict where we are. And we are obviously planning for the worst right now in order to be prepared for that. Very good. I think that ends my part of the presentation and I leave the word back to Jens.

[Jens Mathiesen, President & CEO]

Thank you, Yana. So the concluding page, you can see, as we have now shown, the average occupancy for Scandic has been around 35% on average so far in the first part of July. And we expect actually occupancy to be around 40% during the remainder of the summer vacation period. The market development during the autumn will, to a large extent, depend on activity among our corporate customers. And for full year 2020, we still expect sales to be more than half compared to what we saw in 2019. And with that, I hand it over to the operator and open up for Q&A.

[Operator]

[Operator Instructions] We have our first question from Jamie Rollo of Morgan Stanley.

[Jamie David William Rollo, Managing Director]

Just 3 questions, please. Quite, sort of long-term questions. First, do you have any view on whether we might see some sort of permanent reduction in supply as we see more pressure maybe on the independent side? Any indications of hotels sort of permanently closing? Secondly, do you have a view on the impact on sort of virtual meetings on that corporate segment? And perhaps you could remind us what your leisure corporate share of revenue is in the summer, maybe compared to the autumn or autumn-winter. And then finally, just the 11% margin target at lower RevPAR, how much low RevPAR can you take to still hit that 11% margin? And does that margin target include the sort of permanent benefit of the rent negotiations?

[Jens Mathiesen, President & CEO]

Yes. I think if we start with some of, I think, the last ones, maybe not the one with the RevPAR, Yana. I don't know if you want to go through that afterwards. If we look at the digital part and the meetings, then some of that, we expect to be different in the future. We expect some of the smaller meetings to be converted into digital meetings. And we might not see that the meeting market will recover to the same level as we saw in 2019. That's something we prepare ourselves for. And also looking through the configuration of a certain of our hotels, actually a job that we started already before the COVID-19, where because we have seen kind of a very stable and flat let's say, development within the meeting market throughout the last 5 years, where we have seen a growth in the RevPAR levels on the room side. So this is something we have addressed already earlier last year. If we look at the business mix, which you asked for, I'd say, right now, in the summer, it's heavily impacted by, of course, the leisure which is a very heavy leisure period, maybe 95% of the business is leisure right now. If we look in a full year scale, it is maybe 60%, 40%; 60%, which is corporate and 40% which is leisure. So of course, when we enter into, let's say, September and ahead. We are -- September normally is quite a good month because we have a mix of corporate starting up and still having leisure in the markets. But that's why normally, that's a very strong month for us. And then when we come to later part of September, we are more dependent on the corporate throughout that period until, let's say, May, June, the year after. I don't know, Yana, comments with the -- to the margin?

[Jan Johansson, Chief Financial Officer]

Yes. No, I think it's something which we are working with right now, Jamie. And of course, I mean, we have one foot on the accelerator and one on the brake because I think -- I don't know what kind of word to use here. But I mean, we shouldn't really have wasted a good crisis either because this is a brilliant opportunity for us to actually reconfigure part of how we work also. So I think there should be -- I mean there had been 10 good years before here. So this is a little bit also, an opportunity for us to redeem parts of the organization and the structure we are having here. So I cannot give you a number here. I think it's also dependent on a little bit how we view the rents going forward here. I think it's 2 cases. One is the short-term case, which we're having right now and try to ask for discounts and so on. It is a really, really difficult situation. But I think we also have a number of contracts up for renewal going forward. And so -- and then of course, we would need to work to develop the contract models. So the Rev profile there should be more adapted to these kind of situations here, but that's just on the drawing table for the moment. So it's not like...

[Jens Mathiesen, President & CEO]

But I can add to that, that we -- as you recall, we already, last year, presented 5 focus areas, and we also addressed, let's say, an improved margin over time already then. And of course, certain parts will enable us, through the crisis, to accelerate some of these initiatives further. So we actually expect, when we have seen what we adjust in the -- already in the operational model and in the cost levels, especially cost levels above hotel levels, that's what is putting us, let's say, into quite a good situation when the market recovers. Then you had a last question, which was the capacity question. And unfortunately, we do see quite a lot in our industry that are struggling even more than we are and who -- companies that have not been able to solve their financial and liquidity situation like we have. And unfortunately, that's the case. And I say that because it hits really, the industry and a lot of people working there. But we have seen the first bankruptcies, and I don't think we have seen the last. We just saw a larger player coming into bankruptcy during this week in the Nordics. And we probably will see quite a lot when the furlough period is now ending. I think we have handled this on our side, quite well. And we will be able to probably even get a lot of opportunities in this market. But like Yana said, we do not want to take on a new risk, but it might be that we can help here and there, being the largest operator. So I think there will be opportunities for some, but also, unfortunately, it is very seldom that hotels, actually, when they go out, that they actually close. It's not that easy to rebuild a hotel into something else, even small [ apartments ]. So most of these hotels, even though they go into bankruptcy, will stay on the market with other operators.

[Operator]

Our next question is from Andre Juillard from Deutsche Bank.

[Andre Juillard, Research Analyst]

A few questions on my side. The first one is on the rents. I wanted to have more clarification on the discussion you have at the moment. And what are you expecting exactly to be negotiated in H2, could you give us some more color on your actual discussions? Second question, you have partly answered it, but it's about M&A and consolidation in the market. Considering that you were mentioning that some players are in -- under difficulties at the moment, what is your perception of your major market, the Nordics? And at last, I wanted to clarify the Slide 14, on the breakeven. Because if you mentioned that the EBITDA breakeven at 40%, that would mean that if we anticipate an occupancy rate, at the minimum, at 40% in H2, it would mean that you would be profitable in H2. So I just wanted to clarify that aspect.

[Jens Mathiesen, President & CEO]

Thanks, Andre. Thanks. I can start with the first 2 questions, and Yana can elaborate a bit on the last -- on the breakeven part. For the rent discussions, it is very early for us to conclude with some actual numbers in this. But we have had a very positive dialogue with the landlords as of day 1. And we are now into a situation where we discuss discounts for 2020. We have agreed with certain numbers of these, for some discounts. And I won't give you the numbers yet since we are still in dialogue with these. We have a quite good idea on what we expect. Of course, we have a target for that, but it is too early to put that into market before we have concluded these negotiations, which I hope you respect. But it is kind of a 2-step dialogue. We have a dialogue on discounts for the Restel and remainder of 2020. And then, of course, we have a dialogue on how to come through together as strong partners also in the coming years. We want to have a strong partnership with these landlords for the next many -- maybe 50 or 100 years. So we have a very good dialogue that we -- both of us want, both Scandic and them to come through this period of time, as strong as possible together. So I feel, actually, we have a very, very positive dialogue, and I feel confident that we will be able to deliver both some discounts during this year and also, let's say, some renegotiated contracts for the future, also taking care of situations like this, which was a bit abnormal. Then to the M&A discussions and opportunities, you can say -- I think it is probably -- we should not expect at least some big M&As coming into the market in the short while. I think we will see more individual hotels or smaller groups of hotels that will be up for grabs. And of course, somebody needs to operate these. It is not that Scandic wants to add a lot of older hotels or small hotels and tea hotels. We only want to continue our focused journey on the strategy and only add hotels in the core markets, which we see as future core markets. But of course, there will be opportunities for Scandic also to grab a hotel here and there, that fits well into our strategy. And those opportunities will be followed by us as well in the coming 12 to 18 months, where we see these opportunities will arise. The last question -- yes.

[Andre Juillard, Research Analyst]

Sorry to interrupt you. Just in terms of market share, what is the market share Scandic has in the Nordics? And do you think that you are in a situation where you could continue to grow it on...

[Jens Mathiesen, President & CEO]

Yes. We have a branded market share of approximately 30%. We have a non-branded and total market share of around 15%. And so we absolutely think we still can be able to grow our market shares in certain markets.

[Jan Johansson, Chief Financial Officer]

And the last question, to your question. Yes. If we get an average occupancy north of 40%, it's definitely an ambition from our side to see to that we can breakeven on the adjusted EBITDA on that level. It's not a promise. It's an ambition.

[Andre Juillard, Research Analyst]

Okay. But if we extrapolate, if you foresee to have more or less, 40% occupancy rates during the summer, the logic would be to be even higher between September and December. One more time, that would mean that you should be breakeven or slightly profitable. I do not understand why your midterm target, therefore, for EBITDA margin is still 11%.

[Jens Mathiesen, President & CEO]

I think it's too early to review this kind of financial objectives. I think we need to see where the market goes here. I think to try to -- how to say, articulate a new target right now when we don't know where the market is going, it's a little bit premature, we believe. I think your question is absolutely relevant, and I can assure you that we think a lot about it, but to put that number out on the table now. I think we are not ready to do that. We need to see where this lands. What -- I mean, we struggle with this new normal. We talk about this new normal, but we haven't really, really defined what it is, and we need some more insight. And just a comment on this 40%. I think one thing, because also, we don't get -- I think the struggle we are having right now on the year is also where we will have this occupancy for the enrollment. It's extremely uneven. We have 100% in certain areas, Kuopio and [ snowy Velje ] and Bodo in Norway and things like that. And we struggle in Stockholm where we are under 20% and so on. So some examples here. And I think we need to see a more even spread of this. And of course, if we come into corporate market during the autumn, where we see that some of these businesses come back, that will, of course, help the situation a lot in the big hotels in the big cities. And that would enable us -- if we would say that we will have this uneven occupancy, then I think it's difficult to reach it on 40% of the brand, but that is not sustainable. I mean, this is not kind of a leisure company. We should go back to the backbones of Scandic, and be the, I'll say, the first choice for a business traveler or traveler in sports group or organizations and things like that because that is what Scandic is. And if we get to that position, then we should be able to take down the breakeven levels. I mean, this is also the part of the discussion we are having with the landlord, that is actually to help us to reach these breakeven levels, because, I mean, they need a profitable operator.

[Andre Juillard, Research Analyst]

For sure. But sorry to insist. So I perfectly understand the lack of visibility and the difficulty to predict what could happen in H2. But in the meantime, what I do not understand is this low level of potential breakeven because 40% occupancy rates for breakeven EBITDA would be a very satisfactory level. Then why would you take -- would you keep, sorry, a midterm target of 11% EBITDA margin? Your breakeven target is 40% occupancy, then you should be able to have a higher margin. Do you see what I mean? I'm not expecting any guidance, but...

[Jens Mathiesen, President & CEO]

No, no, no. But we perfectly see what you mean, but in all honesty, 110% of my focus has been on cash. And the next 10% has been our cash and then the next 10% has been on cash. So I mean, we are not thinking so much about the future modeling right now. We are coming into the recovery phase. And we will, of course, work more with these things, but we need a little bit more safety in the visibility because otherwise, it tends to be just a theoretical exercise, because we need to be able to break this down into the organization in a good way.

[Andre Juillard, Research Analyst]

Very clear.

[Operator]

Our next question is from Karl-Johan Bonnevier from DNB Markets.

[Karl-Johan Bonnevier]

Yes. I'd also like to continue with this chart 14. I think it's a good way of describing what you're going through and what you are trying to achieve. If you are looking at it from an occupancy point of view, what kind of consideration are you doing to the price element in this kind of situation? Obviously, with a lot of competitors and also in travel, there's a lot of campaigns on prices going on already. And maybe one needs to be a little more cautious on also the pricing element here. Or how are you modeling it in to get to these levels?

[Jens Mathiesen, President & CEO]

Yes. I think, a very good question. And I think, when we look at the current stages, you can say of the region, we do have a very local business environment. Both leisure and corporate are extremely local, and we are lacking the international and European part of the business. That part is opening up a bit, especially the European part. And of course, a lot of the prices is linked to the, let's say, the segment mix. So the difference is between whether we have a lot of groups, normally, the groups and leisure groups are not paying the highest prices, whereas some of the -- especially American individuals is paying a higher price for the summer period. So it's also related to the business mix. So right now, we see quite a stable business mix locally. We see local tourism and we see local corporate accounts that we actually negotiated last year. And we are not in a situation, I must say, and then that's a positive sign for our businesses in the Nordic part of Europe. We do not see businesses trying to get an extra discount right now. So they are loyal to the agreements they have made. And of course, the levels are just lower than normal, but they are loyal to what we agreed upon. And we do not see that Statoil and Volvo and Maersk, et cetera, are pushing for lower prices under these conditions. Of course, there will be lots of offers, especially now in the summer. There will be a lot of offers in the market, with low prices or double or triple bonus points and things like that. But I don't think that's really abnormal. We have seen that also in the other years. It may be a bit more right now but back to the fact of it, we are also lacking the large part of group business, which is normally paying quite a low rate. And we are also missing out some of the ones in the top. So we are tracking, of course, below the average room rates, but it is not that far below from a normal level. It's more the occupancy that is driving the RevPAR down right now.

[Karl-Johan Bonnevier]

And that's also what you have put into the assumption for the breakeven levels?

[Jens Mathiesen, President & CEO]

Yes. You can say, because we -- when we look at the breakeven, it is the current, you can say, trading. So of course, if that changes a lot, then we can either be positive or negative. If it opens up for more international business, that would add positively to the calculation. And if we are only dependent on the locals, then these calculations should be quite accurate. But back to the wording from Yana, is that we look at this on a total portfolio average. So of course, if we continue to have the outskirts on high level and the city centers on low level, then we might need an extra percentage point or 2 or 3 before we hit these breakeven levels, because we have higher leases in the major cities than we have in the outskirts.

[Karl-Johan Bonnevier]

Exactly. And just now standing in the middle of July, what kind of normal visibility would you have on business demand coming back into the hotel in September? So like if you were in a normal situation?

[Jens Mathiesen, President & CEO]

Normally, we have quite a lot of events and a large group businesses for meeting and concerts and things going on in September. And then we have a normal business mix up against the leisure. So that's why September, normally is a very strong month. And right now, we, of course, we do still have meeting business on the books, both in September, October, November, but that's something that was postponed from -- and moved from early March and April and May into the autumn. And of course, they are still on the books as long as they can still cancel and wait to see how the coronavirus is developing. But we do have very limited pickup for the autumn since the lead time is very short. And all the businesses and people individually know that there's availability on the rooms and hotels. So it is not difficult to find a room when we have this high, let's say, availability in the market. And so people are really waiting, and we see lead time being as short as 1 to 2 weeks right now.

[Operator]

There are currently no questions in the queue. [Operator Instructions]

[Jens Mathiesen, President & CEO]

Okay. I think it's it then. Then on Scandic's behalf, we would like to thank you all for joining this call and looking forward to keep you posted on any changes in the current environment and looking forward to talk to you in the future as well.