Scandic Hotels Group AB

STO:SHOT

Earnings Call Transcript 2018-Q4

[Operator]

Ladies and gentlemen, welcome to the Scandic Hotels Group Q4 2018 report call. [Operator Instructions] Speakers, please begin your meeting.

[Henrik Vikström, Director of Investor Relations]

Yes, good morning, everyone, and welcome to this conference call where we will present Scandic Hotels results for the fourth quarter. My name is Henrik Vikström, Head of Investor Relations. We will, today, start with the presentation of the quarter by our CFO, Jan Johansson, followed by some closing remarks by our new CEO, Jens Mathiesen. And thereafter, we will have a Q&A session as usual. So please, go ahead, Jan.

[Jan Johansson, Chief Financial Officer]

Thank you. Thank you, Henrik. Yes, I will talk to you about Q4, which, indeed, was a good quarter. But first a couple of comments on the full year 2018. It was an eventful year. We opened 6 new hotels with a total 1,600 rooms and we integrated SEK 2 billion business Restel with some 17,000 rooms. We have posted a full year sales number of a little bit more than SEK 18 billion, which is a record level in Scandic's history. We've reached an adjusted EBITDA of SEK 1,957 million, which also a record level in Scandic's history. If we will look into Q4, in particular, the demand held up very well in all markets in Q4. In total, we posted a sales growth of 23%, I will come back to that a bit later on; and an organic growth, which is growth excluding acquisitions and currency effect, of 4.9%. The like-for-like growth was 0.8%. And we had a good adjusted EBITDA growth of 45%, up to SEK 487 million, and I will come back to that also a little bit later on. The dividend is proposed to arrive from SEK 3.40 to SEK 3.50. And also with regard then to the outlook, we expect for Q1 like-for-like sales growth of around 2% supported by positive calendar effect as the Easter falls entirely into Q2 this year. We also expect a contribution from more rooms in operation of around 2% unit. If we then look into the market conditions and the RevPAR development, in particular, you can see here a short overview of our main markets. You can note that we have a positive RevPAR in all our markets despite that we have some areas in each particular market where supply exceeds demand during 2018, generally low single-digit level on positive RevPAR development. We -- for 2019 and which we write that in the report also, we will see more supply coming into the market particularly down in Oslo and in Copenhagen and that will, of course, affect RevPAR during 2019. I think we should zoom in on Sweden, our biggest market, and here you can see what's happened during 2018. Initially, we started and you probably remember that we had an initial imbalance in Stockholm in the first quarter 2018 and also actually late 2017. You can see how throughout the year the supply has actually leveled out. And in the end of the year, we have a demand, which is much higher than the supply, which has led to occupancy level, which is higher than in the beginning of the year. And this, in combination with positive rate development, has led to an increase in RevPAR throughout the year. I think we actually guided on this earlier on the year and this is very much an effect that the Stockholm market has become much more balanced in the end of the year than in the beginning of the year. If we then turn into Norway, you can see a little bit of the opposite development in a way. The Norwegian market has been, from a demand perspective, very good during the year. You can actually see that the total demand has increased during Q4. But we have areas with increased supply. It started the year with, in particular, Bergen, but in the end of the year we have seen more supply coming into Oslo region and that will, of course, also impact the development during 2019. Still a positive RevPAR, but you can see that the RevPAR development has come down during the year, so it's only slightly positive in the end of the year. With regard to Oslo, we expect there are some 1,600 rooms coming into the market here during 2019 and that will, of course, have an effect on the Norwegian market even though we believe that the demand in general will hold up and there are some areas where we actually expect a positive development. On the next page, we have the pipeline, the pipeline of 11% of our existing portfolio. This is a solid base for continued growth over the next coming years. We believe that it's a high-quality pipeline. We have projects, which we believe are destinations for the future where we see a growing need for hotels. And we have a particularly strong pipeline in Helsinki and Copenhagen as you can see here. If we zoom in on 2019, we're talking about 1,400 rooms, which means that 2019 also will be an active year in terms of our new hotels to the market. We expend to -- approximately SEK 200,000 per room, which totals SEK 1.2 billion -- a little bit more than SEK 1.2 billion to get this pipeline to the market. We turn -- flip page and go into the financial update and start with the RevPAR development on Page 8. First, I would like to have a comment on total RevPAR, which you see is negative. However, this is very much a mix effect due to that we have included Restel this year, and the Restel portfolio has a lower RevPAR than the current Scandic portfolio, which we believe is an upside for the future. If we look into the like-for-like development and compare Q4 with the full year, you can see that the RevPAR has actually improved a little bit during Q4 and that is on back of a good development in Finland and Germany.On the negative side, we see a reverse development in Norway and that is very much due to what I talked to you before about increased capacity in, particularly, Oslo. We also have elements of negative impacts from ongoing renovation in our portfolio. If we then turn to next page, you can see the sales growth development here. And here, we have made a slightly -- we have changed a little bit this exhibit and we have introduced something, which we call organic growth, which is growth excluding acquisitions and currency. And you can see here on full year that it was around 6%. It has fallen a little bit in Q4 down to 4.9%. As I said earlier, we have a record level of sales, over SEK 18 billion. We have a positive effects -- FX effect due to Swedish -- weak Swedish currency of around 3%, SEK 400 million on full year basis. You can also see here that Restel has contributed SEK 2.1 billion in sales or 15% to the sales growth here. On like-for-like, I will primarily then draw your attention then in Q4 to the strong development, which we have had in Finland. Other Europe is very much due to a strong performance in Germany. And as we touched upon earlier here, we have the reverse development in Norway with actually negative like-for-like growth in the fourth quarter. With regard then to EBITDA and this is a little bit technical and this is just to highlight the effect, which finance leases have on our EBITDA. This is only 11 contracts out of the 270 we have, I will come back a little bit later in the presentation and show the full effect of financial leases there. You can also see here that the total of the integration, which is under the line items affecting comparability, SEK 141 million for the Restel integration. This is quite close to our initial guidance in the beginning of the year. And this account is now closed and we have -- and the integration is finished. So we don't expect any more integration, of course, on Restel in 2019. With regards to profitability by segment, which we have on the next page, Page 11. First, a few comments on Restel here. Restel contributed with SEK 73 million in Q4, and in total, SEK 196 million for the full year. The SEK 73 million in Q4 is slightly positively impacted by some reconciliation differences we had, which has gone the right way in Q4. We also have had a positive translation effects from currency, SEK 50 million, in the quarter. When you look into this development in Q4, please also remember that we had some around SEK 40 million one-offs last year, SEK 20 million on the line, central costs, and around SEK 20 million, SEK 25 million on the Swedish development. But even if you exclude that, you will see that Sweden has improved the result in Q4. We have a negative result development in Norway for the fourth quarter that is fully explained by the hotels, which we had ramped up and we have many areas in Norway where we actually have a good and positive result development. On full year basis, I talked to you about Restel, we also have a positive currency effect of SEK 60 million helping their result. You can also see, as I said earlier, Sweden is actually improving results. Margin, more or less unchanged. We have a negative margin development in Norway also, of course, impacted by hotels in ramp-up. I would also like to mention the very positive development we have had in the segment, Other Europe, very much is coming down from a positive development in our German operation, which is, I think, promising for the future. And a few words on the underlying EPS, earnings per share. And here, we have made an analysis to try to describe what is the kind of underlying EPS. And this analysis will be even more important for the future when we come in under IFRS 16 next year, which will make life a little bit more complicated. I will come back to that though. Here, you can see that we have a reported EPS, which has gone down slightly, 4.7%. If we exclude financial leases, which is from the 11 leases we have in Restel and also just for old revaluation gains, which we have -- or losses, which we had last year, we come to a comparable adjusted EPS, which is down some SEK 0.30 per share. And then we have, of course, items affecting comparability which is the effect from the integration of Restel primarily then on the transaction costs for Restel last year. You can see that the actually underlying increase earnings per share slightly with 7%. If we look upon the Restel operations on pro forma basis, we can see that the contribution is SEK 0.30 per share and then we have made kind of a pro forma calculation on tax and financial net product. So of course, without the integration cost for 2019, obviously the Restel acquisition should give a healthy contribution to earnings per share. And now we go into a little bit more technical part, and this is a heads up for 2019. And we have done a lot of work, not me, it's my accounting department have done a lot of job on actually calculating the IFRS effects. And this is the 99% effect of the leaseholds, which we're having in the group, the 270 leases. You might recall that 11 of these has already been accounted for financial leases, but now we have to do it for the remaining 260 leases done. And this is quite big numbers. We will have an effect on EBITDA, positive effect of SEK 3.1 billion. This more or less equals what we have on the line, fixed and guaranteed leases, today if you adjust for the SEK 129 million in financial leases. These effects will be spread out in the income statement. We will increase depreciation, we will increase the financial expenses, and of course, have a tax effect on that. The initial effect on 2019 is SEK 200 million negative. And it is important to remember that for every contract, this is a plus/minus 0 gain over time. However, the reason why we have an initial quite negative effect on this is that we are quite early in the depreciation period for many of these contracts due to the fact that the group has expanded so fast. So these effects on theoretical basis will be positive then in somewhere 2024, 2025 then if not so much happens in the group then. This will be a little bit more complicated to follow, so we have then captioned during Q1 to really try to describe this in a good way for you. We will more or less try to hold 2 sets of accounts so this will get very, very transparent for you and so we ensure understanding of this quite complicated recommendation from IFRS. Obviously, and this sort of we said, there's obviously no impact on cash flow. There shouldn't be any impact on dividends for these things. We will, of course, calculate dividend on adjusted EPS basis for the future. Our adjusted EPS -- EBITDA will be excluding the effects from financial leases. Our net debt will be excluding the effects from financial leases. We will come back to you on this. It's quite complicated as I said here, but we thought it works fine to just give you -- to have some -- what we see on the effects on the numbers here. Now it's time to go back to the real money and that is the cash flow on next page here where you can see that we actually ended the year in style with regard to cash flow and delivered a positive cash flow of SEK 378 million, excluding acquisitions and disposals despite that we have a negative effect from the Restel integration of SEK 200 million, we also have paid an extra Finnish tax of SEK 100 million. The comment you see, currency effect, here is not obviously then on cash flow. This is related to the net debt, which we have on SEK 3.8 billion. Despite that, we have invested SEK 1.1 billion in Restel in buying it and SEK 200 million in integrating it, we are back on 2.0 on net debt-to-adjusted EBITDA. So I think we have actually strengthened the balance sheet quite fast after that acquisition and I think that's a sign of strength in the group that we can do that. Maintenance CapEx has been on planned level, i.e., 4% of sales then, so that's well controlled. Finally, then, before leaving the word to Jens, just we have been on the Stockholm Stock Exchange now for a little bit more than 3 years and we thought it time to make a short follow-up here on -- with regard to how we have done towards our financial objective. And you can see here that we have delivered the sales growth during this period as set out in the financial objective. Obviously, the market has been supporting and helping us doing this, but nevertheless, we have exceeded the targets every year here. We have struggled a little bit to be on par with the adjusted EBITDA margin. We are up actually on that, which is 1 year and we are quite close right now, but we are not really there. So this is not good enough yet in relation to our financial objectives. We have tried to keep the balance sheet strong throughout the period despite investing a lot of money in acquiring Restel, as I have just said. And you can also see here that we have applied a 50% dividend policy in such a way that we have actually been -- it's been possible for us to have a smooth development and actually increase the dividend every year. And I have to then just note that, for '18, this is still a board proposal, so it's not decided yet. And I think with those words, I will leave the word over to Jens Mathiesen, which is the new President and CEO just a couple of weeks in Scandic.

[Jens Mathiesen, President & CEO]

Thank you very much, Jan. As Jan just introduced, my name is Jens Mathiesen, and as you probably know or have heard, I was appointed new President and CEO of Scandic approximately 1 month ago. My background is that I have been Managing Director of Scandic in Denmark in the past 10 years. It is obviously, a bit too early for me to give any specific details on my exact thoughts and priorities for Scandic, but I do, of course, have some ideas and also some clear thoughts already today. I think it is important to highlight that this management change should not be seen as a change in the strategic direction of Scandic. My view is though that we have a lot of strength, some clear strengths in Scandic but also some areas that we need to develop further. If we start with the positives. We have created an excellent market position in the Nordics over the past few years. We are now a clear market leader in the region, and we have the strongest distribution capacity in our market and a very strong position among Nordic corporate clients. We have also a very solid operational model. Scandic has always had a strong culture and motivated team members in our hotels, and we have an efficient and well-proven model for our hotel operations. We have developed a good relationship with our landlords and I think the model with variable leases works well for us, as it gives us a relatively flexible cost base while it also helps driving top line over time. We have, as you have seen, an attractive pipeline like Jan just showed you with focus on our key destinations that will contribute to growth in the next few years. In terms of focus areas, I believe that we need to put more focus on internal efficiency and margins. This will, of course, not be quantified today but I think there is some room for improvement in this area. And it is something we need to do in order to protect our margins, especially in times with limited or even no like-for-like sales growth. And this has high priority. The next point is portfolio management. Scandic has doubled in the past 5 years, and we have a good pipeline for the next few years. But after this period of rapid portfolio growth, I think it is important that we also take a close look at what we already have today both when it comes to dealing with underperformers and making sure that we really maximize the return on our annual CapEx spend. Another important focus area is Restel. We are, as Jan also mentioned, now done with the actual integration, but now we really need to make sure that we drive top line when the acquired hostels become part of our distribution capacity. Over time, we need to take our share of the market within leisure and non-Nordic business that are growing segments where we are somewhat underrepresented today. In a slightly long-term perspective, we must also make sure that we explore our growth opportunities. We have seen a very promising development in our German hotels and we must make sure that we really explore our opportunities on that market. That does not mean that we will be -- or we are desperate to expand faster than today. We will always be cautious and act with strict return requirements, but we should at least make sure that we really analyze the market so that we can form an opinion about our options. With that, I hand over to you, operator.

[Operator]

[Operator Instructions] The first question is from the line of Stefan Andersson, SEB.

[Stefan E. Andersson, Analyst]

A few questions for me. Just first to -- a clarification maybe so we will understand correctly here. You guide for Q1 like-for-like growth of 2%. I could either interpret that as you guiding us in saying that Easter effect is 2% or -- and that surprised me, you guide for your growth being 2% saying then that RevPAR will be 0. Just so I'm clear on what you're guiding for here.

[Jan Johansson, Chief Financial Officer]

We are guiding 2 plus 2, 2% for the new full year additions and 2% including the effects from late Easter. So 2 plus 2.

[Stefan E. Andersson, Analyst]

So what you're saying is that you guide for RevPAR in February and March to be negative since it was plus 2% to 3% in January?

[Jan Johansson, Chief Financial Officer]

We don't really -- I mean, you don't know our January numbers. You have seen the market RevPAR.

[Stefan E. Andersson, Analyst]

Yes, okay. But I mean, I'm surprised that you guide for the RevPAR in February and March. So I'm just trying to understand, it's a new thing for you, to guide on that, that's why I'm...

[Jan Johansson, Chief Financial Officer]

No, what we have done this time is that we have always guided for a like-for-like growth. We just would like to highlight that this, of course, is boosted a little bit by positive calendar effect. But in addition, what is new from us is that we have guided on the total effect from a bigger portfolio, which approximately is 2% then.

[Stefan E. Andersson, Analyst]

Yes, this is what I'm trying to sort out now. So you actually -- you're guiding for the Easter effect and the portfolio. So you're not giving us a guidance what you think RevPAR will be in February and March?

[Jan Johansson, Chief Financial Officer]

We are not talking about the RevPAR. We are talking about total sales there.

[Stefan E. Andersson, Analyst]

Okay. The total sales is an effect of RevPAR so...

[Jan Johansson, Chief Financial Officer]

Yes, yes. It is. But that's what we are guiding on.

[Stefan E. Andersson, Analyst]

So I mean...

[Jan Johansson, Chief Financial Officer]

But Stefan, it's very hard for us to isolate the calendar effect and that's the reason why we say that we need to guide including this effect. We all agree that this is probably positive and we will try to analyze it after Q1 to see maybe how big it was when we also have the April numbers then we can go back and maybe analyze it a little bit. But...

[Stefan E. Andersson, Analyst]

Yes, I fully understand that. I'm just trying to understand if you're trying to give us the -- which is surprising to me, if you're trying to -- I mean, what do you think about the market RevPAR in February and March, to put it that way then?

[Jan Johansson, Chief Financial Officer]

No, but as we said, I mean, you have seen the development during Q4 where I think Sweden has held up well. They are more positive -- reasonably positive then. But we also see that we have a development in Norway, which will be impacted more and more by new hotels especially in the Oslo area. So it's a combination of those effects basically, but more capacity will come into the market and that will have an impact.

[Stefan E. Andersson, Analyst]

Yes, okay. If I then ask about -- sorry, about the -- on the Hasselbacken, the sale there, just to get that correct. The revenues will hit your top line or is it the net accounting for that SEK 180 million?

[Jan Johansson, Chief Financial Officer]

Yes. We will have those -- we will have the numbers into our -- yes, we expect to close this -- I mean, that's not really a big secret. We expect to close this then in a couple of weeks. We will have the January-February numbers into our accounts. It will not be big numbers. And then we'll have the capital gain in this in Q1 and yes, that will be accounted for and there's some extraordinary item that's below adjusted EBITDA. And I think...

[Stefan E. Andersson, Analyst]

Yes, but is it going to be a net accounting, do you think? Is it SEK 230 million as revenue? Or will it be a net accounting of the capital gain?

[Jan Johansson, Chief Financial Officer]

No, no. No, just think about the capital gain. And the other one -- but the other one is good for the cash flow, I can tell you, SEK 230 million.

[Stefan E. Andersson, Analyst]

Yes, exactly. That's good. I just wanted to be sure that it doesn't affect top line. What about potential cost for the change of CEO here? How much would that be? And will that be as an extraordinary item in Q1? Or how are we going to treat that?

[Jan Johansson, Chief Financial Officer]

Yes, it will be a cost area. I think you have seen the terms in the Annual Report there. So I think, it will be a little bit backwards.

[Stefan E. Andersson, Analyst]

Yes, I could. I just did because the alternative would be to have the cost just going along for a few quarters. But okay, good to know that. Then since Copenhagen is your home market, Jens, just going a little bit into detail. I mean, going there, just looking on the hotels being built, of course, you see just from the eye -- from the city center, you see what's coming up there. It's quite a few hotels. What do you think about the development on that market since you are so familiar with it? How easy will it be to absorb it? And how problematic is it that many of them are city center-located?

[Jens Mathiesen, President & CEO]

Well, first of all, I think it's, of course, a question that many raises these days, what will actually happen with this market. I think if you look at how much capacity comes in, it's quite a lot the coming years, but also it's another situation that we have if we compare to the years after the financial downturn where the last, let's say, larger portion of new hotels came into the market. At that time, when we scroll back a bit -- when we hit the financial downturn, the Copenhagen occupancy level was around 70% -- just below 70% for the whole market and then it went down to some 63%, 64% and then we have a lot of new capacity coming in when the market was pretty low. Now we enter with a lot of new hotels and new capacity in a market, which is extremely strong. And last year, the Copenhagen market was in the late 70s, so it's like 78%, 79% occupancy. And with that, of course, it raises some questions to the full impact of this because new capacity coming in on top of a very healthy market, that also during the summer has more than 90% occupancy. So Copenhagen has rejected a lot of business and people have moved to other cities because they simply can't get room in Copenhagen. So I think we should balance this and I trust that we won't calculate a full effect on this negatively. I think that Copenhagen will manage to absorb a lot of this new capacity. And also when we compare the opening we just have in September last year, in the 7th of September with Scandic Kødbyen, that has actually been extremely well received in the market and has delivered positive numbers as of day 1. So I think really that what we do in Scandic, we opened some very strong hotels. It's large hotels, but in a market that is quite solid right now.

[Operator]

[Operator Instructions] Next question is from Karl-Johan Bonnevier, DNB Markets.

[Karl-Johan Bonnevier]

Jens, coming back to Copenhagen and finishing that off. Obviously, with the capacity as you mentioned that you are getting in there, it seems like you are clearly improving your footprint in the market. But do you see a risk that you will, say, lose in your legacy footprint when you get those new hotels into the market? How do you think that will play out?

[Jens Mathiesen, President & CEO]

There will -- it's a very good question and everybody knows that we always will see both internal and external cannibalization when new capacity comes in. Of course, this has an impact on the way we look at our destination strategy and we have been working on this for quite some time, meaning that we put in more base business on some of the outskirt hotels, and of course, secure that we have a lot of appeals that are long-term in those hotels and also put in more group business than we have done before. So I think it lies in our nature to handle that in our destination strategy. And I think when it comes to the City Center, you can say that Scandic wasn't that big in the City Center compared to other markets and we feel that Scandic has room as being the largest operator in the Nordics to put on some more hotels also in cold market like Copenhagen. So we trust that main part of what we will actually take our shares will be done from the competitors.

[Karl-Johan Bonnevier]

Excellent. We're now heading into 2019, how has your corporate agreement setup changed compared to what you saw in 2018? I guess, if nothing else, you got all the Restel hotels now into that system.

[Jens Mathiesen, President & CEO]

Yes. But we have a very healthy corporate contracting period, I would say very stable during the last part of last year. So our expectation is absolutely very stable looking into 2019. Of course, the benefit in Finland with the deals that we can make also for the Restel portfolio, and that has opened up for more hotels in the deal. But in the other markets, I think it's very stable when I look all over the portfolio. And we have contracted within, let's say, the level of what we expected.

[Karl-Johan Bonnevier]

Excellent. But when you look at the mix that went into the hotels during 2018, was there a big shift in corporate and lesser demand obviously that's been -- we have seen that in the general market when we look at your demand structure?

[Jens Mathiesen, President & CEO]

We actually have a positive growth in the corporate client portfolio. So if you look all over our corporate clients, we have an increase from them also looking on like-for-like numbers. So that's very good. We still are very -- we hold a strong position with those. And of course, we also use, let's say, the models we have when we have more hotels to secure that we get as much business from corporate clients as we can. So I think it's pretty stable on that as well.

[Karl-Johan Bonnevier]

Excellent. And Jan, just to clarify, I'm not sure if I caught it right when you talked about IFRS 16. Going forward, you will, in your way of, say, reporting top line numbers on adjusted EBITDA and net debt, not include the IFRS 16? Or you will balance that out?

[Jan Johansson, Chief Financial Officer]

Yes. I mean, if you take -- that's actually the reason why we're putting one of the schedules here is to -- and that's the EBITDA bridge, so I mean we will continue to work with it on Page 10 where we exclude the effects on financial leases because otherwise you would have an uplift of EBITDA -- adjusted EBITDA of SEK 3.1 billion and you would...

[Karl-Johan Bonnevier]

That's quite nice.

[Jan Johansson, Chief Financial Officer]

Yes, you would have a margins over 40% and that wouldn't really make sense that you exclude one of the largest -- no, so we need -- this is obviously not my favorite recommendation. However, we need to adhere to it, so we need to find a way to get across the messages because, I mean, this is one of our single largest cost item, which will move out from EBITDA and it doesn't really make sense to not show that to you.

[Karl-Johan Bonnevier]

But then I'd say looking at how you will plead in your reporting, so to say, these items, you won't necessarily need to change any of your financial targets as those will be compliant with the way you will report it basically?

[Jan Johansson, Chief Financial Officer]

No. We went through that exercise last year and we have discussed that with the board and so on. So from an IFRS 16 perspective, those objectives remains unchanged. So we have made an independent on IFRS 16. So we will devote a little bit time here to have very, very good transparency here. So we will put in some extra resources. I think we do have some good templates in the report later on, and of course, I welcome feedback from you on those also, so we can get it even better.

[Operator]

Next question is from the line of Andreas Lundberg from ABG.

[Andreas Lundberg, Research Analyst]

Back to the indications for the first quarter. If I look at Easter effects of last year, it seemed to be some 4% in the first quarter and 3% in the second quarter. Does this imply that you expect sort of an underlying negative like-for-like in the first quarter?

[Jan Johansson, Chief Financial Officer]

Yes. I think the calendar effect will be smoothed out a little bit more and so, I mean, it's not -- because, I mean, you have a more and more leisure coming into our business make sense, so on, so I think over time it will even out. So I will not comment on the 4%, which we had last year. I will do that when we have done April because then we will be able to calculate this more accurately. However, I think in our guidance, we see that as I said before include all these effects, whether it is Easter or not Easter, so you should actually see those 2% on our best expectation for a like-for-like growth during the first quarter and add the portfolio extensions on top of that, which is 2% units. However, I mean, Andreas, of course, we should -- we, of course, need to read that, that there are positive effects from this. So I should not exclude that the underlying effect, excluding calendar effect, might be on the negative side. Was that clear enough or...

[Andreas Lundberg, Research Analyst]

Yes, that's fine. And a different topic, if I look at your Swedish operation, I think you have been at some 14.5% EBITDA margin here in the 2018 and '17 compared to clearly about 16% a few years ago. What would you say have changed in the Swedish operation today versus 2, 3 years ago?

[Jan Johansson, Chief Financial Officer]

Yes, this is a question -- of course, I think our largest market, Stockholm, even though we see a positive RevPAR development now in the end of the year, of course, that market has been more competitive with more good and nice hotels around in the city. And of course, that part of Sweden is very important for the total margin development. Then, I think we have one effect more, I should not maybe -- I don't really know the exact price of that, but, of course, we have a more intense renovation activity now in many of the Swedish hotels and that's probably something, which is on the short side, not positive for the margins. I think this is something, which we need to do to make this portfolio more competitive and hopefully that would support margin development going forward.

[Andreas Lundberg, Research Analyst]

So you're done with the larger renovations in Sweden now or for the time being?

[Jan Johansson, Chief Financial Officer]

You're never done, but we're going into a little bit of a more of a -- little bit [corner] period, I would say.

[Operator]

Next question is from the line Carina Elmgren from Handelsbanken.

[Carina Elmgren, Research Analyst]

Could you maybe tell us what you expect of the market dynamics in Norway since Oslo is probably going to have some negative RevPAR growth still? Do you expect that the other cities to compensate for this? Or do you expect in the RevPAR in Norway as a whole to go down to the negative side?

[Jan Johansson, Chief Financial Officer]

That's a very, very good question. We have thought a lot about that. It seems that the northern parts of Norway are doing well also during wintertime. So that is, of course, something, which will support the balance here. I think the key question is how strong will the leisure season will be in Norway this year because we are very dependent on strong leisure during Q2 and Q3, and I think it's a little bit early to say there.

[Carina Elmgren, Research Analyst]

Okay, and then that -- yes, sorry. Yes, on the demand side [indiscernible] it has been in big cities in '18 above 3.5 and maybe quite flat in Helsinki. Is this the development that you expect or do you -- going forward? Or do you see any changes in the demand pattern?

[Jan Johansson, Chief Financial Officer]

No. I'm not answering very fast here now, but I think our view -- we have not changed our view on demand. Of course, we need to be very humble here because, I mean, you never know what's happening out there. I mean, we have our eye on the ball here every day, you can say, here because -- but we have not changed the view there.

[Operator]

And there are currently no further questions registered, so I hand the call back to the speakers. Please go ahead.

[Henrik Vikström, Director of Investor Relations]

Okay, thank you very much for listening in. And speak to you soon again.

[Operator]

And this now concludes the conference call. Thank you all for attending. You may now disconnect your lines.