Pandox AB (publ) (PNDXB) Earnings Call Transcript & Summary

Maybe up to 80% that are now running on revenue base -- rent. So what was the question?

On how many -- how many hotels of the 100?

So 80 of the 100.

80 I would say -- about -- and I think the majority part, which is still not running on the variable, is some part in Germany, which are on a higher level, but also in Finland, where the minimum rents have actually increased, because they are indexed with inflation, which is good, but they are also on a higher level, and as you know, Helsinki, with the big contract centers and the closeness to the Asian and the Russian markets have bought as some.

Right. So 80 in total turnover rent. Do you think the ones in Germany and Finland not currently generating turnover rent? And do you think that will -- those hotels sort of will reach the hurdle or exceed the hurdle in H2?

The majority part, especially in Germany, will reach, and that's because, of course, in the second quarter, the fair trade and the group meetings have come back. But as we said, it's coming back much more even in the second quarter. And of course, because there's like a calendar effect, it starts from the 1st of January when you look at the first quarter, it's always the weakest quarter. So yes, we do see the majority of all our -- all our hotels running on a variable range.

[Operator Instructions] Thank you. This concludes our question-and-answer session. I would like to turn the conference over to Emanuel Thomas to continue with his presentation. Please go ahead, sir.

Good morning, everybody. Thank you very much indeed for your time today. If I can ask you to proceed to the next slide, my title page, European Hotel Performance Update. So as mentioned, my name is Thomas Emanuel, I'm a Senior Director at STR based in London, and for the next 10, 12 minutes or so, I'll be giving you an overview on what is happening across the hotel industry. If we can move to the next slide, please. So of course, there is lots of talk in the media, every time you open a newspaper or turn on the television, we are hearing about economic challenges, high interest rates, inflation, the cost of debt, the geopolitical situation, supply chain, logistics, et cetera. And there are lots of risks out there. So what I want to do in this presentation, is talk really about how the hotel industry is doing in the face of these risks, and how much we need to worry about these risks in our industry. Next slide, please. So I will start with a look at global occupancies. So this is global occupancy indexed to 2019. And what we can see is across the world, we are ever so nearly back to where we were prior to COVID. We're not quite there, but we are nearly there. And if you look at the last 4 months, or really every month of this calendar year, we're in the mid- to high-90s in terms of percentage recovered at a global level. If we move to the next slide, please, you will then be able to see something actually quite interesting is, from a global occupancy perspective, we are recovering at pretty much the same pace as we were post the global financial crisis. So we've indexed these 2 lines to the December before the financial crisis and before COVID. Of course, the dip for COVID, as you all know, is much more steep, but the recovery has been much more rapid as well and we are basically now in line with where we were, in comparison to the last major shock as such to the hotel industry. Next slide, please. This slide refers neatly to what was mentioned at the conclusion of the Pandox presentation in regards to airline capacity. So this is data from the OAG, and we can see just how much airline capacity did dip in 2020. But the good news is, this is a real positive for the hospitality industry, of course, is that by the end of Q3, OAG are forecasting that airline capacity, airline fleets will be back to the levels they were in 2019. So this is a real positive for our industry as we would. Next slide, please. We now drill down in the occupancy on a regional level. And there are, of course, some variances across the regions. Here you have May year-to-date actual occupancy and the percentage change, that means from 2019. So across Latin America, things are looking a bit stronger. Across much of Asia, things still remain a little bit weaker. But across the Western world as such, in North America, Europe, Middle East, you can see we're not too far behind where we were in 2019. In Europe, it's a 5% change, but that equates to just 3 percentage points in terms of actualized occupancy. If we move to the next slide, please, and we will shift now our attention to global average daily rates. And as was mentioned, previously, average rate had come back incredibly strongly, and here, we're comparing it to the recovery post the global financial crisis. Once again, you can see that we are currently [Technical Difficulty] the ADR recovery cycle is 2 years shorter than the global financial crisis recovery cycle. And overall, globally, average rates are sitting at about 20% ahead of where they were, prior to COVID. Next slide, please; if we drill down and look at things on a regional level, again, we see things a little bit weaker across Asia. And then we've got some hyperinflation in South America and Northern Africa, somewhat skewing those numbers slightly. But across North America, Europe, Middle East, you can see again, a very healthy recovery indeed from a rate perspective. This has been, of course, numbers that are ahead of inflation. So we see this as real ADR growth, not just nominal ADR growth. Next slide, please. So what is driving performance and what will drive performance going forward? And we've really put this into 4 buckets, which we will dive into momentarily as well in the presentation. So firstly, you've got leisure. Leisure travel was, of course, the first to come back post COVID and the appetite for leisure as has been referred to previously, remains very strong. Corporate demand is also coming back quite nicely, and we see the opportunity for that to do so further, as we move into both Q3 and an ever important Q4 as well from the corporate travel perspective. And then events. Fairs are also returning quite nicely to the calendar, and we are starting to see the impact of that. And then you may be wondering why we've got a picture of a young man there with a mullet haircut, but this is rather tongue-in-cheek admittedly, but it describes what has been termed as leisure. So the mixture of business and leisure and the reason we've termed this mullet travelers such, is the front of the haircut is nice and neat, you're ready for the office. The back of the hair is long, a bit scruffy, and it means you're ready to party. So it just showcases that mix of business and leisure travel in quite a nice way. Next slide, please, and we will move now on to Europe. And this is the data from our friends at Oxford Economics. Looking at the recovery of the various travel types across Europe as a whole. And if we look at 2023, we see domestic travel has clearly recovered back up above '19 levels. Intraregional is still a little bit behind and then long haul remains a little bit behind that as well. Now of course, this isn't surprising, but what is important to take from this chart as well, is the direction of travel is a positive one, and we are moving back up to where we were or ahead of where we were prior to the pandemic. Next slide, please. This showcases occupancy percentage change along with average rate and RevPAR percentage changes, again compared to 2019. And what we can see, occupancy across Europe, unsurprising, haven't quite recovered, but average rates were fully back above '19 levels back in February of last year, and then RevPAR recovered in May of last year. So we have now seen 12 months of solid RevPAR increases, which have been driven, of course, by average rates. And over that time period, averaged out is indexing at 116. Next slide, please, and we'll now look at things by country level. And this is RevPAR May year-to-date index to 2019. And we can see, for the most part, we've got really positive numbers. Of course, this is driven predominantly, of course, by average rate. But we've got some very positive numbers there. We see Turkey, that's slightly skewed by exchange rate, Hungary, the Balkans as well, all doing relatively well, as well as major Western European countries for the most part. It has been, however, a little bit slower in Germany, and that has been touched on previously as to why, but there is more conservative domestic demand across that market. Group recovery, we will come on to that, it's getting better as the events come back, but that has been a challenge in the first 5 months of the year. Less luxury, leisure demand than many other countries in Europe and then, of course, limited dollarized travelers as well. And if we move to the next slide, what we'll see here is that the cities, gateway cities correlate quite nicely to how the countries are doing in the most part as well. And RevPAR-wise, we are up ahead in many cases. You can see particularly markets like Paris, Edinburgh, Rome, Budapest doing well. And some of those markets in the Nordics that we've got on the slide, Copenhagen, Helsinki, was described why those are challenged a little bit more. But for the most part in most markets, things are doing really rather well. And if we move to the next slide, I'm going to touch on Germany, as was mentioned. So we've got a selection of key German cities here. And we've got occupancy for May year-to-date for both 2023 and 2019. So it's not surprising that, of course, we are still a little bit further behind where we were. The exception is Mannheim, which is actually ahead. But you can see that, in many cases, the gap is not too sharp at all, but it is still a little bit behind where we were. But if we move to the next slide, please. I think this is the good news story that was echoed very nicely earlier in the presentation. This again is by month looking at 5 major cities, and we can see -- if we look at 2023, the pattern is really positive. We are moving up month upon month in quite a nice consistent manner. We're actually now seeing certain months in Hamburg and in Cologne, for example, where '23 occupancy is ahead of 2019 occupancy already. So the direction of travel across Germany is a positive one. If we can move to the next slide, please, and shift our attention to average daily rates. This is European markets indexed to 2019. And well, it's a sea of green, as you can see, in most markets, significantly above inflation rates. So once again, we are seeing real, not just nominal average rate growth across our gateway markets. Next slide, please. And again, we're shifting our attention here to Germany, and the pattern is a good one. Once again, we're seeing in the vast majority of markets, average rates -- excuse me, above 2019 levels. There are some really positive stories here, again Dusseldorf has a EUR27 premium on 2019, Berlin at EUR21 premium, for example, as well. A couple of outliers, admittedly, Munich still slightly behind, but you'll see more, as to why on the next slide, if we can please advance the deck. So this slide talks quite neatly to what was discussed earlier in regards to events coming back in Germany. So we can see here those 5 major cities, again, occupancies by month for '19 and for '23. And pretty consistently, they are ahead for 2023. But where we do see some anomalies, is due to the fares. So if we look at Munich, we saw before on the prior side, it was still lagging and that's because of April, where in April of 2019, the Bauma event attracted approximately 400,000 people to the city, it takes place every 3 years. If you then look at Hamburg, for example, had a really strong May, and that was because of the FESTA Europe events attracting a vast number of visitors. Equally, in Cologne, the interzum event, 57,000 visitors to the city for that fair. There were also a wealth of concerts from Helene Fisher to Elton John, helping to drive average rate in those cities. So the fair business is there. The calendar is booked up. So this is certainly going to help a number of key German markets going forward into that ever-important Q4 as well. If we can just advance to the next slide, please, and just touch on some other patterns that we're seeing. And this is day of week occupancy percentage change across Europe by months, and we've broken this down into 3 buckets. Now in the U.S., we're actually seeing weekend occupancy year-on-year decline. That leisure, travel, that revenge travelers have slowed down a little bit in the state. But we're not seeing that yet here in Europe, we're still growing regardless of the day of the week. So things are getting better. The shoulder night that points to that leisure demand I mentioned, solid growth during the week as well, pointing to corporate demand as well. And if we move forward to the next slide, please, you can see there, it is a bit of a mixed bag, but we are seeing things looking better during the week. If you go back few months even, we were seeing far greater declines during the week than at the weekend, but that's not happening anymore, so really where we are seeing, what is driving occupancy recovery across Europe, is that recovery in the corporate sector. And if we can move to the next slide, please. This touches on group demand. group versus transient. Now Transit has been back for 18 months or so very, very solidly. Now that -- those group numbers don't look great in isolation. But if I was doing this presentation 3, 6, 12 months ago, it would be 50%, 70% behind. Now it's 30% behind, and it is improving, as those events are coming back. So expect to see group demand continue to move in the right direction. Next slide, please. These demand drivers, of course, are helping that resilient and very strong average rate growth, and you can see it's consistent across 4 nights of the week, but what we do need to be conscious of, really, we're saying from around July time this month, we're going to start to see those rate percentages start to slow, because we will have had 12 months of very solid recovery in terms of performance. So expect to see the rate growth retained, but start to slow when we look at things on a year-on-year basis. Next slide, please. Looking forward now, business on the books. This is a percentage point change from last year to this year, for the next 90 days as of a couple of weeks back. And we can see that with a couple of exceptions, actually, it's looking pretty strong. And if we think back to last summer, we were talking about just how positive the summer was for Europe, both from a city perspective but also a leisure perspective, and we are expecting similar this summer as well. It's looking like it will be a very good one. And if we could advance the slide, please, to -- I'll finish this deck with our forecast -- and this is our European cities forecast, which is an aggregation of the mix of cities that you can see at the bottom of the slide here. And I'll just take each KPI indexed to '19. And if we look at demand, we do expect demand to be 1% above 2019 levels this year. So we will have sold more room this year than in 2019, which is fantastic, and you can see that demand line is continuing to move forward. But as well as demand is growing, supply is also growing. So that has an impact on our occupancy numbers. So although we're seeing things getting better, we're not forecasting full occupancy recovery, until around '26 or '27 at the moment. Average rates, that royal blue line, we know what happened. But look, from '23, it's fairly static, it's fairly stable. So the rate growth that we've achieved is here to stay, but don't expect to see year-on-year increases being significant by any stretch, as we move forward. And then if we put that all together, RevPAR, as you can see this year, we are forecasting RevPAR to be 17 percentage points ahead of -- 17%, sorry, ahead of 2019 levels, which is a fantastic place for the industry to be in, as you can see, will continue to move forward in quite a nice steady fashion as we go forward. So next slide, please. My conclusion, hotel demand globally very close to being fully recovered. Run rates have recovered in real terms. Growth this year, year-on-year is not going to be as strong. Corporate demand is coming back. We should see that continue as we move forward throughout the year. Leisure, loosing a little bit of last year's luster perhaps, but that's really just a year-on-year comparison, but ultimately still very solid. And the outlook, we believe, for our industry remains resilient, as we do face the future with some obviously economic challenges, the hotel industry remains in a good position. Next slide. With that, I will say thank you very much indeed.

Thank you Thomas, for this hotel market update. Thanks all folks, and thank you for participating in this call. We really appreciate your time and interest in Pandox. Our interim report for Q3 2023 is published on October 26. So thank you all for your interest in Pandox. We wish you a nice and relaxing summer, and goodbye.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Goodbye.