Sats ASA (SATS) Earnings Call Transcript & Summary

Thank you. Very good. Again, so sorry for this delay and for the technical issues. I'm thankful that you had the patience to wait. We have presented the Q2 numbers this morning. We are here together in our headquarters, Cecilie Elde, our CFO; Stine Klund, Head of IR; and myself, Sondre, the CEO. I see we have many participants on the call. We have gone through the presentation and the quarterly report. I hope you had the time to look into the presentation and the report and the numbers. So I suggest we just open up for questions directly, and we will answer as we go along. So if you want to kick it off.

Thank you, and thank you for a good presentation. So my -- I only have one question so far. And I really appreciate the like-for-like split that you're giving. So 2 things on that. The first is, I would really like to hear how you calculate it and how you sort of measure like-for-like members. And the second point is that it looks like you are some 5% below pre-pandemic levels on a like-for-like basis. How does that compare with Q1 or previous quarter? And how was that like-for-like KPI developed? That's all for now.

All right. Seems we both are on mute. Apologies for that. Okay. So I'll start over. As you can see, we've disclosed our like-for-like figures this month or this quarter. And the definition of the like-for-like development is clubs that have been open for longer than 3 years, both in terms of number of clubs, in terms of members. And since we did not open that many new clubs in the period before 2019, the number of clubs is fairly stable throughout the comparison period. So these are sort of the clubs that we've had since before the pandemic. And if you look at the development, as you can see, most of our growth since the pandemic has been in our like-for-like part of the portfolio. So it's 5% down. And it has had a stable increase throughout the last quarters. I would say it's evenly distributed, like the result that you see right now. That's primarily, the growth has come from like-for-like, and then we also add the new clubs that contributes to the further growth.

Okay. So one question. How do you sort of -- when new members have several clubs, how do you allocate members between the clubs?

So you become a member and counted as a member to the club where you sort of initially start your membership. So if you start in one club and sort of train at another club, you're still a member of the first club. And that -- so we don't sort of -- we don't move the members around. But what we do is measure what we call visit adjusted profitability and revenue so that we, in our analysis, redistribute revenues to the clubs that the members has worked out at. And that's sort of a second isolated sort of profitability measure on each club that we make sure that they understand how many members are working out in one club versus another. And that means that a completely new club can be very profitable in visit adjusted measures compared to sort of the pure member distribution measure.

Thank you, Markus. And this is, of course, highly relevant when we do open quite a lot of new clubs, as we have done now. So we really measure that we actually attract on the margin new members and not only move existing members to the new clubs because that would harm and not improve profitability. So this we measure pretty clear. Thank you, Markus. Then we have Georgi.

So I was wondering if you could talk about the development in the work-from-home trend and whether you're seeing a recovery in the business district clubs versus residential area clubs differ in any way.

Yes. Thank you. That's a highly relevant question. I think, overall, the change in habits as a result of the pandemic, I think it's smaller than we actually had expected and that many people believe. So yes, of course, people have started out to work out more at home. Yes, people have started to work out more outdoor, et cetera. But it's still not a major volume. And we see that the visit patterns, the product preferences, the member preferences are quite similar now compared to what we saw before the pandemic. What -- where we see the biggest change is that we see somewhat lower average age among our visiting members and that the younger, so to say, segments are working out more than before. Then when it comes to the differences between the residential clubs and the city clubs, this has been very strong throughout the pandemic, where we saw a much higher visit in the residential areas at the clubs we had opened there and especially in Stockholm, where we have quite a lot of the capacity in Stockholm City, which is lower residential ratio areas. It have taken some more time to get the visit back. And the visits are not fully back to, so to say, the pre-pandemic level. But what we see is when offices open up and employees are returning to their offices, we see that the visit patterns return to very similar patterns as we saw before the pandemic, both in terms of which clubs that are almost mostly visited and when they are visited with the peak lunch training in Stockholm and the afternoon peak in Oslo, et cetera. So gradually coming back to a normality, and I think the tabloid version would be that the new normality is not that different from the old one.

Understood. That's very helpful. And maybe a related question to this. You spent some time on the call talking about some more refurbishments, maybe layout changes to some of the clubs and a very good ROI that you're seeing on this. I was wondering if because of those subtle changes in member base, member preference, lower age, you think it's now better to shift the floor space in different areas. So the gym -- sorry, the strength area, functional cardio, do you think that preferences for types of workouts within the clubs has changed at all?

Yes, we do see changed preferences, as we also did before the pandemic. Over time, we see that new trends are evolving and product preference is changing. So this is not something new. So we are -- we have also before the pandemic been investing in our existing club portfolio. But what we do now is that we have more data and insight to base the decisions on to make sure that we both optimize within the cluster the product mix between the different clubs and then optimize the club portfolio and the club layout and design in each single club. And then when it comes to the fitness floor layout and the equipment mix on fitness floor, we do see changed member behaviors. It's not driven by the pandemic. This is a trend that we saw also before the pandemic, typically more towards strength, more towards functional training, as you're saying. So to say the HIIT boxing, yoga, it's more of the extremes, both with functional training. We have launched this new HIIT concept in Oslo. We opened the second HIIT Zone in Oslo last or a few weeks ago in the beginning of June at SATS Ila, our new club there, which has been a big success. We really see that it's targeting the right group, and we see that the participation rate are very high. So this is more a continuous work, which we have also done before the pandemic, but now we have more insights and better data to base the decisions on to how we optimize it. And that's why we see that we are able to improve the current clubs. We are able to increase the capacity and, at the same time, improve member satisfaction of the visitors in the clubs because that's highly important. So when we talked about in the presentation that, and back to Markus' points in his question, that we are working and prioritizing to get back to the level we saw before the pandemic on the members per club on a like-for-like level, but we are also seeing the potential to grow further after that by improving the capacity in the clubs. Thank you, Georgi. Any other questions?

I can go for a third one, if no one else has their hand up. I don't actually want to go there, but when would you see the like-for-like getting back to pre-COVID? Do you want to try to make a forecast?

I guess you're right in your assumption. We don't want to go there. But no, but we're not giving a concrete guidance on that because that would be a very strong financial guiding. Because I guess all of you on the call are smart people, so it's easy to do the calculation. If you look at the numbers that Cecilie presented today and you take the number of members per club in average and multiply it with an annual ARPU and then the number of clubs and with the high marginal contribution from new members, it's easy to understand that this has significant financial effects. So to guide on a concrete point of time where the like-for-like portfolio would be fully back or even at a high level would be to give a concrete financial guiding, and we're not doing that. We will comment further on this on the Capital Market Day, where we will also give more details on how we work about this and also give new financial targets to the market, but we will not guide on this now. Any other questions from the group? Doesn't seem to be so. So with that, we wish you all a great summer. I hope you enjoy the summer holiday, wherever you're spending the time, and then looking forward to see you all in connection with our Capital Markets Day at October 28. Thank you.