Sats ASA (SATS) Earnings Call Transcript & Summary

Yes, now we hear you.

Well, this is making a lot of noise. I don't know if you can still hear me. I just wanted to ask, if you can quantify how much leeway you have to continue increasing the number of members per square meter before they start -- before it starts affecting the satisfaction? And secondly, when are you then planning to resume openings to maybe address that?

Yes, I can comment on that. The echo has gone. So as we can see in the reported figures, we are still somewhat below pre-pandemic numbers when it comes to -- on the total level in terms of members per club and as we also said before the pandemic, when we had a deep dive on this in one of our quarterly presentations, we showed the utilization of our clubs. And back then, we indicated that we still have a good way to grow. And that's still the case. And as we have also indicated with the 2 cases that we are giving examples in today's presentation, we see that we can, by investing in our clubs by reconfiguring the clubs, we can significantly increase utilization of the square meters. We can have more members per club and at the same time, improved the product offering and increase the NPS. And we haven't seen any cases yet where we have done this adjustment, increase the volume in terms of members per club without seeing a significant increase in member satisfaction. So we are pretty far away from the point where we cannot add more members to the existing club network in order to grow. So we will continue in the short term with the strategy that we have communicated that the growth will mainly come from increasing the number of members in the existing club network. And then longer term, as we also said in the Capital Markets Day, and I also said during the presentations, we will, of course, look into further growth opportunities in terms of club expansion, but we want to increase the financial robustness even more, reduce our leverage ratio even more and invest in our current clubs even more. First, in order to improve our current product offering before we again consider increasing our expansion speed.

Petter?

A couple of questions from me. I'll start with the membership yield. You list prices 1st of January. And my understanding is that you were not able to list all members 1st of January 2023, given the campaign activity throughout 2022. Is that correct? And is it possible to give a rough estimate of how significant this effect can be going into '24?

Well, we normally are able to adjust around half of the member base because a large part of the member base is still in binding or on contracts where we don't adjust prices. But that means that there's -- when we come into January, now there are a lot of members that are out of binding where we will do an inflation adjustment as we do every year. So there's always sort of a turnaround in the base so that you get a share of the base that you increase the yield for. So in that sense, depending on the KPIs per country, we should expect to see the same kind of adjustment adjusted for the absolute KPI number also for January.

Understood. And it's not such that, that KPI is based on the development, let's say, the increase you did on the 1st of January 2023, for those that were let's say, locked to do any adjustments, they will see the same inflationary increase as the other ones, if you understood my question.

No, we will base the inflation adjustment on the October numbers, the October KPI. That's the -- in general, that will be the basis.

Understood. And then finally, on the membership. Can you shed some light on new members and the churn rates between gender and age?

Yes, there are no -- if you both look at new members in terms of gender and age, if you look at visits and if you look at churn, there are no significant changes. So when we, for example, see the visit development, which is strong, which is an indication of activity and then indicating churn versus no churn because the active members don't churn, we see a pretty strong visit development across all age segments. And it's not that one of the age segments are sticking strongly out in any specific direction.

Any other questions before we round off, Eirik?

Thanks for letting me jump back again. Two more country-specific ones. Denmark was back to being loss-making after 2 quarters around breakeven. What's kind of the main reason for this? And how should we think about that going into next year?

I think if you look at the Danish results, they have a very good growth in members in the quarter, compared to the other countries, we have somewhat higher campaign pressure and also a higher share of students coming in, which sort of dampens the increase in revenues in the month, but given the growth in the quarter, we should expect to see improving numbers again for the coming quarters. This is more peak season differences, more investment in growth.

Perfect. And also one on Sweden, kind of, if we lift the gates a bit, kind of pre-COVID, Sweden was kind of the star of the system, at least on profitability. Today, that role is kind of held helped by Norway. Is it possible to get back to pre-COVID profitability in Sweden? Or has there been alterations to the competitive landscape, other structural reasons like less favorable lease agreements, something like that, which would kind of indicate that, that's a bit of a stretch? Or do you feel Sweden now, both short and midterm is one of the countries that has kind of the most to go on in terms of improvements?

I think you're right in many of your reflections. If you compare Sweden to Norway, there are several differences during the pandemic. We saw the same hit in numbers in Sweden and Norway, even though Sweden was open throughout the whole pandemic period. At the same time, if we look at number of new clubs opening in Sweden compared to Norway, we have mostly opened new clubs in Sweden. So the capacity -- there's more capacity available in Sweden because we haven't really filled those clubs yet. So the share of members per club being lower than pre-pandemic is higher in Sweden for that sense. So that will lift the margins when we get to those members into those newest clubs. And then looking at leases, lease increases has been significantly higher in Sweden over the last 3 to 4 years. We are located in a prime location in the city area, where increases have been significantly higher than in the other parts of the portfolio, which also adds pressure to the margins. But we should definitely see a continued expansion of the margins going forward close to what we had in 2019.

Joachim [indiscernible] Please go ahead.

Just it seems like a lot of the earnings speed versus expectations today is driven by costs and if I'm right, I see that your costs are actually down year-over-year. Can you talk a little bit about that?

Yes, you're right. Cost is down year-over-year, if you look at currency adjusted numbers, which is more relevant and there are 2 main reasons for that. The cost efficiency program that we initiated last year is coming into effect. We've seen that throughout this full year, where we have lowered both overhead. We've done some adjustments to our leases, lowering rent costs and then also marketing spend. But in addition, we have lower direct costs, costs related to retail and PET just because the revenues are lower. And also last year, energy cost was extremely high compared to what the level that it is today. So the last 2 components, the direct cost and the energy cost sort of if you take that out, the underlying cost base is 1.7% up compared to last year, which is more representative for the cost base. It's still significantly lower than inflation. And looking at the full year, that part of the cost base has increased with 2.6%. So we see that the initiatives we have done on the cost side is taking significantly effect. But down 3% quarter-over-quarter is not something you should expect to see going forward.

Anymore questions? I think it's a good time to round off. Thank you, everyone, for good questions. And please feel free to come back to us if you have any questions today or later. Thank you. Have a good day.