Scandic Hotels Group AB (publ) (SHOT) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Scandic Hotels Group Audiocast Teleconference 2021. Today, I'm pleased to present Jens Mathiesen, President and CEO. [Operator Instructions] Also, please note that this call is being recorded. Jens, please begin your meeting.

Thank you very much, operator. And then good morning, everyone, and thank you for joining this short presentation. I'm here together with our CFO, Jan Johansson; and our Head of Investor Relations, Henrik Vikstrom. As you may recall, we said in our report for the first quarter in late April that we would give an update on market conditions today on June 15 since we thought visibility was so limited when we reported this report Q1. We will start this with a very short presentation, and then we will open up for questions that you might have afterwards. So if you please turn to Page 2 for this brief summary. Since we launched the Q1 report, we have seen improved demand in all our markets, driven by the eased restrictions. Our occupancy was around 20% in April, and it was 25% in May. For June, we expect occupancy to be at least 35%. Our customers are still acting with relatively short-lead time, but we conclude that our business on the books for July is clearly higher than it was at the same time last year. Hence, we expect our occupancy in July to exceed last year's level of 42%. If you please turn to Page 3. This shows the monthly market occupancy in the Nordic countries. We were down at very low levels of below 20% in December and January, and there has been a gradual improvement since then in all our markets, especially during April and May, as you also see. In May, market occupancy reached just below 30% in Sweden and Norway, while it was around 25% in Finland and Denmark. And if you turn to the next Page 4. Here, you see Scandic 7 days rolling occupancy development until Friday last week. It was around 15% in the beginning of April, and it successfully increased since then, and it is now approaching 35%. It has so far been a broad market recovery, where demand has improved in more or less all destinations, both during mid-weeks and in the weekends. The reason for this is quite obvious. We have seen a gradual easening of restrictions in all our markets, and that, of course, together with the vaccine program has driven the demand. There are still differences in restrictions between the countries, and there are also some regional variances. But societies has started to open up restaurants and amusement parks, et cetera, are now open, and we are seeing a gradual easening of opening hours and gathering restrictions, et cetera. In some markets, government have communicated plans for the gradual phasing out of restrictions with the target that they will more or less be gone after the summer this year. In the right, you can see that Norway has been the strongest market so far with an occupancy rate of -- at present of around, I would say, 40%. I should also add that our 4 German hotels are still affected by weak demand. Occupancy has increased as well, but from very, very low levels. It was below 10% 1 month ago, and it is now around 20% and increasing. For this summer, we expect demand to come mainly from domestic leisure. We expect more corporate activity, sports groups and cultural events, et cetera, from the early autumn and onwards. Initially, demand will be driven by the intra-Nordic travel, which normally accounts for just more than 80% of Scandic's total guests nights. We will probably have to wait until next year until we see international demand coming back significantly. If you turn to the next page 5. This shows Scandic's occupancy from the beginning of 2019 until last Friday. The occupancy levels right now are more than twice as high as they were at the same time last year, while it is still half of the pre-pandemic levels that we saw in mid-June 2019. Last year, there was a rapid improvement from the extreme low levels of only 6% to 8% in April and May, up to 42% in July, that improvement came almost entirely from domestic leisure demand, and it happened despite very low activity levels in the large cities throughout last summer. Our business on the books for July is today at a clearly higher level than it was at the same time last year. So currently, business on the books for July corresponds to 22% of our total capacity compared to 14% at the same time 1 year ago. One important reason for this is that we are seeing clearly higher booking activity for the large cities, as, of course, these restrictions are eased. With open restaurants, bars and amusement parks, et cetera, there are clearly more reasons to go to a big city compared to last year. And these destinations account for quite a considerable part of our solid portfolio. So this is very important for us. But even if this summer will be better than last year in the capital cities, occupancy is still likely to be very far from what we consider to be normal levels. On the next Page 6, you can see Scandic's occupancy in the capital cities between early May and mid-last week. It has increased lately, especially in Oslo, where it currently is 30% to 35%. It is around 25% in Stockholm and Copenhagen, but below 20% in Helsinki. So demand in the capital cities has remained lower than for other destinations in each market. In a normal year, occupancy should, during the summer months, be at least 75% in these cities. So there's still massive room for improvement here. With that, I hand it over to Jan for some financial update.

Yes. Thank you, Jens. And the road into that is through RevPAR here. You can see here still extremely low levels on RevPAR. But still, I think, 56% increase in May SEK 229, if you compare with the first quarter SEK 147. We, of course, expect that sequential development to continue. If you calculate backwards here and compare with the occupancy numbers, which we have given you, you will see also that we have an increase, an improvement in the average prices here, and that is due to more individual traveling, especially then coming into the weekends here. We expect that trend to continue and actually beat last year's prices here soon, and that is primarily then a segment mix. However, July, of course, that will be influenced by discounted packaged deals, as usual, during the summer then. And then we'll see what's happened during the autumn when the corporate traveling resumes. If we then turn to next page, a few comments here on what that will bring to the income statement and cash flow here. Even if we are now seeing much better numbers here, we still expect retroactive direct state aid in the region of at least SEK 200 million for Q2. Obviously, if the market then continues to improve, this effect will be less than last year. Also, with this in mind, including improved occupancy level and that we are still working very hard with reducing investment and controlled investment and also improved cost efficiency, taking advantage of the improved demand here, we will see a much better reduced cash outflow during Q2. And we repeat what we have said so many times before, we expect to have a positive cash flow and reach a breakeven in terms of cash flow at an occupancy not above 50%. We will see and try to see if we can actually get it a little bit below 50%. And we -- hopefully, we will have a reality test on that now during Q3. So that is how much we will say about the numbers right now. So I will leave the word back to Jens.

Thank you, Jan. So if you just turn to the last page, then to sum all of this up, we are really happy to see that the market is recovering in line with what we actually expected and also have communicated some month ago, with at least 35% occupancy in June and with a better July than last year, which is promising. As the government restrictions are successfully being eased off, we expect a gradual improvement of the Nordic hotel market, in general. And we are entering this recovery, to Jan's point, with a very low cost base. We will publish our half year report on July 16 at 7:30 and also have a call after that. And with that, I hand it over to you, operator. Thank you.

[Operator Instructions] Our first question comes from the line of Adela Dashian from Handelsbanken.

Can you hear me?

Yes, we can.

Great. I just had a question on your corporate guests, and if you could give us a little more color on that and how they're acting at the moment, especially when it comes to conferences, which is an important revenue stream for you in the fall? So have you seen any conference bookings already for this year? Or do you still expect this to take a while until the conference segment is back up and running?

Yes. We have seen smaller meetings lately, but that is smaller meetings, and it is in line with the easening of the number of people gathering. But the main part of meeting industry has actually been pushed until early autumn. So a lot of the meetings we have on the books, when it comes to meetings for 20 people and above, that is postponed until early autumn, which means late August and into September and ahead, so -- but we do have meetings on the books for the autumn, which has been pushed from this spring. But it's not that we don't see meetings. We do see smaller meetings. We do see people of 4 and 6 and 8 and 10 people gathering here and there and even some governmental meetings, which they have started to open up for. So it's not entirely 0, but it's very low levels right now. You also -- maybe I can add, you also had a bit of the corporate segment as such. And as we mentioned here, we actually see also increased occupancy levels during weekdays. So it has been pretty stable, I would say, and that's driven by a lot of blue-collar workers and then infrastructure buildings and other parts of our corporate segment. So that is also picking up.

And the next question comes from the line of Karl-Johan Bonnevier from DNB Markets.

Yes. Just to continue on that note, when you have done your annual, say, contract negotiation with corporate, kind of, say, discount structure they get and so on, has there been huge changes to that? Or have they kept, let's say, the gross amount they are looking for, for the future, even though they might not have been able to make use of it short term?

Well, it's a mix, actually. I think a large part of our corporate clients, which we renegotiated even in the late part of last year in Q4, a lot of -- because of this, let's say, uncertainty in the market, a lot of our corporate clients just prolonged the current agreement. So they prolonged without giving clear expectations for the levels, but on prices, they prolonged on current conditions, meaning that they were not pushing to get much lower rates. When that is said, of course, a large part of our very big corporate accounts, they have decreased a lot when it comes to their demand. So we are seeing much lower levels from the very big corporate clients when it comes to white-collar traveling. When it comes to infrastructure building, then we've seen quite, I would say, an okay level and still a demand also for the autumn picking up. But it's yet to be seen how much pressure on price we will see in the autumn when we need to renegotiate for next year. But as we are picking up right now, we expect that, that prices should be fairly okay given the conditions.

Excellent. Good to hear. Good to see that the market is recovering according to, basically, the time lines you discussed in -- both in the Q4 and Q1 report if you are looking at -- looking back at it. And now when you're getting into this recovery, do you expect some sort of tightness or risk to you when it comes to, say, rehiring staff that was forced to go during the worst part of the cycle, finding the right employees to get them back?

Yes. I would say for certain parts of our business, we have seen that it has started to be a bit of an issue. But also in other areas, we haven't seen it yet because we still have people on furlough that we have been calling back, you can say. But you are right in -- I would say 1 area that we are looking very focused into is chefs and kitchen workers because a lot of these people that have been on furlough for quite long have either left or had other opportunities in general. So we -- that's an area where we have a lot of focus to really secure that, let's say, the chefs are coming back or that we can employ new ones. So that's an area that we had an issue even before and which we think we need to fight continuously with also onward.

And just 1 final for me. When I look at the occupancy development per capital, obviously, you highlighted Helsinki falling a little behind. Is that related to that you normally see a higher international share of demand there? Or is there anything else one should have at the back of your mind there?

I think Karl-Johan, Jan here. I think what we have experienced is that Helsinki has probably been the city with the stronger regulations here. And we believe that, that is the effect. So -- but of course, we will have an effect of that the Far East demand will be gone for a while here. So -- but we should expect to have the same development in Helsinki as we have seen in Copenhagen, probably maybe with a little bit of a time delay, but eventually, it should come. I mean I think we should also mention here that Berlin has started to take off also, it was not on the slide show here, but we can see a reasonably strong improvement now in Berlin and the occupancy level starts now very soon with the 2, I can say. So it's not so far away from the Nordic capital cities there. So there are signs of improvement also there. But we should expect Helsinki to maybe come a little bit later than some of the others.

And we can also add that if you look at the different cities in Germany, normally Berlin and Hamburg is destinations that are pretty strong in leisure destinations during summer versus, for instance, Frankfurt that are much more business-oriented. So we expect a faster pickup in Hamburg and Berlin versus, for instance, Frankfurt.

[Operator Instructions] Our next question comes from the line of Jamie Rollo from Morgan Stanley.

You've helpfully given us the RevPAR figures for April and May this year. Could you please give us the figures for April, May 2019? And secondly, you talked a bit about room rates. I think you said improving versus last year. But if you could talk a bit more about that, I guess if you can work out the rate change versus 2019, if you give us the RevPAR numbers from the first question? And then the final thing, clearly, letter demand is picking up nicely. Do you expect the sort of outlook to get a bit worse after the summer when the leisure component becomes a little bit less of the revenue mix?

Currently here, I don't have April and May RevPAR, and that's the honest question. So maybe we can start with some other questions here and see if we can find the number during the call here. So I'll need to send Henrik here out to try to see if we can get that number here in the meanwhile. So I mean the tricky question, which you're raising here is, of course, what we see here after the summer? And the visibility is quite low. We -- as Jens said, we see more and more acquires regarding the meeting side here now. So that is something which we are actually working with and also try to find out. We may do a lot of inquiries with the corporate customers and so on to see it and try to understand the pattern here. So I think we are a little bit in the dark right now when it comes to the level of demand during autumn. I mean what we have seen during the spring is basically this infrastructure work. You have a project for some reason, but if you have take this white-collar business traveling that has been more or less 0 here during the spring and not so much will happen prior to the vacation here in the Nordics, that's we see it. So -- but we look forward to the autumn here with a positive view. I think the most important is that we don't have a setback when it comes to vaccination rates, when it comes to COVID-19 data. If the society and the authorities can deal with this virus, then I think we have all the reasons to look positive to the recovery also when it comes to the corporate traveling here. But the visibility we're looking into the numbers is very, very low. So we cannot really get any clues from that kind of analysis right now. So that is basically where we are with that.

And that's not only due to the COVID, that's the normal that business traveling is picking up very, very late even in a normal year. So that visibility is normally very low as well. So there might be a small dip after an intensive summer We saw that even last year and then picking up again once we come into early mid-September, but we expect also that the autumn September could be better than last year, if we are easing up restrictions as they currently confirm they are. So if we trust the governments, which we need to do, then the autumn should be fairly okay.

And on RevPAR, we haven't given our monthly RevPAR, but the second quarter, April to June in 2019, it was SEK 745. And it's more -- and usually June is better than the other months. So that should be probably a little bit lower than in April, I guess. So there is still a way to go, Jamie, here until we reach the older levels.

Yes. I've obviously got the Q2 '19 number, it would just be helpful to get the RevPAR change for the months you've given either by having the 2019 RevPAR to compare it against or to give us the room rate comparison?

But I think also that, Jamie, if you're after the sequential improvement between April and May, you have so many other disturbances there. I think -- I mean, this is about weekends, non-weekends, it's about Easter, non-Easter and so on and whether that has been big advanced. I think that analysis is -- I don't -- I'm not sure that -- yes, but...

I think we will stick to giving you as many quarterly updates as we can with quarterly figures. But there's also, of course, a limit for how much data we will bring out even to the market and competitors, et cetera. So we are extremely transparent on this and then -- and I'm very happy that we actually delivered, also we estimated like what's said both in the Q4 and the Q1 reporting. And summer is picking up exactly like we anticipated, together with easening of restrictions. So that's a very good news.

And we have 1 more question from the line of [indiscernible].

Am I being heard?

Yes.

Okay. You talked about RevPAR and cash flow, et cetera. Could you talk a little bit about personnel, staffing? How many people are actually working for you now as compared to pre-pandemic levels? You just give me a rough estimate that'd helpful.

Yes. Around 10,000 people right now compared to 18,000 pre-pandemic. So we are -- if you -- in very, very rough numbers, we are just below 10,000 people right now. But we are hiring in a few people here and there for the summer. But we were -- at a normal level during the summer, we would be some 18,000, 19,000 employees. So it is on some 55% of normal.

And what are the trends right now in the last couple of months? How is it coming up again?

Sorry, I didn't get that.

What's the trend now, has the numbers changed in terms of staffing the last couple of months?

I think -- Jan here, just to interrupt. I think what we focus on when we're controlling this is actually the number of working hours and that is how we measure this because it is some -- so it might be that you have a different personnel mix where people work part time and so on, depending on what kind of hotel you have, what kind of demand fluctuations you are having and so on. So what we looking new to when we try to control productivity and so on, that's the number of working hours you put in and how much do you actually need to pay for a working hour because that's the second element. It could be a little bit crucial and tricky from time to time. So that is -- so a little bit of less significant the number of names you have in the list here because it's a little bit about the individual health.

But we steer it extremely -- to Jan's point, we steer this extremely tight in all markets to secure that we come out in a -- with an even higher productivity in working hours for the customer, you can say, per sales versus what we did before. So we are steering very, very tightly to secure that we become an even more efficient company on the other side of the globe.

So how are working hours increasing right now, quickly or slowly or what would you say?

I think to that part to your question is probably if we believe that we can improve productivity during the summer, and yes, that is something. I mean when we look into during the spring, we are on a much worse level than we did in 2019. So obviously, this is one of the most important thing for us to do now is to see to that we take advantage to improve demand and see that we control working hours here. One of the tricks here is, of course, how we deal with the SMB outlets around our hotels. So we will continuously measure this look into opening our restaurant, bars and so on, see whether we should open restaurants or things like that. I mean during this pandemic, we have been forced to take down the service level in many of these outlets and so on, not only due to regulations, but also due to lack of demand. And for us to control this now in this upturn, I would say, success factor to do that. So -- but make no mistake, we measure this on a continuous basis now to see that we, at least, get something good out of this pandemic, and that should be better productivity.

And you can say the fact is that we have been, during the pandemic, not only putting people on furlough, we have also been dismissing quite a lot of people and we do not bring back the same number of managers. So for instance, on manager's level, we are fewer managers than before, and we will keep fewer managers in operation and on support offices than we did before. But of course, you can say that when in housekeeping, we were pretty efficient also before and we just secured that we have a high productivity level and whenever occupancy now is picking up in -- with the blue-collar workers. So why we are pretty sure of this and confirm this again and again that we will be more efficient is that we steer it from management level also with less managers in wholesale level and above versus before.

And as there are no further questions, I'll hand it back for any closing remarks.

Yes. But thank you for your time this morning, all of you, and thank you for dialing in and also for all of your very good and valid questions. From our side, we will be back in only about a month, the 16th of July with an update on the Q2 result. But thank you for listening in. We are very happy to see these improved numbers right now, which is following also the estimates we were giving earlier on. So positive trend in all our regions. So now we are looking forward to see the last restrictions on the grouping and in the markets being removed and vaccination to continue its speed then we look forward for the summer and also for a better autumn. But thank you all, and we'll talk to you all in about a month from now.

This concludes our conference call. Thank you all for attending. You may now disconnect your lines.