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Edited Transcript of SHOT.ST earnings conference call or presentation 24-Oct-19 7:00am GMT

Q3 2019 Scandic Hotels Group AB Earnings Call

Stockholm Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Scandic Hotels Group AB earnings conference call or presentation Thursday, October 24, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jan Johansson

Scandic Hotels Group AB (publ) - CFO

* Jens Mathiesen

Scandic Hotels Group AB (publ) - President & CEO

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Conference Call Participants

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* Andre Juillard

Deutsche Bank AG, Research Division - Research Analyst

* Carina Elmgren

Handelsbanken Capital Markets AB, Research Division - Research Analyst

* Karl-Johan Bonnevier

DNB Markets, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Scandic Hotels Group Q3 Report 2019. Today, I'm pleased to present Jens Mathiesen, President and CEO; and Jan Johansson, CFO. (Operator Instructions) Please note that this call is being recorded. I will now hand you over to Jens Mathiesen. Please begin.

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Jens Mathiesen, Scandic Hotels Group AB (publ) - President & CEO [2]

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Thank you very much, and good morning, everyone. Thank you for joining this presentation of Scandic Hotels Third Quarter Results.

Please turn to Page 2 for a brief summary of this quarter. First of all, overall, I am very pleased with our financial performance in this quarter. We reported sales growth of 6.6%. The like-for-like growth was 3%, which is a higher growth rate than we saw in the first half of the year. We saw solid demand growth in all our markets in the quarter, and the long-term trend of increased tourism has continued. Also, Scandic's RevPAR outgrew the market with the help of increased and more focused market initiatives.

We are happy to report our best quarterly result ever. Adjusted EBITDA was SEK 823 million, an increase of 12% from Q3 last year, and our margins improved in our 3 biggest markets: Sweden, Finland and Norway. And apart from the effect from a better top line, we did also benefit from increased cost efficiency. It was also encouraging to see continued increase in our cash flow. Apart from the improved result, we had lower CapEx and better working capital development compared to the same period last year.

On Page 3, you can see our financial performance on a 12-month rolling basis. Our revenues have increased from SEK 18 billion to SEK 18.7 billion since year-end, while the adjusted EBITDA margin is 10.9%, which is close to our target of 11% and at the same level as we reported for full year 2018.

Please turn to Page 4. In our last report, we launched 5 focus areas in order to further strengthen Scandic's profitability, cash flow and our market position. The first area relates to our hotel portfolio, where we intend to increase portfolio management activities in order to optimize the profitability and customer offering.

During 2019, we will leave 4 hotels that together have relatively limited earnings contributions and significant renovation needs. Two of these hotels were exited in Q3 in Finland, and the remaining 2 will be exited before year-end. This is something we will continue to work with over time.

The next area is F&B that includes bars, restaurants and meetings that together accounts for 1/3 of Scandic's revenues. We see a lot of potential to improve profitability from low levels in this area, and we are currently reviewing both the customer offerings and operating models across the business.

We recently signed an outsourcing agreement for the restaurant in one of our hotels in Denmark, and I do not rule out that we will see more deals like this in the future.

We're also working on improving our capital efficiency. Scandic has rapidly implemented a more structured CapEx approach, and we think this could lead to a reduction in the average CapEx that we spend per room. It is important for me to say, though, that this is not about building a sale, but rather that we are becoming more efficient.

Overall, we are well invested after a couple of years with relatively high maintenance CapEx levels in general. For 2019, we expect maintenance CapEx in relation to sales to be lower than it was in 2017 and 2018. We are also aiming at strengthening international distribution and sales, both in our own channels and with our partners, to ensure that we take our share of growth from international guests. We have recently increased our visibility among OTAs, and we have seen positive effects from this with a better RevPAR development than the overall market in the third quarter.

Finally, on digitalization, we have several ongoing projects to enhance efficiency, for instance, by replacing manual processes with optimization. And we are also focusing on improving the customer experience through digitalization, where one obvious example is that we will enable customers to use their mobile phone more in the interaction with Scandic. I want to emphasize that this is not just short-term focus areas, but rather something we intend to work actively with over time.

If you please turn to Page 5. Our RevPAR improved in all markets in the third quarter, and it was especially strong in Finland with a growth rate of around 10%. On the graph, you can see Scandic's RevPAR growth compared to market development, and we are very happy to see that we managed to outgrow the market in all Nordic countries. This is a better development for Scandic than we have seen in the past year, and one important reason is our increased and more focused market initiatives.

Please turn to Page 6. In August, we opened Scandic Falkoner in Copenhagen with 334 rooms. This is a well-known hotel and event venue that has been completely renovated and extended for 2 years since we took it over from another operator. This was a successful opening with high occupancy from day 1.

Also, as I mentioned before, we exited 2 hotels in Finland in the quarter in Lahti and Riihimäki with a total of 222 room -- sorry, 221 rooms. With the exit of Scandic Lahti, we have now fulfilled all conditions from the Finnish Competition Authority for the acquisition of Restel.

On Page 7, you can see our pipeline. We have added one hotel in Denmark, which is in Aarhus, with 480 rooms in the quarter. At the end of the third quarter, the total pipeline is amounted to 5,576 rooms, corresponding to 10.6% of the existing portfolio.

In addition, on Tuesday this week, we signed an agreement for a new conference hotel in Central Helsinki with 350 rooms called Scandic Avenue. This is not included in the table that you have in front of you.

Our pipeline has a strong focus on hotels in attractive locations at prioritized destinations, and we expect that the hotels in the pipeline will contribute to increased profitability for Scandic over time.

Please turn to Page 8. Here you can see market RevPAR development on a 12-month rolling basis. One graph that stands out here is Finland, where RevPAR is clearly picked up in the third quarter, thanks to strong underlying demand. And we believe that Finnish EU presidency has contributed positively to that.

Market RevPAR has continued to increase, both in Sweden and Norway, and the only Nordic market with negative trend is Denmark, explained by a significantly -- a capacity increase in Copenhagen. But all in all, relatively healthy market conditions in the quarter.

On Page 9, we show the market balance in all the Nordic markets. I will not comment on all these graphs, but I would like to highlight the demand growth. We estimate that the number of sold rooms increased by just above 5% for the Nordic region as a whole. It was very encouraging to see that the growth rate in the quarter was higher than in the past 12 months in all markets. One reason for this is the structural growth for tourism and international guests that has a positive impact, especially in the third quarter of the year. So this is some -- or let's say, to some extent, impacting the seasonality patterns and with the third quarter becoming more and more important over time.

We can also see that demand has outgrown the capacity in all markets, except for Denmark. This is a year where we have seen quite a lot of new capacity in some of the Nordic cities. But apart from Copenhagen, we do not really foresee much more additional capacity on our markets during the remainder of this year.

With that, I hand it over to you, Jan Yana, to take us through the financial part of this presentation.

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Jan Johansson, Scandic Hotels Group AB (publ) - CFO [3]

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Thank you, Jens. Yes. And then I think we should go to Page 11. It's on the -- right here on the pages, and I will then try to put some more color on the very strong numbers we are having. I'm going to go through the sales, the results, margin, EPS and cash flow and the financial position. And of course, I need to touch also on the negative effects from IFRS in the end of my presentation.

But we'll start with the top line. And you can see, and also as Jens said, we have improved like-for-like growth in Q3 compared with the first 6 months, where it was more or less flat. You can see here in this table to the right that Sweden and Finland contributed to that very much. I think in Sweden, it was not any specific region which stands out. It was more kind of an even good development throughout Sweden there. Also Finland, a good distribution of the development there. But of course, the EU presidency is primarily something which Helsinki benefits from and of course, with a strong number there.

Oslo has, of course, been negative due to the capacity increase there, but that has been compensated by rest of Norway, which I think also we said earlier during the year that we expected that to happen.

Denmark and Germany are both negative. So the Europe the number is not only Copenhagen. It's also so that we see that in Germany here, we are coming from a very, very high level, especially in Hamburg. And so it's hard to increase from that level actually.

And during Q3, of course, so that when we have such a good leisure demand, we are sold out on many days also.

Product-wise, I would like to have a few comments on the different products here. When we have this growth -- strong growth, it's primarily driven by rooms. If you look into the total like-for-like number for the year, 1.2%, approximately 2% is the underlying growth for rooms, while F&B is more or less flat. And I think that's important to remember.

We have had good contributions from the new hotels, Falkoner, Marski, Torget in Bergen as well as full year effect from Forssa in Finland, Hotel Norge and so on, 3.4%. However, that has been offset by -- that we have left some hotels. And that will, of course, continue to happen here as time goes by.

Total organic growth, 5.7% for the quarter; accumulated, 3.7%. And I would like to remember you about our financial objectives regarding organic growth, which is 5% per year, which should be seen over a cycle.

Looking into the different segments then. We have a group adjusted EBITDA which is up 12%, SEK 823 million. And as Jens said, that is the highest quarterly adjusted EBITDA ever in Scandic's history. It's helped by a margin increase from 15.1% up to 15.8%. Also in that context, we have a rolling adjusted EBITDA, which is actually about SEK 2 billion, which I think also is the first time we were over SEK 2 billion there and then more 10.9% of that number.

You can see in this table that we have margin increases in our 3 main markets: Sweden, Finland and Norway. The explanation for that is not that we are so extremely helped by RevPAR even if we have a healthy RevPAR development in third quarter of 3.2%, but more that we have a very high operational focus. We have careful planning of ours, we have implemented some more structural measures like eco stay and so on, which is helping margins.

We also have an improved performance in the Restel portfolio. Maybe not due to synergies, maybe more due to high operational focus. We have actually an uptick of 3% units now in the Restel portfolio compared without the acquisition, which I think is good. We have also continued with the F&B measures, Jens' measures, outsourcing. But we had a couple of downs and closures. We have done a reduction in opening hours and very careful manning, and that is actually supporting margin a lot right now.

Down over the next page, which is about EPS improvement. And here I think we have 3 different key ratios for EPS, which at the first glance is a little bit strange, but that's due to IFRS 16. The strongest quarter in history, it seems a little bit awkward to report this line in EPS, which is down from SEK 3.83 down to SEK 3.76, as you can see there. However, if we exclude the effects from financial leasing and IFRS 16, it's up 10% to SEK 4.28. And if we also exclude the nonrecurring items, you remember that we had a lot of integration cost last year for Restel, it's anyway up with 7%.

Not the same improvement speed as we have for adjusted EBITDA, but we have a onetime effect in our depreciation. We have done a write-off of SEK 14 million to our assets in loss-making Norwegian hotels, which is included in the EPS number. Not recorded, though, as an item affecting comparability.

And -- yes. And then over to cash flow on the next page, Page 14. And you can see here a fantastic improvement of SEK 600 million versus last year. And in Q3 in isolation, it's almost SEK 250 million versus last year. But here, I need to moderate your expectations a little bit for the full year and maybe explain what has happened here. We had less seasonal buildup of working capital, around SEK 200 million. Partly, and maybe to the lesser extent, this is explained by better credit management. We are more better at collecting debt. That is one explanation. But there is also a change in business mix, more individual travels and so on, which means less invoicing and more upfront payment, which is one explanation. The other explanation is maintenance CapEx, where we are SEK 100 million below last year. Part of that explanation is that last year, we had rebranding activities included in the maintenance CapEx. And also last year, we had a restructuring cost of SEK 100 million, which we don't have today due to the Restel integration. But anyway, also with this explanation, we have a strong cash flow performance, as you can see.

Net debt is now under SEK 4 billion, as you can see, despite negative currency effect of SEK 100 million or SEK 150 million. We are on a net debt adjusted EBITDA of 2.0. We will dividend here next week, SEK 1.35 per share, meaning around SEK 180 million. But even -- having said that, even with this dividend, we will have positive seasonal effects of working capital towards the year-end. So we are quite confident that we will arrive on a net debt-to-adjusted EBITDA below 2 for the year, which means, of course, that we have a strong balance sheet and we have some ability to maneuver there.

And then we should go down -- go over to the IFRS 16 or the financial leasing impact on the income statement. And that is, as you can see, a very negative impact. You remember, the principle with this recommendation is that you basically split the variable ramp into depreciation, which boosts the EBITDA number, but then also put kind of a (inaudible) interest on that. The net effect of this is that we lower EPS with some 20%. As you can see here, the net effect on a full year basis is around SEK 200 million.

We also incurred a leasing debt of SEK 25 billion. However, the average maturity on that leasing debt is 50 years. So I mean when you look upon our balance sheet here, you can look upon it in 2 ways. One is including IFRS, the net debt-to-EBITDA will then be around 6, which at the first glance is very high. And you come from that point, then you see that we have quite a fresh balance sheet. However, please remember then that the average maturity is over 50 years, which means that this key ratio is a little bit strange, in my opinion. Excluding IFRS, we get the picture where we have a net debt-to-EBITDA of around 2.

So -- but basically, that's what I would like to say to you. In summary, we have a strong growth, we have a margin which goes in the right direction in our key markets and also very strong cash flow.

And with that, I hand the word back to you, Jens.

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Jens Mathiesen, Scandic Hotels Group AB (publ) - President & CEO [4]

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Thank you, Yana. And I thank you for taking us through these very strong numbers. If we look at the outlook, our near-term outlook is that we expect relatively stable market conditions in the fourth quarter with like-for-like growth of between 0% and 1% but slightly, hopefully, positive. In addition, more rooms in operation is expected to contribute with 2% to net sales. And of course, we will continue with our work of our focus areas in order to drive our profitability and cash flow and our market position in general.

With that, I hand it back to you, operator, and thank you for listening in.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Carina Elmgren from Handelsbanken.

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Carina Elmgren, Handelsbanken Capital Markets AB, Research Division - Research Analyst [2]

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I have 2 questions. Finland was very strong. And as you mentioned, it was impacted by the presidency of the EU. Do you see that Q4 is going to be equally strong? Or do you know if the meetings were more concentrated due to either of the quarters Q3 and 4? That would be my first question.

The second, how much would you estimate that your efficiency improvement effort has impacted margins in the quarter? If it's possible to have an estimate on that.

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Jens Mathiesen, Scandic Hotels Group AB (publ) - President & CEO [3]

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Thank you very much. I think if we take the first one, of course, it's really difficult to see the impact on the EU presidency as a separate item, but you're -- it's a very fair question. I think we've seen quite a good activity level, especially in the middle of the second half, which means from later August and into I think actually early October. It was quite a lot of activities. So we even see the beginning of October being quite okay. And whereas we see the later part of the Q4 being without a lot of business coming from that part, at least, when we look into the numbers.

So -- and we also saw that the effect of Q3 was very strongly impacted, like Jan also mentioned with the effect from a lot of tourism industry, which is high in that quarter. Also quite okay in the beginning of October, but -- which is flattening out. So that's part of the reason why we estimate quite slower for the rest of the year because Q4 is more comparable perhaps to Q1 as a whole, and we should be more and more aware that Q2 and Q3 are much stronger quarters in general.

For the efficiency levels and the initiatives, we have taken a lot of initiatives, like we've stated, and we have a high focus in the organization in order to optimize our margins and our business. And I'm very, very satisfied with seeing that this is paying off in all our markets and that we are becoming more and more efficient. So what we see is actually that we increased -- in Q3, we increased the top line like you've seen a lot compared with like-for-like, but we saved work hours as a whole. So we actually saved work hours on a total scale, which means that we -- on every, let's say, monthly and weekly basis see that we save work hours, have become more efficient, even though we increased our top line. And that's a very healthy, I would say, development. And that's, of course, something we aim to continue to focus on also in the future to come.

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Carina Elmgren, Handelsbanken Capital Markets AB, Research Division - Research Analyst [4]

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Okay. Is it possible to quantify that effect on margins, do you think?

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Jens Mathiesen, Scandic Hotels Group AB (publ) - President & CEO [5]

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Yes. You could say it's very difficult, but we -- because we are doing it. It is not about 1 or 2 things, but you have heard about some of the initiatives we have been taking, like the eco stay in Sweden. And then we do a lot of efficiency areas in the F&B, where we have done a lot of initiatives. So -- but to quantify, maybe, Jan, you can...

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Jan Johansson, Scandic Hotels Group AB (publ) - CFO [6]

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Yes. Yes. I think if you look upon Sweden and Norway, I think what we have done there is more or less that we have compensated for inflationary costs. It's also so that if you look upon the full year line for the first 9 months, it's more or less a flat RevPAR development in these areas. Where we have kind of a very, very significant impact on the margins, on cost initiatives is similar, where we can see that the gross operating profits have increased a lot, which I think you can also see when you look upon the accumulated numbers, where we have an uplift of almost 2%. And that is primarily driven from the cost efficiency. And of course, the Restel portfolio is a good contributor there in that sense.

So -- but I mean, we need -- as we have said before, we need to have a RevPAR of around 2% to compensate for inflationary cost because we are personnel intensity businesses. So that's how far we can answer right now, but I think it is extremely important and relevant questions here.

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Operator [7]

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

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [8]

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Yes. Jens, to start off with your demand outlook because, obviously, you capitalize very well on the lesser demand during Q3. And now going into Q4, are you seeing all that business demand is expected to be a little slower? Or what do you see in, say, your corporate negotiation and to your big contracts there?

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Jens Mathiesen, Scandic Hotels Group AB (publ) - President & CEO [9]

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Well, we actually -- we've seen that, I would say, almost all year that the corporate segment is quite stable, but it doesn't increase, and we don't -- we haven't seen any decline either. We expect also levels -- and further, there are no big signals for next year that this should be a big change versus this year when it comes to corporate traveling. And we do have a very solid base, like you all know, in the corporate segment. But when it's very flat like it is, we expect also this to continue.

I think we have a lot of initiatives where we have proven now, especially in the last part of Q2 and in Q3, that a lot of our initiatives on the online sales and international sales is paying off. And of course, you also have international business in the winter season, even though it's much smaller. So I expect us to continue, of course, with our focus areas, but the biggest uplift will be in Q2 and Q3 also in the coming years.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [10]

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Excellent. And on those extended cooperations you are doing with the OTAs, and you indicated that it's a good RevPAR driver for you, we also see it as a good EBITDA driver. So that you are converting that extra -- or how is it working when it comes to the -- all these fees that you need to pay?

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Jens Mathiesen, Scandic Hotels Group AB (publ) - President & CEO [11]

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Yes, it is because we haven't -- actually, we haven't increased our commissions in this level. We fight the commission on the booking as such. So we -- if we get more bookings, we, of course, pay a higher commission on those, but we are not increasing. So we don't pay more to get more business. That's important to say. What we do is actually, we use a lot of different initiatives, and I'd rather not put them all on the line because then all the competitors will do the same. But I think we are quite clever in the way we optimize in these channels in order to get more bookings out of those. And we have seen that our conversions happen from the number of visitors into on-site and to OTAs is increasing, and that's an important number for us to follow.

So we are doing a lot of small initiatives to optimize it. It's also the way we put forward pricing, the way we put forward the different offering. When we do campaigns, not only doing it by own page, but also on the OTAs, et cetera, and we have succeeded with doing them.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [12]

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Excellent. You indicated that CapEx levels should be coming down in 2020. I think when I look back at '17, '18, as you said, a base, you were close to 4% of revenues or something like that. And this year, you seem to end up around 3.5% CapEx to sales. Do we expect it sliding down towards the 3% level? Or is it more similar to 2019?

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Jan Johansson, Scandic Hotels Group AB (publ) - CFO [13]

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The 3% level, of course, that would be desirable. But we will not, and I repeat, not create a tail in our portfolio. We cannot afford that. So I think we will, of course, need to look in every opportunity to lower CapEx, more efficient sourcing, more efficient room configuration and everything. But I think for the time being, I think you shouldn't expect us to go down to 3%. We should be somewhere around 3.5% to 4%. But we will come back to you and inform you about the measures we are doing there because we -- this is one of the best medicines to improve cash flow over time to see to that we have the right level of maintenance CapEx.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [14]

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So somewhere in the range of 3% to 3.5% for 2020?

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Jan Johansson, Scandic Hotels Group AB (publ) - CFO [15]

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3.5%. Did I say that, 3.5% to 4% (inaudible).

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [16]

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Okay. No. I thought it's implied that there was -- with the opportunities, it would be slightly lower in 2020.

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Jan Johansson, Scandic Hotels Group AB (publ) - CFO [17]

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Yes, yes, yes.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [18]

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Then just on -- Jan, you mentioned the financial maneuverability that you now have of looking at cash flow and the strong balance sheet. Is there any reason why you should, for an extended time, be far below 2x net debt to EBITDA?

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Jan Johansson, Scandic Hotels Group AB (publ) - CFO [19]

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No, not for an extended time. So -- but I can assure you that I think the team here, I think we are actually -- yes, of course, we need to identify opportunities where we can return this money in a good way. But for an extended time, we shouldn't be below 2%. But I think it's a good position right now because it means that if there are opportunities, if there are business opportunities which comes along, we can be quite fast here also. And it gives us maneuverability, as you say here. So I think it's quite good. I think we have restored the balance sheet, I think, according to plan after the Restel acquisition, and we have been -- also been able to invest in new hotels and also in maintenance CapEx. So I think we're in a good position.

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Karl-Johan Bonnevier, DNB Markets, Research Division - Analyst [20]

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Excellent. And just one final one. You mentioned the SEK 40 million write-off of some of Norwegian hotels that didn't perform. Are there a lot of those kind of hotels still out there for you?

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Jan Johansson, Scandic Hotels Group AB (publ) - CFO [21]

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Sorry, it was SEK 14 million, 1-4. No.-- Yes, 1-4. I think we mentioned it in the report also. No, but I think as we have mentioned, we have 10 to 15 hotels, which is not really defending its asset values. And so, I mean, we have to clean up the balance sheet in that area. That's our accounting practice. But I think it also -- I mean, we have talked about actually looking into the tail and so on. So I think you should look upon that also as a preparation for doing that.

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Operator [22]

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And our last question comes from the line of Andre Juillard from Deutsche Bank.

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Andre Juillard, Deutsche Bank AG, Research Division - Research Analyst [23]

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Congratulations on this strong publication. Quite impressive. My questions were not far from the ones which have just been asked. But regarding top line first, I wanted to know if you could give us some more visibility on the split between the different distribution modes, taking in consideration OTAs, travel agencies, direct booking and so on. And regarding top line as well, I wanted to know if you have started the renegotiation of the prices for next year. And if you had a kind of visibility on what could happen out of the feeling you have already given.

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Jens Mathiesen, Scandic Hotels Group AB (publ) - President & CEO [24]

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Yes. Two things you can say. When we look at this, we, of course, follow it on a close monthly basis on -- from our side. But if we look at, let's say, OTAs and such, we -- OTAs is still a smaller part of our total distribution. We still control directly bookings more than 60%. So 60% of the bookings is coming directly into Scandic's different systems online or call centers, et cetera. And the OTA part is still below 20% on a yearly basis. So even though it's increasing both, OTAs and Scandic directly online, it is still less than 20% of OTAs. So we are extremely good at Scandic to get a lot of business directly into our systems. We know for a fact that a lot of our competitors has a much larger share of OTA business and thereby, also higher commissional costs so -- for that.

When we look at the corporate segment, it is still early days. But of course, when we look at the -- especially the larger cities where we have extremely high occupancy levels, prices will go up in -- when we look at next year. And even though there will be quite a lot of capacity in some cities like Copenhagen, we are also seeing that Oslo already got their capacity increase this year, and we don't foresee a lot of new coming in. Also, Stockholm is rather stable next year in terms of that. And we're still maintaining quite a high occupancy level, meaning also that, of course, we expect that the prices and average room rate will be a bit higher next year.

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Andre Juillard, Deutsche Bank AG, Research Division - Research Analyst [25]

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Okay. Do you think that you are a little bit [toppish] in terms of occupancy? Or do you still have a margin of maneuver and the feeling that you can still continue to improve a little bit that indicator?

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Jens Mathiesen, Scandic Hotels Group AB (publ) - President & CEO [26]

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The occupancy, you mean?

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Andre Juillard, Deutsche Bank AG, Research Division - Research Analyst [27]

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Yes.

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Jens Mathiesen, Scandic Hotels Group AB (publ) - President & CEO [28]

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Sorry. Well, yes, it's, of course, where we especially have -- you would say we have kind of 2 seasonalities because we have the winter half and we have the summer half. And if we look at the summer half, we have extremely high occupancy level in the main cities, and there it's very difficult to drive a lot of occupancy. Whereas in the winter, everybody is fighting for every guest. So that's more, let's say, an occupancy -- or driver of the number of guests into your hotels. So -- but of course, we can increase occupancy levels of especially, I would say, the shelter seasons of the business in general.

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Jan Johansson, Scandic Hotels Group AB (publ) - CFO [29]

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I think it's a good question because I think what -- the opportunities we have and where I think we have -- tend to be the best there is that we've used the strong demand in the summer to boost prices there because I mean we are sold out on many days in key destination. So there are definitely price opportunities there. But I think the seasonality gets stronger and stronger, and you need to adjust your pricing strategy to that.

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Andre Juillard, Deutsche Bank AG, Research Division - Research Analyst [30]

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Okay. Regarding profitability, you are mentioning that 11% was the target for EBITDA. Do you think some -- that you will have some additional opportunities to go higher than that? Or is this a normal level, I would say, or the real target where you feel comfortable?

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Jan Johansson, Scandic Hotels Group AB (publ) - CFO [31]

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There are no normal levels. I think that's the interest, to have a normal level. I think there are definitely opportunities. This is about the hotel portfolio. It's about the configuration of the hotels. It's about the location of the hotels. In order to drive that over a cycle, the key medicine there is how we work with the hotel portfolio.

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Andre Juillard, Deutsche Bank AG, Research Division - Research Analyst [32]

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Okay. Regarding cash flow, you were talking about this CapEx level of 3.5% to 4%, which appears to me as relatively low considering your asset-heavy model. Do you think that this is a level of CapEx which is sustainable in the medium term? Or is this a level that you are expecting to reach this year and the year after and then you will be obliged to go up again with a refurbishment and so on?

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Jan Johansson, Scandic Hotels Group AB (publ) - CFO [33]

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No. But there is also -- besides the operational opportunities where we have -- where I think we can do better is sourcing. I think it's also about to see that we put the money in the right places here and see to that we have the optimal configuration. To be a little bit more open on that plan actually, I think maybe we have overinvested a little bit in F&B area, for example, which also drives up the rates, of course. So I mean, over time, if we are really, really careful in what we are doing, I think we should be finding between 3.5% and 4%. But it requires that we have a careful plan and that we see this over time and so on. We have definitely opportunities in that area, in the maintenance area.

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Andre Juillard, Deutsche Bank AG, Research Division - Research Analyst [34]

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Okay. Last question about net-debt-to-EBITDA. So you expect it to be below 2x for this year, and you are mentioning that you are opportunistic in terms of development. Or eventually -- is it eventually M&A as well? And if yes, do you still focus on the Nordics or do you more and more look to other markets and other opportunities?

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Jens Mathiesen, Scandic Hotels Group AB (publ) - President & CEO [35]

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Well, we -- in general, we have said that we want to continue to expand in the Nordics, and we are also, as you know, developing hotels now in the German market. We also say -- see that we do have a very healthy pipeline. And as you saw, we just added a fantastic new policy coming into the Helsinki market, and we still believe that we can add to the portfolio in the years to come in our strong regions that we are already extremely good at working in.

So we want to be -- right now, we are focusing on a lot of these focus areas in order to make sure that we have, let's say, the best exit point if opportunities then occurs and puts up in the market in the years to come. We think that if we go into a troublesome years -- let's say, the year to come, it will be a bit less growth in the European market. Of course, there will be opportunities for us. And we haven't decided which markets we then would look at, but we are keeping an open eye, and we are just making sure that we are ready when opportunities pop up. But right now, the focus is on the coming years and also to really deliver on our promises to you guys and the market there on these promises in our focus areas.

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Andre Juillard, Deutsche Bank AG, Research Division - Research Analyst [36]

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Okay. Sorry to have an additional question. Regarding the 15 hotels to be exited from the actual portfolio, could you give us some more visibility on the actual contribution or loss season? And do you have a rough idea of the existing cost that could be generated?

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Jens Mathiesen, Scandic Hotels Group AB (publ) - President & CEO [37]

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We are not taking in any cost on this at least yet to exit these contracts, and we haven't said it's 15. We said that we have 10 to 15 hotels that are lower-performing and are (inaudible). And if you look at it on a total basis, we have like -- in round figures, we have like around SEK 1 billion in turnover that do not add real value to Scandic -- or add profit to Scandic. So -- and that's these 10 to 15 hotels. And of course, some of these are negatively performing on EBITDA level and some are with very low single-digit margins.

So what we have said was that we expected -- I said this summer that we expected a handful to be exited within the coming 12 months said from the summer. Now we have actually told you that we delivered 4 of these during this year. And I expect us to exit more hotels during next year. How many, I don't know. But I would not be surprised, and you shouldn't be surprised, if this is maybe a handful as well from looking -- from now and 12 months ahead. So we are working with this, and we are not paying us out of it. We -- it is something that we have a really good dialogue with the landlords about, and some of these landlords is also landlords that we have a lot of hotels with. So this is done in a good cooperation.

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Operator [38]

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Thank you. And as we have no more questions registered, and I'll hand back to our speakers for any closing comments.

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Jens Mathiesen, Scandic Hotels Group AB (publ) - President & CEO [39]

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Thank you very much, and thank you all for listening in and for your very good questions, and I'm looking forward to see you all out there. Thank you very much, and have a good day.

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Operator [40]

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