Yes. Then it's 10:30. So good morning and welcome everyone to this live Q and A session following our 2nd quarter presentation. Thank you for joining. Great to see many known names in the call.
This is a 30 minute session, so we will not go through the presentation in detail. We assume that you have been able to have some time to both read the report and also look at parts or the full presentation. I just thought we could give you now a few minutes in the beginning with the highlights and then we will open for question. And we will use the normal raise the hand function in Teams for the questions. So in the room here, we have Stine, who is our IR responsible.
And then we have Martin, who will step in to Stine's role when she is leaving now from maternity leave and we have Cecilia, the CFO and Sondre, myself, CEO. So just to give you a brief update of the quarter, it's been, of course, a mixed quarter. We started the quarter with Most of our clubs in Norway and Denmark closed, which of course heavily affected the financials also this quarter. But we ended the quarter with all clubs open and with a very positive recovery after the reopening. So we see that we are on a solid way back when it comes to getting the member base back on track.
We see that the reopening this year has been, if anything, stronger than the reopening last year. A higher share of the member base has been activated. We see visits are growing and we also see that not the frequency of visits from the active members are growing, including the member satisfaction. So overall, 7% increase in the paying member base in the quarter. And then please We've taken a hit with a lot of inactivity during the pandemic, but we expect the demand to increase going forward.
And that's also, so to say, the backdrop on why we are investing quite heavily in growth going forward. We have opened 18 new clubs in 2020 and so far the first half of twenty twenty one. And we have already signed and confirmed 19 new club openings until the end of 2022 with 13 coming already in the second half of this year. And we have seen a very good development in these days. And we have opened so far this year.
And in addition to investing in our physical growth, We are all done investing continuing to invest in our digital growth, both on the SaaS platform and with the new home training platform that we mentioned last quarter that we will launch now for the summer in Q3 and provide us. And the first product there will be reflect mirror, which is an interactive fitness mirror. So overall, we are very despite the reopening. And then of course, the financial result for the quarter is weak as a result of the It's true, also affecting our numbers in this quarter. So with that introduction, I think we're just leaving off Q and A and hopefully there's a lot of questions.
Who is first
Hi, good morning all. Three questions from me, please. Given the very encouraging initial response, when do you expect like for like membership maturing distant drugs Return to pre COVID levels. And secondly, is there any permanent change to your cost structure? So in other words, when mobile share levels turn to pre COVID, will the margins be As before or even better?
And lastly, pardon my ignorance, but
how long
can members Please stay on the bushel at the moment given our clubs are already open.
Yes. I can answer moment and then Cecile will answer on the margins. We're not guiding on a date on when we expect the member base to be back at the free comp level. We entered we'll be around 700,000 members. As we have reported now, we are leaving out the second quarter with 612 1,000 members.
We have had the loss in the member base or a reduction in member base throughout the short period, percent, not because of increased churn, but because of the lagging sales. Actually churn has been quite stable throughout COVID, as we saw before COVID. So we expect a quite big recovery as indicated already now in Q2. Remember, the growth in the member base is 7 percent growth in paying members. It's mainly coming from 1 month with full operating, not the 3rd quarter with full operating.
So we expect a pretty rapid recovery throughout autumn, but we're not setting a concrete date for when the lifetime occupancy base will be back at pre COVID level. And then when it comes to freeze, just a general comment. We have had very, to say freeze It's been very easy to freeze your membership. You can do it earlier yourself digitally, but just stating Corona or COVID-nineteen as a reason. Hence, our fees levels have been very high.
So for example, in Sweden, even though we have had double purchase open, these levels have been very high compared to a normal situation, which is affecting revenues. Then the freeze levels are now coming down quite significantly, still 8 out of 10, so 80% of the current freeze has stated Corona as a reason. We will gradually activate those memberships after the summer. And currently, you can only freeze until the end of August with corona as a reason. And then after the summer, we will not continue, so to speak, to have the general fees So that you can easily just fix your membership yourself with current asset leasing.
That's the opportunity we will change towards the end of August. Then we will expect fixed levels quite quickly throughout the fall to come to a normalized level in all countries. And then margins. Cecilia?
When it comes to the cost base, I guess the short answer is that it has not been long term materially affected by the pandemic. Of course, we initiated several initiatives just to make sure that we reduce the cost base when the first lockdown came. There are some additional costs related to stricter infection control regions. But overall, I mean we always work optimizing our cost base. So we've been able through this pandemic to keep Cost base in line with what we had before the pandemic, and we expect that going forward as well.
So margins will be at the same level as soon as we And we ship back to the same levels that we had before.
And Elias
Yes. Thanks, guys. Erik from Carnegie here. A couple of questions from me as well. And I think one is kind of a housekeeping question.
So on The question is on Slide 29. Just to be firm and kind of understand that on the actual price increase of 4.7%. Just to be clear, that's It's pure price hikes and not any kind of positive mix effects of more people opting for, for instance, VX. I also noted in the presentation that you stated that you're doing selective campaigning but not discounting running price dollars more contractual price and that you're less aggressive on the campaigning after the reopening last year. If you could just please remind us what the kind of extraordinary marketing cost was in Q2 and Q3 last year and how much lower this This year.
And my final question is Sweden. I think that's been kind of generally very impressed on EBITDA through the pandemic. And if you could just please give some more color on the kind of collapse in EBITDA in Q2. I think Top line was down about 10% in Q1, but EBITDA was still decent. I understand that freeze rates are coming But anything else than the fees in Sweden?
Thank you.
Sure. When it comes to the price and the yield development, we report on the compression for price because that better So what the underlying development is in our members are actually paying because the yield is affected by Freeze campaigns we do. So we need to follow the contractual price. And since we haven't discounted We haven't had any campaign discounting the price permanently. We have had campaigns where you give away 1 or 2 months for 3.
And then from month 3 ks the full price. And discounts that we give away have to defer
over a
full binding period. That's why the deal is expected so hard, While the contractual price that we
sort of
take it and when we talk about the run rates going forward has been increasing. It has been sort of stabilizing over the last month because we have sold tight restrictions on Dx as an example. But when we the restrictions are listed, we expect the sale of GX or region membership to increase As for the time. And when it comes to Sweden, you're right. We even have solid results for a long time in Sweden.
But Over the last 6 months, restrictions have really been tightening in Sweden as well despite being able to have open clubs. So it is actually freeze levels in Sweden that is the main reason for the drop in the Solkad last year. Because last year, which is in the beginning of the pandemic, there was no really restriction at all. And we see that we have limited number of Participants in DX as an example, meaning that a huge part of the product offering has been limited significantly and that is why More members than average members on hold.
And then this is the last part of Sweden. So these which is also confirmed by the government, total cash tomorrow. So then we will be back to market on normal capacity. And then Also with the point earlier on, we're changing the freezing regime of the summer. We expect this situation to normalize very quickly in Sweden.
Then we are part of marketing investments. I think the marketing cost of campaigning is twofold, right? So one thing is the direct marketing investment. That will not be lower. Then after the first reopening, we are quite aggressive and comfortable, so to say, in direct paid marketing.
Where we are not as I said last year is that the local volume we saw last year in Q3 after the reopening was 2 months So basically, we're starting to pay some membership prior after the 1st month. Now we are doing more selective marketing and differentiating the marketing more in different markets based situation and quite a lot of the sales is not on few months free campaigning and more like 1 month free on average. But there are different campaign mechanisms we are using, but overall the implied cost of the marketing campaigning. We'll be somewhat longer this reopening compared to the previous reopening. That's very clear.
Thank you. Thanks, Clari. And Karsten is next.
Yes. Thank you. I think one thing we learned from the pandemic is that This is also very unpredictable. I mean, you have opened, closed, opened, closed throughout the year. And I guess you're also seeing Surprised on the negative side in times.
So definitely a bit surprised That you with the leverage you have on your balance sheet, that you are quite aggressive in terms of reopening or opening up new costs. I'm not concerned. We might have more unpredictable restrictions going forward. And definitely, you could say put your business model on the line or on the pitch, that kind of strategy.
Yes. Thank you for raising that, Vikram. And yes, it's unpredictable, and we have learned that. But what we see now is that we are operating with a very heavy restoration state in all countries. But what we see is that The visit development is, if anything, stronger than after the reopening last year, as I said.
And we expect And then we also see that with our strong club clusters, both in Copenhagen and in Oslo and in Stockholm and in Helsinki and so on, We see that we are able due to the distribution of visits, but even with quite strict restrictions because we have capacity before the pandemic in our network. So, visitors visits are distributed more equally throughout through just throughout the week and throughout the day. We see that we are able to still operate with actually higher risk levels than we had in 2019, so pre COVID, even with restrictions in place. And that combined with the fact that We see an expected increased amount for fitness in general going forward. And we expect That's the penetration of the paid membership and ability to grow business to pay for staying healthy is increasing.
So that's why we are expanding. And so far, we see, as I said, that the new openings are performing very well. And what we are doing, we are seeing quite selective, so to say, in the spots where we open clubs. It's clear white spots where we have been not searching for real estate and good real estate opportunities for a long time. But pre the pandemic, we didn't find it, so to say.
Now what we see is that we get a much more incoming spoke of real estate opportunities after the in the main vehicle companies, so to say. And that opens some opportunities that we have been longing for this program. And so it's a combination of that and also where we basically and our capacity where we have transport clubs. So we are still quite, so to say, selective in the club openings.
Okay. And then but among I want to stress that the leverage on your balance sheet is very high and you can pay
attention
We have very excellent demand so far in the Scandinavian countries. To what extent is that affecting the business?
Great. Summer is not a high season for us in general. And I think that it's fair to say that so far the last couple of days or the 1st 2 weeks of July It has been different than a normal store. Mortgage bars staying at stay home and having their holiday back home, which is, of course, making visits on higher level. We see quite the normal July, but we see quite a big difference in the different cities and countries.
And in some quarters, for example, in some countries, we see that there is quite a lot of people traveling. And when travel increases, of course, Few people are staying home and that is affecting also the July business. So far, the period of the Q2 ending so far in July. We are happy with the development of this SME system.
Thank you.
Thank you. Over to Knut Klooskar. Yes.
Thank you. I just wanted to clarify this compensation from the government, the decent SEK70 1,000,000 that Are those lost sort of forever? Or is there any chance that you can recover some of those in the euros or sustainable with regard to this potential SEK70 1,000,000?
Well, we haven't included them in the years So the Q2, meaning that with the least lags Of the fixed cost compensation, we will not pay your credit. It's I'm not sure that was the intention when they made the clarification on how companies should be treated. So we will, of course, leave it, but we haven't taken into account in our numbers or our plans going forward.
So I think that you will qualify for those SEK70 1,000,000 that you're saying.
Based on the description of how the compensation scheme is right now, it's most likely. But we will have to See if that was the intention when they set up the new regulations.
Is there any risk with regards to compensation that has already been received or booked in previous quarters?
It was tightening of the restrictions as of March. So we have already applied and received the compensation for November to February.
So this is an actual change.
Yes. This is a change in the
That was communicated quite a bit.
Okay. Final question for me. I
think you
mentioned on the call earlier that you expected net debt to rise a bit also in Q3. I'm not sure about Q4, but that means that we're going to see sort of a cash burn also in You don't expect return to positive cash flow in Q3?
In Q3, we will We have some deferral effects on working capital. At the same time, it will be a quarter where we invest Heavy in marketing and getting all of our members back fully staffed clubs. So normally, Q3 is a weak quarter. So based on that, There will be some cash burn in the quarter.
I just wondered, can you talk a bit about sort of how you see the cost pre and post COVID? Should we sort of expect the same level After COVID as well? Or do you see any difference there? Secondly, the rental escalates, I guess, on clubs means that this is not only a play on getting the members back. There's actually a plan on attracting new members that have not historically been active in your clubs.
And what can you say about Activity that you see so far about actually new members coming into the club that they are not historically been active in your clubs. I'm not sure if you have communicated it, but what is actually the current lease level, if you can say that? And on the last question, we have the working capital. So if you can give Please talk to you a bit more insight, how we should think about that in Q4 for the coming quarter. If you can give some more color on that, that would be very, very helpful.
Thank you.
Can you start commenting on Levkor's and working capital?
So overall, we don't see any material change in the cost.
A third
of the cost is related to rent, third is related to staffing and the other third is all of the other cost items. So when it comes to the 3rd that's related to transacting, we make sure that there is a quality number of visits. So in the period now where we have lower visits and lower members, we are able to reduce that cost on us. So of course, In the below membership business, the number of visits, the cost will be slightly lower, but As it is in the normal year during the normal seasonality. So no really change in the club costs on average per club.
We're adding some clubs, so that would be that rarely we will have higher club cost before we're able to really All those clubs with me, members here also
ask the
boss, but overall, no material change in And when it comes to working capital, We have a member base where you prepaid your membership. So when we closed down in November of last year, a lot of our members have Already we paid their membership for December. And since we have opening and closing environment in the months by the end of the year. Some of them even paid for an additional month. So that means that that's the main reason that we see a negative effects percent working capital in this quarter.
And we will continue to see that slightly spilling over into the 3rd quarter as well. It will be around SEK 20,000,000 in a negative working capital. In addition to that, we will have a strong performance of Which will come in later periods. But as of the Q4, working capital will be more back to sort of normal levels. We haven't first
question on
fees. We haven't really communicated the actual freeze level. We still see, especially as we saw in Sweden, that the free sales are still higher than normal, even for summer. But 8 out of 10 of our frozen members say that COVID is the reason for why they have frozen the membership. That means that there's still a lot of potential in unfreezing those, and we expect to see a rapid unfreeze those after summer.
When it comes to your question on numerous In a normal situation, most of our sales is not to all members. And actually, it's not that we expect A lot of the stays now to be with all members. The reason for that is exactly what we have said many times that Actually, the churn has not increased significantly. So there's not been many members leaving many more members leaving their membership done in a normal situation throughout the quarter. So we expect actually most of our sales when we reopen out to be with new members who have not just recently quit their membership with Saks.
So the membership mix, so to say, in terms of the history with us. It's also very different from existing clubs versus the new clubs we are opening if these clubs are not in total new geographies, which they are not. They are usually in so to say experience in the already existing customers. So we don't see any challenges in terms of the new stakes in this new year opening. The pre sales is very good.
So that's the reason and so to say the logic membership sales. And typically, we have around 25% of our new sales with members who haven't been members before. And we cannot practice data in detail because we have to deliver data after 6 months due to EBI.
But based
on more qualitative research, that's the status.
Okay. Perfect. Thank you. And just one follow-up to say there, on public fees and the government excess that you stated. Looking at your balance sheet, going back to your portfolio, that was around €100,000,000 in public fees and charges payable.
Is that the same level that we should revert back to? Is that before that picking up today? Yes. Perfect. Thank you.
Good. Urie, can you go ahead? Yes. Hello. Just a couple of questions from Marcellus.
Just first of all, on the free sales, we just talked about what would be the realistic share of the frozen Current members that you will reactivate into paying members. I guess they will need to decide whether they will quit or they will start coming game members again.
Will it
be 50% or 80% or what do you think that you will reactivate based on your previous experience? I have a question regarding digital training, offering specifically this Myntra and Mira. What will be the price expenditure
for this? And also if you could comment generally
on how will it affect the ARPU and the margins going forward when you start to introduce more digital training tools and offerings. Thank you. Good questions. I can ask those. First, on the when it comes
to the relaxation of frozen members, we see that Absolutely, the vast majority of the frozen members are getting into paying memberships. That is also before COVID, but also now after the reopening of the and as Silvi said, 80% of the frozen memberships are due to corona. And we see that when they react, they start to pay
and then we come
back in members and they continue to stay active members. And then of course, we will see some more guests somewhat higher lower reactivation into paying memberships now than this was before COVID, but still the vast majority now after the reopening It has been activated into payment agreements. And then when it comes to the digital growth area, we are I mean, both our existing digital offering, which is quite extensive already, and we are expanding with percent, as I said. When it comes to the interactive mirror, the pricing will be 2 fold. So it will be on time for a year around 13,000 NOK.
And then it
will be in monthly subscription
on both
of that, which will be discounted for some members. So we expect to see in the pricing structure that you can see from similar offerings, for example, in the U. S, if you look at for other players in both U. S, U. K.
And Germany. The one time cost for the mirror is It's quite much higher than that. And then, of course, you will have some payment schemes, etcetera, making it like a move to the cost.
Then when
it comes to the margin, We will have a smart positive margin on the hardware, not very high. But then of course, the margin in this game is on the written rights. Then when it comes to, so to say, the strategic dollar offering, that will not the investments and the change we are doing now there and the It's not significantly, so to say, changing the cost margins overall as we have been investing on our digital side for the last couple of years already and quite extensively.
Would that be a challenge, you think?
So what we see is that underlying yield for our sub members, as Cecile was commenting on in the beginning, it's actually increasing, both because contractual membership prices increased and we see very good growth in our retail business, which is also adding up on the total ARPU on members. And then when it comes to the new digital offering, What we will see there is an increase in ARPM for those customers who decide to also take part of the suffering. And then of course the ARPU for those who are only managed by SaaS. Memories will be somewhat lower than for the SaaS It's a general offer because the membership process is obviously, monthly subscription price is lower for It is for the physical access results. We are 2 minutes on time.
We still have a few more minutes if there are no
more questions, but we, of course,
No raised hands.
No raised hands.
Okay. Then thanks a
lot for joining the call.
We are looking Good to hold the summer, but also the period after the summer and growing the number base and delivering a strong Q3. So thank you for joining, and we wish you all a happy summer.