Hi, Everyone, and welcome to SATS' Q3 Q&A session. Sondre will give a brief summary of the presentation before we open up for questions. So, the word is yours, Sondre.
Thank you, Stine, and good morning, everyone, and welcome to this Q&A session. As we said, when we did the presentation this morning, we will not go through the presentation in itself. This will be mainly on, on Q&A. So I just wanted to repeat the highlights from this quarter. We are delivering a strong financial result. We are delivering an EBITDA before IFRS 16 of NOK 155 million this quarter, year to date, 486 million. We see steady member growth. We have a significant yield increase, underlying yield in the basis of 6%. New memberships sold in Q3 are sold at 18% higher price compared to Q3 last year, and we also see improvement in the club utilization.
We have an increased number of members per square meter, also compared to the level we had before COVID. And all of this because we have most of this growth then in the already established club network. This gives a high drop-through from new revenues to EBITDA, and this is mainly what is fueling the growth, both in, of course, revenues, but also then in EBITDA. And then, as you see, throughout the quarter, we have also maintained a strong cost discipline and also had the conservative CapEx spend in the quarter. Given our cash generation now, we will increase CapEx going forward to the level we have guided on long term, which is 5% in maintenance CapEx of total revenues. And then, we have used the available cash to deleverage, and also this of course helps with improved EBITDA.
As you can see in the report, our leverage ratio, net debt to EBITDA, has come down from 10.5 a year ago to 3.1, reported by the end of this quarter. That's the highlights from the presentation. We have both Cecilie, our CFO, Stine, our head of IR, and myself here, so on this call, so please shoot. We are ready for all your questions.
Eirik Rafdal first.
Yes. Hi, guys. Thanks for taking my questions. I got a couple. So just, first things first, just to be clear on the Q4 messaging, you're stating that membership sales and churn in Q4 are developing according to plan, but expect slightly negative net growth in the quarter. Just to be clear, that's quarter-over-quarter, right, and not year-over-year negative net growth?
Well, it means that we will see a decline in the member base in the quarter.
And-
So, there will still be growth year-over-year, but we will have a decline isolated in the Q4 .
Okay. Okay.
Yeah, just good to know, because there's about a 10,000-member difference there, looking on which base you look at.
Yes. Yeah.
I was also wondering if you could break down kind of the membership growth in Norway, either year-over-year or quarter-over-quarter, and kind of give an indication about the split there between Fresh and SATS.
Well, we haven't on a regular basis given the split between the two. I think, in general, we see a healthy growth in Fresh Fitness. Fresh Fitness is performing very, very well. But as we have said previously, there's been some concerns that are people downgrading to lower price offerings, and we really don't see that because we have an even stronger growth in the SATS brand. But Fresh is performing very, very good at the moment as well, so we are pleased with both brands complementing-
Okay.
Yeah, so.
Good, good to hear. That was what I was getting at. And then just the final one from me, and I'll leave some questions for the other ones as well. Could you just talk a bit about kind of refinancing and your plans there, just, you know, terms on bank loans, when you have to refinance, you know, now back to generating cash? Just, you know, any color there would be good as well.
Well, the current loan facility lasts until September 2025. So, that means that it, it's natural that we will go into discussion with the current banks and also look at other opportunities for refinancing within short. So that's something that we will, we'll start working on, so that we have a new financing in place during the spring, as I would guess.
Okay, perfect. Thank you for taking my questions.
Thank you.
Over to Ole Martin.
Hi. My camera doesn't seem to be working, so we have to leave with the voice. But, I just wanted to drill a bit further down in the membership development. Can you comment upon have you seen churn levels developing? And also, if you can give the development month by month, some color on that in Q3. And then, obviously... Yeah, yeah, yeah, you have probably already given some comments regarding Q4, so, I'll leave it to those two. Yes, I can-
Yes-
I can start, and Cecilie will continue. When it comes to churn levels, and I guess your question is also driven by what we stated in the outlook today for Q4, that the member development slightly negative and the member development isolated in Q4 is driven by somewhat higher churn. And what we're also stating, just to be clear on that, is that the member development is expected. So basically what we see, we don't see an increase in the churn rate. So we see a somewhat higher churn volume, driven by the fact that we had a very strong net growth, last year, in the H2 of last year.
Then a lot of this volume is coming out of their 12-month contracts now in Q4, and this is what is driving the somewhat elevated churn. It's not that the churn share or churn rate in itself is going up, and we haven't seen month by month after the summer. We have not seen, so to say, an increasing trend on the churn side. So churn is actually quite stable. And also, we know during the summer, we introduced the new freeze rules to also make sure that, to address the churn levels. So we don't see any increasing trend on the churn rate, but the churn volume is coming somewhat up. So that's what we're indicating in the outlook.
I don't know if you want to fill in more, Cecilie.
You're right, and just to your question regarding, yeah, month-by-month development in the Q3 . The third quarter is half of the quarter is still summer. And that means that the sales is slower during summer months, but churn levels are normally the same as in every other month. So that means that we have a decline in the member base in the start of the quarter, and then we have an increase in the member base in the end of the quarter. So the growth that we're presenting in the Q3 is really coming from the last six weeks. And that also means that that affects the yield because you have lower yield going into the quarter.
Also, because you have the H2 has sort of the opposite seasonality, and that means that sort of the increase that we see get revenues from comes mostly from the last part of the quarter, in addition to lower freeze also affecting churn.
But just to follow up on that, I remember last quarter, Sondre, you highlighted that there was high campaign activity in the market, but SATS looks to gain traction at higher price points, and you had lower campaign activity. Now, with the, you know, somewhat higher churn as contracts are rolling over, do you feel that you have to adjust in order to fight this? Or will you sort of continue to have a very low campaign activity?
No, we are not planning to adjust. Again, if churn rate, if the share of members and the share of the new contracts that are churning, if that rate were to, you know, significantly increase, we would indicate that because then we would be more worried- but that's not the case. So, and if you look at the... As I, as I said in the introduction, price of new memberships in Q3 was up 18% compared to Q3 last year. Approximately half of that is due to increased prices, and the H2 is due to the fact that we are selling more or less of the volume on campaign sales compared to what we did last year. And, and we are not planning to significantly change our campaign strategy going forward.
Mm-hmm. And then, just a follow-up on, also on the finance side. Can you remind us what you guided for in terms of savings on the lower debt level? What we should expect there for interest cost in Q4?
So yes, not taking into account any additional increases in interest, just the lowering of the margin amounts to NOK 25 million annually.
Okay, perfect. Thank you. I... Going back in the queue.
So slightly higher, slightly higher than what I guided on last month, because we see that we managed to get the margin a bit more down.
Mm-hmm. Perfect. Thanks.
Barbara Smith.
Hi, can you hear me? Hi, can you hear me?
Yes. Now we hear you.
Hi. Sorry. Whoa, whoa, 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, you know, before it starts affecting their satisfaction. And secondly, and that you are then planning to room openings to maybe address that.
Yes, I can, I can comment on that if... There we are, we have 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, which 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.
So, and as we have also indicated with the two cases that we are giving examples on 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, improve the product offering and increase the NPS. And we haven't seen any cases yet where we have done this adjustment, increased 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, and expansion speed.
Okay, thank you.
And Peter?
Thank you. A couple of questions from me. I'll start with the membership yield. You lift prices first of January, and my understanding is that you were not able to lift all members first 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 2024?
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 then based on, you know, the development, let's say, the increase you did then first 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 i n general, that will be the basis.
Understood. And then finally on the membership, can you share some light on new members and the churn rates between gender and age? Thank you.
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, you know, no 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.
Thank you.
Any other questions before we round off? Eirik?
Yeah, thanks for letting me jump back again. Two more country-specific ones. Denmark was back to being loss-making after two 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, 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 difference, more investment in growth.
Perfect. 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 by Norway. Is it possible to get back to pre-COVID profitability in Sweden, or has there been, you know, 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, is one of the countries that has kind of the most, most to go on in terms of improvement?
I think you were 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 members 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 is. 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 those members into those newest clubs. And then looking at leases.
Lease increases have been significantly higher in Sweden over the last 3-4 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 continued expansion of the margins going forward, close to what we had in 2019.
Very clear. Thank you.
Joachim Sverre, please go ahead.
Hi, thank you for taking my question. Just seems like a lot of the earnings beat 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, cost is down year-over-year, if you look at currency-adjusted numbers, which is more relevant. And there, there are two main reasons for that. The cost efficiency program that we initiated the 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 PT, 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 two components, the direct cost and the energy costs, 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.
Thank you.
Any more questions? No. I think it's a good time to round off. Thank you, everyone, for your 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.