Good morning. Welcome to the Scandic Hotels Group's conference call. All participants will be in the listen only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your questions, please press star then two. Please note this current event is being recorded. We have with us Jens Mathiesen, President and CEO, and Åsa Wirén, CFO. I would now like to turn the conference over to Jens Mathiesen. Please go ahead.
Thank you, operator, and good morning, everyone, and thank you for joining us this morning for our presentation of Scandic's report for the Q2 of 2022. If you start to turn to page two, I will take you through the brief summary of the results. As you all know, we did a pre-announcement on the ninth of June due to the surprisingly strong financial development, where we said that we expected net sales for the Q2 of SEK 5.2 billion-SEK 5.4 billion and adjusted EBITDA in the range of SEK 1 billion-SEK 1.1 billion. The actual adjusted EBITDA ended up at SEK 1.083 billion, which is the highest quarterly result ever for Scandic.
There's really been a remarkable improvement from the negative results we saw in Q1 to an all-time high level in the Q2 . This dramatic improvement was driven by a combination of strong hotel market and high efficiency and cost awareness. Our occupancy rose to 63% in the quarter, and room rates have continued to improve. Our RevPAR was fully in line with the levels of the Q2 in 2019, and room rates were actually a bit higher than they were in 2019. We have also had a very busy quarter when it comes to our hotel portfolio. We have opened six hotels with a total net increase of 1,570 rooms in the quarter, and we have prolonged a large number of lease contracts as well.
Please turn to page 3, where you can see the quarterly adjusted EBITDA development since the beginning of 2019. There was an extreme sequential improvement from the negative result in the Q1 that was impacted by restrictions to more than SEK 1 billion in the Q2 , as mentioned. You can also see that the adjusted EBITDA in the Q2 was almost twice as high as it was in the Q2 of 2019, despite the fact that RevPAR was on the same level. There is obviously a number of factors behind this strong performance. We have benefited from strong markets, and we have, as you know, had very strong focus on efficiency and cost awareness with a clear ambition to be a more profitable company than we were before.
Our total workforce was slightly lower than in 2019, despite high occupancy at our hotels and almost 6% more rooms in operation than we had, at the end of the Q2 of 2019. We did have some extraordinary items that also we'll talk about shortly in a few minutes. Even if you adjust for those, underlying profitability was at an all-time high level. Please turn to page 4. Here you can see market occupancy in the Nordic countries. We have seen a similar pattern in all countries with a very rapid improvement from March and onward as restrictions were lifted from early and mid-February. This has been a broad-based recovery with strong demand both within leisure, corporate travel, and meetings.
It has been especially pleasing to see a very robust improvement in the big cities where occupancy now, on average, finally is back, let's say for the first time since 2019. Scandic's average occupancy rate was around 55% in April, 65% in May, and 70% in June. Based on current bookings, we foresee continued strong occupancy during the remainder of the summer. Please turn to page 5. The market continues to see a positive trend in room rates. This shows price development based on market statistics indexed to the corresponding month in 2019. We have seen a positive trend in room rates ever since the low point in April, May 2021, and the markets are now above 2019. The increase is significantly above in Norway, as you see.
Pricing remains a key priority for us. We need to continue to drive price, especially with the current strong occupancy rates that we are seeing at present. We must make sure that we compensate for the underlying cost inflation, both near-term and in a longer perspective, which we are now doing. Please turn to page 6. This is market RevPAR, i.e. revenues per available room indexed to the corresponding month in 2019. All in all, markets are above 2019 levels. Index 104, with Norway being the strongest market in the Nordics. Finland has lagged the other markets, partly due to the fact that they removed restrictions later and the lacking of the long-haul business still from Asia. RevPAR is driven by higher prices and a bit lower occupancy. Please turn to page 7.
As we have also mentioned in the beginning, we have strengthened our hotel portfolio significantly in the quarter with the opening of a number of hotels. We have postponed several of these openings from last year, and we are of course very happy with the timing of these openings as we have been able to get a flying start with hotel openings in a strong market. We did in total open hotels with 1,974 rooms in the Q2 , so nearly 2,000 new rooms, while we exited two hotels, so our net portfolio expanded by 1,570 rooms. We ended the quarter with almost 6% more rooms in operation than we had three years ago.
If you look at the pictures, you can see Scandic Kiruna in Northern Sweden with 231 rooms that was opened in April, and it replaces the old Scandic Ferrum that has been closed in the city. We have also Scandic Göteborg Central in Gothenburg with 451 rooms. Two new hotels in Copenhagen, Scandic's largest-ever, Scandic Spectrum, with 632 rooms, and Scandic Nørreport with 100 rooms. You can also see Scandic Oceanhamnen located by the sea in Helsingborg, in Southern Sweden with 184 rooms. The last one shows Scandic Holmenkollen Park, just outside Oslo, that was reopened after a total renovation and extension, and now with 376 rooms. Please turn to page 8.
Due to the large number of openings in the previous quarter, our pipeline amounts now to 2,081 rooms. We have in the past quarter added two hotels to our pipeline. Tromsø in Norway, a new hotel with more than 300 rooms that is planned to open in 2025. We have also announced a takeover of a hotel in Horsens in Denmark with 132 rooms that will replace our current hotel in that city that we will exit late this year. This is, I think, one small example of our ongoing work with the portfolio management in order to optimize our hotel portfolio, both in terms of customer offering, but certainly also when it comes to profitability.
We have a clear ambition to add new hotels to our pipeline and to grow the business over time, but we're not stressed by this. Our main focus has been to ensure that we become as efficient and resilient as possible so that we can grow from a position of strength. The Q2 really shows the effect from that ambition. Please turn to page nine. We have prolonged 25 lease agreements, lease contracts during this year at terms that enable good profitability and balanced risk for Scandic. In June, we agreed as part of this with Pandox on the extension of lease contracts for 15 hotels with a total of almost 3,600 rooms at unchanged lease terms.
We've also agreed on a renovation program of SEK 700 million until 2027 that will be shared by us and Pandox. In relation to this, Pandox will invest in ventilation and heat recovery in several of the hotels that will reduce energy costs and improve our guest satisfaction. With that, please turn to page 10, and I will hand it over to Åsa, who will take you through our financials.
Thank you, Jens, and good morning, everyone. Let's turn to page 11, please. There we can see the adjusted EBITDA, which was previously mentioned that ends up at SEK 1,083 million with a margin of 20.5% for the quarter. State aid in the quarter in Finland and other Europe related to historical periods. Our result in Norway included an estimate just above SEK 100 million, which is related to the agreement with the Norwegian state for preparedness for housing of refugees from Ukraine.
Approximately SEK 60 million was received in connection with opening of new hotels, and the underlying margin, which is 15.6%, was all-time high levels, even when we adjusted for those items that sum up to SEK 261 million. The main driver is improved occupancy and rate, especially in the big cities, lower costs, higher efficiency, and as mentioned, more rooms in operations. The rent rebates amount to SEK 28 million in the Q2 . For Q2 and Q3, we estimate rent rebates to about SEK 50 million per quarter. Derecognition related to historical periods in other Europe is estimated to SEK 25 million for the Q3 . The estimated impact for the Norwegian contracts mentioned signed for July and August depends on actual occupancy, but is roughly estimated to about SEK 50 million for Q3.
During the quarter, the ramp-up of staff on hotel level has continued with some extra staff due to training. Employees above hotel level, continues to be well below 2019 levels. It's very encouraging to see that our efforts to drive rates and efficiency really paid off during the Q2 . Please turn to page 12, where we can see the really strong cash flow for the quarter, which ends up at SEK 1.3 billion despite relatively high investments. It's driven, of course, by the strong underlying result in combination with a positive working capital development. Due to the increased revenue, the variable lease liability increases. If we then turn to page 13, one can notice that our net debt fell from SEK 4 billion to SEK 3.3 billion in the quarter.
Our credit facility currently amounts to SEK 5.352 million following an amortization of SEK 484 million in the quarter. Our facility expires in December 2023, and there will be no more amortizations according to our bank agreement. We have a liability, as previously mentioned, related to deferred VAT and social costs in Sweden that increased by SEK 176 million to SEK 668 million in the quarter. This will be repaid gradually from October this year to April 2027. During the quarter, the liability was reclassified from working capital to net debt. That is net debt increased and working capital decreased by SEK 508 million. This has no impact on the operating cash flow for the quarter. It's only a reclassification.
The convertible bond with a conversion price of 43.36 SEK matures in October 2024, with a potential dilution of 45.5 million shares. If we finally turn to page 14, there we can see our net financial items. The reported financial net was -479 million SEK. According to IFRS 16, there was an interest expense of 365 million SEK. The financial net, excluding IFRS 16, is -115 million SEK. The non-cash convertible interest was -37 million SEK. The actual paid financial items were -83 million SEK, as you can see on the bottom of the table. With that said, please turn to page 15, and I'll hand it back to you, Jens, for some final comments.
Thank you very much, Åsa. Finally a few comments on our, I would say, near-term outlook. Please turn to page 16. We have a very high level of preparedness, I think for the future challenges such as cost inflation and an eventual weakening of the economy, if that happens. We maintain focus on strengthening our resilience to ensure high and stable earnings overall. Related to the airline strike going on, at this stage, we see no signs of any negative impact from that. With all that is going on and with the result we have seen in June, we expect based on that current booking pace, continued strong wholesale market for the coming months. With that, I hand the word back to you, operator.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your questions have been answered and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily for the roster. The first question is from the line of André Juillard with Deutsche Bank. Please go ahead.
Yes. Good morning. A few questions if I may. First one is about bookings. When you look at your pipeline, where are you versus 2019 in terms of occupancy and prices for the next few months? Do you have any visibility for the autumn, especially regarding the MICE segment? First question. Second question is about energy and staffing. We are in an inflation environment. We know that there are some shortage almost everywhere. Could you give us some more color about what you are experiencing for the staffing and in terms of energy, do you see any risk on that side? Last question, if I may. Do you see any opportunities in terms of development coming on the market with independent hotels which could be interested to get some franchise or things like that in your different countries? Thank you.
Thank you very much, and for your questions. First of all, when we look at the outlook, as I mentioned, it looks very stable. It looks like we will continue in the coming months with the same level of activity as we have seen in the last period, meaning that it is driven mainly by the domestic traveling, which is very strong, and above 19 levels. Fairly strong inter-Nordic levels that are almost on same level and European market that are growing. Still, the intercontinental is behind, so we do not expect either a boom from Asia or U.S. coming in.
We expect the domestic and inter-Nordic and European to continue to be very stable. Which is in total, you can say, approximately on levels that are just below occupancy levels what you saw in total, 2019. Remember that we also have 6% more rooms in operation. We see prices quite strong and I would say way above 2019 levels. We have a good feeling of that. Also, when we look at the bookings on business on books, actually we have solid business on books also when it comes to expectations of both the levels and the pricing for the coming year period.
When I look at the MICE segment you referred to, I think, of course, you know how this is. Some of the later autumn is too early to predict. When we look at the first part of it, looking into, for instance, September. September looks very solid. We have a very strong business on book right now, meaning that we think we will reach the normalized level we also saw in 2019 already in this early autumn. Right now there's no nothing indicating that the market is not continuing also when it comes to the meeting segment. Meeting segment has been fairly strong and back to 2019 levels during the last month, and we expect that also in the early autumn. When we look at the energy and staffing, just to add to that.
Sorry to interrupt you. Just in terms of segmentation, do you see really a strong driver both in the leisure and the corporates? Or do you see a stronger trend on the leisure side?
No, I think definitely it's strong right now in both segments. June was strong in both segments. We have actually seen that corporate traveling has picked up very solidly in May and June. We also think that a lot of the meeting business that drives the early autumn will of course be linked to the meeting segment. I think you will see a growth in both segments. We have seen a very strong leisure demand, and that might be pent up as was requested also in general. How much of this is pent up? We really don't know. There's quite a strong leisure pick up in general.
We expect that trend to continue year-on-year, that over time, leisure will outperform corporate, like we have seen the last many years, like 10, 12 years, back. We have seen increases of leisure with 5, 6% before the pandemic, on a year-on-year basis. We saw a corporate only with some 3.5%. We think that trend will continue after this long pandemic. It seems that segments are back. It seems that meetings are back, corporates are back, which is very promising, I think.
Okay.
When you look at the energy, remember that we also mentioned in the Q1 that we have an energy hedge. So we already covered on that one. So what we have announced both in this report and earlier, and also can add to it if you have further questions, but we have an energy hedge, meaning that we have quite a solid roof on the increases of that one. When it comes to staffing, it has definitely been a challenge, especially I would say in March, April, early May. It was a huge challenge for us because everybody was fighting to get staff in. We have employed approximately 6,000 team members since first of January.
It's a lot of team members coming into Scandic that needs training and attention and needs to get up to speed with our operational model. I think all of the current Scandic team members have been extremely good at taking these new team members under the wings and making sure that they are getting their training and education into Scandic's operational model as fast as possible. I think that has gone on. We are still below 19 levels in total, and that is mainly because of us keeping a very focused eye on securing that we are a bit more efficient than we were pre-pandemic, and that we have stayed with far less people above hotel level, which we will continue to do. We will maintain a team member level that are in total below 19 levels when you adjust for everything. When you look at the developments and opportunities, I don't know and if that's the other one was okay for you, or if you have added any extra questions to that before I go to development.
Yes, sorry. Just following up on the staffing. Did you see any improvement on the wages? Significant improvement or not?
No, we have. I think in all markets we have union agreements that are going on. That is which we need to renegotiate, you would say next year. We need to renegotiate for all the blue collar workers in Denmark and in Sweden. We have negotiated in Finland a one-year agreement with two percentage points up, and we have negotiated an agreement in Norway with 3.7% up. If you look at the combination of all of this, I think it's fairly stable and might be around 3%. When you look at which is of course below cost inflation and inflation in general. This is something we need to handle next year.
We of course following what happens with the trends during the autumn of inflation. When you look at the white collar workers, we are far less of the white collar people today than we were before. That's also benefiting us. We have taken out quite a lot of managers ensuring that the first priority for us is to be there for the guests. We are a bit more lean in the let's say upper levels and headquarters and support offices in the countries than we were before. Even with small increases in salaries with these 3.5%, we manage that also by being less people.
I think all in all, we're satisfied with the development and see no risk either in the autumn of high cost increases on the salaries. Development opportunities. Absolutely. Our main priority is to secure Scandic being a even more resilient company and get back with some very strong finances as you have seen today. We are delivering an extreme strong cash flow and of course by that decreasing debt. That will continue also in the next quarter. Our focus is to securing a very strong balance sheet. From that, of course, new opportunities arises in the after part of that.
Right now we have all focus in securing this before signing up a lot of deals. Of course if something is in front of us, if something is interesting, we will definitely be looking at it. I think you will see in the coming years more transactions in general in our segment, as I have also mentioned earlier. Because now you see a very strong trading and of course other industries that are having issues then of course investors are looking more and more into our industry, which seems to be very solid right now.
Okay. Thank you. Maybe last question about government helps. You've been benefiting in H1 from helps in Norway and Sweden. Are you expecting some more helps in H2 or are we coming to an end on that side?
I think we have only one common lift on that one, which is that we expect something in Germany to come in.
Yeah.
The amount that was.
SEK 25 million we expect for Q3 related to other Europe or Germany.
That is it. We don't expect anything else from governmental support and which is a good news because we really wanna operate the hotels open and not with restrictions and closed down. This is fairly good.
One should also bear in mind that these are something that was based on 2021, so we only account for it actually when we get cash in bank.
Okay. Very clear. Thank you very much.
Thank you.
Thank you. A reminder to all the participants that you may press star to ask a question. Again. The next question is from the line of Karl-Johan Bonnevier with DNB Markets. Please go ahead.
Yes, good morning. Congratulations to an exceptional recovery. Sorry, I came in a little late to the call, so maybe you have already answered these questions. I'm just interested to listen to your reflections about the strong new openings you have had recently and how these hotels have been taken on in the market and what you see.
Thank you very much, and thank you for your comment. Yes, we are also very proud of this fantastic result, all-time high in the quarter. Of course, we are very satisfied with that. I also think these openings are coming in on a very good timing for us in a strong market. I also think Scandic Göteborg Central has had a flying start. A lot of activities in Gothenburg, a lot of new venues coming up, a lot of meeting business popping into the hotel. We have also seen a lot of concerts being booked in during the summer and early autumn, which is normally very solid and good for Gothenburg.
That is very good. I think the other hotels, of course, Kiruna was. We closed down the one we had, and we opened a new one with 60 more rooms. This has also had a flying start. We actually have had very high occupancy levels and pricing in this hotel. If you look at Copenhagen, of course, a lot of capacity has come into Copenhagen during the last years. Right now, Copenhagen has had a very strong period. If we look into it, you can actually see some of it when you look at the figures in our contracts and when you get access to market data in Copenhagen, you see high occupancy in Copenhagen. Of course, related to a lot of activities.
They have had a huge fair for doctors, 7,000 doctors coming in. They have had the Tour de France. we managed to open this hotel right in the middle of that and beginning of that. we have definitely benefited from that. also Scandic Spectrum and Scandic Nørreport have had very solid starts. all in all, very good opening and timing for these openings. it looks very solid also when I look at the business on books for these new openings. timing is all good for these openings.
I heard in the previous question you alluded to looking at the opportunity of say extending the new room pipeline as it's basically everything you had in the pipeline is more or less now in operation, I guess. How do you see that? As we saw, you did some portfolio management also in Horsens in Denmark. Is those the kind of opportunity that you see now that you can maybe get out of a couple of the older properties you have in the portfolio and get into new projects in similar towns? Or is it more an opportunity now to extend say total capacity in different regions for you?
I think we will continue to do both. I think we will definitely see that we will continue to, I would say, do our portfolio optimization, because we have, I think, I can't do the exact number, but some 10, 11 hotels we have actually left during the last two years. We will continue to look over leaving hotels that are extremely CapEx demanding or underperforming results-wise, or we don't see the right profile for in the future. We will continue to add like we did in Tromsø with strong, nice, bigger hotels in the central locations that are driving both within leisure and meeting segment, what we would see as the future demand.
I think you will definitely see that we will continue to add to this pipeline. Of course, it's a smaller pipeline now. For sure, because we have had all our focus, and I think everybody has had the focus for the last two years of securing the company through the pandemic. But now that we are coming out of it, we see more and more things popping up. Of course, people are looking from the landlord side. They're looking on interest rates and everything. They also look at what happens with offices and should they steer more into hotels, et cetera.
For sure, we will see some years now ahead of us with a smaller number of hotels coming into the market, which is good, I think, for the recovery, overall.
Excellent. Thank you very much, and best of luck out there.
Yeah, thank you so much.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Once again, a reminder to all the participants that you may press star and one to ask a question. This concludes our question and answer session. I would now like to turn the conference back to Jens Mathiesen for any closing comments.
Thank you very much, and thank you all for dialing in. I wish you all a very good summer, and speak to you soon. If you have any further questions, just give us a call. You can call also directly if you have anything else popping up. Otherwise, I wish you all a great summer, and looking forward to speak to you again.
Thank you.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.