Scandic Hotels has described its Covid-hit second quarter as “extremely negative” and that while it thinks it is over the worst, it faces “huge challenges”.
The company said occupancy, which sank to 6% in April, rose to 18% in June and 35% in the first two weeks of July. It said it is on course to reach 40% for the remaining summer period.
It added that it is seeing big variations. “In general, hotels in smaller destinations have had the highest occupancy while in the larger cities, hotels have been impacted by cancelled events and restrictions on meetings and travel which has resulted in very weak occupancy,” said Jens Mathiesen, president & CEO.
Scandic began re-opening its hotels at the end of May and at the time of reporting said the equivalent of 80% of the portfolio was operational. Mathiesen said that he expected almost all of the hotels to be open by the end of August.”
Mathiesen told investors that the company expected to reach break-even Ebitda on 40% occupancy and generate positive free cash flow with guests in only half its 53,000 rooms.
The company said it is sticking to its medium-term profitability targets and hopes to hit the goals even if occupancy rates fail to get back to 2019 levels. Mathiesen said: “I am convinced that in time, we’ll be able to exceed our Ebitda margin target of 11% despite a market with lower revpar levels than last year.” The Ebitda margin in the second quarter of 2019 was 11.5%.
Net sales in April, May and June fell 86% to 665 million Swedish krona compared to the same period in 2019. Across the first half of the year net sales dropped 55% to 4,008 million krona and adjusted Ebitda falling to 1,311 million krona negative where it was 719 million krona positive in 2019.
Revpar was 96 krona in the second quarter of 2020 down from 745 krona between April and June 2019.
April occupancy fell to 12% in Sweden and between 4% and 7% in Denmark, Norway and Finland. The group said it had net debts of 3030 million krona and 3600 million krona of credit facilities.
Scandic has 280 hotels in the Nordic region of northern Europe, in operation and under development, in more than 130 places. Its shares are listed on Nasdaq Stockholm.
Insight: It could be a long, cold winter for Scandic. Weather-wise the Nordic hotelier is accustomed to such conditions. It may be less comfortable in terms of the business.
For the time being, Scandic is faring as well as could be reasonably expected. Perhaps a bit better. It is warming to see trade return from almost non-existent levels in April and note the company’s hope to have occupancy back up to 40% this summer. It has cut costs – that is jobs, mostly, – and is hoping its landlords will ask for less rent in future. Pricing, meanwhile, is steady and the June rights issue cushions any balance sheet concerns. It is good to see it lay out ambitions to make Ebitda and free cashflow break evens on much reduced occupancy.
As the days shorten, however, it is likely to bear higher costs because it expects to complete the reopening of its 280 hotels. Meanwhile, upturns in trade in recent weeks have largely come in the leisure segment as is usual in the summer. From September onwards, Scandic needs to see business travellers return – especially to its big city properties – and that hope is loaded with doubt. Governmental support may stretch into the autumn but is likely to leak away after that. Pricing, meanwhile, could come under greater pressure as the market opens to reduced general levels of trade. Rent reductions? Good luck with that.
The risk is that the recovery from the “extremely negative” second quarter turns out to be a false dawn. Employees probably face the darkest winter. For the company, spring may be a long way away.