Interim report January - June 2000

Interim report January - June 2000 Summary * Scandic's strong growth continues. During the period, the group has increased its room capacity by 17 per cent, including the acquisition of Provobis. * Income after net financial items rose by 40 per cent to SEK 207 million (148m). For comparable operations, income rose by 18 per cent. * Sales rose by 2.5 per cent to SEK 2,633 million (2,568m). For comparable hotels and adjusted to take into account the effect of exchange rate movements, the increase was 3.5 per cent. * Operating income amounted to SEK 198 million (142m), corresponding to an operating margin of 7.5 per cent (5.5%). In comparable operations, the operating margin was 6.2 per cent (5.6%). * Earnings per share for the period were doubled, totalling SEK 3.15 (1.57). * The Annual General Meeting of shareholders granted Scandic's Board of Directors a mandate to buy back a maximum 10 per cent of the company's shares. At 30 June, Scandic had bought back shares corresponding to just under 2.7 per cent of the total number of shares issued. Market developments Demand on all Scandic's markets has remained stable and the positive growth trend has continued with Norway as the only exception. Capacity growth in the form of new hotels has also been limited in all markets bar Finland, where capacity has risen at a slightly faster rate than demand growth. Demand in the Norwegian market has weakened further, and this, in combination with the addition of new capacity, has resulted in a decline in occupancy levels. Demand during the second quarter was adversely affected by the timing of the Easter period, compared with the previous year. In the Nordic countries, second quarter performance was also affected more than usual by the fact that both the Ascension Day and Whitsun Bank Holidays occurred in June. Scandic's business operations Scandic is either consolidating or maintaining its position in all markets. The revenue per available room (RevPAR) in Scandic's Nordic operations has improved, despite the weakness of the Norwegian market. Occupancy levels during the period remained on a par with the previous year, amounting to 60.3 per cent (60.2%), whilst the average room rate rose by just under one per cent to SEK 746 (742). This produced a RevPAR of SEK 450 (447) for the Nordic business, corresponding to an increase of one per cent. Adjusted for the effects of exchange rate movements, the average room rate and the RevPAR rose by 4 per cent for Nordic operations. The company also noted positive developments in its non-Nordic operations. Occupancy levels rose by three percentage units to 64.7 per cent (61.7%) and the average room rate rose by 2 per cent to SEK 652 (642). This corresponds to a 7 per cent increase in the RevPAR. Adjusted for the effects of exchange rate movements, the average room rate for non-Nordic operations rose by 7 per cent and the RevPAR rose by 12 per cent. Scandic acquires Provobis During the period, Scandic acquired Provobis Hotel & Restauranger, which comprises 16 first-class hotels in inner city locations and four independent restaurants in Sweden. A hotel is also being built in Finland. Provobis has a total of 3,057 rooms in Sweden. As Provobis is, like Scandic, dedicated to operating hotels, the acquisition does not involve any hotel properties. In 1999, Provobis reported sales of SEK 877 million and a pre-tax profit of SEK 51 million. The takeover of the business was completed at the end of June. For this reason, the sales and earnings generated by Provobis are not included in Scandic's income statement for the current reporting period. However, Provobis is included in Scandic's balance sheet as at 30 June. In connection with the acquisition, Provobis shareholders were offered a cash alternative or given the opportunity to exchange ten Provobis shares for three Scandic shares. Of Provobis' 19.6 million shares, 7.5 million were submitted according to the terms of the share alternative, which led to an issue of 2,253,338 new Scandic shares. This corresponds to a 3.5 per cent increase in Scandic's share capital. Scandic now owns 99 per cent of the shares in Provobis. Provobis reported sales of SEK 453 million for the first six months of the year (414m), whilst the company's operating income amounted to SEK 22 million (13m), producing an operating margin of 4.9 per cent (3.1%). The pre-tax profit amounted to SEK 21 million (11m). Through its acquisition of Provobis, Scandic has added some excellent hotels to its Swedish portfolio in major cities such as Stockholm, Gothenburg and Malmö, where the potential for market growth is good, and also in Lund and Skövde, locations where Scandic has previously lacked capacity. The acquisition will create opportunities for achieving greater economies of scale and further productivity gains in the Provobis business. During the year, the Provobis hotels will gradually be re-profiled to be operated under the Scandic brand and included in its marketing and operating systems. Two of the hotels have already been renamed as Scandic hotels, and the remainder will follow suit once Scandic's IT systems have been installed at the hotels. The acquisition will give rise to goodwill depreciation and restructuring costs in connection with the integration of the hotels into Scandic's systems. The Provobis hotels are expected to have a positive effect on earnings per share from 2001 onwards. Agreements regarding a further six hotels During the first six months of the year, agreements were signed regarding a further six hotels, three of which are already operating under the Scandic brand. In Norway, a lease has been signed in respect of the Residence hotel in Trondheim, which was taken over by Scandic on 1 June. The hotel has 66 rooms. With effect from 1 October, the Prinsen hotel in Trondheim, with 81 rooms, will also be added to the Scandic portfolio under a franchise agreement. Another Scandic Hotel is currently being built in central Oslo, and will open for business in September this year. An agreement has also been signed to operate a hotel currently under construction in Trondheim. The hotel, which will have a total of 150 rooms, is due to open for business in 2003. In Germany, a lease has been signed in respect of a hotel currently under construction in central Cologne. The hotel, which will have a total of 292 rooms, is due to open for business in the autumn of 2001. In Finland, effective 1 May, Scandic took over operations at the Jazz hotel in Pori, which has 78 rooms. In June, the new Scandic Hotel Simonkenttä in Helsinki opened for business. The hotel, which has 360 rooms, has a prime location in central Helsinki. In Sweden, Scandic opened a new hotel with a total of 208 rooms in Mölndal on the outskirts of Gothenburg. This means that, after winding up operations at its former hotel there, Scandic has added 44 rooms to its overall room capacity. Scandic has disposed of its hotel operations in Vänersborg, and will wind up operations there on 30 September. In Denmark, effective 1 May, Scandic took over operations at the Eremitage hotel in northern Copenhagen, which has 117 rooms. As a result of these developments, Scandic increased its overall room capacity by 3,768 rooms during the period, corresponding to an increase of 17 per cent. Stockholm, 10 August 2000 Roland Nilsson President & CEO This report has not been externally audited. Financial information 2000 Scandic intends to distribute the following financial information to shareholders during 2000: Interim Report, Q3 - 25 October 2000 Year-end report for 2000 - 12 February 2001 Financial reports will be distributed directly to shareholders and may also be ordered from Scandic Hotels AB. The information is also available on Scandic's home page: www.scandic-hotels.com For further information, please contact: Roland Nilsson, President & CEO, @ +46 (0)8 517 352 00 Fredrik Sandelin, Executive Vice President & CFO, @ +46 (0)8 517 351 21 Gunnar Brandberg, Senior Vice President, Communications, @ +46 (0)8 517 352 12 or +46 (0)709 735 212 Scandic Hotels AB is the largest hotel company in the Nordic region, with 153 hotels in 10 countries. Scandic's strategy is to be a dedicated hotel operator. Its business mission is "to offer many people the highest value for money when staying in its hotels, during work and leisure." ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/08/10/20000810BIT00440/bit0001.doc The full report http://www.bit.se/bitonline/2000/08/10/20000810BIT00440/bit0002.pdf The full report