Interim Report January-September 2000

Interim Report, January-September 2000 www.scandic-hotels.com The period in brief * Increased growth rate. 23 new hotels and an increase in room capacity of 19 per cent. * Healthy performances on all Scandic's markets, with the exception of Norway. * Sales for the first nine months of the year increased by 10 per cent to SEK 4,256 million (SEK 3,858 m). Sales in comparable units adjusted for exchange rate fluctuations increased by 4 per cent. * Income after net financial items rose by 38 per cent to SEK 342 million (SEK 247 m). The increase for comparable units was 10 per cent. * The operating margin increased to 7.8 per cent (6.0%). The operating margin for comparable business was 6.6 per cent (6.0%). * By the period end, Scandic had bought back its own shares in an amount corresponding to 4.9 per cent of the total number of shares issued. * Earning per share increased by 88 per cent to SEK 4.93 (SEK 2.62) Increased rate of growth Scandic's strong growth has continued. Room capacity increased by 19 per cent during the first nine months of 2000, in contrast to the average annual growth rate over the past five years of 10 per cent. 23 new hotels joined the chain during the period and two left it. The company's room capacity increased by 4,243 rooms to a total of 26,496. The acquisition of the Swedish hotel chain, Provobis, at the end of June, accounted for 17 of the new hotels. Scandic aims to continue growing by at least 10 per cent per year. This growth will be achieved both through a continued strengthening of the company's strong Nordic position and through non-Nordic establishment in cities with a high percentage of Nordic travellers. Non-Nordic chain acquisitions are also a possibility for the future. Scandic's priority markets are the Baltic States, Poland, Germany, the Benelux countries and the UK. Healthy development in Scandic's markets The stable and positive market development in Scandic's markets is continuing. Demand is continuing to increase in Sweden. Increase in capacity was limited to a few hotels in the largest cities. The most rapid growth in demand was noted in large cities and in university and county towns. Denmark is also reporting positive development, albeit at a slightly slower rate than in Sweden, with the strongest development noted in the Copenhagen area. The Öresund bridge has had a beneficial effect on demand in the area on both sides of the bridge. A few new hotels have been opened in Copenhagen, but have not had a negative impact on occupancy levels. The Nordic country to report the strongest growth in demand is Finland. This has coincided with new capacity, primarily in the Helsinki area, and occupancy rates have consequently fallen slightly. The only one of Scandic's markets not to report positive development is Norway, with demand for hotel rooms declining, despite the upturn in the Norwegian economy. The decline is due, in part, to structural changes in the Norwegian oil industry. Scandic's non-Nordic markets are reporting very positive development, with increased demand, occupancy rates and room rates. Sales increased by 10 per cent The Scandic Group's sales during the first nine months of the year totalled SEK 4,256 million (SEK 3,858 m), corresponding to an increase of 10 per cent over the same period last year. For comparable hotels and adjusted to take into account the effect of exchange rate movements, the increase was 4 per cent. For the third quarter sales totalled SEK 1,623 million (SEK 1,290 m), corresponding to an increase of 26 per cent. Sales for comparable hotels, adjusted for exchange rate fluctuations, increased by 4 per cent. Income after net financial items increased by 38 per cent The operating income for the first nine months of the year increased by 41 per cent to SEK 332 million (SEK 236 m), corresponding to an operating margin of 7.8 per cent (6.0%). The operating income includes an item affecting comparability of SEK 61 million in respect of a non-recurring repayment of the insurance company SPP's excess consolidation. SEK 39 million of this item refers to Scandic's operations, with the remaining SEK 22 million referring to Provobis. The operating income for comparable hotels, adjusted for this item affecting comparability, totals SEK 246 million (SEK 216 m), corresponding to an operating margin of 6.6 per cent (6.0%). The operating income amounted to SEK 288 million (SEK 225 m) for the Group's Nordic operations and SEK 44 million (SEK 11 m) for its non- Nordic operations. The income after net financial items totalled SEK 342 million (SEK 247 m), corresponding to an increase of 38 per cent over last year. The income for comparable hotels, adjusted for items affecting comparability improved by 10 per cent. These figures include Scandic's share in the associated company, Pandox, of SEK 28 million (SEK 21 m). The income after net financial items for the third quarter totalled SEK 135 million (SEK 99 m). The comparability between this and last year is affected both by the sale of 20 independent restaurants in Finland during the first quarter 1999, and by the acquisition of Provobis, which affects both the income and the expenses scenario for the third quarter 2000. Scandic's buy-back of its own shares has also affected the company's liability situation and hence the financial costs. Two hotels were sold during the period from January- September last year, yielding a capital gain of SEK 12 million. One hotel has been sold this year, yielding a capital gain of SEK 3 million. Scandic sold its shareholding in the hotel property company, Hotellus International, during the first quarter 2000. The deal did not result in any capital gain nor a capital loss, but it did entail fiscal deductions that can be cited in Sweden for previous losses of approximately SEK 335 million, and hence no tax has been charged to the profits reported by the Swedish operations over the past year. Income after net financial items by quarter and rolling 12-month figures (excluding the effect of extraordinary items) Scandic's operations Occupancy levels during the nine month period increased by just under 1 per cent to 64.3 per cent (63.4%). The average room rate has stayed on a par with last year's at SEK 701 (SEK 700). Adjusted for exchange rate fluctuations, however, the room rate has risen by 2.5 per cent. The income per available room (RevPAR) totalled SEK 452 (SEK 445). Adjusted for exchange rate fluctuations, RevPAR increased by 4 per cent. The occupancy level for the Nordic operations increased to 63.9 per cent (63.4%) and the average room rate was SEK 711 (SEK 709). Adjusted for exchange rate fluctuations, RevPAR in the Nordic region increased by 3 per cent. The occupancy level for the non-Nordic operations increased sharply to 66.4 per cent (63.5%). The average room rate was SEK 620 (SEK 633). Adjusted for exchange rate fluctuations, the average room rate increased by 2 per cent and RevPAR by 6 per cent. The Swedish hotel chain, Provobis, with 17 hotels, was acquired at the end of June. A further six hotels have opened, two of which are in Norway, two in Finland, one in Denmark and one in Sweden. Agreements have also been signed concerning a further two hotels in Sweden, two in Norway and one in Germany. Two hotels in Sweden have left the chain. Collectively, this corresponds to an increase in Scandic's room capacity of 19 per cent during the first nine months of the year. Provobis acquisition Scandic's acquisition of Provobis Hotel & Restauranger involved 16 hotels and four independent restaurants in Sweden and one hotel in Finland which was under construction at the time of acquisition and has now been opened. The hotels are an excellent complement to Scandic's Swedish structure and offer excellent potential for increased economies of scale and positive synergies on both the expenses and the income front. Provobis has been included in Scandic's Income Statement as of the third quarter this year. The incorporation of the Provobis hotels into Scandic's business and operating systems is proceeding according to plan. Eight of the hotels have now changed their names to Scandic with the remainder due to be rebranded during November. The acquisition has generated goodwill depreciation and restructuring costs in conjunction with the incorporation of the hotels into Scandic's systems. A restructuring reserve has been allocated to cover costs arising from IT systems, signs etc. Non-recurring costs arising from training, uniforms, printed materials etc. have also been booked on an ongoing basis throughout the last quarter. The Provobis hotels are expected to make a positive contribution to earnings per share as early as 2001. Financing and liquidity The Group's interest-bearing liabilities totalled SEK 868 million (SEK 286 m) as of 30 September, at which time the interest-bearing net debt totalled SEK 723 million (SEK 125 m). The increase is primarily due to the Provobis acquisition, the cash share of which totalled SEK 375 million, and to the assignment of a value of SEK 329 million to the buy-back of the Group's own shares. Net financial items for the nine month period totalled SEK -18 million (SEK -10 m). Cash flow continues to strengthen The cash flow from the ongoing operations continued strong for the first nine months of the year, totalling SEK 283 million (SEK 262 m). The cash flow from investment activities totalled SEK -661 million (SEK -275 m). Investments primarily comprise the cash share of the Provobis acquisition and investments in other hotels acquired and under construction. Last year's cash flow included the sale of the independent Finnish restaurants included in the Arctia acquisition. The Scandic share The Scandic share's closing price, as of 23 October, was SEK 102, in comparison with SEK 79 at the end of 1999, corresponding to an increase of 29%. Affärsvärldens General Index has decreased by 7 per cent since the turn of the year. 2,253,338 new shares have been issued during the period in connection with the acquisition of the Provobis hotel chain, thereby increasing the total number of shares in the company to 66,003,488. 3,261,738 shares, corresponding to 4.9 per cent of the total number of shares issued, have also been bought back. The average price of the repurchased shares is SEK 101.02. Stockholm, 25 October 2000 Roland Nilsson President & CEO This report has not been externally audited. Financial information, 2001 Scandic Hotels intends to distribute the following financial information during 2001: Year-end report for 2000, 12 February 2001 Interim Report, three months, 4 May 2001 Interim Report, six months, 10 August 2001 Interim Report, nine months, 31 October 2001 The reports will be distributed directly to the shareholders and can also be ordered from Scandic Hotels AB. The information is also available on Scandic's website at www.scandic-hotels.com The Annual General Meeting of shareholders will be held in Stockholm on 29 March 2001. Nomination of Members of the Board Chairman of the Board, Arne Karlsson, has, with the aim of activating and facilitating the procedure for nominating Members of the Board and generating proposals regarding fees, been designated the contact person on these matters ahead of the Annual General Meeting. Shareholders are invited to submit proposals/comments to Chairman of the Board, Arne Karlsson, Scandic Hotels AB, P.O. Box 6197, 102 33 Stockholm, Sweden. Proposals/comments should reach Arne Karlsson no later than 31 January 2001. 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's with 155 hotels in 10 countries. Scandic's strategy is to be a dedicated hotel operator and to continue to grow, both organically and through acquisitions. Scandic's business mission is "to offer many people the highest value for money when staying in its hotels, during work and leisure." Scandic Hotels AB (publ) P.O. Box 6197, SE-102 33 Stockholm, Sweden Tel: +46 (0)8 517 350 00, Fax: +46 (0)8 517 352 70 E-mail: info@scandic-hotels.com, Internet: www.scandic-hotels.com Org. no.: 556299-1009 ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2000/10/25/20001025BIT00600/bit0001.doc The full report http://www.bit.se/bitonline/2000/10/25/20001025BIT00600/bit0002.pdf The full report