Operator: Scandic Hotels Group Q3 2026 report presentation. For the first part of the conference call, you will be in listen-only mode. During the questions and-answer-session, you are able to ask questions by dialing pound key five on your telephone keypad. Now I will hand the conference over to the speakers, CEO Jens Mathiesen and CFO Pär Christiansen. Please go ahead.
Jens Mathiesen: Thank you so much, and good morning, everyone, and thank you for joining us for the Q3 presentation. I am Jens Mathiesen, CEO of Scandic, and together with me is our CFO, Pär Christiansen. We have a packed agenda today, we will start with the quarter and then give an update on the completion of the acquisition of Dalata afterwards. Let us get started. We go into the highlights on page two. We deliver a strong quarter with good growth, record results, and strong cash flow. Net sales increased by 8%, and adjusted EBITDA grew by more than 20%, reaching a new record with a margin of over 19%. This also translated into strong cash flow, with free cash flow for the year to date increasing by more than 60% to just over SEK 1 billion.
Jens Mathiesen: Our performance reflects strong operational performance and disciplined cost control, combined with an overall healthy hotel market. We deliver on our growth strategy, adding attractive hotels to the portfolio, and together with the Dalata acquisition, this is helping us build a larger and much stronger Scandic. The Dalata acquisition was completed in early November. Having worked closely with the business over the past year, I can confidently say that this is even stronger than we expected. We are welcoming a well-performing business with engaged colleagues in two of Europe's most attractive hotel markets, and we see good opportunities to drive growth and develop the business further by the commercial and operational strength of the combined company. Another highlight is the new strategic partnership with Hilton to develop and operate hotels under their brands in the Nordics.
Jens Mathiesen: This creates opportunities to reach new international customer segments, drive demand, and strengthen room revenue. We will come back to both the acquisition of Dalata and partnership with Hilton later in the presentation. Performance so far in Q4 has been good, with solid demand for business travel, meetings, and conferences. For the quarter as a whole, we expect slightly higher occupancy and room rates than in the same period last year. Let's take a closer look. Please go to page three. Let's take a closer look at the finances for the quarter. As mentioned, we deliver record results, with adjusted EBITDA increasing by more than 20% to over SEK 1.3 billion. The margins reached 19.3%, two percentage points higher than last year.
Jens Mathiesen: A strong hotel market with better room rate development than last year supported by our performance, as well as our disciplined operational focus with high efficiency and strict cost control. Pär will take you through the financial results in more details shortly. Please turn to page four. Let's take a closer look at the market development, starting by the Nordics. Overall, market conditions were favorable, supported by a strong event calendar, growing demand from leisure travelers. Higher occupancy and rising room rates contributed to improved RevPAR growth compared with last year. As you can see from the chart, the stabilization in Finland following Q2 is also clear, while the other Nordic markets continue to perform well. The Nordic hotel market remains healthy, and we expect further improvement over time. Please turn to page five to have a look at the development in Ireland and the UK.
Jens Mathiesen: Market conditions in both Ireland and the UK remained solid overall. Ireland was stable against strong comparatives from a busy event-driven Q3 in 2025. The UK developed positively, with continued good demand in regional markets and support from several major events during the summer. Please turn to page six. Let me give you a brief update on our pipeline. At the end of the quarter, including Dalata's pipeline, we had 20 hotels and almost 5,000 rooms in development across our markets. We actively manage the portfolio with a long-term perspective. Interest in new hotel projects remains strong, and we continuously evaluate opportunities for new hotels as well as exits. Since the last quarter, we have signed three new hotels, two in Germany and one in Stockholm.
Jens Mathiesen: We have also opened a new Scandic Go in Jönköping, and as you can see, we also have a number of attractive hotels scheduled to open in both 2027 and 2028. Please turn to page seven. Let me highlight some of our recent hotel signings. In Germany, we signed an agreement for our third hotel in Frankfurt, adding 295 rooms to our growing German portfolio. The hotel is expected to reopen in Q1 2028 following renovation. We also signed our first hotel in Freiburg, an attractive university and business city in southwestern Germany. The 219-room hotel is expected to open in Q4 2027. In Stockholm, we signed an agreement for a new 320-room hotel in the Globen area, at the heart of one of the city's leading districts for sports, music, and entertainment.
Jens Mathiesen: The hotel will be created through the conversion of an existing office property and is expected to open in 2028. Together, these signings strengthen our presence in attractive locations in both Germany and Sweden. Please turn to page 8. Let me give you here a few words about our partnership with Hilton. This partnership is a clear recognition of our ability to run hotels efficiently and deliver high guest satisfaction. Combined with Hilton's global brands, strong distribution network, and more than 260 million Hilton Honors members, we see significant opportunities to reach new international guests and drive demand and increase room revenue. The partnership also creates new hotel development opportunities across the Nordics and opportunities for future benefits for both Scandic Friends and Hilton Honors members.
Jens Mathiesen: In addition to the three Hilton hotels we already operate in Finland, we have announced the first hotel under the new partnership at Copenhagen Airport, which is expected to open in 2029. We are excited about the potential, and we look forward to sharing more as the partnership develops. With that, I hand it over to you, Pär. Please turn to page 9.
Pär Christiansen: Thank you, Jens. Good morning, everyone. I will now go through the Q3 financials. Please turn to page 10. Looking at the Q3, we saw a growth of 7.9%, organic growth of 4.5%, and a turnover of SEK 6.9 billion. Overall, good results, better than last year in all markets, with good efficiency in the business driving the margins. Sweden had a record quarter with a really good summer and a very strong margin at 24.7%. Finland returned to growth and also improved margins. It is an important proof point, as we mentioned this as a guidance in our last Q3 report, and can also mention that we expect Finland to be slightly better in the coming Q4 compared to the same period last year. Strong performance from the Dalata management contract, contribution of SEK 91 million on top line and SEK 84 million on EBITDA.
Pär Christiansen: Group cost in line with same quarter last year. Efficiency improvements balancing the inflation and salary increases. In total, we saw a result of more than SEK 1.3 billion and a margin of 19.3%. Strong improvement compared to last year's margin, and even if we exclude the Dalata management contract, the margin was up. All in all, a strong result. For the coming Q4, we can remind that Q4 last year, we got SEK 39 million in the Dalata management contract, corresponding to 4% of revenue, and this was from 7 November, so some 11% less days than a two-month full period if you need a baseline for the coming Q4 report. Please turn to next page. We had a strong cash flow of more than SEK 2.4 billion on a rolling 12 basis.
Pär Christiansen: Investments were in line with plan, and we continued to deliver on our portfolio strategy with 5,000 rooms in pipeline. Free cash flow totaled SEK 1.3 billion on a rolling 12 basis and SEK 945 million in the quarter. Very strong improvement compared to Q3 last year. Please turn to next page. We had a very strong financial position at the end of Q3. Net cash of SEK 648 million, meaning a leverage of -0.2 times. In a good position to support the coming portfolio growth, as well as the completion of the acquisition of the Dalata hotel operations. We will mention more later in this presentation. All in all, very strong cash flow and a very solid quarter. I will now hand back to you, Jens, and please turn to the next page.
Jens Mathiesen: Thank you, Pär. As we announced last week, we have successfully completed the carve-out and acquisition of Dalata's hotel operations. I will go through why this is a milestone for Scandic and the opportunities we see, and Pär will go through the pro forma financials and our attractive financial profile. Please turn to page 14. This is a highly attractive acquisition for Scandic. Our work over the past 12 months during the carve-out process has strengthened our confidence in its potential. We are adding a well-run hotel portfolio with strong financial performance that will further strengthen the group. The acquisition also broadens our brand portfolio across the mid-market and upscale segments, adding two strong brands, Clayton and Maldron. Dalata has a high-performing and engaged team that will play a key role as we develop our business together. Overall, this is a compelling use of capital.
Jens Mathiesen: It creates new opportunities for growth, strengthens our financial profile, and delivers a significant uplift in earnings per share. Please turn to page 15. Scandic has gone from the leading Nordic hotel operator to one of Northern Europe's leading hospitality companies. Our combined portfolio generates more than SEK 30 billion annually, with good profitability across more than 320 hotels and almost 69,000 rooms. We have hotels in more than 150 destinations and 11 markets. This makes us a significant provider across Northern Europe with many possibilities.
Jens Mathiesen: Please turn to page 16. We have had a strong multi-brand portfolio addressing economy, mid-market, as well as upscale. Through this acquisition, we strengthen our portfolio within the mid-market, which is our core segment, adding two well-known brands in Ireland and the UK. We have a clear strategy to grow our portfolio across our markets with more brands in more markets.
Jens Mathiesen: We have better optionality in our portfolio growth strategy, and we will make sure to maximize the benefit.
Jens Mathiesen: Please turn to page 17. Following the carve-out process and completion of the acquisition, we have built a greater understanding on how we can work together to maximize value. We are very impressed with the performance and culture that sits within the Dalata organization, and there is much in common with Scandic. This is something that we highly value, as we will work together to maximize potential from the integration. Dalata has a highly competent team with local expertise, clearly demonstrated in their financial track record. Combining these strengths with Scandic's highly efficient operating model will create large potential over time, both commercially and operationally. Considering our large scale and larger scale now, we will also be able to pursue scale benefits within, for example, procurement.
Jens Mathiesen: We will also focus on realizing benefits from our commercial scale. We will have a larger guest base, which will enable us to increase direct bookings with higher margins and grow our loyalty program. Dalata has a cash flow profile like Scandic's, with good margins, stable working capital, a well-invested portfolio, and relatively low tax levels. Dalata will add meaningful free cash flow to Scandic, which will enable us to allocate cash to ensuring a strong financial position, delivering on our portfolio growth, and shareholder returns through dividends and buybacks. I will hand it back to Pär for going through the financials in more details. Please turn to page 18.
Pär Christiansen: Thank you, Jens. Combining our businesses will create significant potential. At completion, we had already realized around SEK 75 million in cost savings. These mainly relate to central administration, senior management functions, and specialist roles. Looking ahead, we see further potential in three main areas.
Pär Christiansen: First, administration, sourcing, and IT. Our combined scale creates opportunities to improve performance terms, achieve efficiencies across systems and administration, and improve distribution economics, for example, for the OTAs. Secondly, operating models and best practices. Dalata brings a strong team and a well-run hotel platform, while Scandic brings a highly efficient hotel operations model. We see opportunities to learn from each other and share best practices while preserving the local expertise. Thirdly, commercial opportunities. We will use our broader reach and scale to increase direct bookings, drive cross-selling through Scandic Friends, and secure attractive strategic partnerships.
Pär Christiansen: Realizing this synergy will take some time, and we will provide regular updates on our progress. Please turn to page 19. I will now take you through the pro forma numbers we published this morning. All figures on this slide are pro forma and covering the 12-month period ending 30 September 2026. We have adjusted Dalata's historical figures for the new lease agreements with Pandox and therefore also removed the management agreement fee, as if Scandic had owned the Dalata hotel operations during the period. We have also included the SEK 75 million in cost savings described on the previous slide. These mainly reflect senior management functions and specialist roles. These savings have already been realized. No additional future synergies are included in the numbers.
Pär Christiansen: Compared to the indicative pro forma numbers we showed one year ago, we are now showing numbers that are in line or slightly better in all areas. On this basis, the combined group generates revenue of more than SEK 30 billion, around 30% higher than Scandic alone. The combined adjusted EBITDA margin was 11%. In the pro forma period, Dalata's higher margin will lift the profitability in the group. The acquisition also increased earnings per share. On an indicative pro forma basis, the uplift is around 25%, including estimated financing costs. This is better than we showed one year ago. Finances costs are included on the combined group. We have used a balanced estimate based on the interest terms in the new finance agreement, with the initial loan of EUR 500 million and annual repayments of EUR 39 million.
Pär Christiansen: Dalata also strengthened the group hotel KPIs, reflecting the higher occupancy and room rates in Ireland and UK. All in all, these numbers confirm what we have said. Dalata strengthened our financial profile and makes a strong contribution to earnings per share. Please turn to page 20. The acquisition further strengthens our financial profile in three areas. First, we will have a more balanced revenue mix across markets. No single country now accounts for more than 24% of net sales. This reduces our dependencies on any single market and makes the groups more resilient. Secondly, we have an attractive lease portfolio. On the pro forma basis, rental costs represent around 29% of combined net sales, compared to around 30% for Scandic before the acquisition. Most of our leases remain variable, providing flexibility as a revenue change.
Pär Christiansen: Thirdly, Dalata's hotels are relatively young and well-invested, with limited renovation in the near term. On the pro forma basis, the combined group had around 3% of net sales in maintenance CapEx on a rolling 12-month basis, a bit below our ordinary guidance for Scandic that this has been around 3.5% to 4%. We believe that next year in total will be around 3.5% in maintenance CapEx. Together, this gives us a more balanced business with an attractive cost and CapEx profile. It supports strong cash generation and our ability to invest in growth and return to capital to shareholders. Please turn to page 21. Starting with acquisition financing, we paid EUR 500 million for Dalata on 2 November, subject to customary adjustments. Our average finance cost will be around 5%, and we retain solid financial headroom.
Pär Christiansen: Both Scandic and Dalata generate strong cash flows, bringing them together further strengthens the group's cash generation. Dalata has good profitability, lower maintenance CapEx requirements, and lower corporate tax. Working capital is also less seasonal, providing a more even cash flow throughout the year. The chart illustrates how Dalata adds to Scandic's cash generation. Scandic generated around SEK 1.1 billion in free cash flow, excluded Dalata management contract over the past 12 months, with cash conversion around 45%. The adding of the Dalata part will be in line or better than that conversion rate. Our leverage ratio following the completion is around 1.5 times. Strong cash generation will support a gradual return to 1.0 times in line with our financial target. Our capital allocation priorities remain unchanged as we reduce leverage.
Pär Christiansen: We will continue to invest in our hotel portfolio and pay dividends while retaining flexibility for share buybacks when they create the most value for shareholders. Please turn to page 22. We expect strong cash generation going forward, and our capital allocation priorities remain unchanged. First, we will remain a strong financial position and the flexibility to act on attractive opportunities. Secondly, we will continue to invest in growth across our market and keep our hotels attractive and competitive. As mentioned, maintenance CapEx expected to be slightly lower as share of net sales. We will also continue to invest in IT and digitalization to improve our commercial and operation capabilities. Thirdly, our dividend policy remains unchanged to distribute at least 50% of net profit to shareholders. On that note, next dividend will actually be paid out later this week.
Pär Christiansen: Share buybacks will remain a tool to optimize shareholder value together with the dividends and investment in the business. With that, I will hand back to Jens for your closing remarks. Please turn to page 23.
Jens Mathiesen: Thank you, Pär. As mentioned by Pär, let me wrap it up by a few concluding remarks. Please turn to page 24. We deliver a strong quarter with good growth and positive development across most of our markets. We are meeting strong demand while running our hotels efficiently, allowing us to deliver record results and very strong cash flow. Performance so far in Q4 has been good, with solid demand for business travel, meetings, and conferences. For the quarter as a whole, we expect slightly higher occupancy and room rates than in the same period last year. The hotel market remains healthy and continues to develop positively. Despite the uncertainty in the world around us, people continue to prioritize experiences, entertainment, and hotel stays. Taking a broader perspective, the Dalata acquisition marks the start of a new phase in Scandic's growth journey.
Jens Mathiesen: Having worked closely with the business over the past year, I can confidently say that it is even stronger than we expected. Dalata is well-managed and performing well, as the pro forma figures we shared today clearly also shows. At the same time, there is good potential for further improvements, both at Dalata and across Scandic.
Jens Mathiesen: Together, we are a stronger European hotel company and hotel group, combining our leading Nordic position with strong operations in Ireland and the UK. By building on the combined strength, we can deliver even better guest experiences, accelerate growth, and further strengthen cash flow generation. Our strong financial position allows us to invest across several markets while continuing to return capital to shareholders. We will remain disciplined in how we allocate capital, prioritizing the combination of investments, dividends, and share buybacks that we believe creates the greatest long-term shareholder value.
Jens Mathiesen: Finally, I want to thank our colleagues for their efforts and warmly welcome our new colleagues coming from Dalata. I look very much forward to all we will and can achieve together going forward. With that, I hand it over to the operator for the Q&A. Thank you very much.
Operator: If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Alice Beer from ABG Sundal Collier. Please go ahead.
Alice Beer: Hi, good morning, Jens and Pär. Starting off on Dalata, a couple questions. The margin of 11.2%, I am assuming, is including central costs. But how should we think about Dalata's margin as a segment? Is it closer to Sweden and Norway at about 15% to 16%, or more like the other segments?
Pär Christiansen: Yeah, you are correct that the margin is 11.2%. I am not sure what you mean by the question around the segments. For the company—
Alice Beer: I mean, if you look at the Swedish margin, for example, just as a segment before group costs, the European margin is 15%, 16%.
Pär Christiansen: Yeah, okay. This includes the central costs, all the central costs in the Dalata business. Of course, some of the functions, as we say, the 75 million synergies, the old management team, and some overlapping expert roles. Local management will be, over time, reported as central cost for the group, as we have done with 138 in the quarters. So, the margin will increase for the Dalata business isolated, if we compare it to the Swedish segment going forward. This is loaded with more central cost than if you look at Sweden as a segment.
Alice Beer: Okay, perfect. You give us adjusted EBITDA and EPS. Does Dalata have a similar D&A ratio to Scandic, or what is the EBIT effect like? Could you give us any color on that?
Pär Christiansen: I am not sure what you mean with the
Alice Beer: Dalata's D&A. Is it a similar D&A-to-sales ratio as Scandic, or could you give us any indication on what happens between the lines of EBITDA and EPS?
Pär Christiansen: Yeah, I think, I mean, we will, from the start of the day, I guess we will implement this 31 contract. Of course, the depreciation for those will follow the contract length. If you will look at the IFRS 16 component, of course, that will be similar. A lot of contracts will have the same contract length now. Of course, it will be slightly different than Scandic as a whole. A little bit longer contract, I think, as a starting point with all these contracts within on 2 November. So, I think it will probably be, from IFRS 16 perspective, a little bit bigger balance sheet items. If you look at the rest, I guess it is the same profile for FF&E and depreciation of the real assets. So, that will be similar to Scandic.
Alice Beer: Okay, great. You mentioned buybacks a few times. At what leverage ratio would you consider doing buybacks again? Is this something we could expect in the foreseeable future?
Jens Mathiesen: For us, it is a tool. We just want to make it very clear that we always value between the three options that we have, growing the company versus dividend and versus buyback. That is also looking into how much cash we generate. Right now, we do use a lot of We actually generate a lot of cash. By that, we also want to keep it open that buyback of shares is an option on top of the dividend and investment policies we have. We have no plans of doing buybacks within a very short, but it is a tool that we have, which also the Annual General Meeting has given the board and us a mandate to do. So, that is something we will continue to focus on and do it balanced.
Alice Beer: Okay, great. Moving on to the report. Just adjusted EBITDA in Finland, it increased by, I think, SEK 26 million year on year on SEK 47 million extra sales, which is about a 55% drop through. So, rental costs only rose by SEK 6 million. I mean, were there any one-offs in Finland, or is it pure operating leverage on a depressed base?
Jens Mathiesen: Yeah, there is no one-offs included in this. It is because, as we have mentioned, I think earlier to you, we have a slightly higher business mix of fixed leases and leases where we hit the minimum guarantees due to the fact that Finland has been lagging behind the other markets in the ramp-up after pandemic and because of the war between Ukraine and Russia. Now we see that once this is starting to turn around, we also see that we will increase this conversion from top line to result. If this continues as we expect it to do, conversion of that might even be slightly better because we are facing still fixed guarantees and fixed leases. We will be continuing to convert strong in Finland when we see an uplift.
Alice Beer: Okay, great. Then on Sweden, margin was very strong, and rental costs rose by SEK 38 million on SEK 143 million extra sales. I mean, that is well below the group rent ratio. How much of the margin step-up is event-driven, and what can be extrapolated in Sweden?
Jens Mathiesen: I would say it was a good event period, and the summer was strong with several big concerts. I would say it was not unusually high. It was high compared to what we saw in the first part of the year. We normally, in Sweden, do have quite a good summer. What we actually saw was an uplift in international guests in general, and also that the domestic market has been picking up positively. After, I would say, a few years now with some very stable numbers where we saw limited uplift, where the other markets was growing quite a lot, especially in Norway, we now see Sweden coming after. In general, we see in all our different price segments, we do see an uplift. So it is not only event-driven. It is the underlying business that are also more healthy in Sweden right now.
Alice Beer: Okay, great. Just a final detail question on the extra IFRS 16 D&A that was primarily related to the Finnish rent agreements you talked about. I mean, the nine-month notes call this an impairment of right-of-use assets. Is this a one-off impairment or recurring higher run rates? Does it signal expected weakness in specific Finnish leases that maybe contradicts the stabilized narrative, or how should we think about that?
Pär Christiansen: I mean, the impairment process is an annual process, so we go through the contracts and the markets looking at quite long periods, and I guess that is analyzed activity. The weaker period that has been going on for a while in Finland has affected that baseline rather than the future view on that. I think it is a non-cash item, and it is more of a one-off, so to say.
Alice Beer: Okay, perfect. That was all for me. Thank you.
Jens Mathiesen: Thank you.
Operator: As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Karl-Johan Bonnevier from DNB Carnegie. Please go ahead.
Karl-Johan Bonnevier: Yes, good morning, Jens and Pär. First, a couple of follow-ups on the market development in Nordic, and obviously a very strong execution in a good market. If you compare it with, say, Q3 last year, where you maybe not delivered to the full capacity of the operation, what do you feel has gone better this year in, say, getting everything through to the cash flow and EBITDA line?
Jens Mathiesen: Well, I think we have had quite a lot of focus in the last couple of years in some of our base manning focus areas where we have a very strong model to really run our hotels efficiently. Of course, when we now see that we have this uplift in top line in the market, it is also a very, I would say, attractive mix of business that comes in. Also from the channels where we at Scandic are very focused on delivering not only the top line, but delivering the profitable top line. So we are extremely focused on securing that we get business through the right channels and also through our own channels, of course, to look at the cost of sales of that.
Jens Mathiesen: I think we have had a lot of focus on benefiting from some of these investments and initiatives we have done in the commercial area during the last couple of years, which we have also mentioned. So, I think the business mix combined with our high focus on efficiency.
Pär Christiansen: Yeah, I think you can add to that we have talked about it quite a long time, that we first will see the occupancy come up and then the rates. So I think, especially in Sweden, we saw now the rate coming up, and that goes very well into the conversion down to the bottom line. So I think the combination of now having a better price profile has also given a lot of support to the margins.
Karl-Johan Bonnevier: I noticed that you talk about, say, in the Q4 outlook that also the business segment is coming back in a good way here in your, say, bookings. How do you see that segment development compared to, say, I guess your very strong execution in the leisure segment?
Jens Mathiesen: I think we should expect, I foresee that we should expect this to continue, that most of the larger uplift will be coming from the leisure growing international segments especially. That is also why when we guide for the next quarter, we guide on the same positive uplift as we have seen. But of course, we do have less event-driven business in the Q4. We do not have all these concerts, et cetera, that really gives us an extra thing on the top, which we saw in Q3. But the underlying, both business and leisure, is growing. Even the corporate business is also picking up. We have seen a trend of a stronger corporate market in the last year. Then when we look at the bookings that we have already in our books, it looks like corporate and meeting segments continue to be very stable with a small uplift.
Jens Mathiesen: But you are right. I think looking at 2027 ahead, we believe that we should still follow the opportunities in growing within international leisure to really get the continuous uplift in average room rates.
Karl-Johan Bonnevier: Sounds promising. Turning to Dalata, looking at the 11.2% LTM margin compared to the 11% for Scandic, then also seeing the implied rental cost there. Could you bridge a little maybe how the other cost levels in the Dalata model is not having the same kind of efficiency as the Scandic model, and maybe tie it into the synergies that you might see in the future?
Jens Mathiesen: Yeah, you can say, Per mentioned this also within purchasing, Scandic has, for a longer period, with a larger portfolio and larger company, been able to really get, also in this region, extremely good rates or prices out of all our procurement and sourcing. We really have a strong sourcing power in Scandic. Now we want to combine that with the Dalata portfolio. We believe there are opportunities to support Dalata with some savings within especially procurement and sourcing. Everything from commission levels with OTAs to food and beverage, et cetera, and furniture, and FF&E when we acquire that. There are definitely some opportunities in that area. We have also been very good in Scandic at securing energy by hedging. We have less of that in Dalata.
Jens Mathiesen: That is also something where over time, they will be part of a bigger procurement area of that in Scandic. I think there are a lot of smaller opportunities that we will follow, but we are also very clear in our, let's say, estimates for the coming year or years ahead that we are cautious because we think we should not jump to fast conclusions in making changes before we do it together with the local team that really have been doing extremely well. Remember that it is a big company with still a lot of well-run hotels, high occupancy, and very happy and motivated team members. This is something I would say we come from a position of strength together, and we will cautiously build on that. But we definitely believe that there are opportunities to further optimize results.
Karl-Johan Bonnevier: Excellent. I like your comment as well, Per, on the free cash flow profile of Dalata, and probably being even slightly better than Scandic's, looking at, say, tax situations and similar kind of things. Can you elaborate a little on how you see that conversion, if there are opportunities for maybe getting flows of funds through the Irish operation rather than keeping it as it is in the current franchise as well? So there could be those kind of financing synergies going the other way.
Pär Christiansen: Yeah, as I mentioned, the Dalata part that we acquire is a well-run part. As you said, they have a margin profile that is solid, above 11%, as we said. On top of that, we will create these synergies that, of course, will create support for even better margins. Then going down, the rent levels are attractive. We are entering into good rent contracts now with Pandox. Then the portfolio in itself is a little bit younger, so of course, the maintenance CapEx requirements will be not on the same type of level as we have in Scandic for a while. Then thirdly, as you say, the tax rate is lower than in the Nordics, so of course, that will support cash generation from that perspective.
Pär Christiansen: We will have the opportunity to both finance the acquisition in itself, the EUR 500 million, by the cash flows now coming from the business we have bought. Of course, that is one of the goals here, that they will actually finance themselves. But also, then in capital allocation, as you see in the 5,000 rooms portfolio that Jens showed, we have a lot of attractive opportunities also to spend some of the expansion CapEx in the region, in UK, in Ireland, and also in the other parts of Europe. Of course, that could also be a way to invest some of the money in the region. Then of course, it will also support topping up Scandic as a group at the end of it. I think there is plenty of opportunities to use this cash as efficient as possible.
Karl-Johan Bonnevier: Excellent. Jens, maybe just a question also on the Hilton cooperation. How do you see, say, potential tie-up of reward programs with them and maybe getting Hilton to funnel demand into your whole franchise rather than a couple of hotels?
Jens Mathiesen: Yeah, it is a very interesting partnership, and of course, I have great ambitions with this partnership. It is an interesting partnership we actually create here because we are two large companies that are broadly competitors in the overall markets. But we have seen that Hilton has a very low presence in the Nordics. We know as a fact that Copenhagen has been one of their highest rejection markets, which means that a lot of Hilton Honors guests are looking for a hotel in Copenhagen but couldn't get it.
Jens Mathiesen: Due to that, we think that the combination of us running hotels, putting up a Hilton flag on those, like we do in Finland, where we have agreed on some very attractive terms on this one, because we will give them access to the Nordics, but then we will also, on top of that, of course, get access to the 260 million loyalty members in their Hilton Honors program. I find a lot of attractive opportunities looking ahead. We have not delivered all the expectations of that to the market yet, and we have not told you exactly when and how we will do this timing-wise.
Jens Mathiesen: But I can assure you, we are working a lot on this commercial aspect of it, and we will be coming with more features to the, especially loyalty programs, how we will open up the world for Scandic Friends members and how we will open up the Nordics for Hilton Honors members. And of course, this also gives opportunities into the Scandic systems from that part of the world, big world in Hilton Honors. So, it is not only opportunities looking into the Hiltons, it might also open up opportunities into Scandic in that partnership.
Karl-Johan Bonnevier: Excellent. And just on when you try to, say, target new projects like the one in Copenhagen, going with the Hilton brand rather than probably a by Scandic brand name, how do you see that kind of trade-off going?
Jens Mathiesen: Well, we look at this, I would say, property by property, and of course, it is mainly in the capital cities where there is huge demand and request from their international guests to really start. So, we will definitely focus on the capital cities and some of the last cities that has a lot of international travels, that might have an opportunity over time. And we think that is an opportunity for us to add a Hilton-branded hotel and actually deliver a big part of that business coming from their own channels, which is also at very attractive rates, meaning also that we can handle paying those commission levels that we have dealt with in the agreement, and which is, of course, confidential between us and Hilton, but which is very, very attractive. And of course, far, far below than what we need to pay for international guests through the OTA channels.
Jens Mathiesen: So, for us, it is a way of getting international business in at lower cost of sales than through OTAs.
Karl-Johan Bonnevier: Excellent. Excellent extra color, and thank you very much, and all the best out there.
Jens Mathiesen: Thank you very much.
Operator: The next question comes from Tim Barrett from Deutsche Numis. Please go ahead.
Tim Barrett: Morning, both of you. Thanks for taking the question. I had a couple more on Dalata, please. The first one was just around trying to get an adjusted leverage figure. It looks like about SEK 2 billion of extra rent. How do you think that will come through on the balance sheet in IFRS 16 terms, please, and what it would mean for leverage?
Pär Christiansen: As I said in the presentation, the leverage at the completion, 2 November, was 1.5 times if you exclude IFRS 16. We will, of course, in the Q4 report, publish the deal as it then had been closed in the quarter with the full PPA and everything. So, of course, then you can read the IFRS 16 effects on top of that. We are not disclosing the leverage, including IFRS 16 today in that. So, it is 1.5 if you exclude IFRS 16. Of course, later this week, we will pay a dividend and things like that, so of course, there will be some movements before the end of this quarter.
Tim Barrett: Can you remind me, are those leases mainly variable in terms of thinking of a cap rate ahead of you announcing it?
Pär Christiansen: Yeah, yeah. All the lease contracts with Pandox, the previously owned properties, are revenue-based leases with a fixed minimum or a guarantee. They are the same contract length, all of them, so of course, it will add quite a lot. The other part is the 22 agreements that was already in the company that are typical FRI leases, with completely different responsibilities as well as the rent levels. That brings down the rent levels as we presented to 26%. The 22 are fixed, and the Pandox leases will be variable with a minimum guarantee.
Tim Barrett: Got you. Thanks. A question on trading in Ireland, please. It sounds like Ireland is pretty flat in RevPAR terms in the quarter. Can you just give us a flavor for what is going on? I remember Fergal and the team used to talk a bit about things in Dublin, like the airport cap and humanitarian room outages. It would be good to understand how you are thinking about the medium term for Ireland in RevPAR terms. Thank you.
Jens Mathiesen: Well, right now we see that Ireland has had a very positive development. We saw a July that was weak, so we isolate July versus both Q2 and the rest of Q3, I would say, with August and September. Both August and September had a very good uplift, but July was actually negative compared to last year in Dublin, and that was due to a lot of strong events in the summer last year. So it is also a bit about the comparisons. If you look at the quarter as a whole, including August, September, they also host the EU presidency, so we even had a visit from the President of US, Donald Trump, that was there, and that means several hotels booked for Secret Service, et cetera. So the business, all in all, in Ireland has been very solid.
Jens Mathiesen: Also looking into the Q4 and the beginning of next year, business on books look very, very stable. Next summer will be very strong in certain locations. There is a lot of events coming in next year. There is like Euro in football. There is a lot of concerts booked up. We have Oasis, I think they are playing, I don't know if it is 13 or 14 concerts in Manchester alone, where we have four hotels. You can imagine while they are playing that, it will be a lot of fully booked hotels. So, I think for next year, I think we have very positive outlook for the whole region, both in Ireland and UK. We have also seen that actually London, after a period of non-growth, has started to grow again. We saw pickup of London region. We operate five hotels in London, but two more coming in from the pipeline.
Jens Mathiesen: It is very positive to see that London is starting to move positively again. So all in all, we see a stable and positive outlook going forward.
Tim Barrett: Sounds good. Thank you very much.
Jens Mathiesen: Thank you.
Pär Christiansen: Thank you.
Operator: The next question comes from Artem Prokopets from UBS. Please go ahead.
Artem Prokopets: Good morning. Thank you for taking my questions. Firstly, you have already realized SEK 75 million of annualized synergies, and the pro forma excludes any forward-looking synergies. Can you give us a sense of the potential magnitude and timing of the additional opportunity?
Jens Mathiesen: I think it is too early to guide on the savings going forward. We try to give you a bit of that by saying that we see several areas where we can do stuff together within purchasing, within the commercial, and some of the operational fit together. Dalata has already a strong focus, the management team there. Des, who is the COO that will join now my management team in Scandic, and the team, they are really focused on starting to learn from the Scandic models and see how they can also improve in certain areas linked to that. We have not guided on that, but there are definitely opportunities. What we also say is that something we might be able to achieve in a year, we do not necessarily want to push it through the first year.
Jens Mathiesen: It might take us 2 to 3 years to get out all the synergies of the company to make sure that we do not do it too fast so that eventually it is hitting the guest experience, because that we really want to protect. It is 80% occupancy in the group, and it is strong rates, so we want to build from that position of strength.
Artem Prokopets: Okay. Thank you.
Pär Christiansen: I think you can add to that we continue to guide the group on 11%, and I guess that we have not changed. There is a lot of opportunities, as Jens said, but of course, there has also been other macro challenges with energy, minimum wages, and now we had some positive news around the business rates, not for UK as a whole, but for England. So, of course, we want to balance all these factors. Before we said that the totality will move the needle a lot, so we are quite humble about that. So, of course, the synergies would give us more headroom to increase the margins above our targets, but it is a balanced mix of things that you have to manage during the coming years.
Artem Prokopets: Got it. Thank you. Secondly, on the leverage, you expected to gradually return from around 1.5 to below 1 times. Over what timeframe should we expect that?
Pär Christiansen: I think, with the current cash flow and dependent a little bit on expansion, I guess it will take between 1.5 and 2 years to go down below 1, if we do not do any buybacks following the dividend policies. It is not so far away, and a little bit dependent on activities, can go faster or slower, but around 1.5, 2 years, it is time to take it down to 1.
Artem Prokopets: Perfect. Thank you. Thirdly, the pro forma shows that rental costs of Dalata are 25.8% of revenue, which is lower than 29.8% for Scandic. Just wanted to ask what explains this difference, and should we view the lower rental cost ratio for Dalata as sustainable over the long term?
Jens Mathiesen: Yeah, I think it is a very good question. Thank you for that. Because I think it is a combination of two things. As Pär was mentioning, we have turnover-based leases with the portfolio from Pandox. That will be turnover-based leases where we also have high occupancy and strong rates. That you also see, of course, then in the combination of the lease. If you look at the 22 leases, we do pay lower lease on those 22 fixed leases that we do for the rest, because we also have a lot of responsibility on the buildings, changing elevators if that might be needed, et cetera. So that over time, there will be something there that we need to look in for, which we also have included in our estimates.
Jens Mathiesen: But even including that, we see that we will, in the coming years, be spending less CapEx on that total portfolio than we do in Scandic. Also then bringing the mixed CapEx in, let's say, maintenance CapEx down to around 3.5% for the coming year. We think it is a good level and good mix of contracts, and of course, very favorable for strong terms. So if we can get uplift on the rates, we will also have a drop through to the results strongly. But of course, if market goes back, we also have a slightly higher risk.
Pär Christiansen: Yeah, and I think if you look at the Scandic part, as we mentioned before, the Finland portfolio is burning that with the market that has been very slow and a lot of fixed leases, and also that we actually are on guaranteed levels on some of the variable things. So, of course, the percentage of sales will go down also for the old Scandic part if the market returns in Finland. So, of course, it is a tough comparison for the Scandic right now.
Artem Prokopets: Okay. Thank you for the color. Just lastly on outlook for Q4. So you mentioned in the report that it is only slightly higher occupancy and room rates year on year, despite good trading so far in the quarter. Is that simply prudent wording, or are you seeing some moderation in demand or pricing as we move through Q4? Are there any meaningful differences in momentum across the countries?
Jens Mathiesen: No, but we do see October is behind us, and we are almost a third into the November. So, of course, we have quite a lot of business behind us already. When looking at that, we do see an uplift in occupancy and price, but not on the same level as we saw in the last quarter where we had an uplift of totally 8%, which is extremely high. That was also due to the event-driven part that came on top of the underlying strong markets. The strong markets continue, and that is also why we try to guide a bit cautiously. We do not want you all to expect that the 8% will continue into the next, because it will not, because we are lacking the event-driven part that was really solid for Q3. But the underlying is very, very stable and with an uplift.
Jens Mathiesen: It is a bit to find the right balance here.
Artem Prokopets: This is very helpful. Thank you very much. That is all from me.
Jens Mathiesen: Thank you.
Operator: There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Jens Mathiesen: We just want to thank you all for dialing in and wish you all a fantastic day and see you all soon.
Operator: The host has ended this call. Goodbye.
