ANNUAL REPORT 2016 A WORLD-CLASS HOTEL COMPANY A STRONG BRAND | UNRIVALLED GEOGRAPHIC NETWORK | | STRONG CORPORATE CULTURE | COMMERCIAL AND OPERATIONAL LEADERSHIP | HIGH- QUALITY PIPELINE | | CLEAR GROWTH STRATEGY CONTENTS Strengths Administration Report 56 This is Scandic Insert Widest network 22 Risks and risk management 63 The leading hotel company Leading commercial platform 28 Financial reports 66 in the Nordics Insert Operational leadership 32 Notes 74 Our Nordic DNA 1 A strong culture 34 Adoption 101 CEO statement 2 Value creation Auditor’s Report 102 Scandic’s concept for success 6 Inspiring leadership 38 Corporate Governance 106 Business model Engaged and motivated team 40 Board of Directors 114 One strong proprietary brand 8 Satisfied and loyal customers 44 Executive Committee 116 Our journey, vision, mission 10 A sustainable footprint 46 Sustainability Report Clear market positioning 12 High profitability over time 52 Stakeholder dialogs 118 Focus on scalability 18 Scandic’s 2020 strategy 54 Sustainable supplier management 120 Variable leases 20 Employee data 122 GRI Index 124 Scandic is a Swedish company subject to Swedish laws. All values are expressed in The Scandic share 126 Swedish kronor. Figures in parentheses refer to 2015 unless otherwise specified. Data on markets and the competitive situation is based on Scandic’s own assessments Definitions 128 unless a specific source is indicated. Such assessments are based on the best and latest Shareholder information 129 available facts from published sources. This document is a translation of the official Swedish Annual Report for Scandic Hotels Group AB (publ) for the 2016 financial year. Only the Swedish Annual Report has been audited. THIS IS SCANDIC A SOLID BRAND Today, Scandic is the strongest hotel brand in the Nordic region. This is because the company controls operations and the customer experience , – from booking to following up. This creates a secure base. But a strong 42 000 brand is perishable. To keep the brand alive, each Scandic employee needs HOTEL ROOMS to live up to the expectations of guests, every time they interact. At the same time, the content and perceived values of the brand need to be con- stantly developed so that it remains relevant and appreciated. STRATEGIC COOPERATION In the Nordic market, leasing is the most common model for operating hotels and Scandic focuses on hotels with long-term leasing agreements. In addition to giving Scandic financial flexibility, the leasing model links the interests of Scandic and the property owners. This allows for long-term positive development of properties and positive financial results. Scandic’s strong market position means that it is the first 223 120 choice for many property owners when it comes to new hotel projects. HOTELS PLACES CORPORATE CUSTOMERS DOMINATE 1.9 MILLION LOYAL GUESTS About 70 percent of Scandic’s revenue comes from business travelers Over the years, Scandic has been a pioneer and driven development in the hotel and conferences. The remaining 30 percent is from leisure travel. industry. Guests have appreciated Scandic’s innovation and today, the company Scandic is a full-service provider of accommodations, restaurants and enjoys a high percentage of repeat customers. This is manifested in the loyalty conference facilities with a range of services tailored to local markets. program Scandic Friends – the largest in the Nordic hotel industry with more than Scandic constantly differentiates its offering in relation to competitors. 1.9 million members. Members earn valuable points each night they stay, and Returning guests should feel that Scandic offers distinct and meaningful Scandic Friends members account for about 40 percent of Scandic’s reservations. added value. HIGH-QUALITY HOTEL PORTFOLIO Scandic works constantly to optimize its existing hotel portfolio through additions and reconfigurations. It has HOTELS also successfully built a pipeline of new hotels. In February 15,000 IN PIPELINE 2017, the pipeline included 16 exciting new hotels that EMPLOYEES 16 will open by 2020. A 50-YEAR HISTORY FORERUNNER IN SUSTAINABILITY Scandic was founded as Esso Motor Hotel in Laxå, Sweden in 1963. Within Doing business responsibly is important to Scandic. The company is the driving just ten years, Esso was the largest hotel chain in Sweden. The Scandic force in the hotel industry in the area of sustainability, both when it comes to brand was established in 1983. The journey since then has been marked by environmental and social issues. This leading position was confirmed when strong organic growth combined with strategic acquisitions. The model has Scandic was named the most sustainable hotel operator for the sixth year in always been to transform hotels into Scandic ones right away – a successful a row in last year’s survey by Sustainable Brands in Sweden. Scandic’s efforts strategy that has laid the foundation for Scandic’s strong brand. Ownership in this area reduce costs and increase revenues. They also strengthen the of the company has changed over the years. Between 1996 and 2001, company’s brand since guests – like Scandic – feel increasingly strongly about Scandic was listed on the stock exchange. The re-listing of Scandic’s shares these issues. in the fall of 2015 marked a comeback. THE LEADING HOTEL COMPANY IN THE NORDICS 41,572 hotel rooms. At 223 hotels in operation. In about 120 cities. These three figures underline Scandic’s role as the leading hotel operator in the Nordic region. Scandic focuses on hotels in the mid-market segment. Annual sales for 2016 totaled more than SEK 13 billion. Scandic has more than 15,300 team members. And each person is equally important for creating the positive customer experience that Scandic is known for. NET SALES AND GROWTH ADJUSTED EBITDA AND EBITDA MARGIN REVPAR AND GROWTH MSEK % MSEK % SEK % 15,000 40 1,400 12 800 30 12,000 30 1,050 9 600 20 9,000 20 700 6 400 10 6,000 10 350 3 200 0 3,000 0 0 -10 0 0 0 -10 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Net sales, MSEK Growth, % Adjusted Adjusted RevPAR, SEK Growth in RevPAR, % EBITDA, MSEK EBITDA margin, % OUR NORDIC DNA The Nordic way of thinking has been in Scandic’s DNA since its inception over 50 years ago. It is reflected in our design, our service and our people. It steers our culture, our thinking and our leadership. It is reflected in our curiosity and our openness to the world and its diversity. In thinking big, challenging ingrained ideas, working as a team and being driven by the conviction that nothing, absolutely nothing, is impossible. And naturally, it is the foundation of our vision, our mission and our values. “ IN 2016, MOST THINGS WENT OUR WAY” OW WOULD YOU SUM UP 2016? HOW ARE THE DIFFERENT MARKETS – As a really good year for Scandic. We’re now in “ SCANDIC IS WELL EQUIPPED DEVELOPING? a period where external conditions are favorable, – In Sweden, which is our largest market, we added new H FOR THE FUTURE WITH EXCITING with continued good economic conditions in the Nordic capacity in 2016. Scandic Continental opened as well as our countries and a growing hotel market. Not only that, Scan- HOTELS IN THE PIPELINE IN first signature hotel, Haymarket by Scandic. Both are true dic has a strategy that is working well, which means that A MARKET THAT CONTINUES success stories. In my career in the hotel industry, I’ve never we’re taking market share all the time. We have success- TO BE STRONG.” seen anything like it. Typically, it takes 18 to 24 months for a fully introduced our cultural platform, Inspiring Nordic, and new hotel to become profitable. Scandic Continental had created get-up-and-go in our organization. Our employee high occupancy and was profitable from day one. satisfaction is high, as is customer satisfaction. In short, it feels like most things went our way in 2016. And that we’re contribution of each person. We’ve always had a strong – The success of Haymarket by Scandic shows that our stronger than ever. culture and proud employees at Scandic, so Inspiring investment in signature hotels is absolutely right. The initia- Nordic is more an evolution than a revolution. tive continued in 2016 with Grand Central by Scandic and HOW DID THE MARKET DEVELOP in 2017, we will launch Downtown Camper by Scandic, DURING THE YEAR? WHAT’S THE FOCUS FOR 2017? which is also in Stockholm, and Grand Hotel by Scandic in – The European hotel market has experienced a long – For us, 2017 is the year of leadership. We are committed Oslo. The latter is part of the takeover of the operation of period of growth. In line with this, the Nordic markets are to developing the leaders we have and becoming a hot- eight hotels that we carried out in January 2017. In 2019, also favorable. Scandic has a stable and recurring cus- house for talented employees so they can grow personally we will continue by opening the signature hotels Marski by tomer base thanks to its strong position in the business and in their roles within Scandic. Scandic in Helsinki and Hotel Norge by Scandic in Bergen. community. Corporate customers and organizations During the year, we will also launch a number of new account for about 70 percent of our business and with our concepts to make the customer experience even better. – In Finland, the macroeconomic situation continued to be wide network of hotels, we can satisfy virtually any need. With our new meetings concept, we can offer more effec- weak last year, but the hotel market still showed positive tive and inspiring conferences and we are continuing to growth. We strengthened our position in the country by – Moreover, we see that the Nordic countries are becoming strengthen our digital platform – all to create an inspiring establishing a hotel in Vaasa and our leading position in the more popular tourist and meeting destinations for interna- experience for our customers.