THE LEADING NORDIC HOTEL COMPANY ANNUAL REPORT 2017 CONTENTS One strong proprietary brand 12 Administration Report 62 This is Scandic Insert Market-leading position 14 Risks and risk management 68 The leading hotel company Commercial platform 22 Corporate governance 72 in the Nordics Insert Variable leases 30 Board of Directors 80 Sustainable footprint 34 Executive Committee 82 Our Nordic DNA 1 Engaged & motivated team 42 Financial reports 84 CEO statement 2 More in-depth sustainability Notes 92 2017 in summary 5 reporting 48 Adoption 119 Strategy 2020 6 GRI Index 58 Auditor’s Report 120 High profitability over time 8 Auditor’s Report on the The Scandic share 124 Scandic’s concepts for success 10 Statutory Sustainability Report 60 Definitions 126 Shareholder information 128 Scandic is a Swedish company subject to Swedish laws. All values are expressed in Swedish kronor. Figures in parentheses refer to 2016 unless otherwise specified. Data on markets and the competitive situation is based on Scandic’s own assessments unless a specific source is indicated. Such assessments are based on the best and latest available facts from published sources. The annual accounts and consolidated accounts of the company are included on pages 62–119 of this document. THIS IS SCANDIC THE LEADING HOTEL COMPANY IN THE NORDIC COUNTRIES Scandic has the largest and widest hotel network in the Nordic market. This creates a unique offering to customers and high efficiency. Scandic conducts operations 55,000 under a single, fully-owned brand that is the best-known hotel brand in the Nordic hotel market. HOTEL ROOMS IN OPERATION AND UNDER DEVELOPMENT FORERUNNER IN SUSTAINABILITY STRATEGIC COOPERATION Doing business responsibly is important to Scandic. The company is the driving force In the Nordic market, leasing is the most common model for operating in the hotel industry in the area of sustainability, both when it comes to environmental hotels and Scandic focuses on hotels with long-term revenue-based and social issues. Scandic’s efforts in this area reduce the use of resources and thereby leasing agreements. In addition to giving Scandic financial stability, the lower costs. They also strengthen the company’s brand since guests – like Scandic – feel leasing model links the interests of Scandic and the property owners. increasingly strongly about these issues. This allows for long-term positive development of properties and good financial results. Scandic’s value-creating model means that it is the first choice for many property owners when it comes to new hotel projects. 280 130 HOTELS IN OPERATION AND LOCATIONS A LOYAL CUSTOMER BASE UNDER DEVELOPMENT Over the years, Scandic has been a pioneer and driven development in the hotel industry. Guests have appreciated Scandic’s innovation and today, the company enjoys a high percentage of repeat customers. CORPORATE CUSTOMERS DOMINATE This is manifested in the Scandic Friends loyalty program – the largest About 70 percent of Scandic’s revenue comes from business travelers and conferences. in the Nordic countries. Members earn valuable points each night Scandic is a full-service provider of accommodations, restaurants and conference facili- they stay and Scandic Friends members account for about 35 percent ties with a range of services tailored to local markets. Scandic constantly differentiates of Scandic’s reservations. its offering in relation to competitors. Returning guests should feel that Scandic offers distinct and meaningful added value. A 50-YEAR HISTORY HOTELS IN Scandic was founded as Esso Motor Hotel in Laxå, Sweden in 1963. Within just ten years, Esso was the 16,000 THE PIPELINE largest hotel chain in Sweden. The Scandic brand TEAM MEMBERS 18 was established in 1983. The journey since then has HIGH-QUALITY HOTEL PORTFOLIO been marked by strong organic growth combined ENGAGED EMPLOYEES Scandic works constantly to optimize its existing with strategic acquisitions. The model has always Employee satisfaction at Scandic is high, hotel portfolio through additions and reconfigura- been to transform hotels into Scandic ones right which is a prerequisite for being able to main- tions. It has also successfully built a pipeline of away – a successful strategy that has laid the foun- tain strong customer loyalty. As an employer, new hotels. As of December 31, 2018, the pipeline dation for Scandic’s strong brand. Ownership of the Scandic is ranked high in many different types included 18 exciting new hotels that will open by company has changed over the years. Between of external surveys. the end of 2021. 1996 and 2001, Scandic was listed on the stock exchange. The re-listing of Scandic’s shares in the fall of 2015 marked a comeback. THE LEADING HOTEL COMPANY IN THE NORDICS 55,958 hotel rooms. At 280 hotels in operation and under development. In about 130 different locations. 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 2017 totaled more than SEK 14.6 billion. Scandic has more than 16,000 team members. And each person is equally important for creating the positive hotel experiences that Scandic is known for. NET SALES ADJUSTED EBITDA AND EBITDA MARGIN REVPAR MSEK MSEK % SEK 15,000 1,600 12 800 12,000 1,200 9 600 9,000 800 6 400 6,000 400 3 200 3,000 0 0 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Net sales, MSEK Adjusted Adjusted EBITDA margin, % RevPAR, SEK EBITDA, MSEK Target adjusted EBITDA margin, 11% 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. SCANDIC ANNUAL REPORT 2017 • 1 AN EVENTFUL YEAR FOR SCANDIC 2017 was an active year for Scandic with strong sales growth and improved underlying earnings. Growth was driven by strong demand in our markets combined with more hotels in operation. Market development was especially strong in Norway and Finland, where both occupancy and average room rates increased during the year. HOW WOULD YOU SUMMARIZE 2017? “THERE IS GREAT STRENGTH HOW WAS MARKET DEVELOPMENT 2017 was an eventful year for Scandic. We enjoyed good IN OUR BUSINESS MODEL DURING THE YEAR? sales growth driven by underlying growth in the market and Our markets developed relatively well in 2017, and RevPAR the addition of new hotels. During the year, our turnover WITH VARIABLE LEASE increased in all countries. We saw continued growth in increased by 11.5 percent and we improved our adjusted AGREEMENTS THAT GIVE US our base of Nordic corporate customers, while the leisure EBITDA. That said, we’re not entirely satisfied with the way A FLEXIBLE COST BASE.” segment continued to grow significantly, not least from we ended the year with lower results in our Swedish opera- international guests who see the Nordic region as an tions, concentrated to Stockholm. However, at the beginning increasingly attractive tourist destination. of 2018, we implemented measures to ensure profitability and revenue going forward. The most positive development was in Norway and Finland, relationship with our property owners with a common which both showed strong RevPAR development due to The biggest event during the year was undoubtedly the interest in improving and developing our hotels over time, higher demand and a relatively unchanged supply. The acquisition of Restel, which is a big step for us in Finland since higher revenues for us also means greater incomes Finnish economy seems to be on its way up again after a where we now have a market-leading position. We also for them. Combined with our market-leading position weak period, and the Finnish travel industry is also being opened a record number of new hotels during the year. And and distribution capacity, we are seen as a very attractive spurred by significant increases in air traffic from Asia. internally, among other things, we focused on developing partner in the market. leadership in the organization as part of our cultural plat- Parts of the Norwegian market fell sharply in connection form, Inspiring Nordic. WHAT AREAS DOES SCANDIC NEED with the oil crisis a few years ago, but we have now seen TO IMPROVE? a recovery at the oil destinations in western Norway. What WHAT’S YOUR IMPRESSION OF SCANDIC Scandic has grown quickly in a short time and we need to is clear is that Norway is becoming more attractive as a SO FAR? ensure that we work efficiently and draw the full benefits of tourist destination. For example, we are now seeing that I have visited a large number of hotels and have to say that the economies of scale we have. Not only that, the travel some of our hotels in northern Norway that have previously I am pleased by the consistent high quality of our portfolio. industry has become increasingly dynamic in recent years, been summer destinations also have high occupancy Not only do we have the largest hotel network in the Nordic with new types of distributors and competitors gaining during the winter months. region, but the product we offer is something we should be ground. We need to be a bit more agile so we can quickly proud of. It’s also been great to get to know the positive and adapt to changes and new opportunities in the market.