• Nordics reinforce capital structures

Scandinavian groups Radisson and Scandic have tapped their investors for further cash to support their businesses through the tricky months ahead.
As the companies’ key markets look to open-up once more, all eyes are on the easing of government travel restrictions across Europe. There is increasing hope that domestic travellers will want to stretch their legs, while steps are taken to allow international leisure markets to open up in some way, for summer holidays.
In Scandinavia, the situation has been complicated by Sweden’s strategy, which saw it avoid the lockdown executed by many neighbours. As a result, coronavirus infection levels there remain a concern. In mid-June, travel restrictions were lifted between Finland, Denmark and Norway – but Sweden was left out of the arrangement. Swedish foreign minister Ann Linde told CNBC that the differential treatment “will, in many people, create wounds that could be difficult to heal.”
At Radisson, CEO Federico Gonzalez has undertaken all possible cutbacks to costs, as its owners have provided necessary financial support to keep the company going. While it has postponed non-strategic capex, “management is taking advantage from the low activity period to push forward strategic repositioning and development projects.”
Chinese owner Aplite Holdings committed a EUR100m shareholder loan to ease the group’s cash situation at the beginning of June, with a further EUR100m promised – seemingly assisting renewal of an existing revolving credit facility. “With this cash injection and ability to raise further funding, to the extent needed, Radisson will be able to cover its liquidity needs,” promised Gonzalez.
First quarter results saw a strong January followed by the coronavirus lockdown, closing more than half of the group’s hotels in March and sending revpar down 59.2% for the month. Regional performance mirrored the pace of government travel restrictions, with Turkish properties seeing quarterly revpar down just 2.3% for the quarter, and those in Russia down 9.4%. In contrast, locked down Italy saw a 39.5% decline.
Growth continued, with 3,571 rooms signed to the pipeline, and 452 rooms opening during the quarter. Into June, Radisson has opened two more hotels, a Radisson and Radisson Blu, in Poland.
Scandic has cancelled its dividend and launched a rights issue to raise SEK1.75bn, to ensure it has cash to navigate its way out of coronavirus. Major shareholders Stena, AMF Pensionsförsäkring and Formica Capital between them committed to invest in their entitlement, accounting for more than 40% of the issue. The company also agreed a SEK1.15bn credit line, as well as a short term SEK250m bridging loan to cover short term needs.
The company says it expects its cashflow crunch to reach a peak in the first half of 2021, as a raft of deferred costs such as rent and taxes come due, just as it is ramping up its needs for seasonal working capital.
In early June, the company said it saw bookings and occupancy improving in line with expectations – albeit that meant an average 8% occupancy in May, compared with 6% in April. Bookings more than doubled, however, and with the Swedish government lifting domestic travel restrictions on 4 June, a further spike is expected.
As of the beginning of May, more than half of the portfolio had closed, with hotels in Sweden and Poland remaining open throughout. By the end of June, the group expects to be 80% open, with all properties up and running again by the end of August. However, it has warned that net sales for 2020 will likely be less than half 2019 levels.

HA Perspective [by Chris Bown]: It’s hard to imagine the ever even-minded Scandinavians getting really upset with one another. But Sweden, and the UK, both face restrictions on travel after others get the all-clear, due to their higher infection rates of coronavirus. It is a difficult payback for the Swedes, who for a couple of months received praise from many quarters for their alternative, non-lockdown approach to the rampaging virus.
With their relatively high employment costs, Scandinavian companies have been at the forefront of efficiently staffed operations. The Swedes are leading the way with unstaffed self-storage operations, while founder Peter Haaber designed his Danish budget hotel operation Zleep around minimal human interaction at the property.
Suddenly, in the coronavirus age, that lack of human interaction is starting to look more and more operationally attractive. Expect it to feature greatly, as furloughed employees are not invited back to work, and brands discover lower running costs – all in the name of hygiene.

Additional comment [by Andrew Sangster]: The pandemic has been an event that few saw coming. And now as the recovery begins, I would argue that few can have a clear idea of the trajectory of this recovery.
A second spike in cases is a real threat. Elsewhere in this issue we discuss the concerns of the OECD. This organisation says: “The global outlook is highly uncertain” and it would take a brave soul to say otherwise.
The OECD case is built around two core scenarios, one with a second outbreak of infections and one without. Both have severe outcomes but a second outbreak leads to significantly worse outcomes.
At this point there are many unknowns: whether there is a second (maybe more?) outbreak; whether countries with a tight lockdown are more vulnerable (lower levels of immunity in the population); when a vaccine and / or good therapeutics will impact; whether Sweden’s decision not to shutdown makes restarting the economy easier; and so on.
Laurence Boone, OECD chief economist, said: “As long as no vaccine or treatment is widely available, policymakers around the world will continue to walk on a tightrope.” This is also true for business leaders.

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