The results are in line with our estimates except for the bottom line, which came in higher than our estimate of HRK13.7mn. Operating profitability came in as expected, and investment program is in line with what was announced earlier. We find the results supportive for the share price and we maintain our projected estimates and Buy recommendation.
Arena Hospitality Group published audited FY 19 results, which are in line with our recently published estimates. Operating profitability measured by EBITDAR (-3% yoy) is in line with our estimates. Net profit (+68% yoy) came in higher than expected due to strong tax incentive in 2019 in the amount of HRK48.8mn, which resulted in an income tax benefit of HRK40.2mn. Operating business sales is developing nicely, and ADR is up 5.2% yoy. Note that the reported EBITDA results are not comparable due to the introduction of IFRS 16 standard, therefore we are presenting EBITDA adjusted result that is a bit higher than our estimate and amounts to HRK206.7mn. Adjusted EBITDA is down 4% yoy due to a stronger increase in operating expenses (+5.3% yoy) compared to total revenue growth of 3% yoy. Such a decrease could be attributed to the delay in the opening of the Arena Kažela Campsite, increase in employee expenses (+7.5% yoy) and travel agent commissions across the portfolio (+9% yoy). On the other hand, G&A expenses were down 7% and other operating expenses increased in line with total revenue.
Total revenue increased by 3% yoy as a result of revenue growth in Croatian operations of 3.1% yoy, and German and Hungarian operations of 2.8% yoy. Accommodation revenue increased by 4%, amounting to HRK638mn. The mentioned increase occurred on the back of improved occupancy (+110bps) and an increase in ADR to HRK606.2 (+5.2% yoy). Meanwhile, revenue from centralised services decreased by 2.1% yoy, while EBITDA dropped to HRK2.9mn, where more than half of the decrease is related to one-off costs associated with payroll, severance and related expenses.
Net financial result amounted to -HRK27mn (+1.2 yoy), while net debt increased to HRK481.3mn. EBT was normalised for one-off due to a legal case settlement (HRK 8.5m), while net profit amounted to HRK149.0mn. However, note that the increase in bottom line came solely due to the company receiving tax benefits related to its investments.
In the Croatian portfolio, total revenue amounted to HRK519.6mn. The main driver of growth were Arena One 99 Glamping and Arena Kažela Campsite. Campsite operations showed the highest revenue growth among the Croatian segment at 11.8% yoy. The rest of the portfolio experienced a stable performance – hotels revenue was slightly up while resort revenue was down due to the need to provide staff accommodation for employees sourced outside of the Istrian region. Total revenue growth was further supported by a 4.9% increase in ADR and 120bps increase in occupancy. As a result, accommodation revenue is up by 3.1% to HRK432.5mn. RevPAR stood at HRK272.3 (+7.5% yoy). EBITDAR and EBITDA remained relatively flat, amounting to HRK164.4mn and HRK154.4mn, respectively. Growth in profitability arising from new investments was offset by a more pronounced increase in cost of labour, travel agent commissions, waste management and property taxes.
In the German and Hungarian portfolio, total revenue amounted to HRK250.1mn. The rise in revenue can be attributed to art’otel cologne and Park Plaza Nuremberg. ADR increased by 5.2%, amounting to HRK786.7, while occupancy decreased by 63bps to 81.3%. This resulted in a rise in RevPar by 4.9% and an increase in accommodation revenue to HRK205.2mn. EBITDAR recorded an increase of 2.3% to HRK75.8mn, due to change of the food and beverage concept with the aim of making it more profitable. EBITDA jumped by 46% to HRK72.2mn, as it was influenced by introduction of IFRS 16. On a like-for-like basis nevertheless, EBITDA posted an increase of 1.4% to HRK50.1mn. The positive trading of German and Hungarian hotels, predominantly driven by art’otel cologne, were impacted by higher rental expenses, increased labour costs and commissions.