Earnings Report /
Croatia

Valamar Riviera: Impact of Covid-19 limited in Q1 20

  • Sales down due to closure of tourist facilities from 15 March 2020 as a result of Covid-19 lockdown

  • EBITDA up due to reduction of staff costs by 15% as monthly bonus calculation abolished and facilities closed

  • Net financial results down due to unrealised FX losses; share price under review

Tea Pevec
Tea Pevec

Head of Research

Follow
InterCapital
4 May 2020
Published byInterCapital

In Q1 20, Valamar recorded a 10.4% yoy decrease in sales which amounted to HRK 49.4mn. The reason for the decrease was the closing pursuant to stricter general preventative measures prescribed by the authorities to combat the Covid-19 pandemic. According to management, Valamar expected to achieve higher yoy results in Q1 20, however due to properties closing on 15 March 2020, board revenues fell by HRK11mn in March. We emphasise that the operating revenue results are therefore not completely comparable, but positive development can be seen in ADR growth of 1.1% and increase in capacity by 1.2%. Valamar continued its strategy of improving sales mix towards higher margin accommodation by capacity upgrade. Overnights and overall occupancy rate in the period decreased, which is due to closures on 15 March.

Adjusted EBITDA recorded a growth of 8.1%, improving by HRK9.4mn, which is mostly due to improved employee expenses by 15% or HRK12mn. The reasons for the reduction of staff costs are found in receiving the abolition of the monthly bonus calculation for 2020 and the closure of tourist facilities from 15 March 2020 onwardThe company announced expectations concerning expenses during the Covid-19 shutdown, where they expect the group’s cumulative EBITDA in the first five months of 2020 to range between -HRK110mn and -120mn vs. -HRK102mn achieved in 5M 2019.

The company also announced that it has stopped all investments due to the current crises and is looking to continue them when circumstances normalise while redefining the possible timeframe, scope and financing plans. Depreciation increased 4% as a result of the earlier large investment cycle that had been carried out. Below the operating line, the net financial result deteriorated to -HRK63.5mn, with a majority of it stemming from unrealised FX losses on EUR loans as the Croatian currency substantially depreciated. The depreciation was a market reaction to the potential loss of income during the summer season and inflow of foreign currency. In the meantime, the local currency depreciation trend has subsided. Croatian National Bank was also given a line of EUR2bn for interventions in the currency market from the ECB, so we do not expect such a strong impact of currency depreciation at the end of 2020. Net income decreased 23% solely due to an increase in negative net financial result and increase in depreciation, while operating profitability increased.

Even though the effect of the Covid-19 crisis was limited in Q1, we expect the full impact to be evidenced in the next quarter. It is quite uncertain how the Croatian hospitality sector will be able to position itself this summer. Although the current epidemiological situation looks supportive, the outcome of the summer season is dependent on many different factors. Hence, we will provide a company update when there is more certainty around this, and until then we put our share price under review.