Earnings Report /
Croatia

Adris Group: Q1 20: Hospitality segment weighs on group’s results

  • Due to Covid-19 measures, Maistra’s top line is down 30% and fish production volumes are down 3%

  • Net income drop a result of conditions deteriorating in the hospitality segment, which is a majority of group’s sales

  • We see the company's buy-back programme as supportive for the share price

Tea Pevec
Tea Pevec

Head of Research

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InterCapital
4 May 2020
Published byInterCapital

In Q1 20, Adris achieved total revenue growth of 2.3% and a drop in net income AM to -HRK22mn. The fall in the bottom line is a result of deteriorating conditions in the hospitality segment where the majority of the group’s sales come from. Namely, the hospitality business part in Maistra saw 30% top-line deterioration while the sales volumes for the fish production business decreased by 3%. In order to counteract adverse impact of Covid-19, the company has embarked on several cost rationalisation measures in its hospitality segment. Planned investments have been reduced to a minimum in order to maintain liquidity while the company continues to prepare its planned projects. Despite this, Maistra’s EBITDA loss in Q1 is only 12.5mn higher than in Q1 19 and amounts to HRK14.9mn. 

On the insurance side, Croatia Osiguranje’s net earned premium decreased slightly by 1.6%, while investment income surged by 60.6%. All of this resulted in a strong quarter evidenced in net income growth of 28%, with the remark that there was a one-off event that helped improve the results. Total GWPs in Q1 20 decreased by 4.9% yoy, driven by a flat non-life segment, while the company is witnessing a double digit premium decrease in the life segment. In order to retain profitable clients and contracts, the company is slightly eroding its market share and strictly focusing on profitability. Furthermore, increase in claim benefits (+6%) was partially counter-weighted with a decrease in operating expenses (-7.8%) as the management is proving to be very cost effective. Therefore, Q1 net income increased to HRK118mn. We don’t expect the bottom line to follow such quarterly dynamics due to a one-off effect in Q1. 

The company has announced that it will not pay-out dividend this year, which is a sensible decision considering the adverse environment it is currently operating in. The hospitality and fish production segment will strongly feel the impact of the pandemic and the measures imposed by the government. On the other hand, the insurance segment will feel this impact much less, showing that diversification of the group gives it merit in the current situation. The company is continuing to return cash to its shareholders via a buy-back programme, clearly indicating the strong fundamentals of the Group. We see this as supportive for the share price and we plan to publish an updated report on the company in the following weeks.