There Is No Such Thing As A Free Lunch (Anymore)

Croatia’s tourism did it again, despite the initial scepticism another successful year of growth is on the books. However, it has become clear that the strong organic growth seen in the past has come to an end, and if Croatian tourists want to secure future growth CAPEX will have to be at the centre of their attention.

For the past couple of years Croatian tourism has been benefiting from the unfavourable security conditions seen in competitive Mediterranean countries. As a result, the domestic hospitality industry saw double digit growth in arrivals and overnight stays which pushed prices up significantly. Now Croatian companies will once again have to work in order to attract and retain customers in the country’s most important industry which accounts for roughly 20 of the country’s GDP.

Sales Revenue of Croatian Tourism Companies (HRK m)
Source: InterCapital Research

Among Croatian tourist, Turisthotel and Valamar were the only ones who recorded a double-digit growth in sales with the two companies posting a 13% and 12% YoY increase, respectively. It is also worth noting that the sales growth came after a large CAPEX performed by both companies. In 2018 Valamar invested a total of HRK 700m (roughly 36% of sales), while Turisthotel CAPEX amounted to 167m (roughly 61% of sales). Afterwards comes Jadran whose sales went up 9%. The company recorded a 3.3% YoY increase in overnight stays, fuelled by the increase in overnight stays in camps (+15%), while stays at the hotel are down. Meanwhile, Maistra recorded an 8% YoY increase, followed by FTB Turizam (+5%), Arena Hospitality (+5%) and Liburnia (+4%). Finally, Plava Laguna recorded the lowest top line increase of 2.6% despite a CAPEX plan worth roughly HRK 483m (roughly 40% of sales).

Overview of Croatian Tourism Companies EBITDA (HRK m)
Source: InterCapital Research

Below the top line Valamar recorded a 15% YoY increase in EBITDA. However, the growth was somewhat offset by a HRK 64m increase in depreciation costs, related to the large investment cycle and the consolidation of Hoteli Makarska and Valamar Obertaurn. Further down the P&L, net financial expense was up by HRK 5m (so almost negligible) and taxes were up by HRK 25m, since the company booked tax incentives in 2017 altogether resulting in a HRK 6m decrease in net profit to HRK 239m (2.4%).


Turisthotel’s EBITDA went up a single digit 5% as the growing top line was offset by inventory write-offs and higher costs of labour (+17%). D&A costs are up 32% YoY which brought EBIT down to HRK 70m (-7% YoY). Moreover, the net FX result turned negative to HRK -1.6m which further hurt the bottom line.


Maistra’s 9M EBITDA showed solid growth as it amounted to HRK 539.5m (+10% YoY), however the company recorded a HRK 25m increase in provisions in the final quarter which brought the FY 2018 EBITDA down to HRK 395.9m (-1% YoY). Note that we will have to wait until the company publishes their FY 2018 audited annual report to find out more. Below EBITDA, D&A costs are up 8% YoY which, we assume, can be associated with a large CAPEX. Below the operating line the company recorded a large tax benefit in the amount of HRK 111.7m which boosted the bottom line which ended at HRK 280.9m. Again, we assume that this is related to investments, however we are unable to verify without the full annual report.

Arena Hospitality

Despite recording a 4.6% YoY increase in sales Arena Hospitality’s EBITDA decreased by 1% YoY to 211.6m due to rising OPEX (+8.6% YoY). The largest contributor were rising labour costs (+7.3%) and cost of material (+7.6%). As a result, EBITDA margin fell to 15% (-0.6 p.p.). When breaking down the result by country, Croatian accommodation revenues are up 5.8%, however EBITDA is down by 2.4% (or HRK 3.8m). On the flip side revenues from Germany & Hungary were up by 6.8%, while EBITDA grew by 15.4% (HRK 6.6m). Investment-wise, Arena invested HRK 70m in the season 2018, which represents less than 10% of their sales, significantly lower than other companies.

Plava Laguna

Plava Laguna’s EBITDA is up 9.3% while the margin increased to 41.9% (+2.2 p.p.). This was due to the fact that Plava Laguna was able to keep OPEX (excluding D&A costs and value adjustments) flattish. Considering the rising labour costs that all other companies experienced this does come as a surprise. Below, Plava Laguna booked a HRK 46m increase in D&A costs (+28%), but this can be attributed to changed depreciation policy in the recently merged Istraturist alongside with the effect of investments. Solely due to this reason, EBIT is down 2.3% to HRK 255m (-6.0m). Below the operating line, Plava Laguna’s FX loss was sliced in half which amounted to HRK -5.4m. Furthermore, profit from associates is up by 50% to HRK 28.5m (a positive effect of HRK 9.5m) and tax was down by almost 100% (a positive effect of HRK 42m) as Plava Laguna booked tax incentives related to investments made in 2018 and planned until 2020. As a result, Plava Laguna’s bottom line went up 23% YoY to HRK 277.6m.


Liburnia’s EBITDA plummeted 35% YoY which was due to two reasons. First, the company’s 2017 result was influenced by the cancelation of HRK 9m worth of provisions related to legal issues. Second, in 2018 the Management approved a bonus of HRK 14m to their departing CEO as part of his severance package, which translates to roughly HRK 28m in gross costs. As a result, labour costs soared pushing EBITDA down to HRK 87.9m. Also, the company’s provisions went up by roughly HRK 6m which could be connected with the management’s bonus. When adding a flat D&A expense of HRK 98m, the company ended the year with a loss of HRK -13m.


Jadran’s EBITDA soared 58% YoY, reaching HRK 12.9m, on the back of higher sales generated by the company. As a result, EBIT turned to a positive HRK 1.9m from last year’s HRK -1.5m. Below the operating line, the net FX loss was sliced almost in half (-42%) which helped the company to remain profitable and end the year with a net profit of HRK 0.3m (from HRK -4.2m recorded last year). On the balance sheet the company’s net debt turned negative as the company received a large cash influx after the cap hike performed by two large Croatian pension funds.

Overview of Croatian Tourism Companies Net Profit (HRK m)

Source: InterCapital Research

Finally, below you can find the current trading multiples of the observed tourism companies. Note that Liburnia and Jadran have been excluded from the P/E multiple as they represented significant outliers.

Source: InterCapital Research

Source: InterCapital Research

Filip Gracin
Category : Blog

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