We met Arena Hospitality Group’s Management during the Belgrade conference last week and now we bring you some key takes from our meeting.

In the 9M of 2019, total revenue increased by 1.7% YoY to HRK 688.9m as a result of revenue growth across Croatian, German and Hungarian operations. Meanwhile, Accommodation revenue increased by 2.6%, amounting to HRK 570.6 million. The mentioned increase occurred on the back of improved occupancy (+90 bps) and an increase in ADR to HRK 596.1 (+5% YoY). Meanwhile, EBITDA observed a decrease of 4.9%, amounting to HRK 232m. Such a decrease could be attributed to the delay in opening of Arena Kažela Campsite, increase in labour costs and travel agent commissions across the portfolio. Net profit amounted to HRK 188.05m, representing a sharp increase of 36% YoY. However, note that such an increase came solely due to the company receiving tax benefits related to its investments.

Still, the Management stated that the overall result thus far is reasonable when considering the slow booking pace experienced at the beginning of the year. Note that the improved result can be attributed to higher marketing and sales activities.

Regarding threats to the profitability, the management cited labour cost as their biggest concern. This comes as no surprise when taking into consideration the outflow of workforce from Croatia and the overall growth in wages. Note that the pressure on wages is also felt in Hungary and Germany as well.

To battle the rising staff cost the company will try to rationalize the number of staff, in hotels where such a thing is possible, without impacting the overall quality of the guests stay. Note that the Management is also considering some form of automatization to reduce the number of non-essential staff. A positive contribution should also come from the Government tax reliefs regarding worker accommodation and hot meal which will also have a positive influence on labour costs.

During our meeting we also discussed the possibility for further growth through M&A. According to the Management, Arena Hospitality is open for new acquisitions, both small and large, however at the moment the Management does not see any opportunities which would yield an adequate return.

Dividend wise, the company plans on sticking to their dividend policy which states a pay-out ratio of up to 25% of the company’s normalized net profit.