The Group notes that currently all the hotels, self catering apartment complexes and campsites in Croatia are closed. The Management Board is considering ways to enhance its financial flexibility, including the postponement of the decision related to the dividend for 2019.

Arena Hospitality Group published an update on the Zagreb Stock Exchange regarding the implications of Covid-19 on the company’s operations.

Since the Group’s business update on 12 March 2020, in which it reported reduced demand for international and domestic travel resulting in an increase in cancellations and a slowdown in bookings, governments in several countries have announced further extraordinary measures to slow the spread of the virus. These include closure of borders, halt of travel, the adoption of social distancing policies, bans on large gatherings, the closure of restaurants, bars etc. These measures have led to an immediate and significant deterioration in the hospitality market, with a high number of cancellations and no shows and very few new bookings.

The Group notes that they have a longstanding and supportive group of banks with whom they are in regular dialogue to ensure that they are able to take all the necessary actions that are in the best interests of the Group in the current environment. The Group therefore believes, based on the measures detailed below, that it is well positioned to withstand a significant decrease in business activity in its markets during 2020.

The Group is in the process of adopting a set of exceptional operational measures in order to reduce its costs and help it navigate through these challenging times whilst keeping the Company lean. These measures include steps to effectively manage its payroll costs and reduce other costs and expenses across the business. Furthermore, the Group is witnessing reduced operations of hotels in Germany and Hungary, which generally operate throughout the year.

The Group’s Croatian operations are closed at this time of the year, apart from one or two assets that generally work throughout the year. At the moment all the hotels, self catering apartment complexes and campsites in Croatia are closed.

The Group is in the process of applying to use available measures enacted by governments across its geographies. Of the capital investments previously announced, the Group confirms that the second phase of the investment in Arena Kažela Campsite and the investment in the self-catering apartment resort Verudela Beach Pula are in the final phase of completion, as the repositioning continued immediately after the 2019 summer season.

Arena notes that they are reconsidering other previously announced investments pending the evolvement of the currently uncertain situation around the Covid-19 pandemic. Furthermore, the company’s Management Board is considering ways to enhance its financial flexibility, including the postponement of the decision related to the dividend for 2019.  The Management Board has also decided to reschedule the General Assembly tentatively to 1 June 2020. The company notes that at  the moment, given the level of continued uncertainty around business activity and how government response may evolve, it is not possible to provide financial guidance for the FY 2020 financial year.

Last week the regional market indices showed a positive change, bringing up the questions: is this a sign of recovery and how long will it take to reach pre-epidemic levels?

Observing the regional market indices since the beginning of 2020, CROBEX, SBITOP, BELEX15 and BET saw a double-digit YTD drop of 27.8%, 21.5%, 20.5% and 24.5% respectively. In 2020, the main ZSE index evidenced a few sharp daily declines and one of the most significant daily decreases since October 2008 when CROBEX dropped by 10.2%.

However, closing at 1,457.57 points, CROBEX, as well as other main market indices, recorded a positive trend this week showing signs of improvement. Last week on average CROBEX grew by 0.7%, SBITOP 0.4%, BELEX15 0.3% and BET 0.5%. On Tuesday 23rd CROBEX grew by 3%, while following days last week the index showed a one percent daily growth.

Note that CROBEX has changed its composition as of 23rd March 2020, excluding Arena Hospitality Group and Končar, while including Auto Hrvatska, HPB, Institut IGH, Kraš, PBZ, Saponia, Tankerska Next Generation, Viro.

For today, we decided to present you with a YTD movement of VIX, which has recently surged to levels last time seen during the 2008 financial crisis.

The VIX has definitely been in the spotlight recently as the global markets have seen quite significant volatility. VIX, also known as the fear index, is calculated based on the S&P 500 options and reflects market expectations on volatility in the coming 30 days.

Unlike classic indexes, VIX’s growth represents negative sentiment or increased risk of market volatility. VIX levels over 30 could be considered risky as the market is expecting high volatility. Since the outbreak of the Covid-19 crisis, the US indices S&P 500 and Dow Jones have observed sharp decrease, which resulted with a YTD decrease of 21.3% and 24.2%, respectively. Meanwhile in less than a month both indices observed a decrease higher than 20% (compared to the 52-week peak) witnessing the fastest bear market in history.

VIX Movement YTD

Since, the S&P and VIX are negatively related, the recent market conditions (the combination of Covid-19 outbreak and an oil price war between Russia and Saudi Arabia) have led to a surge in the VIX index. Since the beginning of the year, VIX has increased more than 4.5 times, and currently stands at 65.54. As visible on the graph below, VIX was last time seen at these levels during the financial crisis in 2008. It is also worth noting that the index observed two sharp daily increases this month. The first one was on 12 March, which coincided with President Trump introducing the European travel ban. Meanwhile, on 16 March the index reached 82.69, which is the highest value since the CBOE (Chicago Board Options Exchange) introduced the new methodology for the index in 2003. Note that on Friday it observed an increase of 7.4%, meanwhile S&P 500 has recorded a decrease of 3.4%.

VIX vs S&P500 (2003 – 27 Mar 2020)*

*indexed value relative to base year (2003)