REVAL HOTELLIGRUPP

COMMENTARY TO THE FINANCIAL RESULTS

 

COMMENTARY TO THE PRELIMINARY FINANCIAL RESULTS

 

FINANCIAL RESULTS

 

On preliminary information the 1999 consolidated and unaudited 

turnover of Reval Hotelligrupi AS totaled EEK 203.2 million (EEK 

210.1 million in 1998), divided between the companies in the group 

as follows:

 

- Reval Hotelligrupi AS: EEK 10.0 million (incl. EEK 6.2 million 

management and consultation services turnover, and EEK 3.8 million 

Central accommodation and catering services turnover in December); 

- AS Hotell Olümpia EEK 193.2 million (accommodation and catering 

services turnover).

 

The consolidated and unaudited net profit of Reval Hotelligrupi AS 

was EEK 30.7 million, exceeding the forecasted annual net profit 

figure (EEK 25-28 million) and net profit in 1998 (EEK 23.7 

million).

 

Reval HG 1999 turnover was below the respective 1998 figure due to 

increased supply of hotel rooms in hotel Olümpia market sector. 

Resulting from effective cost management policies, however, Reval 

HG gross profit grew from EEK 110.7 million in 1998 to EEK 113.2 

million in 1999, and operating profit from EEK 33.2 million to EEK 

49.3 million (the 11 million EEK difference between rent and 

depreciation costs of hotel Olümpia building should be eliminated 

for the purpose of correct evaluation of operating profit 

dynamics).

 

The following substantial transactions and events took place in Q4 

1999:

 

 - Reval Hotelligrupi AS signed on 26.11.1999 agreements (effective 

as of 30.11.1999) whereby Reval HG sold its stakes in ETK Hotell to 

ETK, and bought from AS ETK Hotell all current and fixed assets of 

hotel Central. Reval Hotelligrupi AS and AS ETK Hotell also made a 

long-term rent agreement for the building of hotel Central. 

Resulting from the aforementioned transactions, and in line with 

Reval HG strategies, Reval HG made a transition from management 

contract model to rent model on operating of hotel Central. 

Resulting from acquisition of hotel Central assets, the 

consolidated current assets grew by 9.3 million, fixed assets by 

EEK 26.7 million and current liabilities by EEK 4.1 million. 

Transition to rent model increases the turnover of Reval 

Hotelligrupi AS during the next years by estimated EEK 59 million.

 

 - On 20.12.1999 Reval Hotelligrupi AS and International Finance 

Corporation (IFC) concluded a Share Subscription Agreement and a 

Loan Agreement, pursuant to which IFC will invest up to USD 2 

million into Reval Hotelligrupi AS capital stock, and grants up to 

EUR 7.7 million in long-term loans to Reval Hotelligrupi AS. 

Conclusion of these agreements ends the capital restructuring 

processes aimed to refinance the liabilities assumed upon 

acquisition of hotel Olümpia estate, and also to ensure necessary 

resources to finance new projects. These financing agreements will 

reduce the company's interest expenses during the next years, as 

the EURIBOR+3.25% interest rate stipulated in loan agreement with 

IFC is lower than the interest rate on the present liabilities. The 

capital restructuring expenses in 1999 totaled EEK 3 million (incl. 

issue management fees and loan agreement fees).

 

As evaluated based on conservatism principle, the long-term 

financial investments on the company's balance sheet as at 31.12.99 

stood at EEK 3.6 million.

 

Pursuant to the new Income Tax Law, effective as of 01.01.2000, the 

deferred income tax liabilities and assets were transferred to the 

equity account as of end-1999. Resulting from this transaction 

Reval HG's equity increased by EEK 5.4 million.

 

 

RESULTS OF REVAL HOTELLIGRUPP SYSTEM IN 1999

 

The following trends characterized Tallinn accommodation services 

market in 1999:

· rapidly increased supply: +20% y-o-y growth in rooms per night 

available (50% increase from 1995);

· higher-than-expected growth of demand due to warm and long 

tourism season and numerous successful mass events: +22% increase 

in number of guests, +13% increase in overnight-stays and +10% 

increase in rooms per night sold;

· due to increased share of tourists, increased seasonal effects on 

the account of short-term summer visits and continuous improvement 

of transportation possibilities (new speedboat lines added, whereas 

prices of tickets were continuously cheap), the average length of 

accommodation fell to 1.44 nights.

· Continuous growth in the share of guests from Finland, and 

decline of share and number of guests from CIS countries.

 

Reval Hotelligrupi System includes hotels operated by Reval 

Hotelligrupi AS under different models (management contract, rent 

contract, ownership). As at 30.06.1999 Reval Hotelligrupi System 

includes Olümpia Hotell, Central Hotell, Park Hotell & Casino and 

ExpressHotell.

 

 

Accommodation services provided by the Reval HG System in 1999:

 

                  Accommodation    Rooms per night Average price of

 		  turnover		sold		  room 

                   1999     1998     1999      1998   1999    1998

Olümpia hotel   101,617  104,871   98,236    99,400  1,034   1,055 

Central hotel*   34,349   28,546   50,061    44,239    686     645

Park hotel and   18,724   20,592   24,307    26,162    770     787

casino

Expresshotel      9,864     --     20 315        --    486      --

Reval system    164,554  154,009  192,919   169,801    853     907

 

 

* 1999 and 1998 turnovers and rooms-per-night sold are not 

comparable as 105 rooms were added in June 1998 after expansion of 

the hotel

 

The annual accommodation net turnover and rooms per night sold 

increased on y-o-y basis by 6.8% and 13.6%, respectively. The 6.0% 

decline in average room price in Reval Hotelligrupp System 

was mainly due to:

· structural changes after addition of lower price-class rooms 

(expansion of Central Hotel in June 1998 and ExpressHotell in June 

1999).

· change in the structure of visitors (share of holiday tourists 

increased in 1999) 

· increased competition (especially in hotel Olümpia market 

sector).

 

192.9 thousand rooms per night sold by Reval HG accounted for 31.5% 

of Tallinn's total, hence the market share of Reval HG by rooms per 

night sold increased ca 1% y-o-y.

 

 

Katrin Rasmann

Financial Director

+372 62 74 444