Welcome,

We are pleased to report that 2021 was a year of further strategic progress, coupled with a good recovery in activity, driven by a summer trading in Croatia.

The 2021 financial performance reflected our clear strategic direction and the Group’s ability to navigate the disruption caused by the pandemic. We began the year with an appetite for normality, a clear strategic direction, investment plan, and many projects in the pipeline. As market conditions continued to evolve more positively than in 2020, we benefited from a surge in demand in Croatia, supported by our high quality estate and our recent investment in technology, sales and marketing.

We continued to invest for future growth by investing in our portfolio and we further diversified our operations and extended our presence in the CEE region, acquiring our first hotel in Austria.

2021 IN REVIEW

CROATIA

Most our Croatian operations are highly seasonal, typically, only a small number of our properties remain open off-season or in the weeks leading up to Easter, with bookings taken weeks in advance. However, this was not the case as COVID-19 was still prevalent at the beginning of 2021. Activity levels were low in the first quarter and most of our properties remained closed due to restrictive measures undertaken by the Croatian and other governments.

Nevertheless, during the peak summer months leisure demand returned, as international travel restrictions were eased, and was nearly back to pre-pandemic levels. All properties operated at full capacity, serving guests in line with government restrictions and safety protocols. Investment undertaken in our campsites in the previous years continued to benefit in 2021, as guests’ perceptions of safety and accessibility by car from surrounding countries continued to drive demand.

GERMANY

Our properties in Germany experienced very low activity levels at the beginning of 2021. Bookings did not reach pre-pandemic levels, but a lifting of restrictions in the third quarter provided a welcome surge in leisure bookings and weekend travel from European travellers. The popularity of our destination hotels in Nuremberg and Cologne were more obvious than in Berlin for example, which was purely a result of domestic leisure demand for those areas.

Across our operations in the region, demand for business travel remained slow in 2021 and activity was primarily from domestic markets, largely due to the limitations placed on international travel.

CEE REGION (HUNGARY, SERBIA, AUSTRIA)

This region did show signs of recovery but progress was more subdued than in the leisure-driven market of Croatia. Our hotel in Hungary was closed throughout the year. This was initially due to a government-imposed lockdown, however, the hotel remained closed when restrictions were eased due to extremely low demand.

FINANCIAL PERFORMANCE

Reported Group revenue increased by 93.3% to HRK 460.7 million (2020: HRK 238.3 million). Reported EBITDA increased significantly to HRK 163.4 million, driven by our Croatian operations which experienced strong booking activity throughout the third quarter and delivered a strong summer season performance.  This performance was in contrast to 2020 when new bookings and guest arrivals came to a halt in mid-August due to several source markets reintroducing travel restrictions. Overall, reported EBITDA recovered to 71% of the EBITDA reported in 2019 (2020: EBITDA loss of HRK 18.3 million).

Accommodation revenue increased by 99.6% to HRK 384.0 million compared to last year (2020: HRK 192.4 million) as a result of a 768.3 bps increased in occupancy to 33.1% and a growth in average daily rate by 10.2% which amounted to HRK 590.7 (2020: occupancy 25.4% and average daily rate HRK 536.1, respectively). Together this translated into a RevPAR of HRK 195.4, which is 43.2% higher compared to the previous year (2020: HRK 136.4).

It is worth noting that the business mix remained consistent with 2020. Once again campsites (the highest margin of our accommodation offering) contributed proportionately more to the revenue and profit performance than was the case before the pandemic, as the Group continued to benefit from its recent investment programmes at Arena Grand Kažela and Arena One 99 Glamping. In addition, the demand for campsite bookings was borne out of the widespread perception amongst guests that they offer lower COVID-19 transmission risk. Campsites contributed more than 42% of our total revenues in Croatia in 2021; compared to roughly 33% in 2019.

Further details of the Group’s financial performance in Croatia and Germany, Hungary, Serbia and Austria are set out in the Operating review.

GROWTH STRATEGY

We are pleased to report that despite ongoing market challenges the Group made good strategic progress as it continued to pursue its growth strategy to:

• optimise the value of its assets while consistently delivering and exceeding our guests’ experiences in our properties and on our campsites
• expand the Group’s presence in the CEE region
• promote the Company profile in the luxury lifestyle market segments.

During the year the Group secured a total of  HRK 78.9 million financing to support its investment and acquisition programme. These funds are a testament to the strategy, strength and ongoing resilience of our business, the management team, and the ongoing support of our lending partners.

INVESTMENTS, ACQUISITIONS AND DEVELOPMENTS

We continued to invest in our assets, alongside identifying acquisition opportunities which took the Group into a new market in 2021.

Our flagship investment project is the HRK 260 million repositioning of Grand Hotel Brioni in Pula, Croatia, to a luxury hotel. This project proceeded on schedule and has entered its final stage. We continue to closely monitor the market conditions before committing to an opening date, nonetheless the hotel is expected to open for the 2022 summer season. It will offer 227 premium rooms over seven floors, with an indoor and an outdoor infinity pool, an extensive wellness centre with saunas and relaxation rooms, a gym, kids’ playground, several restaurants and bars and meeting and event facilities.

In September, construction work commenced on development of a luxury hotel in an iconic building in Zagreb city centre. This 118-room hotel will have a superb location in the heart of Croatia’s capital city and will offer the city’s only rooftop pool and bar as well as a fine dining restaurant and luxury spa. This will be the Group’s first city centre hotel in Croatia and will be an important addition to the Group’s Croatian portfolio. The hotel is due to open prior to December 2022.

In Hungary, we are planning to invest HRK 24 million on refurbishment work at art’otel budapest. While the hotel is closed to guests, we have taken the opportunity to start the investment programme, which involves the redesign and renovation of the public areas on the ground floor and basement. The hotel is expected to reopen in spring 2022.

In December, we acquired the prestigious FRANZ Ferdinand Mountain Resort Nassfeld, in Austria.  This four-star 144-room property is superbly located next to the valley station of Nassfeld Ski Resort in Carinthia and offers instant access to an impressive 110km of the region’s ski slopes. This latest acquisition will strengthen our strategic expansion in the CEE region in line with growth objectives. Austria is one of the Group’s largest customer markets for its Croatian operations and this hotel will help further raise the Group’s profile in this important market.

DIGITALISATION AND EXCEPTIONAL GUEST EXPERIENCES

Our purpose as a business is to create memories for our guests in premium destinations. We aim to exceed our guests’ expectations with excellent service in locations they will remember, and to which they will return.

The use of technology across the hospitality industry has accelerated during the pandemic, with a trend towards contactless interaction. The Group’s recent and ongoing investments in front and back of house technology has positioned us well for this evolution.

In Croatia, we have developed mobile applications for Arena Hotel and Arena Campsite guests, which facilitates sharing of information and offers direct communications channels with the hotel, resort or campsite.  In 2021, combined downloads of both these mobile applications exceeded 15,000. In addition, 1,000 mobile keys, our contactless digital room key via mobile phone, were enabled via the Arena Hotel mobile application.

We continued to offer online and self-service check-ins across our hotels, resorts, campsites and glamping, and nearly 32,000 check-ins have been completed using these platforms. This accelerates the process, provides seamless guest experience, and positively impacted staff resource.

We sharpened our focus on health, safety and hygiene measures across the business at the onset of the pandemic, and throughout 2021 these protocols were continually reviewed and updated and team members underwent training. All guests were given clear guidance on arrival, with the hand sanitising products you would expect, as well as notices and reminders throughout our properties and locations.

In Croatia, we supported our guests by offering a web-based service enabling them to directly apply for COVID-19 testing, with test results emailed to the guest within 24 hours. This online service, through which more than 18,000 were organised in 2021, streamlined the process and reduced reception workload. In cooperation with the Institute of Public Heath of Istrian County, testing was made available to all our guests at three locations across our Croatian portfolio.

SALES AND MARKETING CAPABILITIES

In recent years, the Group has invested in and focused on generating direct sales and growing the profile of our brands. Our successful approach has led to a significant increase in the proportion of direct bookings through our own channel, up from 13% in 2019 to 30% in 2021, Furthermore, our brand web and direct sales bookings have grown ahead of other channels, such as online travel agencies, with total bookings increasing from 34% in 2019 to 48% in 2021, thereby reducing commission expenses and reliance on online travel agencies with the drop of 16% comparing to 2019.

We continue to invest in web-optimisation programmes to improve online search rankings, digital marketing and loyalty schemes to enhance brand recognition. Additionally, the Group has access to a global distribution platform and a range of sales tools and initiatives via PPHE Hotel Group’s strategic partnership with Radisson Hotel Group.

OUR COLLEAGUES DRIVE US FORWARD

Our people are at the heart of our business, and it is imperative that we continue to provide training and career development opportunity in order to attract and retain the best talents. In the fourth quarter, we began piloting of an App to enhance employee communication and engagement, offer features such as internal communications, education and onboarding, time management and task management.

As a Company, we are proud of our inclusive, diverse and collaborative working environment, and we support all colleagues in their day-to-day interactions. We promote equal working practices and enable all colleagues to participate equally in an open work community that is free of bias towards race or gender. We offer ongoing training and development opportunities and in 2021 our Management Board worked hard to impart all guidelines and safety notices with clarity and speed with regular contact via a network of regional teams.

The industry-wide labour shortages have been widely reported, and we are not immune to the challenge that this presents across our operations.

In Croatia we recruited team members from neighbouring countries, supported by recruitment agency partnerships, as well as further afield including the Philippines, Ukraine and Macedonia. Nonetheless, labour market pressures meant we were only able to recruit team members to support 80% occupancy. However, we were proud of high level of engagement from our teams and the way they worked together in response to this challenge, taking on versatile roles across our portfolio including office-based staff supporting operation where needed.  Our colleagues were remunerated by way of a bonus, including a post-season bonus, a holiday bonus and a Christmas bonus. We also introduced special productivity incentives for extra hours worked.

The wellbeing of our team remained a key priority for the Group. In collaboration with the public Health Institute, COVID-19 vaccination centres were set up onsite and we financially incentivised our people to be vaccinated, to keep them and our guests safe. We also organised PCR and antigen testing for our employees where necessary. In addition, through the ARENA Fit programme, we organised workouts for colleagues (when restrictions allowed) to support their health and fitness.

On behalf of the Management Board, I would like to extend my thanks to all team members and colleagues, past and present, for their commitment and professionalism during the year. They went above and beyond yet again, even when circumstances were challenging for them.

CURRENT TRADING AND OUTLOOK

The current wave of the COVID-19 variant Omicron in Europe has coincided with our low season in Croatia, a time when we reflect, and focus on investing in and upgrading assets to prepare them for the upcoming summer season. As expected, trading in Hungary and Germany remains subdued due to the latest lockdowns and restrictions in these markets.

The final quarter of 2021 was in line with expectations across our operating regions. Operations in Croatia have wound down as stated above, for a period of maintenance in preparation for the year ahead. The sports season has been impacted by the latest wave of Omicron infections, but the outlook for the year ahead is promising.

While we continue to navigate the pandemic, we are encouraged by the recovery in activity in Croatia in 2021, our largest operating region. Increasingly our focus is turning to living with the virus, with sensible measures in place that protect us and our livelihoods into the future.

Whilst we remain cautious, we are optimistic about the future growth prospects of travel and tourism and our ability to capture and respond positively to market demand.

Reuel (‘Reli’) Slonim

PRESIDENT OF THE MANAGEMENT BOARD