Louis Public Co. Ltd. reported a decline in net profits for 2005, mostly because of the sharp increase in petrol prices, which hurt the cruises division, while a stronger dollar, forced the group to book unrealised exchange losses on the revaluation of its loans and future installments in dollars.
The Group however, issued a positive outlook with respect to 2006 results, since most of the increase in petrol prices are now reflected in its cruise and hotel prices, and the pace of the advance in the value of the dollar has eased. Since the start of the year, the dollar is slightly lower compared to the euro and in turn the Cyprus pound, which is pegged to the euro and will be replaced by the euro on January 1, 2008.
Turnover up 14%
In analysing the preliminary results of the Louis Public Co. (LUI), Costas Hadjimarkos, Group Chief Financial Controller told the Financial Mirror that total revenue from operations recorded a satisfactory 14% year-on-year increase to CYP 157.92 mln compared to CYP 138.87 mln in 2004 or an increase of CYP 19 mln.
“The increase was evenly spread between the cruises and hotel divisions,” said Hadjimarkos, adding however, that in percentage terms, the increase is more significant for the hotels division.
The increase in the cruise division revenue originated from the start of operations in Greece under Louis Hellenic Cruises with 3-4 vessels and the expansion of the fleet operating in Europe, off the coast of France, Italy. Boosting the hotel division turnover was the operation for the first time of the Colossus in Rhodes and Apostolado in Corfu.
Cost increases
The expansion into the Greek and other European markets with the opening of new offices and the addition of new cruises forced costs higher, but according to Hadjimarkos, the significant hit came from the sharp increase in petrol prices, which had not been hedged.
Hadjimarkos however, pointed that EBITDA and excluding rents paid by the group was up 7% at CYP 37.41 mln from CYP 34.94 mln.
Despite this improvement at operational level, pretax profits before exceptional items and exchange valuations fell to CYP 6.9 mln in 2005 from CYP 8.9 mln in 2004.
Results were boosted by a positive CYP 4.5 mln tax (2004: positive tax of CYP 3.2 mln), exclusively on the back of changes in Greek tax legislation with respect to deferred taxation.
Hadjimarkos said the CYP 4.5 mln positive tax amount will not be repeated from 2006 onwards.
Exchange & interest rates
The Louis Group also took a CYP 2 mln hit to its P&L in respect to exchange differences, which according to Hadjimarkos are mostly unrealised and refer to the valuation change on the loans and future installments in dollar priced loans.
“The exchange differences do not concern us since we shall repay the loans from receipts in dollars in future years. It’s just a valuation in the books.”
Hadjimarkos repeated a previous comment by Group Chairman Costakis Loizou that “the Group believes that its policy of not hedging the loan exposure is correct.”
The Louis Group has however, hedged its interest exposure on the dollar loans, but has not yet acted on the euro priced loans, despite two 25 basis point increases orchestrated by the European Central Bank and expectations that euro borrowing rates will rise to 3%-3.25% from current levels of 2.5%.
Prospects
Following the announcement of the preliminary 2005 results, the Louis Group, issued a positive outlook forecast for its 2006 results, expecting a significant increase in profitability.
Despite the fact that during 2006 there will be no more positive tax benefits in the P&L account, the LUI group is forecasting a rebound in cruise profits from the CYP 1.7 mln reported for 2005.
Hadjimarkos explains that the adverse effect from a rise in petrol prices has now been incorporated in the pricing of its packages for cruises. The addition of the new vessel, the Ariel, which has been chartered to a German tour operator is seen as opening a new market for the Group, which has until recently relied mostly on the UK market.
The operation of Louis Hellenic Cruises in Greece for the second year is also seen as contributing to the bottom line, since the division will not be saddled with start up costs.
The operation of a new vessel, replacing two old ones is also seen allowing the group to achieve better economies of scale and lower operating costs. The Group operates 11 cruise liners, of which 3 are in Greece, 3 in Cyprus and the rest operate or are chartered in the Mediterranean and the Caribbean.
The LUI Group also has 27 hotels under management, of which 15 are in Greece and 12 in Cyprus, including the Hilton Cyprus and Hilton Park in Nicosia, owned by the Cyprus Tourism Development Co., a public company in which the LUI group holds a 75.76% stake.
Louis Hotels, in which the Group holds a 88.59% stake reported CYP 5.27 mln in net profits (includes CYP 4.5 mln positive tax), while the Cyprus Tourism Dev. Co. reported CYP 1.01 mln in net profits.
For 2006, the Group is forecasting a similar positive performance.
An important point stressed by Hadjimarkos is the fact that the Louis Group is a truly international organisation, generating over 80% of its revenue from operations outside of Cyprus.
