Net : 2020 4Q Earning Reviews

NET HOLDİNG A.Ş.
	April 09th 2021
Earning Reviews / 2020 FY

*Merit Operations

**Soon

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NET HOLDING A.Ş.

Earning Reviews / 2020 FY

2020 FY results of Net Holding were negatively affected as a result of the lockdown all around the world to fight the COVID-19 pandemic. Merit Hotels & Casinos in Northern Cyprus, Montenegro, Croatia and Bulgaria were closed down by government regulations by mid-March and Merit hotels and casinos in Northern Cyprus re-opened on June 1st 2020, then were closed again by government orders in September to be re-opened in October, only to be closed again in November while Merit casinos in Montenegro re-opened on May 21th 2020 and Merit Grand Mosta in Bulgaria re-opened on September 4th 2020. The renovation in Merit Casino Libertas in Croatia has been accomplished.

•Net Holding's consolidated sales decreased from 922.8mn TL (155.3mn USD) in 2019 FY, to 421.5mn TL (57.4mn USD) in 2020 FY. (-54.3% TL terms, -63.0% USD terms)

•Consolidated EBITDA for 2020 FY diminished to 19.9mn TL (2.7mn USD) from 311.7mn TL (52.5mn USD) in 2019 FY, mainly as a result of the global COVID-19 pandemic. (-93.6% TL terms, -94.8% USD terms)

•The Cash position of the Company decreased from 533.7mn TL (89.8mn USD) in 2019 FY, to 411.4mn TL (56.0mn USD) in 2020 FY due to significant decrease in the pandemic year. (-22.9% TL terms, -37.6% USD terms)

•The net financial expenses increased from 204.4mn TL (34.4mn USD) in 2019 FY to 414.6mn TL (56.5mn USD) in 2020 FY due to the spike in foreign exchange rates value against Turkish Lira as the debt of the company is mainly in foreign currency.

(+102.8% TL terms, +64.1% USD terms).

•The Net Debt position of the Company increased due to forex volatility; as 1,382.8 mn TL (188.4mn USD) in 2020 FY vs. 672.9mn TL (113.3mn USD) in 2019 FY. (+105.5% TL terms, +66.3% USD terms) while the company did not have the need to refinance its debt due it strong cash position.

According to new CMB regulation, rent costs (including buildings in operation, equipment etc.) are now required to be recorded in balance sheet, in the asset side as «Right of Use Assets», and in the liabilities side as «Right of Use Liabilities». However, as per the requirements of CMB, rent costs are recorded as part of debt in the liabilities side instead of a separate item named «Right of Use Liabilities». To clarify, new regulation implementation resulted in an increase in total debt in B&S, however, this item is not a bank loan or any financial institution debt. In balance sheet, total debt of 2,075.9mn TL includes 1,794.2mn TL financial debt and 281.7mn TL «Right of Use Liabilities».

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SUMMARY (Continued)

Regional Split of 2020 FY for EBITDA & General Remarks;

• EBITDA in Northern Cyprus Merit Hotels & Casinos is recorded as 0.3mn TL (0.05mn USD) in 2020 FY, 299.1mn TL (50.3mn USD) in 2019 FY, featuring an decrease in both TL and USD currencies. (-99.9% TL terms, -99.9% USD terms) as Northern Cyprus operations were suspended on April, May and September 2020 and did not generate any revenues for almost 4 months in 2Q, and 3Q. First part, Cyprus operations started on June 1st 2020 only for Cyprus residents, after that on July 1st 2020, flights started and tourists were allowed in the country provided that they have double PCR-testing with negative results. Second time, due to measures, the casinos were suspended on September 9th 2020 and re-opened on October 7th 2020 in Northern Cyprus. For a brief time in October 2020, a 10-day quarantine was mandatory for everyone however, having double-negative PCR test results, tourist were exempted from quarantine given that they do not stay more than 3 days on the island and stay in the hotels. During this period, the company chartered flights for week-ends to
  cater to the demand of Merit guests as there were not enough scheduled flights due to the strict measures to fight Covid-19. After January 4th 2021, our Northern Cyprus operations have been suspended by government orders. Due to Ministry of Tourism in Northern Cyprus' announcements, we expect that, our operations will restart again on April 14th 2021, under closed circuit tourism procedure with strict measures.

•EBITDA of Merit Casinos in Balkan decreased from 37.1 mn TL (6.2mn USD) in 2019 FY to 33.0mn TL (4.5mn USD) in 2020 FY. (-11.0% TL terms, -28.0% USD terms). Merit casinos in Montenegro re-opened on May 21th 2020. Merit Casino Libertas's renovation has been completed. Merit Casino Grand Mosta in Bulgaria re-opened on September 4th 2020. In Balkan, suspended operations were less than Cyprus when we compared. On the bottomline, our consolidated EBITDA figures are slightly positive, despite of Covid-19 global pandemic effects. This is the result of our expansion model in Balkan and to diversify the country risk.

•The new hotel construction (Merit Royal Garden) in Kyrenia, which will be connected to Merit Royal Hotel Casino and the expansion of the casino are suspended as a result of the COVID-19 period. The construction of these investments will restart in Q2 2021 and is expected to be finished by end of 2021. We have applied to Capital Market Board of Turkey(SPK) to increase capital through right issues in Merit Turizm which is our subsidairy, to accelerate construction of Merit Royal Garden. Additionally, the group have leased Liman Hotel&Casino which is now Merit Liman Hotel&Casino, the only hotel&casino in Kyrenia Port.

•Merit Hotels and Casinos in Northern Cyprus, did not operate for a total of more than 160 days in 2020, meaning no revenues were generated during this period. 95% of EBITDA in 2019 was generated by Cyprus operations, which explains the 94% drop in our consolidated EBITDA in 2020.

•On the other hand, fixed expenses during these periods were also decreased. With regard to payroll costs, 90-95% of total payroll costs were eliminated with the help of government incentive programs (i.e. hotel & casino staff received payments from the government, so the hotels and the casinos incurred little or no payroll cost during these periods).

•Overall, during the Covid-19 pandemic, while revenues are reducing also opex figures were decreasing. Similarly, financial results in 1Q 2021 is expected to be negatively affected as Northern Cyprus facilities were closed completely by state orders in 1Q2 021. This adverse effect is expected to be recovered in the second half of 2021.

•On the other hand, the company pursues its expansion plans in Montenegro, announcing a 50% partnership in a mixed-use project situated within the city-centre of Budva. The project, which will be completed end of 2021, includes luxury residences, a hotel and a casino, which will be operated by Merit International, while the cash investment will be provided by the sales of the residences, thus will not have a negative effect on the company cash-flow.

•Moreover, the company (Merit Ukraine) was established in Ukraine on February 4th 2021, to operate a casino in Kiev, following the casino legislation which passed this year. New Merit Casino in Kiev is expected to start its operation in the last quarter of 2021.

•Last but not least, the group also applied for a casino license in Albania as part of its expansion strategy in the Balkans. The operations will start in 2022.

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FINANCIAL OVERVIEW (TL Terms)

Sales (mn TL)

1,200
	400
922.8
900	-54.3 %
	300
600	200
	421.5
300	100
0	0
2019 FY	2020 FY

5,000

Parent Shareholders' Equity (mn TL)

50%

4,489.4-10.0%

40%

4,041.1

4,000

30%

20%

3,000

		10%
2,000			0%
	2019 FY	2020 FY

Consolidated EBITDA (mn TL)

311.7

-93.6 %

19.9

2019 FY

2020 FY

EBITDA Margin

33.8%

-29.1 %

4.7%

2019 FY

2020 FY

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FINANCIAL OVERVIEW (USD Terms)

200

160

120

80

40

0

1,000

800

600

400

200

Sales (mn USD)		Consolidated EBITDA (mn USD)
		60
155.3		52.5
	-63.0 %	-94.8 %
		40
	57.4
		20
				2.7
		0
2019 FY	2020 FY	2019 FY	2020 FY
Parent Shareholders' Equity (mn USD)		Net Debt/Ebitda x
		80
				69.5
755.8	-27.2 %	60

	550.5	40
		20
		2.2
		0
2019 FY	2020 FY	2019 FY	2020 FY

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