AX Group registers €23m drop in 2020 revenue as COVID-19 hits core sectors

AX Group registered a drop in revenue of over €23 million in 2020, leading to a loss after tax of nearly €8 million.

The Group’s financial statements for the year ended on 31 October 2020 paint a grim picture of the effect COVID-19 had on the Group’s diverse operations. The Group’s main interests and holdings lie in the hospitality, elderly care and construction sectors, all negatively impacted by the pandemic and the measures introduced to mitigate its spread.

During the months from November 2019 to February 2020, all the Group’s business sectors were performing well with results for this period exceeding budgets and the previous year’s figures.

But as COVID-19 struck that strong performance changed in different ways in the different sectors.

Revenue decreased by €23,200,782 over the previous year, mainly due to the impact of the COVID-19 pandemic as noted above.

Operating results during the year decreased by €14,521,393, from a profit of €10,054,248 to a loss of €4,467,145. The Group’s loss before taxation for the year amounted to €8,229,603 (2019: profit before tax of €6,387,832).

As at year end, the AX Group’s equity stood at €217,448,572 (2019: €239,115,438).

The hospitality sector was the worst hit as the Group had to close the hotels for a 10-week period. When the airport reopened in July, the Group quickly saw demand return, but it was nowhere near the 2019 level.

The care sector had its own challenges. Residents of the Simblija Care Home and Hilltop Gardens Retirement village we asked to enforce a strict lockdown of the entire complex. Employees moved into the village too to ensure the safety of the residents. This brought about a significant increase in operating cost.

The construction sector continued to operate although with some capacity limitations.

What followed the initial wave of the pandemic was a drastic slowdown in new orders and a number of projects were put on hold. Nevertheless, the construction division retained its momentum with Group projects, the main focus being on the completion of the construction of Falcon House in Sliema and the Targa Gap complex in Mosta.

With other revenue streams under pressure, the Group took the strategic decision to expedite a number of projects in its development division. It was successful in obtaining the outline development permits for the Verdala site in Rabat, the extension of the Suncrest Hotel as well as the Sunny Coast Resort in Qawra.

AX Group also saw the completion and inauguration of the Imselliet solar power plant in Mgarr. Valletta Cruise Port experienced a difficult year with most of the cruise calls cancelled and significantly reduced food and beverage activity at the Valletta Waterfront.

Profitability

During the year, the Group has experienced a reduction in revenue of 44.69% over the previous year and has reported a loss for the year of €7,889,730.

Despite the reduction in revenue, the Group still managed to report a positive EBITDA of €2,620,189.

Auditors EY attributed this result to several factors, as highlighted below.

Strong performance pre Covid-19

Pre COVID-19, all operating units within the Group were achieving and, in some cases, exceeding budgeted performance.

Following the addition of AX-Rosselli Hotel in Valletta in June 2019, the hospitality division exceeded previous year revenues by almost 20% and previous year Gross Operating Profit by 52%.

Management’s quick response

Management took immediate action to curtail both operational and capital expenditure.

For a number of months senior management, employees in the hospitality division and head office employees were asked to work reduced hours.

On the other hand, certain capital investment that were not deemed critical was postponed to future dates.

Internal operating structures

Throughout the years, the Group has adopted a strategy to acquire a number of sites in close proximity to one another.

This strategy of managing properties in clusters together with internal re-organisation were key factors that yielded various benefits, including economies of scale and cost efficiencies especially in this period of unparalleled disruption.

Government support

A key element supporting the ability to operate at these low levels is the Government wage supplement.

This assistance has been renewed in the 2021 Government budget up until 31 March 2021.

Without this crucial support, the AX Group would have to reconsider its commitment to retain the employees in its hospitality division on full pay.