Africa Israel hotels is posting a heavy NIS 8.2 million loss for the third quarter of 1998, compared to a profit of NIS 3.4 million in the corresponding quarter last year. This is despite the fact that revenues are stable at NIS 70 million, as is gross profit, at NIS 31 million.
Unsurprisingly, the reason for the loss is the company’s quarterly financing expenses of NIS 14.8 million, compared to only NIS 3 million in the corresponding quarter last year. Africa Israel hotels, controlled by Lev Levayev and managed by Danny Palti, notes that the devaluation of the shekel against the foreign currencies in which the company’s long-term loans are denominated, caused the amount of those loans to increase in the third quarter, whereupon the company sustained heavy financing expenses.
The ongoing devaluation in the fourth quarter is actually expected to boost the revenues of the hotels company, since a large part of those revenues are denominated in foreign currency, mainly dollars. But Africa Israel is still hard put to assess what the effect will be, due to its very sizeable liabilities, NIS 180 million of which are foreign currency denominated.
In the course of the year Africa Israel Hotels betted on the Swiss franc, expecting to use it to finance its investments and to replace dollar denominated loans. This may have been done on the assumption that the cost of financing sources would thereby be reduced; but in practise, the reverse happened. NIS 104 million of the company’s liabilities are currently denominated in Swiss francs, double the amount of dollar liabilities.
Africa Israel manages the Holiday Inn hotel chain in Israel, and reports lower occupancy rates and a lower level of activity in the first nine months of 1998, when average occupancy stood at 70%, compared to 73% in the corresponding period last year.
Published by Israel's Business Arena November 23, 1998