Apollo stalls on COVID-19 shutdowns, posts loss greater than market cap

Apollo stalls on COVID-19 shutdowns, posts loss greater than market cap

There are unlikely to be too many happy campers on the board of Apollo Tourism & Leisure (ASX: ATL) today after the company announced a $61.2 million loss, with global demand for RV rentals heavily impacted by travel restrictions.

To put the magnitude of this loss into perspective, it is 15 per cent higher than the market value of the company itself. 

The result compares to what was a "disappointing" $4.7 million profit in FY19. Leading up to COVID-19 the Brisbane-based company had recorded an $11.3 million profit for the first half despite the negative effects of bushfires.

When the first half result was announced - almost a month before the coronavirus was declared a pandemic - Apollo indicated a loss would be likely in H2 due to the double whammy of the virus and bushfires, but it still expected a full-year profit in the range of $8-9 million.

That horse had bolted by the time 12 March came around as Apollo withdrew its guidance, raising alarms over cancellations and border closures between the US and Europe.

By the time of Apollo's next announcement four days later, travel restrictions had escalated around the globe with its key markets of the US, Australia, New Zealand and France effectively shut down.

By mid-May the group had made the tough decision to sell its US fleet, which led to the booking of a $12.5 million loss on the transaction.

In today's result, Apollo has announced a non-cash impairment expense of the same size ($12.5 million) due to the impacts of COVID-19 in Europe, while the impairment was even greater in Australia at $23 million.

Apollo's loss in Australia accounted for around 63 per cent of the loss overall, but a pivot to the domestic market has sparked strong growth for the segment which previously only accounted for around a fifth of Australian sales.

Overall, bookings and revenues are nonetheless significantly below prior year levels even though there has been a recovery since May. 

Despite a significant drop in retail sales in April 2020 due to COVID-19 restrictions, the first full year of Apollo's Geelong, Newcastle and relocated Melbourne dealerships contributed to overall increased retail vehicle sales for the year.

New Zealand was the only market that did not run at a loss with an EBIT of $6.2 million. This result across the Tasman was still down on the previous year, even though retail sales were up 35.4 per cent.

The group's sales in New Zealand achieved a new monthly record in July, even though winter months tend to be the slowest periods for the market. But the recent Auckland lockdown is expected to have a negative impact on August and potentially future months.

The company has also received $3.3 million in wage assistance, while in FY21 it has also received a $15 million export loan from the Federal Government and a $10 million industry support package loan from the Queensland Government.

In its outlook statement today, Apollo said it expected it guest mixes in Australia, New Zealand and Canada would shift to a majority of domestic guests for FY21, with some international travellers in the second half of this financial year.

While still a relatively small region for Apollo, Europe and the United Kingdom markets are primarily in-market guests and therefore activity is expected to be impacted less than other regions.

"As domestic travel re-emerges, followed by international travel in time, Apollo is ideally placed to service guests looking for "COVID-19 safe" ways to explore the great outdoors with family and friends," says Apollo's managing director and CEO Luke Trouchet.

"We expect the recent increase in retail RV sales to continue as people seek more freedom and control over their holiday choices.

"With limited options for consumer travel related discretionary spend, and many people finding themselves with more spare time than previously, a RV holiday is becoming an increasingly attractive option."

Updated at 12:30pm AEST on 31 August 2020.

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