There were no changes in the companies consolidated in the Danubius group in the first nine months of 2006.

Transcription

1 FLASH REPORT on the Q1-3 activities of Danubius Hotels Nyrt. in 2006 Introduction continued improvement in operating profit Danubius produced revenues exceeding HUF 37 billion in the Q , surpassing last year s by HUF 4.4 billion. The market environment allowed an increase of rates and the company was able to raise its average rates by 18.5% while occupancy went down moderately by 2.3%. Parallel to the improvement of profitability operating profit went up by 34%, to HUF 4.6 billion. The changes of the exchange rates have a significant impact on the results of the group. This year s weakening of the forint has a favourable effect on our revenues, at the same time we have to book significant unrealised exchange rate losses when revaluating the loans. As we stated in our previous flash report, a part of the exchange rate loss indicated in the first half year returned owing to the strengthening of the forint in July. This almost entirely remained till the end of September and - together with the rate gain of the 3 rd quarter - the Danubius group recorded HUF 1.32 billion unrealised exchange rate loss in the period January-September Altogether the company achieved HUF 2.48 billion profit before tax, lagging behind last years by merely HUF 26 million, which without the unrealised exchange rate losses suffered on the loan revaluation was a better profit by more than HUF 1 billion compared to last year. Looking at the Hungarian subsidiaries, the positive trends experienced in operation have to be set against the negative effects of the government program introduced from September. The VAT content of the offered gross price of room-, food- and certain health spa services went up due to the increase of VAT from 15% to 20%, causing 5% loss. The company was also significantly hit by the solidarity tax, the expected corporate income (minimum) tax, the changes in the tax on contribution in kind as well as the gas and other energy price increases. In the Q1-3 period only one month was adversely affected, all the same, the negative impact could burden the remaining part of 2006 despite measures introduced throughout the company. Changes within the Danubius Group There were no changes in the companies consolidated in the Danubius group in the first nine months of In November 2005 Danubius Group acquired 1.75% shares of Smrdaky Local Government held in Slovenské Liecebné Kúpele Piestany a.s., and with that the share of the group increased to 89.96%. In December the Group increased its share in Preventív-Security Zrt., the company responsible for the security of the Hungarian hotels from 32.75% to 78.60% so this firm is again consolidated from the end of December The number of affiliated companies increased in August 2005 with CP Regents Park Two Limited in which Danubius acquired 25% interest and concluded a cooperation package agreement with its major shareholder CP Holdings Ltd. concerning Danubius Hotel Regents 1

2 Park, London. The Q1-3 report already shows the positive balance of related management fee revenues and financial expenditures. In October 2005 Danubius Beta Hotels Kft. was merged into Danubius Hotel Operation and Services Private Company Ltd., however, this brought about no changes at consolidated level. In the management of the company the following change took place: Sándor Betegh, former CEO retired on 1 March 2006 and was succeeded by Dr. Imre Deák. There was no change in the members of the Board, as the members with mandates expiring in 2006 have all been re-elected by the AGM for five years. In a recently announced new strategy the company has listed the hotels of Danubius into new brands as of 1 July. Hotels with a health spa profile belong to Danubius Health Spa Resort while city hotels of a higher category are listed under the Danubius Hotels brand. Those in special historical buildings are also in a sub-brand called Classic Collection. The Member of Danubius Hotels Group category includes all other hotels belonging to the group. Performance of major subsidiaries Hungarian hotels achieved HUF average rate beside 67% occupancy during the period between January September The occupancy is 3.6% lower than in the previous period but in respect of average rates increase was 21%, which is a significant growth even in Euro (12.5%). Average spending calculated in Euro also went up by more than 6%. The favourable trends started in the first half-year continued in the Q3 which is regarded as the main season. This means that Hungarian hotels achieved 11.2% more revenues and 16.8% higher GOP in the main season months compared to the similar period last year and GOP margin also improved by 2%. In the first three quarters room revenues went up by 15%, at the same time, F&B revenues remained the same and spa revenues fell back by 2%, producing a total of HUF 22.6 billion revenues. Besides growing costs the total departmental profit was up by 10%. General costs went up by 7.2% compared to one year earlier (among which energy costs were up 14%, marketing costs by 12.3%). GOP of the Hungarian hotels was therefore almost HUF 7.5 billion as opposed to last year s HUF 6.7 billion (+12%) meaning that almost half of the revenue surplus achieved was converted to profit. Budapest hotels delivered an outstanding performance in 2005 in terms of volumes, however, this could not be repeated this year owing to a change in market trends. Occupancy in our Budapest hotels was 4.2% down compared to last year, since the number of guest nights decreased by 7%. The fall in the number of foreign guest nights was even bigger and the nationality ratios also shifted: the British guest nights still significant last year - were down 18%, while German guest nights also fell by 20%, at the same time American guest nights were up by 7.1% and Russian by 9.6%. Our average rates increased by 19.8% and the company managed to keep up the increase in F&B revenues, consequently average spending went up by 6.5% in terms of Euro, too. In the country spa hotels the number of German and Austrian traditional spa guests continued to go down (-10%) almost half of which was compensated by the increase in the number of domestic guests. It s a positive trend that despite a 2.4% lagging behind of occupancy, room revenues went up by 15% and spa revenues were also up 1.3%, 2

3 unfortunately however, F&B revenues remained the same. As a result average spending in EUR was merely 2% higher than one year earlier. The tendencies experienced in the hotels of Danubius do not differ much from the national trends. The number of foreign guest nights dropped at national level by 7.4%, the number of German and British guests declined considerably, simultaneously there was an upsurge in demand by Russian and American guests. Demand rose by 10% on the domestic market. The occupancy of 3 star hotels went up moderately, that of 5 star hotels remained unchanged but 4 star hotels saw a fall back of 1.4% while hotels of Danubius reported a decrease not only in the 4 star hotels but in the 3 star ones as well. Compared to the consumer price index of the tourism sector published by the Central Statistical Office (which is 105.5% for accommodation services) Danubius managed to raise its average rates to a greater extent (+21%). Czech hotels achieved HUF average rate with 77.5% occupancy (-5.6%) and contributed to the performance of the group with HUF 4.72 billion revenues (+6.8%) and HUF 1.75 billion GOP (-11.4%). Evaluation of the Czech subsidiaries is, however, distorted by the calculation into forint as the HUF weakened against the CZK significantly compared to last year (10.7%) therefore items calculated in forint give a better picture in terms of revenues. The number of guest nights was lagging behind by 6.7% compared to the previous year. A dramatic decrease of domestic demand (-13.5%) and German spa guests (-15.1%) was experienced on the market and the growing number of Russian and Israeli guest nights could not compensate the shortage. Parallel to the decreasing volumes average rates calculated in CZK (+2.3%) and average spending (+2.6%) went up moderately. Calculating in Czech crown, revenues decreased in all departments with the exception of F&B and fell back by a total of 4.5%. Costs on the other hand went up both at departmental and overhead levels making GOP figures 20% less as opposed to last year. The occupancy of Slovakian hotels went up reaching 77.5% with an average rate of HUF 6 925, 15% higher than in the previous year. This subsidiary contributed to revenues by HUF 5.56 billion and to GOP by HUF 1.70 billion producing 34% extra profit alongside improving profitability. Evaluation in local currency gives a more realistic picture here too as the HUF weakened against the SKK by 9.6% compared to last year. Moreover it needs to be considered that Thermia Palace and Irma Bath are closed down in 2006 owing to reconstruction works. Earlier nationality statistics listed German guest nights as first but owing to recent significant decrease (-16.2%) growing domestic demand took over representing a greater portion (36%). In addition to the increase of domestic guest nights the number of Israeli, Czech and Russian guest nights also went up. Volumes stagnated because of the shortfall owing to the reconstruction works still the subsidiary managed to increase average rates and average spending calculated in SKK by 5%. SKK revenues went up by 3.2%, which looking at the decrease of departmental costs and the moderate increase of general costs resulted in a significant GOP increase of 22.3%. This means that efficiency improved and GOP margin went up by almost 5%. Romanian hotels reported the most remarkable improvement among foreign interests. The HUF weakened against the ROL too (by 7%) so changes shown in HUF give a more favourable picture in terms of revenues in this case as well. With 56.1% occupancy (+5.2%) Sovata hotels achieved HUF average rate, 20.8% higher than a year earlier. 3

4 The number of German guest nights went down by 57%, the Hungarian guest nights remained unchanged, while domestic demand increased by 15%. Total number of guest nights went up by 10%. Among departmental units not only room, but food and beverage and spa revenues also achieved much better results compared to last year. Gross operating profit was 50% higher against the 1-3 quarter in Consolidated Balance Sheet Consolidated asset value was HUF billion on 30 September 2006, HUF 6.78 billion higher compared to the previous period. The asset value of the recently consolidated Preventív Security Zrt. and its subsidiaries was HUF 384 million at the end of the period. Current assets went up by almost HUF 1 billion. Accounts receivable went up the most (+25.9%), which can be attributed to the upswing of turnover experienced primarily in the Hungarian and Romanian hotels. The value of other receivables and prepayments went up owing to the first consolidation of the Preventív companies. Cash and cash equivalents are usually higher than average at the end of the third quarter, as we are collecting Euro revenues for the part repayment of EUR loans due at the end of October November. The net value of fixed assets among non current assets increased by HUF 5.27 billion in the past year in line with the sum of completed investments less accounted depreciation. The value of intangibles went up by HUF 343 million due to the change in the integrated information system (ERP) connected to Hungarian operations and the systems introduced in the Piestany hotels. The investments in associated companies (HUF million) show the historic cost adjusted by share of earnings of the investment in CP Regents Park Two Ltd. Our liabilities went up by a total of HUF 3.24 billion, which is made up of the HUF 1.10 billion increase of short-term and HUF 2.14 billion of long-term liabilities. The value of creditors recorded among short-term liabilities went up by HUF 654 million due to an upswing in turnover and the investments under way as well as the consolidation of Preventív Zrt. (HUF 106 million). The majority of the HUF 478 million increase in other payables and accruals was due to the growth of tax payment obligations (the larger part of which is owing to the increase of the VAT from 15 to 20% related to hotel and spa services as well as food turnover) and the increase of the liabilities of the Czech and Slovakian subsidiaries owing to the changes in the exchange rates. The Group had EUR 84.4 million and GBP 5.1 million long-term loan on 30 September The GBP loan, borrowed from related parties and shown in a separate line, was spent on the financing of the share purchase in London. The long-term loans increased by EUR 0.55 million in the past quarter, which is the balance of the pay back of EUR 0.35 million (performed by the Romanian subsidiary) and the EUR 0.90 million newly borrowed loans (taken out by the Czech company). The entire short and long term loans increased by HUF 1.78 billion in the past one year which was caused by the new loans taken out, in addition to the GBP loan, to finance the Czech and Slovakian reconstructions. The changes in the EUR and GBP exchange rates had an impact on both the short and long-term loan value. The value of own capital went up by HUF 3.53 billion due to the increase in translation reserve (+HUF 2.80 billion) because of the significant exchange rate fluctuations between the Hungarian forint, the Czech and Slovak crown and the Romanian lei and the increase of the retained earnings. 4

5 Consolidated Statement of Income Starting from 2006 companies not pursuing hotel operation activities represent a larger proportion in the consolidation and for this reason, costs are shown in the statement of income in a new structure by cost types. In order to allow for comparison with the previous period, we publish the figures of the Q already in this structure, and show the differences in the chart below: January-September 2005 By place of cost structure By type of cost structure Cost of room sales Cost of food and beverage sales Cost of spa sales Cost of other minor department sales Administrative and general costs Other expenses Depreciation Material expenses and services used Personnel expenses Change in inventories of finished goods and work in progress 18 Work performed by the entity and capitalised -23 Total operating expenses Other expenses showed exclusively taxes and loss of value of doubtful debts last year, while the year under review indicates other items as well. Related to the first three quarters the majority of the difference is caused by the fact that the Slovakian company has indicated earlier the non-refundable VAT by departmental units, however, the present report shows all the taxes among other expenses. The revenues and costs of foreign subsidiaries are valued in forint but owing to the already mentioned in certain cases significant exchange rate movements this may deviate largely from the evaluation in their own currencies. The involvement of Preventív Security Zrt. and its daughter companies into the consolidation resulted in HUF 790 million surplus revenue and cost items also went up. At profit before tax level it contributed to the performance of the group by a total of HUF 53 million. The favourable trends experienced in the first half year continued. Revenues in the Q3 considered as the main season exceeded last year s figures by 17.6% and although material type expenditures went up by more than 20%, operating profit increased by 35% compared to the previous year. Danubius produced HUF billion revenue at group level in the period between January - September This exceeds the prior year s figure by 4.37 billion (+13.4%). The growth involves the recently consolidated Preventív data as well as the net profit from the sale of the Gösser Brasserie in Keszthely (HUF 195 million) shown on the other revenues row. The weakening of the forint had a positive effect on the increase of revenues, on the one hand owing to the direct impact on average rates, on the other hand because this region (especially Hungary) became cheaper for foreign travellers. 5

6 The HUF consolidated revenues of major departmental units increased. Revenue on room sales went up the most (+13.5%) which indicated in forint increased on all markets. F&B revenue at consolidated level was up by 2.3% compared to last year owing to an increase reported from the Czech and Romanian subsidiaries parallel to Hungarian stagnation and Slovakian fall back. Spa revenues were not favourable in the Hungarian and Czech hotels that are strongly dependent on the German market still they went up substantially in Piestany and Sovata. The major part of the HUF 241 million increase of other revenues is due to the one off item of the net profit from the already mentioned sale of the Gösser Brasserie. Costs at consolidated level were up 11% compared to the similar period last year, which is 8.4% growth with unchanged network. The value of material type expenditures was above the previous period by approx. HUF 2 billion, HUF 506 million of which was attributed to the 23% increase of energy costs. The average increase of personnel type expenditures was 6.7%, significant surplus was created in the Romanian and Czech companies. Simultaneously, the group head count was reduced by 2% to employees in The majority of the 22.2% increase of other expenditures was owing to the increase of revenue proportionate mostly local taxes. Depreciation went up principally due to the extensive capital expenditure projects in the Czech and Slovakian subsidiaries and exceeded the previous year at group level by 6%. The group achieved an operating profit of HUF 4.60 billion from January-September 2006, 34% higher (+HUF 1.17 billion) year to date. The Romanian subsidiary reported an outstanding increase (HUF 236 million against last year s HUF 37 million) and the Hungarian and Slovakian companies also produced above average. In terms of geographical segment ratios there were no significant changes in HUF revenues compared to the previous year, at the same time, a greater proportion of operating profit is produced by the Hungarian, Slovakian and Romanian companies: Q data Revenues Operating profit Hungarian companies 69.2% 73.3% Czech companies 13.1% 10.3% Slovakian company 15.0% 11.3% Romanian company 2.7% 5.1% Total 100.0% 100.0% Profit after accounted financial items show a less favourable picture compared to the operating profit, although the HUF 2.14 billion unrealised exchange rate loss indicated in the half-year flash report moderated by the end of September to HUF 1.32 billion owing to the exchange rate movements of the past three months. In the first nine months the exchange rate loss related to the evaluation of loans was owing to the fact that we applied 250 HUF/EUR rate at the end of 2005 while our debts were calculated at 270 HUF/EUR at the end of September The negative balance of other financial items increased by more than HUF 216 million as opposed to last year including interest income and costs as well as the Danubius share of the nine months loss (owing to loans) of the London based CP Regents Park Two Limited. Consolidated profit before tax was HUF 2.47 billion in Q1-3 in 2006 compared to last year s HUF 2.50 billion. This indicates that profit before tax calculated without exchange rate losses increased by 38% (+HUF 1.04 billion) as opposed to the previous year. 6

7 Reconstruction works, renewals In the first three quarters of 2006 the company spent a total of HUF 1.84 billion on reconstruction works in our Hungarian hotels. We continued the already launched room refurbishments and paid special attention to the security technical and fire protection developments following the changes of the mandatory stipulations as well as investments aiming at streamlining the use of energy. In addition we focused on technical planning works establishing the development concepts of the future. In the course of the first quarter the entire refurbishment of two further guest floors were carried out in Danubius Hotel Astoria, completing the refurbishment of the room levels in the historical wing. The reconstruction of the Café Mirror restaurant and the main kitchen was carried out in the second quarter, and the floodlight illuminating the entire historical wing was also completed. With the lobby and entrance renewal project starting in the coming quarter, the three-year complete reconstruction project of the hotel will come to an end. In Hotel Budapest we have refurbished the rooms and apartments on two hotel levels and installed new fire alarm system in the common areas, simultaneously to which the chimneys have been renewed too. A new restaurant was built in Best Western Hotel Hungaria by connecting the former restaurant and brasserie, which in addition to the newly introduced buffet breakfast choice assures a more effective serving of breakfast for hotel guests. The partial refurbishment of one room level has already been completed. In Hotel Stadion the reconstruction of the function room level was completed. Through the renewal of the five conference rooms and connecting common areas new possibilities were opened up for the hotel in organising events. The swimming pool was furbished with pool current equipment and the sauna was replaced. The overall refurbishment of 45 rooms on the second guest floor was completed in DHSR Helia and a water softening equipment servicing the entire building was installed. The lobby and Ybl room in Danubius Grand Hotel Margitsziget has been rearranged and modernised: the front office desk and the marble floor were renewed and the lights were replaced. The main terrace on the first floor was equally redone. In certain Budapest hotels we carried out projects for improving technical security and investments aiming at cutting back on energy use (e.g. in Hotel Flamenco we completed the fire alarm and smoke detector systems, we replaced part of the doors, windows and lights, in Hotel Erzsébet we built out a new system detecting danger of leaking gas and in Hotel Béke we modernised the laundry equipment and the machinery and electronic systems of the guest elevators were replaced). In DHSR Bük we continued to renew the health spa department (including the periodic replacement of the thermal water distant pipe) and to partially refurbish 40 rooms and bathrooms on the second floor. In DHSR Sárvár the rearranging of the spa department and renewing the massage and mud treatment areas were completed and a new state-of-the-art fitness centre was created. All inclusive services were on offer in Hotel Marina in Balatonfüred in this year s main season, which required the transformation and renewal of the F&B units and the installation of electric guest entrance and control system. In Marienbad the refurbishment of 107 rooms, the restaurants, kitchen and balneo area in Centralní Lázné was finished together with the renovation of the façade. In Hotel Svoboda 14 new room units were built in addition to the refurbishment of 21 guest rooms. The project documentations for the swimming pool in Hotel Hvezda were sent for the 7

8 construction permit and the tender for the construction was closed. The documentations for the refurbishment of Hotel King Edward (presently out of use) and the corridor between the Centralní Lázné and Nové Lázné are ready and were handed in to the authorities for approval. Roof repairs on the main Kolonada and energy saving projects were also carried out and the Arnika area was upgraded into a garden landscape. The company spent a total of CzK 182 million (HUF 1.70 billion) on reconstruction and renewal works in Q In Piestany and Smrdaky SKK 258 million (HUF 1.82 billion) was spent on reconstructions and refurbishments in Q1-3. The Thermia Palace and the Irma Bath were closed throughout the year in order to allow reconstruction works to be carried out. Our plan is to reopen both buildings by the end of the year. In Sovata a fitness room was built in the health spa department in Hotel Sovata. The buffet on the Medve Lake beach was rebuilt and the connecting changing cabins were renewed, and we started changing the roof on the lake spa pavilion. Renewal of the guest elevators in Hotel Bradet is in process. Ownership structure and Stock Exchange trading On 30 th September 2006, 53.40% of the subscribed capital made up of ordinary shares is owned by domestic and foreign investments of CP Holdings Ltd., of which shares over 5% are owned by Interag Zrt. (29.38%), CP Holdings Ltd. (17.90%) and Israel Tractors (6.12%). Foreign financial investors own a further 34.76% of the shares of which ownership of the Deutsche Bank custodian exceeds 5% (representing 6.70%). The shares of the employees of the company represent 0.27%, and the company continues to own 4.52% own shares. Domestic private persons, institutions and pension funds own 7.05% of the equities. A total of deals were made for shares of Danubius Hotels Nyrt. on 191 trading days to the tune of HUF 6.95 billion in Q1-3 of 2006 producing an average share price of HUF/share, alongside HUF/share minimum and HUF/share maximum price. Post quarter events The mandatory joint public offer submitted by CP Holdings Ltd., Israel Tractors and Equipment Co. Ltd. and Interag Holding Zrt. (the Bidders ) on 8 August 2006 was closed on 4 October The Bidders have become in the course of the public purchase offer, owners of 448 pcs of shares representing % of the registered capital of Danubius Hotel and Spa Public Limited Company, as a result of which have 53.4% control of the company. The news of the riots at the end of September and in October in Budapest had unfortunately a very detrimental effect on the image of the country and could hit tourism badly, nevertheless the company trusts that it will not make Hungary less attractive on the long term. 8

9 Danubius Hotels Nyrt. Consolidated Balance Sheet (IFRS, un-audited) 30 Sept 2006 Assets Index HUF th Sept 30th Sept % Cash and cash equivalents % Accounts receivable % Other receivables and prepayments % Income tax receivables % Inventory % Total current assets % Property, plant and equipment % Intangibles % Investments in associates % Other non-current assets % Deferred tax assets % Total non-current assets % Total assets % Liabilities and Shareholders' Equity Index HUF th Sept 30th Sept % Trade creditors payable % Advanced payments from guests % Income tax payable % Other payables and accruals % Interest-bearing loans and borrowings % Provision % Total current liabilities % Interest-bearing loans and borrowings % Loan from related party % Deferred tax liabilities % Total long-term liabilities % Total liabilities % Share capital % Capital reserve % Treasury shares (1 161) (1 162) Translation reserve % Retained earnings % Equity excluding minority interest % Minority interest % Total shareholders' equity % Total liabilities and shareholders' equity % 9

10 Danubius Hotels Nyrt. Consolidated statement of income (IFRS, un-audited) 2006 Q Index HUF Q1-3 Q1-3 % Room revenue % Food and beverage revenue % Spa revenue % Other departmental revenues % Wineries % Security services Other revenues % Total operational revenue % Cost of goods purchased for resale % Raw material costs % Services used % Material expenses and services used % Wages and salaries % Other personnel expenses % Taxes and contributions % Personnel expenses % Depreciation, amortisation and impairment % Other expenses % Changes in inventories of finished goods and work in progress % Work performed by the entity and capitalised (23) (41) 178.3% Total operating expenses % Profit from operations % Interest incomes % Interest expenses (637) (779) 122.3% Unrealised foreign currency loss (338) (1 315) Financial loss (934) (2 075) Share of loss of associates (52) Profit (loss) before tax % 10