DANUBIUS HOTELS GROUP ANNUAL REPORT 2010

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Contents Statement by the Chairman 2 Quality in focus -2010 5 The Board of Directors 7 The Supervisory Board 8 Tourism in 2010 9 Report of the Board of Directors 12 Report of the Supervisory Board 29 Independent Auditors’ Report 30 Consolidated statement of financial position 32 Consolidated income statement 33 Consolidated Statement of Comprehensive Income 34 Consolidated Statement of Changes in Equity 35 Consolidated Statement of Cash Flows 36 Notes to the Consolidated Financial Statements 37 Report on the 2011 business targets 69 1
ANNUAL REPORT 2010 Draft Statement by the Chairman for AGM/Annual Report 2010 Dear Shareholders, I am pleased to report that, during 2010, Danubius Group continued to respond purposefully to the challenges presented by the ongoing economic difficulties in most of Europe and an extremely tough market for tourism, particularly in Hungary. As we move into 2011, we can take some encouragement from the recovery in Germany and the forecasts for a return to growth in most other European countries. Nevertheless, many uncertainties remain, which can influence the behaviour of tourists and business travellers. These include questions about the future of the Eurozone, the effects of the unstable situation in the Middle East, including on energy costs, the unquantifiable implications on Japanese business from the earthquake and tsunami and the extent to which cost-cutting programmes in several countries might affect the rate of economic recovery. Turning to the financial results for 2010, your Company proved resilient to extremely testing business conditions and I would highlight the following aspects: Revenues expressed in Euro slightly exceeded those of 2009, despite the negative effect of the volcanic ash problem in the spring. As a result of the stronger Hungarian currency compared to 2009, revenues reduced by 1% when translated into HUF. Group occupancy increased by just over 1% compared to 2009, whilst in Hungary the occupancy increase was 1.7% despite an increasingly competitive market. The operating profits and cashflow of the subsidiaries in Czech Republic, Slovakia and Romania held up well and helped to offset difficult trading conditions in Hungary. The overall level of Group borrowings did not change from the beginning of the year and interest costs reduced. Management exercised tight control over liquidity. The net cash provided by our operating activities increased from HUF 3.8 billion in 2009 to HUF 4.3 billion in 2010, due largely to effective management of working capital. Our loss after tax slightly increased from HUF 756m in 2009 to HUF 882m, but, despite this, shareholders’ equity grew by just over 1%, due to translation gains on subsidiary investments. The continuing imbalance of supply and demand in Budapest, due to huge new investments in hotel facilities not being matched by rising demand, has remained a problem for all operators in the market. We expect it will take several years for this imbalance to correct itself and so all our efforts are directed at making our activity more competitive. Tight cost control has been a key goal for the last two years and this will continue. In addition, we have invested substantially in our websites, central reservation system and e-commerce activities to assert our own strengths in the marketplace. Whilst many new hotels have been opened in Budapest, many of Danubius’ properties are unique and have a special appeal to guests seeking to experience Hungary’s history and traditions. We are constantly seeking out new initiatives to capitalise on these attributes and to provide the best value. It is encouraging that the new Government in Hungary is adopting a more positive approach towards tourism, not least by allocating increased funding for tourism marketing in the 2011 budget. In recent years, Hungary has slipped in its attractiveness as an international destination, whether for leisure or corporate 2 õ õ õ õ
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DANUBIUS HOTELS GROUP ANNUAL REPORT 2010

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