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Danubius Hotels says weak forint mitigates higher tax

Danubius Hotels Nyrt, the owner of the Hilton in Budapest's castle district and the city's Gellért Spa, expects a weaker Hungarian currency to help the company meet earnings targets and mitigate an increase in tax on rooms. The government raised the value-added tax rate to 20% from 15% starting this month, shaving Ft 600 million ($2.8 million) off annual sales at Danubius. CFO János Tobiás said the company can pass two-thirds of that onto guests while a weaker forint makes up for the rest. “We'll still be able to reach what we had forecast partly because we acted in time,” Tobiás said in an interview. Danubius is eastern Europe's second-largest hotelier by market value, behind Poland's Orbis SA. The Hungarian company has units in Slovakia, Romania, the Czech Republic and London and has been hurt as more rivals enter the region to tap a burgeoning tourist industry. Danubius shares have risen 4.4% this year, while Warsaw-based Orbis has surged 45.5%. Tobiás, speaking in Budapest on Sept. 1, reiterated an April forecast of Ft 2.54 billion for 2006 pretax profit, an increase of 73%. Sales will rise 3% to Ft 44.1 billion, after growth of 10% in 2005. The forint has lost 9.2% so far this year against the euro, pushing revenue higher in forint because room prices are fixed in euros, Tobiás said. That decline would have pushed sales higher than the company's estimate had there not been “poor performance” at the Czech hotels, he said.  

Danubius boosted prices this year by reducing the number of discounted rooms, Tobias said. That has made up for what he called a slight decline in occupancy rates. The hotelier has put real estate, one two-star and three three-star hotels up for sale. Danubius expects to raise between Ft 1.1 billion and Ft 1.4 billion from the transactions, with about half of that coming this year. Danubius, which has a stock market value of Ft 51 billion, is majority owned by British investor CP Holdings Ltd. The company made a buyout offer for the shares it doesn't own in Danubius for Ft 5,825 each on Aug. 8. CP Holdings already has 53.4% of the company, in part through two others it owns, Israel Tractors and Equipment Co. Ltd. and Interag Holding Zrt. The three together made the bid. Shares of Danubius closed unchanged at Ft 6,000. (Bloomberg)