Budapest Business Journal 19/16

better know a ceo Eddy D’Hertoge of KBC Securities is an

BBJ

optimist only saddened by the insanity of mankind 〉page 22

Budapest Business Journal

6% I sept 9, 2011 – sept 22, 2011

of adult Hungarians are truly fluent in another language 〉page 4

Hungary’s practical business bi-weekly since 1992 | www.bbj.hu

game of phones

1

FOCUS

HUF 1250 | €10 | $15 | £7.5

Vol. 19, number 16

telecoms The government hopes to stoke competition and collect additional budget revenues by inviting bids for new mobile frequencies.

But is a fourth carrier really the best way of fulfilling this aim?

TELCO FOCUS 〉 pages 12-19

2

FOCUS

BUSINESS

MARKET ANALYSES AND LISTS

mergers & acquisitions +16%

Enterprise resource planning software companies saw growth and hope for more 〉MARKET ANALYSIS page 16

-20%

Telecom operators have been looking for the next big thing for years – their hopes are still pinned on data 〉MARKET ANALYSIS page 18

In a slow economy, not even companies are bought and sold. However, there are now some signs of life on the M&A market again, consultants are relieved to note. In Hungary, Russian and Chinese deals were the most fussed over, with some state deals thrown in. Meanwhile, Poland seems to have regained its stride. 〉pages 6-11

ECONOMY Government continues “war on debt” Hungary’s government has decided to raise the excise tax on cigarettes, alcohol and diesel fuel as well as the gambling tax to fill a HUF 100 billion gap in the 2011 budget. The government also plans to cut the country’s state debt further by repaying two larger loans expiring in October and November without renewing them. 〉page 5

LIST: Largest erp companies 〉 page 17

LIST: Largest telecom operators 〉 page 19

LIFE Cricket gains some ground(s) in Hungary

TRENDS As net penetration increases, so do security threats

Cricket is not often associated with Hungary.

However, it has gone through rapid development in the last few years, and with admission to the International Cricket Association possibly in the pipeline, sportsmen in Hungary hope the globally popular sport will now take off here, too. 〉page 20

The importance of online security cannot and should not be underestimated. Yet Hungarians are pretty lax about protecting their digital secrets. Some even see no problem in using public computers to do online banking. As with other risks, younger people are braver – or perhaps more foolhardy. 〉page 4

2 news

News for this page is from the Budapest Business Journal’s daily briefing, Hungary A.M.

NEWS in brief Farming ministry to provide EUfunded grants to upgrade wineries

www.bbj.hu

Budapest Business Journal | Sept 9 – Sept 22

The National Bank of Hungary is offering bricks of old banknotes pulled from circulation to charity organizations for use as heating fuel. The bank is calling the tender for the fourth year in a row, with non-profits eligible to apply for the bills.

The Rural Development Ministry is to offer grants worth a combined €4 million in 2011-2012 to help modernize wine production plants in Hungary, the ministry has announced. The grants, to be made available in the autumn to small- and medium-sized businesses, can cover 40% of the value of equipment purchases as opposed to the earlier 30%, while the ratio will be 20% in the case of larger companies. Applications can be submitted between October 17 and December 16 to the office for agricultural and rural development. Firms can apply for between HUF 1 million and HUF 100 million.

Source: MNB

Economy June trade surplus revised Hungary had a €609.3 million trade surplus in June, down from a first reading of €615 million published on August 9, and also down from €631.2 million in the same month a year earlier, central statistical office KSH said. Exports increased 3.1% year-on-year to €6.543 billion in June, while imports were up 3.8% to €5.933 billion. The year-on-year increases of exports and imports were down sharply from 20.5% and 15.6%, respectively, in May. The surplus for January-June came to €3.854 billion, revised down from €3.896 billion in the first reading, and up from €2.821 billion a year earlier.

Jobless rate stuck at 10.8% Hungary’s average unemployment rate was 10.8% in the 15-74 age group in May-July 2011, unchanged from April-June but down from 11% in May-July 2010, according to KSH data. In the 15-64 age group the jobless rate was also unchanged at 10.9% from April-June, while it dropped from 11.1% one year earlier. The unemployment rate fell and the number and share of employed rose in both the 15-74 and the 15-64 age groups in the previous three consecutive three-month periods. After months of decline previously, the activity rate in both age groups has now risen for four consecutive threemonth periods, to 56% and 62.9%,.

Corporate borrowing up in July As in the previous month, forint borrowing by households exceeded repayments in July, while repay-

ment in foreign currency exceeded borrowing, so the sector remained a net repayer, according to unadjusted data published by the National Bank of Hungary (MNB). As a result, the stock of loans to households fell in July. Forint deposits rose due to transactions, while foreign currency deposits fell, so the sector’s total deposits increased. Non-financial corporations were net borrowers in forints and net repayers in foreign currency. In addition, they increased their forint deposits relative to the previous month and withdrew more from their foreign currency deposits than they placed. As a result, the sector’s total deposits fell relative to the previous month..

politics WikiLeaks: corrupt radio bids It is “obvious” that media authority ORTT made its decision on the radio frequency tenders of commercial radio channels Sláger Rádió and Danubius Rádió under political pressure back in 2009, online news portal Origo reported, citing documents from Hungary’s US Embassy published by WikiLeaks.

The documents showed that American diplomats had strongly objected to the tenders with Gordon Bajnai, Hungary’s prime minister at that time. Bajnai himself considered the case a taint on his work as PM but said that he had “no leverage” on the politicians, so he could not hinder such cases. In 2009, Hungary’s most popular radio channels Sláger and Danubius unexpectedly lost their frequencies to NeoFM and ClassFM, radio stations reported to have ties

NUMBERS

in the news

6%

yr/yr growth in energy imports reported by the KSH in H1. The import volume of petroleum, petroleum products and related materials grew by 17%, along with a significant increase in price and volume, while imports of natural and manufactured gas fell almost by one-quarter.

HUF 10.4 bln

in combined fines were levied by Hungary’s Competition Office (GVH) in 2010, well over the HUF 5.836 bln total for 2009, as the number of big cartel cases grew, the GVH said.

to parliamentary parties Fidesz and MSzP. LMP calls for referendum Hungary’s national election committee OVB has approved ten questions proposed by greenliberal party LMP as appropriate to be the subjects of a national referendum, online news portal Világgazdaság.hu has reported. The questions cover issues of Hungary’s new Labor Code and ask, for example, whether people want employers to be obligated to give reasons for the dismissal of an employee, wish to have the notice period remain at least 30 days or agree to set the maximum for the length of probation periods at 100 days. If it gets the final green light, LMP will have four months to collect the 200,000 signatures required for a referendum.

MDF successor wants money JESz, the successor to former center-right parliamentary party the Hungarian Democratic Forum (MDF), claims former party president Ibolya Dávid and the MDF’s representative at the European Parliament Lajos Bokros owe the party HUF 78 million and HUF 280 million respectively, television channel ATV has reported. JESz said that Dávid made contracts that were disadvantageous for MDF and should now compensate the party. JESz want Bokros to pay because the party called on him to give his EP mandate back in January 2011 but the politician refused to do so, saying that he took up the position as a non-partisan expert back in 2009.

domestic Simplified employment works The number of seasonal laborers working under a “simplified” form of employment in Hungary’s farm and tourism sector reached almost 512,000 in July, more than double the number from the same month a year earlier, the last before the procedure for declaring simplified employment was made less complicated, the National Economy Ministry said. Administration for this form of employment was eased with regulations that came into force on August 1, 2010.

New education scheme approved The government has approved the draft of the public education bill.

Plans include the introduction of full teaching days across the board, a moderate rise in teaching hours and stricter requirements for older pupils, according to Magyar Nemzet.

Education state secretary Rózsa Hoffmann has said the changes would be applied in the next academic year.

National drug strategy ready Hungary’s National Drug Strategy 2012-2020 is to focus on young people, as the number of drug abusers has shown a significant increase in the 14-17 age group in past years, nol.hu, the online edition of daily Népszabadság reported. The strategy plan was presented on the drogstrategia.hu site for comments during the social dialog process. As part of the strategy, drug guidance would be strengthened with the establishment of a network of juvenile drug addiction institutes.

www.bbj.hu

Budapest Business Journal | Sept 9 – Sept 22

News for this page is from the Budapest Business Journal’s daily briefing, Hungary A.M.

COMPANY news Főgáz to open first CNG filling station in Budapest

Hungarian gas trading company Főgáz will soon open the first compressed natural gas (CNG) filling station in Budapest, the Hungarian Gas Powered Transportation Cluster Association told MTI. The facility will be opened at an as yet unspecified MOL fuel station in the city. There are currently two CNG filling stations in Hungary, in the cities of Győr (northeast Hungary) and Szeged (south Hungary). CNG is a substitute fossil fuel used in specially designed natural gaspowered vehicles.

The cluster was set up in April this year, and aims to raise the share of CNG-powered vehicles and filling stations to 1% within three to five years.

news 3

Double-counted share turnover on the Budapest Stock Exchange (BSE) was HUF 847 billion in August, up 46% from July, the BSE said, citing data compiled from brokers.

Building blocks Denmark’s Lego Group has confirmed a report that it will build a €100 million factory in Nyíregyháza (northeast Hungary) to replace its existing plant in the city.

Construction of the unit, which will turn out LEGO R and DUPLO products, will start in 2012.

Serbian oil firm NIS, majority-owned by Russia’s Gazprom Neft, plans to set up subsidiaries in Bosnia, Bulgaria, Hungary and Romania as part of its regional expansion strategy. NIS told Reuters it would triple its oil production and double its income to become a market leader in the region by 2020.

Hungarian media group Est Media sustained after-tax losses of HUF 311.5 million in the second quarter of 2011, widening from after-tax losses of HUF 288.4 million in Q2 of 2010. Est Media had revenue of HUF 638.1 million in the second quarter of 2011, down 30.7% yr/yr.

Hungarian energy supplier and trader Alteo has launched a combined HUF 800 million of developments at its power plants in Győr and Sopron.

The company is spending about HUF 500 million to install three generators, each with capacity of 1 MW, at the plant in Győr. When completed, the plant’s capacity will reach 5 MW.

Hungarian chemicals group BorsodChem is shutting down its loss-making plastics processing unit because it does not fit the business’ main profile: making feedstock for the plastics industry. BC Ablakprofil has accumulated losses of HUF 2.2 billion over the past seven years, BorsodChem said. The closure of the unit could leave 82 people jobless.

GE Healthcare has launched a HUF 198 million project involving heart arrhythmia at its research and development base in Budaörs, on the outskirts of Budapest. The company won HUF 88 million from the Central Hungary Operative Program, within the framework of the European Union and European Regional Development Fund, and is cooperating with the Szeged University of Science on the project.

Shares of Canadian-owned automotive industry supplier and farm machinery maker Linamar Hungary were delisted from the Budapest Stock Exchange on September 7. The company said early in August that it would exercise its squeeze-out right and pay the remaining shareholders in Linamar Hungary HUF 2,570 per share.

Hungary’s K&H Bank Group posted consolidated after-tax profit of HUF 12.5 billion in the first half of 2011, down 46% yr/yr as a result of the government’s extraordinary financial-sector tax and a rise in lending costs. The group paid HUF 8 billion in extraordinary banking-sector tax during the period.

Orco Property Group, listed on the Budapest Stock Exchange, had a net loss of €7.5 million in the first half of 2011, compared to net income of €237.7 million in the same period a year earlier, when financial income lifted the bottom line. Revenue plunged 55% to €73.6 million.

Plywood maker Derula, based in Szolnok (east Hungary), plans to spend almost €30 million over several years to more than double capacity. The company also wants to double the size of its tree plantation from 1,500 hectares at present. The capacity expansion at the plant will create 88 new jobs, and the planting of additional trees a further 200-300 jobs.

All 200 workers of state-owned Hollóházi Porcelán Manufaktúra have been laid off, regional news portal BorsodOnline reported. Hollóháza mayor Sándor Koleszár said a company to start operating at Hollóházi’s production base in September would take over 50 of the people laid off. The Hungarian National Asset Management Company (MNV) has decided to wind up the company without establishing a legal successor, the portal said.

Hungarian drug maker Richter Gedeon Nyrt and STADA Arzneimittel AG have signed two separate license and collaboration agreements on the development and marketing of two biosimilar products, the monoclonal antibodies Rituximab and Trastuzumab. According to the agreement, STADA will receive non-exclusive distribution rights for Europe and the CIS area, excluding Russia due to regulatory reasons.

Hybridbox, a Hungarian company that makes and sells devices that combine internet and television services, announced that its 100%-owned subsidiary HomeSys Media has concluded a cooperation agreement with Origo Media and Communications Services to use its video content inside the HomeSys Media Platform developed by HomeSys Media.

Troubled electronics retailer Electro World is in talks with a foreign investment group and could still survive, after a conversion, operating far smaller stores than previously, the group’s CEO Károly András Nagy told MTI. The group went bankrupt after its former owner, the UK’s Dixon Group, withdrew its support and because its turnover dropped due to the crisis.

Finnish electronics maker Elcoteq has cut shifts at its plant in Hungary, MTI has learned. Béla Novodarszky, who heads the union at the company, confirmed the number of shifts at the plant had been reduced, but dismissed reports that the entire plant had been shut down. Elcoteq said at the end of August that its Finnish units had filed for bankruptcy.

István Kocsis is leaving his post as CEO of Budapest public transport company BKV by mutual consent. Budapest mayor István Tarlós has assigned the CEO’s duties to Gyula Várszegi, chairman of the board of BKV. Police questioned Kocsis – who was earlier CEO of the state-owned electricity works Magyar Villamos Mûvek – on August 16 over suspicion of fund misappropriations causing major financial damage.

Hungary’s CIG Pannonia Life Insurance will continue its Romanian operations as a cross-border service rather than as a branch. The decision is part of a series of recently approved measures aimed at reducing operating expenditures, and is expected to cut administrative costs by more than HUF 500 million annually.

4 trends

www.bbj.hu

Budapest Business Journal | Sept 9 – Sept 22

Internet

Education

Labor

Employment

Online irresponsibility

Lack of lingua franca

Fewer public servants

Self-employed country

The public sector lagged behind the rest of the labor market.

Budapest and Pest County have 100,000 private entrepreneurs.

5%

12%

As internet penetration increases, so do security threats.

4%

Not all Hungarians are willing to invest in learning a language

6%

log in to their banks on public computers

of adults are truly fluent in another language

more open positions in Hungary in Q2

of entrepreneurs work in West Transdanubia

While internet access and subscriptions are on the rise in Hungary, the majority of users do not seem too concerned with protecting their private information. According to a recent survey among people aged between 18 and 69 who go online at least once a week, 58% of adults use their friends’ or colleagues’ computers to check personal emails, while 34% do not hesitate to use public computers for this purpose.

Moreover, almost 10% of respondents used friends’ computers to do their online banking, while 4% do not see a problem with doing so on publicly available computers. A small proportion (3%) even use friends’ computers to do their online shopping, which requires providing credit card information; 1% do the same on public computers.

Younger people seem to expose themselves to online risks more often than the older generations. For example, more than 70% of respondents aged between 18 and 29 use friends’ computers to check their email, while only 47% of the 40-47 age group do so.

Social media continues to gain popularity: according to Internet World Stats, there are some 3.36 million Facebook subscribers in Hungary. However, security threats that come along with the ability to post pictures and connect with friends are numerous.

For example, every time a user installs an application on Facebook, he or she releases bundles of personal information to a third party, such as email address, phone number, physical address, interests, photos, network data and others.

The need for internet security awareness becomes increasingly pressing as more and more people go online on a regular basis.

Half (49%) of the Hungarian population used the internet every day, or almost every day, in 2010, according to Eurostat. Meanwhile, 4% of users reported abuse of personal information and 2% suffered financial loss due to “phishing”, “pharming” or payment card abuse. SA

According to Eurostat’s 2009 survey, 74.8% of Hungarians between the ages of 25 and 64 do not speak a second language.

Although the number in itself does not present news, recent media speculation puts a whole new light on it.

Online portal Origo.hu got a hold of a government working paper which stated that the English language was too easy to learn, evoking “the false image in students that learning any foreign language is that simple.”

However, the Education Ministry dismissed the report and rejected a rumor that the government was planning to push out English as a foreign language in schools. According to the statement, the English language will continue to be a “basic requirement” in school curricula in the new education law.

Despite the false alarm, the fact that very few Hungarians fluently speak a foreign language is true. In 2008, 33% of primary school students studied English as a first language. Meanwhile, the same rates in Sweden, Italy and Spain were 100%, 99% and 98%, respectively.

The trend is somewhat more positive among upper secondary students with 78% studying English. However, once again, this number puts Hungary at the bottom of the list, with the Czech Republic and Sweden the leaders in the EU. German is the second most popular foreign language among Hungarians with 19% of primary school and 49% of upper secondary students learning it.

The environment outside of educational institutions is not any friendlier towards learning a second language. Almost all TV programs and half of movies are dubbed.

Meanwhile, many EU states, including neighboring Romania, limit dubbing to children’s shows, while using subtitles for the rest of foreign programs and movies. SA

The number of available jobs has significantly fallen on a quarterly basis in the public sector, the latest online labor market report released

by Jobinfo.hu shows.

At the same time, fresh graduates and interns had better chances on the job market in the second quarter of the year than they did in Q1, the report reveals.

One of the reasons for this, says Jobinfo. hu’s head Balázs Kristók, is that employers were prepared for the flow of fresh graduates at the beginning of the summer. Also, several companies have contemplated hiring again, but look for inexpensive career starters.

Vocational workers were also on the top of companies’ wish list in Q2, as well as financial experts and those with skills in logistics, supply and haulage. According to Jobinfo.hu, the number of positions announced for these areas was 20% higher in Q2 than in the first three months of the year.

However, those wanting to get a job in the public sector weren’t so lucky. The biggest setback was in the area of public administration, but fewer public sector education and health jobs were offered as well.

The biggest demand was for engineers, IT experts and other technical professionals during the second three months of the year, basically unchanged from the first quarter. Nearly 25% of the 90,000 job offers were for them, according to data from Jobinfo.hu.

“This clearly shows that our education system still cannot produce enough such professionals,” Kristók commented.

The number of open positions was 5% higher in the second quarter than in Q1, but there is no significant change in geographic dispersion. Budapest still rules the job market (37.4% of all the jobs offered during the period were in the capital). Zala, Győr-MosonSopron, and Szabolcs-Szatmár-Bereg counties saw a 20% increase in the number of jobs, but this only meant a few dozen more new positions. PF

Around 4% of Hungarian citizens are registered as self-employed, with some 384,000 sole proprietorships to be found in the country, data published by legal publisher CompLex revealed. This means that, on average, every 26th person is self-employed.

Self-employment is more widespread in the economically more developed parts of the country, such as the Transdanubia region, while it is more rare in the less developed areas, such as northern Hungary.

Central Hungary, which comprises Budapest and Pest County, has the most private entrepreneurs, at 105,000, and this region has 27.45% of the country’s total selfemployed people, while northern Hungary and southern Transdanubia, for example, contribute just 10% each.

The proportion of self-employed is highest in the counties of western Transdanubia: Vas, Zala and Győr-Moson-Sopron, where on average one out of every 21 people is so registered. This means that around 5% of the population in these counties is an individual entrepreneur. In the two other regions of Transdanubia, one out of 24 people are self-employed.

It is noteworthy that while only 9.95% of the population in Hungary lives in the western Transdanubia region, more that 12% of sole proprietorships in the country operate here. The southern Plains follow, where every 25th person is self-employed, and the northern Plains, with every 27th person being an individual entrepreneur.

The proportion of individual entrepreneurs in the economically weaker regions is lower. The fewest self-employed individuals work in southern Transdanubia, numbering 39,000. The most disappointing data came from the country’s northern regions, Borsod-Abaúj-Zemplén, Heves and Nógrád counties, where only one out of every 30 people is registered as self-employed. ASz

linguistic skills

geographical differencies

being your own boss

internet users

Budapest Pest county Nógrád county Győr-Sopron-Moson county Komárom-Esztergom county Tolna county

Number of internet subscriptions in Hungary based on Q1 of each year (mln) Source: KSH

Percentage of upper secondary students learning English Source: Eurostat

38.1% 10.51% 1.94% 4.56% 3.65% 1.56%

Precentage of job offerings in a few selected counties, Q2, 2011 Source: Jobinfo

3.3% 4.7%

3.5%

4% 4%

Proportion of self-emlpoyed in geographical breakdown Source: Complex Kiadó Kft

www.bbj.hu

Budapest Business Journal | Sept 9 – Sept 22

“War on debt” continues Accelerated restructuring and a full stop on procurement were among other measures announced after a two-day government session held in Lovasberény in response to lower-than-expected GDP growth in Q2.

BBJ gabriella lovas

National Economy Minister György Matolcsy announced on Wednesday (September 7) that the government is responding to the economic slowdown in Europe by speeding up renewal in Hungary, reducing state debt and taking steps to prevent it from re-accumulating by keeping fiscal deficits under 3% of GDP. Prime Minister Viktor Orbán said that the country’s state debt automatically falls if the fiscal deficit is under 3% of GDP. The government expects 2% GDP growth both this year and next. The debt projections are down from the previous government forecast of 3.1% GDP growth this year and 3% next year.

New regulations come into effect in Hungary 45 days after a bill is passed, thus higher excise tax revenue is unlikely to be seen before November or December of this year.

Scraping up the money The accelerated restructuring of the government and a “full stop” on procurement is expected to bring in savings of HUF 40 billion. More efficient and faster VAT and excise tax collection is expected to generate an additional HUF 40 billion in revenues. The government hopes to collect HUF 10 billion from the increase in excise taxes and another HUF 10 billion from dividends on foreign equities in the private pension fund portfolio.

The debt cut will be worth a combined €4 billion and will reduce the ratio of state debt to GDP by about 4 percentage points. Within the total, €3 billion will come from the called down but unused part of a former IMFled international loan, deposited with the National Bank of Hungary (MNB). An additional €1 billion will come from private pension fund assets transferred to the state earlier this year.

More “holes” According to Equilor analyst Péter Harsányi, the measures focus on shortterm solutions and he thinks these may not be enough to ease pressure on local budgetary uncertainties. The news is almost neutral for Hungary at the moment, but the PM has proposed further steps to be announced later, Harsányi noted.

T B DE Nomura analyst Peter Attard Monalto sees more than one “hole” in the budget. There is a HUF 250 billion shortfall caused by an EU court ruling on VAT which is not addressed by the measures announced on Wednesday, and he believes that there is very little fiscal room to move on this.

Resolution is likely to be more technical in trying to get around the EU court decision, he noted.

“There is then a HUF 250 billion hole by our own calculations of budget slippage this year,” said Monalto. “There is virtually no room for additional measures in our mind to fill that remaining hole without crimping growth further.”

politics 5

Buda-Cash analysts have doubts about the collection of the planned extra revenues from VAT. They note that dividend revenues are not exactly new savings, as they were already in place. In addition, the gap in the budget could be higher than the estimated HUF 100 billion.

Second debt reduction The debt reduction in the autumn will be the second this year, after a cut of about HUF 1,340 billion in June from the withdrawal of government securities the state received in the transfer of private pension fund assets.

Hungary’s Maastricht-conform gross government debt stood at HUF 21,285 billion or 76.8% of GDP at the end of June according to preliminary MNB figures, down from 81.9% of GDP at the end of March, mainly reflecting the withdrawal of government securities in the private pension fund portfolio.

Hungarian members of private pension funds had until the end of January to move back to the state pension pillar, along with their retirement savings. Approximately 97% of members returned to the state pillar, bringing some HUF 2,946 billion in assets with them.

The unused part of the IMF-led loan deposited with the MNB is part of the MNB international reserves that stood at €36.106 billion at the end of July. n

Balaton plans up in the air The sale of SCD Group’s tourism sector portfolio has undoubtedly been the benchmark property deal of this summer: according to Portfolio.hu, the market value of the 170-hectare building plot, complete with 9 km of lakeside beach, camp sites plus the 100year operating rights to FlyBalaton international airport, may be worth up to HUF 30 billion. But according to estimates by economic weekly Figyelő, no more than HUF 5 billion has changed hands between SCD and the buyer Turisztika Hungária, a project company of unknown investors.

The contradiction can be partially explained, Figyelő claims, by the significant size of the mortgages on the real estate properties in question. To begin with, SCD earlier took out a €60 million (almost HUF 16.5 billion) loan; on top of that, it assumed an obligation to invest HUF 16 billion in the development of camp sites, or pay HUF 2.4 billion in penalties.

According to a real estate expert interviewed by the Budapest Business Journal, the gap between the actual price and the market value of SCD’s Hungarian Tourism Holding is due to the weak bargaining position of the SCD Group.

“Besides the Balaton Development Project, SCD has two other large Budapest real estate projects. One of these is the construction of

luxury apartments in the inner city of Pest; the other is an A+ category office complex in the elegant villa district of Pasarét on the Buda side.

It would take several billion forints to complete either project,” the expert said. There was also the fear, at the very least, of a negative equity trap, when the realizable value of a property is less than its actual mortgage.

“Further bank loans are out of the question. These Budapest properties have already been burdened with heavy mortgages, while they have also suffered a loss in value in recent years,” he added.

According to Gellért Jászai, president and chief owner of SCD Group, the Balaton project would have been a resounding success if not for the economic crisis. “I must say even

now that it has been a perfectly composed real estate portfolio. The only reason we were forced to sell it is the fact that the economic crisis upset our financial plans,” he told Hungarian website Index.hu.

The expert asked by the BBJ fully agreed with the first half of Jászai’s statement. “Based on Lake Balaton, SCD aspired to a leading position in the Hungarian tourism sector,” he said. They were, however, perfectly aware of the inherent difficulties: for example, that the tourism season at Lake Balaton should be somehow prolonged from the current length of less than two months.

“One should build new entertainment facilities that would attract tourists to the lake from April to October,” he suggested.

Developments related to Badacsony wine tourism would have served exactly this goal, as would a gigantic theme park planned in Balatonlelle.

As far as the second half of Jászai’s statement is concerned – namely that the abrupt divestment was the consequence of the drawn-out crisis –, our source was only in partial agreement.

“Most of SCD’s Balaton investments were made after the outbreak of the crisis.

We cannot talk about unexpected events; on the contrary, the group, in fact, followed a wise anti-cyclical policy as far as it invested exactly at the time when prices were low,” the real estate expert said.

For example, it acquired the operating rights of FlyBalaton Airport in spring 2010 at a knockdown price, as market news at the time suggested. “SCD needed the international airport in order to lure new German tourists to the lake, riding the waves of 1980s Balaton nostalgia,” he explained.

SCD’s aim may have been to become the market leader on the domestic tourism market. In order to achieve this, they had to defeat two rivals, namely Hunguest and the Budapest Stock Exchange-listed Danubius.

As recently as this spring, SCD attempted to buy out Hunguest from the Arago Group.

Had the acquisition been successful, SCD’s Hungarian Tourism Holding would have indeed become a market leader.

Neglected liquidity problems, however, apparently swept away the whole plan in the end. All SCD could do was to sell the buy option on Hunguest to the so far unrevealed owners of Turisztika Hungária. AZs

BBJ m&A

FOCUS

In a dried up m&a market, bi With the onset of the crisis in 2008, M&A deals became quite scarce in both Hungary and the CEE region. The recovery has been slow since then, and the sector is definitely not out of the woods yet.

focus 7

www.bbj.hu

Budapest Business Journal | June 4 – June 17

▶▶ M&A news ▶▶ REIT on time - property firms go public ▶▶ Banks cautious on financing M&A

〉page 8

〉page 10 〉page 11

g deals are all there are

The Hungarian M&A market has been very slow in the past few years, with only 25 to 30 mediumsized and large transactions per quarter, Zoltán Siklósi, managing partner of M&A advisory Invescom told the Budapest Business Journal.

Many times a single deal will account for the lion’s share of the entire period’s M&A activity, he said, citing the government’s acquisition of a large stake in oil and gas company MOL and the buyout of Hungarian chemicals firm BorsodChem by China’s Wanhua as examples.

Buyers have become more cautious, with peer pressure now a thing of the past, according to Tamás Simonyi, an expert at KPMG. Recent negative publicity about the Hungarian market has also kept foreign investors away, he added. While domestic buyers do pop up in the case of some smaller transactions, they are extremely cautious and insist on buying only at low prices.

The stars of the region are Poland and Turkey, both of which have stable macroeconomic indicators, bigger markets and numerous potential acquisition targets, noted Simonyi. In turn, Hungary is still fighting to achieve stability and there are only a handful of big players in most industries. The owners of strong businesses are reluctant to sell, while there are no buyers for the weak ones.

Energy deal flows are the strongest, followed

by TMT (technology, media and telecommunications) and business services, according to Falkenburg Corporate Finance partner Gábor Kurutz, who noted that these are crisis-resistant industries with great growth prospects. Meanwhile, the relatively weak sectors are real estate and the financial services industry.

Green energy is another sector where Kurutz sees new opportunities, with several projects already in the pipeline waiting for the necessary regulation to be implemented. He believes that both bank and equity financing will be readily available for these projects.

Lots of companies are for sale in the food industry, the retail sector and the real estate market, noted Simonyi. However, potential targets must have a very attractive story and be relatively cheap to attract any bidders, he added.

Motivations to sell Corporate restructuring and distress sales are the main drivers of M&A transactions. In several sectors, such as manufacturing and the food industry, companies that weathered the crisis better have tended to acquire their struggling peers.

The owners of many firms still hope that their situation will somehow improve and are reluctant to initiate a sale at the current low prices, Siklósi said. This sustains a significant gap between asking and offering prices.

Businesses on the brink of liquidation might still attract strategic investors hoping to exploit certain synergies, according to Siklósi. These investors might want to acquire a market, thus they may be willing to pay a higher price than would be justified by the company’s books.

The question of succession is also gaining importance in Hungary, as the owners of successful businesses who set up their firms shortly after

the democratic transition are now approaching retirement, Kurutz said. If for some reason they cannot appoint a family member to take their place, they usually do not have a “plan B” for succession. These owners are often quite emotionally attached to their businesses, too.

Big multinational firms could show some activity on the M&A market as they rethink their regional strategies, said Kurutz. There have been several examples of firms parting from their CEE units and investing in the BRIC countries instead.

Multinationals also tend to sell non-core assets to make their businesses leaner, he noted.

The crisis has brought consolidation to many sectors, as there is less room now for players in various markets, noted Siklósi. This trend is expected to continue, as previous competitors aim to exploit synergies and make their organizations more efficient.

The state is likely to play a bigger role on the M&A market as well, thus increasing the number of such transactions in sectors of strategic importance, such as gas supply and energy. Some market players see strong political intent to increase the state’s presence in these sectors. However, the government has yet to develop a clear strategy for such transactions.

Eastern promises “We are seeing increased interest from strategic buyers from China and Russia,” Kurutz said.

Russian firms have been looking at Hungary for a while, but they are used to higher yields on their capital at home compared to EU markets.

Several banks present in Hungary, such as Volksbank and Banco Popolare, have been up for sale for some time. However, the risks they carry have scared away many potential investors – except the Russians. OAO Sberbank, Russia’s biggest lender, made its first foothold in the region by signing an agreement with Austria’s Österreichische Volksbank AG (ÖVAG) on July 14, pur-

chasing nine smaller banks in countries in Eastern Europe, including Hungary. According to recent press reports, the Russian bank could potentially target Hungary’s MKB as its next acquisition.

China wants to acquire resources, modern technology and market access – things that could enhance the competitiveness of the Chinese economy, Kurutz said. The memoranda signed during the recent visit of the Chinese premier to Hungary underlined that the Asian giant is genuinely considering Hungary as a beachhead in its EU expansion efforts, marked by a focus on logistics and transportation. The direction of the talks also supported speculation that China is interested in buying stakes in companies like airline Malév as well as state railway firm MÁV. Lengthy process The transaction process for M&A deals today typically lasts for approximately eight to 12 months, compared to only six to eight months before the crisis, Siklósi said, although he noted that there are some extreme cases.

The acquisition of ASA, a leading Hungarian manufacturer of precast concrete products, by the Consolis Group took a mere four months, for example, despite the fact that ASA is present on three national markets besides Hungary: Romania, Ukraine and Serbia. The acquisition took place before the crisis, in July 2008, and the swift transaction process was largely supported by the fact that the target was well prepared for a sale. On the other hand, the purchase of ShowTime Group

by Sony Music Entertainment Hungary took almost two years to complete, mostly due to uncertainties brought on by the crisis.

The average length of the process depends on the size of the deal, on the industries involved and on the decision making process of the parties, Kurutz said. Also, cross-border transactions usually take more time to close than domestic deals. n

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Experts asked by the Budapest Business Journal believe that the M&A market will not pick up until the general economic environment takes a turn for the better. The market is awaiting a predictable economic policy and legal environment as well as stronger macroeconomic fundamentals.

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M&A news

96%

China’s Wanhua Industrial Group raised its stake to from the previous billion transaction in January 2011. The BorsodChem deal accounted for almost market in the first quarter of 2011.

Alfa Trade Establishment raised its holding in Genesis Mining from 1 million to 8 million shares on August 31 with its voting rights rising to 29.7% as a result. Private investor Gábor Kiss acquired 5 million shares or 18.5% of voting rights on the same date. The company did not name the seller(s). Before Genesis Mining made the announcement, shareholders holding more than 5% of its shares included Acquisition Pro (15.87%), Heidelberger Vermogensverwaltung GmbH (7.85%), Clearstream Banking SA (21.57%), Raiffeisen Bank Zrt (8.24%), Buda-Cash Brókerház (6.02%) and SIX SIS (6.0%). The latter four acted as custodians.

Canadian software company Selectica is reportedly interested in buying the Hungarian plant of Finnish electronics manufacturer Elcoteq. Elcoteq has neither confirmed nor denied the report, although it did say that “there are also ongoing talks with an east Asian investor”. Elcoteq has been present in Hungary since 1998. It earlier operated three plants, but now has just one, located in the city of Pécs (south Hungary).

Germany’s RTL Group has bought 31% of the shares of RTL Klub, Hungary’s leading commercial television channel, raising its holding to 98%. RTL said it also bought seven other Hungarian cable channels such as Cool TV and Film+. Behind RTL and TV2, Cool is often the third most watched channel among the 18-49 age group. With the acquisition, RTL now owns 40% of Hungary’s television market.

The espell group, a provider of translation, localization and related technical services, is about to merge three of its companies. To promote cost-efficiency, the company will merge e-spell non-stop, Multi-Data, and e-spell IT, at the end of 2011.

Erste Bank Hungary Zrt has purchased 50% of the shares of Magyar Factor Zrt, thus becoming a decisive player on the Hungarian factoring market with a 22% share. The acquisition is a result of Erste Bank der Oesterreichischen Sparkassen AG having acquired an 88.6% stake in Intermarket Bank AG, the largest factoring bank in Austria, taking over among others the 56.2% stake of Poland’s BRE Bank in Intermarket Bank. As part of the deal, Erste Bank Hungary obtained a 50% stake in Magyar Factor from BRE Bank, making Magyar Factor a fully owned subsidiary of Erste Group. The latter will cooperate closely with Erste Faktor Zrt, the bank’s own factoring affiliate, founded in 2005.

Reporting close to HUF 90 billion turnover in 2010, Erste Faktor was the fourth largest factoring company in Hungary last year. Magyar Factor was the third-largest player in 2010 with HUF 100.5 billion turnover, representing a market share of 11.4%. As a result of the transaction, Erste Bank Hungary Zrt will be the second largest provider on the Hungarian market, Erste Bank said.

Tax advisory group Accace, active in the Central and Eastern European region, has acquired Hungary’s Interbook Kft. Accece group, which entered the Hungarian market in

2008, and Hungarian-owned Interbook, established in 1996, joined forces on July 1. Accace’s main clients are international companies operating in the region, and the company expects the current acquisition will expand its client base. In addition, it plans to launch tax advisory services in Hungary in the second half of the year. Accace group, founded in 2006, has been one of the fastest-growing companies in CEE in the field of accounting and payroll outsourcing. Currently it operates seven fully owned subsidiaries in Czech Republic, Hungary, Poland, Romania, Slovakia and Ukraine.

[ expert opinion ]

Ernst & Young’s M&A Barometer M&A activity and data includes private to private transactions and excludes: • Acquisitions of minority stakes below 15% (versus 20%, in the previous issues) • Majority shareholder’s additional acquisition of minority interest, • Real estate transactions (except when the target and/or buyer is a real estate company or real estate fund), • Capital market transactions, • Acquisitions of licenses, • Joint venture agreements, • Greenfield investments, • IPOs, • Privatizations.

• Multi country deals which were done as one transaction (only the number of these were counted but not the value).

M&A transactions in CSE In our Mergers & Acquisitions (M&A) Barometer we analyze the prevailing trend in 10 Central and South-Eastern European countries (Bulgaria, Croatia, Czech Republic, Greece, Hungary, Poland, Romania, Slovakia, Slovenia and Turkey). Although the countries under review vary in size, background and economic growth, most have experienced an increased

M&A activity in terms of volume in H1 2011 compared to H1 2010, while in four countries the M&A market had shown a decline.

In CSE, total volume of M&A transaction increased by 5%, while their estimated value grew by 117% in H1 2011 compared to H1 2010 (the latter mainly driven by the appearance of extra large deals in Poland).

Transactions were dominated by domestic transactions (58% of all deals) and buyers were predominantly strategic investors. The most active target industry was manufacturing, while in terms of average value the largest transactions occurred in telecom & media, chemicals, and banking & financial services.

M&A transactions in Hungary In line with the majority of countries in the CSE region, the Hungarian M&A market experienced an increase in H1 2011 compared to H1 2010. In fact it was amongst the top three after Poland and Turkey in terms of volume of transactions. In H1 2011 69 deals were closed in Hungary which itself represents a 35.3% increase in the number of deals compared to the volume of 51 deals a year ago. This trend exceeded CSE countries average of 5% volume increase in the same period.

Domestic transactions and strategic investors dominated the market, while the most attractive industry was the services sector with 12 deals in H1 2011 and 10 in H1 2010. It was followed by telecom & media and IT, which managed to increase its share in H1 2011. In terms of deal value, the chemicals sector was the largest in H1 2011, followed by manufacturing. Main investing countries into Hungary were Czech Republic and USA, while Hungarian companies acquiring abroad headed mostly to Slovenia and Poland.

Transaction values were disclosed and published in 46% of the deals, a disclosure rate significantly higher than 27% a year ago. Based on publicly available data, the estimated size of M&A market in Hungary increased by 21.3% from $1.1bn in H1 2010 to $1.4bn in H1 2011. However, large value deals over $100 million decreased from two transactions in H1 2010 to one in H1 2011.

The average deal size of deals with a disclosed deal value below $100m was $9m in H1 2011 compared to $15m in H1 2010. One factor lowering the average deal size was the increase in the volume of JEREMIE investments.

The first half year showed positive news and there was a cautious optimism that the market is returning. However, this summer proved that there are still uncertainties in the market and in the general macroeconomic situation even in America and Europe. It leaves us to a “wait and see” situation as to not if but when and how this will impact M&A in Hungary and the region again.

Contact : Margaret Dezse , Partner Transaction Advisory Services margaret.dezse@hu.ey.com

Highlights – CSE H1 2011

• Top three countries by number of transactions: Poland, Turkey, Hungary • Number of closed transactions: 597 • Estimated market size: $28.6bn • Top three most active industries in CSE (by volume): • Manufacturing (86 deals) • Services (64 deals) • Energy & Mining (60 deals) • Top three most active industries in CSE (by value): • Telecom & Media • Chemicals • Banking & Financial Services • Average deal size of deals over $100m: $450m • Average deal size of deals below $100m: $14m • Number of deals over $100m, as % of total deal volume: 5.5% • Disclosure rate of transaction value or deal size: 44.2%

Target

Country of target

Buyer

Country of buyer

Deal value

BorsodChem Euromedic International* Provimi Pet Food Zrt.** TUS Oil petrol stations Pannunion Nyrt.

EETEK Group Waberer’s Holding Zrt.

Hungary Hungary Hungary (HQ) Slovenia Hungary Poland / Hungary Hungary

Wanhua Industrial Group Fresenius Medical Care Advent International MOL Nyrt.

Sun Capital Partners, Inc. E-Star Nyrt.

Mid Europa Partners LLP

China Germany UK Hungary USA Hungary UK

930 693* 245** 49.3 31 29.5 17

* The deal is subject to competition authority permits in various countries ** The Hungarian asset and headquarters is only a part of the 5-country deal thus the value is not included in the estimated Hungarian market size calculation *** The MOL /Surgutneftegas transaction with a value of approx. USD 2,800m is not included as it does not meet our private to private definition for M&A.

NOTE: ALL ARTICLES MARKED EXPERT OPINIONS are paid promotional content for which the Budapest Business Journal does not take responsibility

Ernst & Young’s M&A Barometer is a summary and analysis of publicly disclosed information accumulated throughout the year in-house and from reputable databases, such as DealWatch and Zephyr.

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[ expert opinion ]

38% in Hungarian chemical company BorsodChem in a EUR 1.23 80% of the HUF 380 billion total transaction value on Hungary’s M&A

FN2 B.V., the Dutch subsidiary of Hungarian property holding company Fotex, has purchased an office building in Utrecht and its Luxembourg-based unit, Upington Investments Ltd, has acquired Hungary-based company Plazapark. The Utrecht office building is 7,122 sqm in size, with 129 parking places, and has active long-term leases. Upington Investments has purchased 100% of Plazapark Kft, based in Hungary. This purchase increased the real estate property of Fotex’s consolidated companies by 95,274 sqm in plot area and 5,524 sqm in superstructure.

The local council of Debrecen said it has found an unnamed investor for Hungarian meat company Debreceni Húsipari Csoport. The Penta group announced this spring it would close down the plant, employing 400 workers, on July 1, and would move production to Lucenec, Slovakia. Penta said at the time it would also close its cured sausage plant in Mosonmagyaróvár.

Penta acquired Debreceni Csoport in 2008 and bought the Mosonmagyaróvár plant from Kaiser Food last summer.

Hungarian-owned contract electronics manufacturer Videoton has acquired a 94% stake in welded machinery maker Ventifilt for about HUF 500 million. Ventifilt will benefit from the acquisition as it can now use Videoton’s foreign sales network and take advantage of group financing for projects that it may not be able to get independently.

The Hungarian state, through the Pension Reform and Debt Reduction Fund, has acquired stakes over the 5% disclosure requirement in automotive industry company Rába (11.7%) and geothermal energy company PannErgy (5.5%) – both listed in category A of the Budapest Stock Exchange – in a move of private pension fund assets. The transfer made the state Rába’s biggest shareholder, a position earlier held by the DRB Hicom Group, which owned 10.85% of the shares on February 28. The fund also acquired a 5.14% stake in Hungarian media company Est Media Holding.

Appeninn, a holding company for B-category office space, has acquired two logistics properties following a merger with Rotux. Appeninn acquired a 7.2-hectare site with 6,000 sqm of building area in Kecskemét, near a big factory German carmaker Daimler is building there. It also acquired a 3-hectare site with 2,400 sqm of building space in Szentes (southeast Hungary). Appeninn acquired a further HUF 170 million in cash and HUF 450 million in securities as a result of the merger. Its net assets climbed to more than HUF 4.5 billion after the company court registered the merger.

New trends in financing M&As Private equity funds are willing to spend on acquisitions, creating new opportunities in M&A financing at a time when banks are less open to investing.

István Kővári, DR partner Gide Loyrette Nouel Budapest

There has been a lot of talk about the lack of liquidity in the lending sector in recent years, with the banks becoming increasingly busy protecting their balance sheet, restructuring and working out underperforming or non-performing debts. They have much less willingness to lend new money or embark on new projects. This, among other things, puts significant downward pressure on the value of debtors’ assets, in particular when they are in distress and no new financing is available; often this leads to the need to sell as quickly as possible.

One would think that in such a scenario there must be plenty of investment opportunities with loads of investors who are interested in buying “good” assets from distressed debtors directly, or through foreclosure/insolvency procedures from creditors or administrators.

Indeed, almost on a weekly basis we get enquires from potential investors asking if, by any chance, any suitable targets have popped up on our radar screen recently.

Most of these are financial investors; that is managers of private equity funds. Interestingly, they are the ones that have cash to spend as, due to the crisis, their investment activity has slowed down and they are left with a significant part of the funds’ equity to be spent before the period available for investments expires. They appear to be one of the very few market players who have both the cash and the motivation to make a move in the M&A sector.

There was a cautiously optimistic general expectation earlier in 2011 that with trends changing for the better, significant local and cross border M&A activity would re-appear. Some did actually materialize with one privatization here, a divestment there – but never really took off to the extent the market had hoped. In addition, when examining the finance patterns it turns out that bank finance is not exactly the trend in funding corporate transactions these days. Strategic investors appear to spend cash from their own balance sheets or, very often, from the balance sheet of their company group (in some cases in the form of cash pools whereby excess cash flow can be used to fund projects and transactions). We have seen several examples using this financing alternative in 2010 and 2011. In addition, for them, because of their size (purchase power) and the long-standing relationship with their bankers, obtaining bank finance is, relatively speaking, easier than for SMEs.

Normally such finances will be arranged outside of Hungary; therefore the local market does not see them.

Some of the braver and more creative mid-size corporate entities use capital markets to raise funding. IPOs and bond issues could be a tool for further expansion. Issuing shares by way of public offering is not available to everybody; it is expensive, time consuming and becoming a public company comes with a lot of obligations, including increased transparency-related compliance obligations, more complicated corporate governance and regular reporting to the market. As regards bonds, however, it could be a more frequently used tool by corporate entities – there are only a handful of Hungarian companies (other than banks) who have issued bonds and only a very few of them which actually use the proceeds to fund projects or acquisitions; that is to actively increase their market share in their respective sectors.

And alternative funding these days is an absolute must; having asked the banks if they are engaged in acquisition financing, not only was the answer “no” most of the time, but also new money finance generally appears to be a rarity. Some even consider that financing corporate entities has no short-term future at all. Even if there was acquisition finance, the loan to value ratio (or rather, the loan to EBITDA ratio) would be significantly different from what it has been at the peak of the lending activity, with the demand now that a much higher equity portion be contributed by the investor.

Not long ago we heard the expression “delay and pray”, meaning that banks are in the situation whereby they will extend the maturity of the loans and hope that the passing of time will, mainly because of a swift recovery of the markets from the worldwide crisis, save the debtor and, consequently, secure the full repayment of the loan and interest. Frankly, with the latest news regarding a further slowdown, it is very difficult to predict what will happen next. It appears that the delay may not save many of the debtors and that there will be further pressure to divest. There will be, therefore, assets for sale and at attractive prices. The question now is how the purchasers will find the money to finance the deals with the banks also becoming victims of the new economic turndown tendency.

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[ expert opinion ]

Hungary implemented REIT concept The Real Estate Investment Trust, a combination of a real estate fund and a corporate entity, has proved successful in countries all over Europe. Although such REITs may have different characteristics in each country, they all have similar advantages: better tax conditions; profitability; liquidity and stability. Effective as of July 27 2011, the Hungarian Parliament passed the new Act on Regulated Property Investments Companies (the “REIT Act”) introducing the concept of REITs in Hungary.

Sándor Habóczky, Dr chief attorney-at-law,

schönherr hetényi ügyvédi iroda

The REIT Act provides for the establishment requirements, the rules of operation as well as the rules of taxation of regulated property investment companies (referred to either as “REIT(s)” or “REIT entities”). A general goal behind the new legislation is to make Hungary attractive for real estate investments in the CEE region again, as well as that REIT entities collect funds and sources of both major and minor size investors and channel those to Hungarian real estate investments, with the primary focus being on retail and residential market assets, including distressed ones.

Main characteristics and permitted portfolio of a Hungarian REIT REITs in Hungary can be set up as special form of company limited by shares listed on the stock exchange, meeting all of the various special requirements set by the provisions of the REIT Act, and registered with the relevant registry of the Hungarian Tax Authority. Companies eligible to adopt the form must manage their own property in Hungary. REITs may only be engaged in the activities of asset management, the purchase and sale of their own real estate, the rent and operation of own or leased real estate, and property management (or the combination thereof).

The REIT Act does not only cover the operation of REIT entities, but also that of their 100% subsidiaries/SPVs, provided that the latter are also engaged in the same business activities as the parent outlined above (such subsidiaries are referred to by the REIT Act as “Project Companies”).

Other than Project Companies, REITs may also hold shares in other REITs and business entities primarily engaged in development of building projects (in this case, the maximum shareholding and/or voting rights of the holding REIT entity may not exceed 10%), but no other corporate entities.

Capitalization and asset portfolio requirements The minimum initial capital of REITs shall amount to at least HUF 10 billion (ca.€36,765,000).

Real estate/investments owned by the REIT entities must account for at least 70% of their total assets per balance sheet, on the note that none of the real properties or ownership stakes held in other REITs may exceed 20% of the amount of the balance sheet total of the holder, individually.

Mandatory dividend payment and shareholding structure rules For REIT entities it is compulsory to distribute at least 90% of their realized profit as dividends each year. The relevant rules applicable upon their Project Companies set an even higher rate, providing for an obligation to distribute 100% of distributable profits of the Project Company each year.

Total (accumulated) shareholding stake and voting rights of banks/lenders and insurance companies in a REIT may not be in excess of 10%.

At least 25% of the shares representing the registered capital of a REIT must be traded in controlled financial markets. Further, in order to guarantee minority shareholder participation, a series of shares representing at least a 25% portion of the registered capital of the REIT has to be owned by minority shareholders, whereby such minority shareholders may only hold less than 5% of the total nominal value of said series of shares, individually.

Compulsory market valuation of property portfolio REITs must have their real estate portfolio evaluated at least quarterly by an independent expert real estate evaluator or a professional evaluation firm. The evaluator shall be required to issue an expert opinion on the market value that needs to be compared with book value figures.

Main benefits lie with special taxation rules In order to vitalize investment activities, REITs are given various significant tax benefits compared to “ordinary” corporate entities. As the most significant benefit, both REITs and their Project Companies are exempted from corporate profit income and local business tax against profit achieved from their activities, including profit realized upon asset deals.

Transfer tax upon the acquisition of real estate, pecuniary rights attached to such and acquisition of ownership/capital share in companies with holdings in real estate properties located in Hungary by the REIT or its Project Company shall be subject to a very favorable transfer tax rate of 2%, which otherwise has been applicable in respect of acquisitions by real estate funds.

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REIT on time property firms go public Having been a popular form of investment for years in Western Europe and overseas, real estate investment trusts have finally arrived in Hungary. The first in the region to introduce REITs, Hungary hopes they will boost activity and investments in the country’s property market, which has suffered badly during the crisis.

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Parliament passed the legislation to allow the establishment of real estate investment trusts (REITs) in Hungary in mid-July.

Regulated property investment companies, as they are known locally from the Hungarian acronym “szit” in the legislation, will be exempt from corporate taxes and local business taxes, but will have to pay out 100% of realized profit from property development and management activities to shareholders as a dividend, which will be taxed at the normal rate.

All of the profits of the REITs’ so-called project companies will belong to their owners.

Companies eligible to adopt this form must be public companies limited by shares and rent or manage their own property in Hungary. They must have startup capital of at least HUF 10 billion. Property owned by the companies must account for at least 70% of total assets.

The legislation also defines what other types of assets may be included in the portfolio. Insurers’ and lenders’ ownership stakes and voting rights in REITs are limited to 10%. They must also have a free float of at least 5%.

Great expectations Market players in general welcome the new legislation and expect increased market activity to result from it.

“Investors know that REITs, in addition to offering tax benefits, offer stable and reliable returns on investment,” said Gábor Tomcsányi, board member of Fortis Private Equity Zrt, manager and developer of the SCD Group’s Budapest portfolio.

Noah M. Steinberg, president-CEO of property developer WING said, “Investors have increasingly seen Hungary as a positive investment target. The new law might further strengthen investors’ confidence.”

REITs are likely to attract fresh capital – what is more, they target investors who could not have been involved before, such as small investors and private banking clients.

As for enlivening market activity, industry insiders say that the appearance of REITs will generate greater demand for high-quality properties with stable yields.

“We expect that in most cases, already completed projects will be integrated into REITs so that these companies will be mostly in charge of facility management,” Tomcsányi said.

Due to the multiplier effects of the construc-

tion industry, REITs could also create thousands of new workplaces in the medium-term.

Launching and preparing REITs for listing is also expected to secure the jobs of hundreds of highly qualified financial experts and accountants at lending institutions, brokerage companies, real estate agencies and accounting firms.

Only the big ones Bank financing in the real estate industry has not yet picked up to the extent the market had expected, and the current economic environment is hardly conducive to investments either. While REITs do not offer a solution to the latter problem, they do offer several advantages due to the fact that they operate as public companies.

“Partly, operating as a public company has a certain marketing value,” Tomcsányi said.

“But beyond that, this form of operation is attractive because of the tax breaks, reliability and transparency. In one word, this form of operation is rather safe.”

Real estate agency DTZ Hungary agrees: REITs will greatly contribute to creating a regulated and transparent property market in Hungary, will strengthen credibility and also the trust of foreign investors, the company said in a press release reacting to the law.

However, despite the numerous advantages the new company form holds, market players agree that firms will not be standing in line in large numbers to transform into REITs. “Due to the strict criteria REITs must meet, only large companies can fulfill the requirements,” DTZ said.

Tomcsányi expects the appearance of three to five REITs in the next few years. “This is a really good opportunity for developers. Those willing to undertake the transparency that comes with a listing and have the adequate portfolio will appear on the market.”

SCD is certainly among them: the company has already begun preparations. “The IPO could take place next year,” Tomcsányi added. n

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Banks cautious on financing M&A Although the crisis has made access to acquisition financing much more difficult, banks are still open to participating in such deals, but are more demanding in setting their conditions.

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The M&A financing market is segmented by deal size. The biggest transactions, structured with the involvement of international banks, usually go smoothly, according to Falkenburg Corporate Finance partner Ferenc Zákány. He cited the examples of the acquisition of triple-play provider Fibernet by alternative telco Invitel and UPC Hungary, and the purchase of Provimi Pet Food

by Advent International.

Smaller deals are trickier, Zákány noted. Bank resources to provide acquisition financing are there, although it is extremely difficult to get these funds. Banks are more cautious, and risk assessment and due diligence are done at the parent company rather than in Hungary. A side effect of this is a significantly lengthier transaction process.

UniCredit The conditions of M&A financing became stricter after the crisis at UniCredit Bank. Equity financing required by the bank rose to 35-45% from its pre-crisis 15-25%. “Thus, the bank and the buyer are sitting in the same boat, so if loan repayment becomes difficult, the owner will do his best to sort out the situation,” UniCredit said.

The terms of the loans have become shorter.

While a financial investor could easily get six- or seven-year loans before the crisis, maturities now strictly follow the investment horizon, which is typically less than four or five years.

In a typical transaction, the bank provides a loan package and the buyer gives capital to the company, acquiring a majority share in the target. The loan is repaid from the target’s cash flow, thus the analysis of the business plan is the main focus of the risk assessment process. Experienced investors are well aware of the fact that the loan approval procedure can be sped up if they approach the bank with a financial consultant, a business plan and an information memorandum.

UniCredit has observed increased M&A activity in shipping and automotive parts production as well as in the wholesale and energy sectors. The market is dominated by relatively small transactions in the value of €5-15 million, with only a handful of larger deals, the bank noted.

OTP Bank OTP Bank says it is willing to finance M&A transactions if the stable financial position of the buyer and the favorable business prospects of the target ensure repayment of the loan. As the risks of M&A transactions are above average, the bank demands a higher equity proportion, while its margins are higher too. Besides the usual concerns, such as industry, market and operational risks, the bank has to deal with complex financing structures and long maturities, as well as the uncertainties of the restructuring process, which is unavoidable in most M&A transactions.

M&A deals require a comprehensive and detailed analysis by both the buyer and the financer, thus the process could last for four-five months, from getting the loan application to closing the deal. The bank carries out a legal and financial audit of both the buyer and the target company and prepares a financial model to ana-

lyze the parties’ ability to pay, based on its own macroeconomic and industry forecasts.

K&H Bank K&H Bank has been actively involved in financing M&A deals in Hungary for the past ten years.

It participated in most major leveraged buy-outs in Hungary, as well as in financing several regional cross-border transactions. The bank, which has its own M&A specialist team, continues to be open to financing such transactions.

K&H closed its second successful deal this year and has been approached to finance several new potential M&A transactions. According to the

bank, the most attractive targets are in the agricultural, transport and IT sectors, the food industry, as well as automotive parts suppliers and smaller financial service providers. Strategic investors have shown more interest lately and are involved in smaller transactions, in the €5-10 million range.

Private equity investors continue to play an important regional role, but seek bigger targets.

The financing structure of each deal reflects the risks and volatility of free cash flow at the target company. Major risk factors are the cyclical nature of the industry and client orders, changes in raw material prices, the concentration of buyers, the rate of leverage and the quality of the technology applied. In addition, the

transaction itself carries high operational, legal and taxation-related risks.

Banks usually enter the deal process after the indicative offers were made, typically in the second phase of the transaction. In certain cases, financing is already in place, which enables banks to start talks with the parties before the actual transaction process is launched. A special case of this is called staple financing – a prearranged financing package offered to potential bidders in an acquisition. Staple financing is arranged by the investment bank advising the selling company and includes all the details of the lending package, including the principal, fees and loan covenants. n

BBJ TELCO

focus

game of phones The entrance of a fourth mobile carrier could boost the mobile market.

But the three incumbent providers could equally well do that by purchasing the remaining frequency blocks.

If you had to name a handful of items that you cannot manage without in the 21st century, mobile phones would definitely rank high among them. Cell phones have become such an essential part of our everyday life that, according to a recent non-representative survey, if accidentally left at home, 70% of Hungarians would rather go back and be late for work than cope without them.

Statistics going back over recent years also reflect our growing dependence on mobile communication. Since 2000, the number of mobile phone subscriptions has quadrupled from 3 million to 12 million. Meanwhile, the number of landline connections has declined to 3 million from 3.8 million.

Hungary also fares well in a regional comparison, with mobile penetration at 120.3 % in 2010, only slightly below the

▶www ▶ Smart .bbj.hupicks by top managers Budapest Business Journal | June 4 – June 17 ▶▶ iPad – frenzy: mad or rad? ▶▶ Seeking CEE software gurus ▶▶ Market analysis: ERP firms to go mobile ▶▶ LIST: Largest ERP companies ▶▶ Telco news ▶▶ Market analysis: Digitalization could boost telecoms ▶▶ LIST: Telecom service providers

121.9% EU-27 average. Figures can be tricky though: every fifth Hungarian still does not own a mobile phone, while many may have two or more accounts.

As for mobile voice communication networks, Hungary has nothing to be ashamed of. Apart from a few unpopulated high altitude spots, cells can be used anywhere in the country. There are some white spots, however, in terms of broadband communication or internet networks.

To fill in those blanks and shake up the market, the government announced in the beginning of August that it would put the remaining 900 MHz and 1800 MHz frequency blocks, so far used only for voice communication, up for auction – again.

“This tender is well overdue,” thinks Róbert Pintér of the Infocommunication Department of Corvinus University in Budapest. “The government has waited too long to invite bids.” In 2008, the swift change in the economic climate made the then-ruling coalition suspend bidding. With a possible double-dip recession looming, the timing is not so great now either, Pintér noted.

Despite being overdue, many experts doubt that the auction of the remaining frequency blocks will bring the desired effects. Competition among existing service providers is already strong, and the chance of a fourth player shaking up the scene is low, at least in the retail sector, Pintér pointed out.

Cleverly, the tender does not state the need for a fourth carrier. “While a serious new contender would be extremely beneficial for the market, it should not be viewed as a failure if a fourth player does not emerge,” the National Media and Infocommunications Authority (NMHH) told the Budapest Business Journal. “Market competition would be boosted in either case, as the winner will be awarded a continuous frequency block for expanding its broadband services.”

There are a number of questions regarding the appearance of a fourth mobile operator.

One of them is building a new network: setting up the necessary infrastructure is a costly item for companies mulling a bid. A possible fourth player has to guarantee to establish a highly developed system. However, since the market is so well covered, setting up base stations or even renting them could pose a challenge.

Unsurprisingly, the dominant telecom firm Magyar Telekom would favor a threeplayer version. “The return on the investment of setting up a new network would be rather questionable, not to mention the fact that the availability of frequencies for broadband development is far from unlimited,” the company’s communications department said.

In their view, “the use of the free blocks for satisfying the band expansion needs of current mobile networks as a result of the auction would definitely allow a more efficient spectrum usage than splitting the blocks up among four operators.”

Still, there are some who have set their sights on entering the market. Among the potential bidders is Business Telecom Zrt (BTel), an alternative telecom firm offering mobile communication services, with the exception of mobile voice. The company is currently contemplating how to become

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a successful candidate: either by entering the voice market as the fourth mobile service provider with its own frequency, or as a Mobile Virtual Network Operator. It is also looking into the option of taking part in a consortium. Due to strict infrastructure requirements, foreign contenders and consortiums in general may stand a better chance of winning. However, a consortium could also possibly lead to an unwanted concentration of capital and create a monopoly on the market, a possibility that even NMHH did not rule out.

Though slightly less publicized, another reason for inviting the tender was to fill gaps in the state budget. “No doubt a tender had to be announced, but the return on the auction is expected to be far lower than the government is hoping to see,” Pintér said. “The tender itself is written correctly and is in line with the administration’s aim of getting the highest possible amount for the assets it owns,” said Gergely Kiss, managing director of GKI eNet Kft. But will it need a fourth carrier to do that?

Not necessarily, says Kiss: “Service providers are still working with wide margins. Clearly, competition can be enhanced further.”

Competition also has its downside. A price war generally hurts innovation and would hamper the establishment of the 4G system. That would go against the aim of the government and the EU, which expect the two non-incumbent mobile operators to strive to counteract the competitive advantage of the winner.

“Even with a 120% penetration there is room for improvement,” Pintér added.

“Especially since the actual number is closer to 80%, as 20% of people have no mobile either because they object to it or they cannot afford it, not even a HUF 1,000-2,000 monthly plan.”

With or without a fourth member joining the club, the aim should be to fill the gap as well as create a market environment that most benefits users.

Krisztián Takács, the managing director of BTel, is optimistic. “As a result of the current mobile tender and the distribution of additional frequencies, the Hungarian market will see better servicing capacities and better quality becoming a reality, regardless of the number of bidders and the outcome of the bidding process,” he said.

Tender details On August 8, Hungary’s National Media and Infocommunications Authority (NMHH) published a two-round international tender for 15-year frequency licenses in the 900 MHz band.

A 5 MHz ‘A’ frequency block is being offered at a starting price of net HUF 4 billion. 1 MHz ‘B’ frequency blocks are on offer at a starting price of HUF 700 million apiece, and 0.8 MHz ‘C’ frequency blocks are open for bidding at a starting price of HUF 560 million.

Registrations to participate in the tender must be submitted by October 20. The participation fee is HUF 40 million plus VAT. The tender is expected to be closed on December 12. ZsV

A quick guide to mobile service operators With much news coverage on the recent mobile frequency tender announcement looking like secret coding – MNO, GSM, CSP, 3G, UMTS and others – the Budapest Business Journal decodes the message to give a brief overview of what running a mobile service entails.

The field of telecommunications is as complex as it is integral to modern societies. An infrastructure worth billions of forints, a workforce of thousands and innovative developments in transmission translate into a simple phone call or a text message for millions of people. So what stands between a customer and a mobile service operator?

It’s all about frequencies ‘Frequency’ is a key word in the mobile service industry, indicating a set of frequency ranges within the ultra high frequency (UHF) band allocated for cellular phone use. In order to launch mobile services, a company has to obtain a radio spectrum license. In Hungary, as in most other countries, the government and relevant authorities have the sole power to distribute new licenses on a limited number of frequencies – the power it will exercise this fall, when it will attempt to sell a frequency band for a fourth mobile service.

The European Telecommunications Standards Institute (ETSI) has developed a technological standard known as the Global System for Mobile Communications or GSM. According to the GSM Association, nearly 80% of the world uses GSM technology for wireless calls. Its networks are divided into 2G and 3G frequency ranges. 2G networks generally function in the 900 MHz or 1,800 MHz bands. 3G GSM networks usually operate in the 2,100 MHz bands.

In the jungles of infrastructure Establishing the infrastructure to launch a cellular phone service is a multi-billionforint endeavor that not every company can afford. Besides telephone centrals, customer support services and base stations, a company has to provide base station controllers (BSC) in order to maintain control functions and physical links between the mobile services switching center (MSC) and the base transceiver station (BTS).

Another integral component are the Intel-

ligent Network (IM) solutions that allow it to differentiate itself from other operators.

Base stations or ‘cell towers’ must be located throughout the country to provide coverage for the entire population. In the first few years of operating in Hungary, Vodafone, for example, had to erect 1,200 such stations.

Often, the towers have to be camouflaged in order to blend in to the surrounding environment. Whether concealed as a tree or an architectural piece, camouflaging is an additional expense.

A mobile business ‘loophole’ Due to the high expenses in setting up infrastructure and the limited number of radio spectrum licenses, some companies opt for mobile virtual network operations (MVNO). They still provide mobile phone services; however, they have to partner up with an established mobile phone operator for infrastructure, which is why they are often referred to as “switchless resellers”.

Earlier this summer, news portals reported that Tesco is considering the launch of such a network, based on the types of Internet domain names it has registered, including tesco-mobile. hu and tesco-mobil.hu. The reports further speculated that the supermarket chain would team up with Vodafone for its infrastructure in Hungary. If confirmed, Tesco will join the already diverse MVNO market in Hungary, which includes such providers as Postafon, Btel, Red Bull Mobile and others.

Second time a charm… hopefully With the announced tender for a fourth mobile operator approaching, many will think back to 2008, when Hungary’s National Communications Authority (NHH) invited bids for a new mobile telecommunications frequency. However, it later canceled the tender due to the deterioration of the economic environment, which “questioned the financing conditions and [investment] return projections of the bids”.

Digi, Mobinet and DreamCom subsequently appealed the decision in court, but the ruling in favor of the NHH destroyed any hope the companies might have had of entering the mobile telecommunications market at that time.

Whether the authority, now called NMHH, grants the spectrum license this year to a fourth player or distributes the block among the existing providers, one thing is clear: competition is about to get more intense, be it in terms of services, infrastructure or investments. SA

14 focus

www.bbj.hu

Budapest Business Journal | Sept 9 – Sept 22

Smart picks by top managers Palm, Inc. introduced the very first smartphone in the US in 2001. It combined the features of a personal digital assistant (PDA) with a wireless phone that operated on the Verizon Wireless network.

The device also supported limited web browsing, but the product line never became widespread outside North America.

A year later, the first BlackBerry devices were released, which later evolved into the first smartphone optimized for wireless email use and had reached a total of 32 million subscribers by 2009. In the meantime, Apple came out with the first iPhone in 2007, and also created the App Store a year later – which hit some 15 billion downloads in July 2011. Apple is now gearing up to release the iPhone 5. Global smartphone sales grew 74% in a single year to more than 107 million in the second quarter of 2011, according to data from US-based IT research and advisory company Gartner, Inc. Smartphones are now conquering Hungary, too: data from last November shows that the number of smartphones used by Hungarians reached 1.7 million.

The Budapest Business Journal asked five Hungarian managers about their choice of smartphones and the reasons behind it.

BlackBerry

István Salgó, ING Bank, CEO

In line with ING Group’s policy, we all use BlackBerry smartphones here at ING, we can’t even consider using anything else. Security is the great advantage of a BlackBerry, but on the downside, the operating system is inflexible with very limited customizing options. I think Android systems are more user-friendly and offer more customization options. However, I prefer simpler phones when just making phone calls. Smartphones come in handy when I need to transfer data. For genuinely effective communication, I need a BlackBerry, a simple Nokia and my personal assistant.

BlackBerry

iPhone 4, iOS 4.3

Péter Tordai, the Hungarian branch of KBC Securities, deputy CEO in charge of the retail division

The fact that my BlackBerry is continuously able to synchronize my calendar, emails and my partner list helps my work and saves me a great amount of time. BlackBerries are popular among top managers in the banking sector, mainly due to their high security level, but I don’t really like using it in my private life because its multimedia applications are weak. iPhones or phones with Android operating systems are more user-friendly devices, and can more easily be customized – as one can see in the increase in their market share. We, by the way, will soon launch a mobile application optimized for iPhone and Android that enables users to access the stock markets anytime, anywhere.

János Bartók, Aviva, president-CEO

I have always had a thing for Apple innovations. They always focus on users and usability, instead of solely on tech tricks and development. Although there are faster and more developed devices than the iPhone 4 on the market, I don’t know any that could be easier and better used. My choice of the iPhone was also backed up by the usability of the App Store, which offers solutions for most business problems. In addition to my iPhone, I also use an iPad for business purposes, mostly for tasks when screen size is an issue. Advantages: it just works! It is stable, easy to use, always at hand, convenient for phone calls, listening to music, navigating or playing games. Disadvantages: it should have a better-quality camera, and the battery needs to be recharged quite often too.

BlackBerry

András Posztl, Horváth és Társai DLA Piper, managing partner

According to the company’s global policy, I use a BlackBerry, and when it comes to business utilization, I am entirely pro-BlackBerry. These phones are, both in terms of data transfer speed and security issues, more suitable for business use than either an iPhone or an Android. This in practice translates into lower telecommunications costs for data transfers. Further advantages of BlackBerries include their outstandingly long battery life and their practical keyboards. But downloads require a little more time than with other smartphones and it features fewer available applications as well – these, however, are less significant aspects when it comes to corporate use.

iPhone, OSS

Zsolt Kalocsai, RSM DTM Hungary Zrt, CEO

Just like everyone else in the management, I use Apple’s iPhone with OSS operating system. iPhones are userfriendly, with simple and quick setting options. The email and calendar functions are synchronized with our own Exchange server. With the help of the web browser, we can follow economic events, or even check on the weather conditions before a sailing race. The only challenge an iPhone poses for its user is that if you accidentally tap the touch screen during a call, it will end it.

PF

iPad – frenzy: mad or rad?

If it was good enough for the creators of Hungary’s new constitution that comes into force next year – famously whipped up in short order and largely written on an iPad – what do other users say about this handy and stylish gadget?

We present the pros and cons of the iPad, as businessmen see it.

BBJ ágnes vinkovits

Asked about Apple’s increasingly popular tablet, the iPad, Tibor Szabó (owner and creative head of advertising agency Collective Media and publishing company Collective Art), told the Budapest Business Journal, “Its popularity is not a coincidence. It can do everything that

one can expect from such a tiny gadget,” he said, adding that the iPad even meets the presentation needs of those working in the creative-design industry. “In terms of displaying references, it absolutely equals the potentials of a laptop,” he noted.

But unlike laptops, its weight and size make the iPad easier to carry day after day. It is no surprise that its portability is an advantage strongly emphasized by most users.

However, size is not everything and being small is not always a benefit. “Due to its small operating surface which happens to be a touchscreen that needs frequent cleaning, I cannot plan designs on it,” Szabó admitted, although adding that this might be the only shortcoming of the iPad he can think about. “It even enables some web editor tasks I often need,” he said.

Although he likes iPad in general, Ferenc B. Nagy, the managing director of real estate investment and design company Stay in Hungary is more critical. For one, the

iPad cannot measure up to large monitors when checking floor plans, so it is of no use there. And just like its little brother the iPhone, it cannot handle any Flash-based content, which several other users called “nonsense”. Also, “fitting out the iPad with a stylus pen would make my life much easier sometimes,” B. Nagy added.

Despite that, we found no one during our survey that doubted how handy the iPad is for the ease of sending quick emails, watching videos or reading the tablet editions of weeklies such as Time Magazine or Hungary’s HVG. And, above all sensible reasons, an iPad is still widely considered to be a “very cool, must-have” device. n

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www.bbj.hu

Budapest Business Journal | Sept 9 – Sept 22

Seeking CEE software gurus Palo Alto entrepreneur Taso Du Val recognized that while many of his coworkers overseas were just as good as his friends and colleagues at Google and Facebook, it was simply impossible to find more of them. Thus, he set up TopTal as a solution to the skyrocketing demand for top engineers in Silicon Valley and Europe, despite the shrinking local graduation rates of such engineers. Taso recently decided to move to Budapest to find 300-400 engineers to subcontract to top international IT firms.

BBJ Gabriella lovas

Q: Why Hungary?

A: I first came to Hungary last April during a trip around Europe. I went to Budapest, Bucharest and Amsterdam. After going back to San Francisco, I evaluated my options and I said, OK, where did I have the most fun? Which place is cost effective? All that sort of stuff. Budapest was the right mix of being inexpensive, but still relatively modern and westernized. When I came to Budapest, I met some really fantastic people who helped me a lot. With the combination of that, I decided to move here in June.

for local engineers from the region. A lot of them are really good; they just do not have access to the ecosystems that have the money and the knowhow to make great software.

They are currently going on either oDesk or Elance or one of the other platforms for subcontracting. But still, it is hard for them to get really good jobs.

We have an amazing lifestyle out here. Since we raise money in Silicon Valley and we make money in Silicon Valley, to come out here and have that is really disproportional. If we raise a couple of hundred thousand dollars out here, it is like raising a couple million out there. So, renting a penthouse apartment is the easiest thing, it is like getting a studio in San Francisco.

Quite frankly, the girls are hotter, too. There are very few girls in Silicon Valley, and it is a very big problem. I think Eastern Europe is balancing having attractive girls and great engineers perfectly.

Beyond that, there is just a different way of living here. It is not all about work, I like the cafes and the food is definitely better out here.

Q: I thought that you were here to find cheap Russian engineers?

A: Yeah, that is part of it. We have not started hiring too many here yet, but we are looking

Q: Do you think that your company can fill this gap?

A: That is precisely what our company does. We try to find engineers and subcontract them in Silicon Valley, in New York City and in Western Europe. The big thing is finding these people with the current engineering shortage in Silicon Valley.

If you go to platforms like Elance or oDesk, you do not usually get really good people; they cannot speak English very well, they cannot code very well and they do not understand the products. We do not yet have much competition in the region; we are the first true top sourcing company, as we call it, from Silicon Valley here.

Eastern European engineers are, without question, better than their Asian counterparts, in our experience – mostly because of the wider cultural gap and the language barrier. We would like to find them through going to conferences and setting up partnership with local outsourcing companies and the top technical universities.

I have already met some people from Docler Holding, and I know some people in the startup area as well as engineers and recruiters. Our goal is to know everybody, to know the ecosystem and to understand the mindset.

Q: What are the average hourly rates of US and Hungarian engineers?

A: The hourly rate of an American engineer can be anywhere between $50 and $150, while that of a Hungarian engineer is $5–30.

It is a huge difference.

Q: Is the quality of their work similar?

A: Usually not, which justifies the price difference. But sometimes people do not know what they are worth and we can recognize that. This is what our business is based on.

We can identify who is just terrible, who is amazing and who is mediocre. We are also taking people who currently work at a company but are either bored or do not have a lot of work, which is very common. If they have another 40 hours to put to work beside their full-time job, we can bring them out into our network and they can be full-time even if they already have another contract.

Subcontracting is a different lifestyle. So you have to know what you are getting yourself into.

Q: Have you set up a company here?

A: We haven’t yet, but we are thinking about doing it for legal purposes. We set up Toptal a year ago in the US. We have approximately twodozen clients from all over the world, from Singapore through Switzerland to London, and about 30 subcontractors. By the end of next year, we would like to have 300-400 engineers, of which about 15–20% will be Eastern European. We currently have $2 million revenues, and our target for next year is $5 million. n

16 focus

www.bbj.hu

Budapest Business Journal | Sept 9 – Sept 22

ERP companies to go mobile ERP companies

+16%

Change in total net revenue of firms on the list in 2010

After a slight slowdown brought along by the crisis, ERP companies expect growing turnover from the middle of next year. They project that companies – including SMEs – will invest in adopting ERP systems in the following years with the aim of rationalizing costs.

BBJ Anna Szaniszló

Companies developing ERP (enterprise resource planning) systems felt the negative effects of the crisis, but were only mildly affected. They experienced stagnation or slower growth in 2009, with some companies seeing a slight income drop in 2010, too.

The largest ERP firm, SAP Hungary, for example, had a 1.5% loss in revenue in 2010 compared

to last year, the financial report of the company revealed. MultiSoft, 11th on the Budapest Business Journal list of top ERP companies in Hungary, experienced a 4% revenue drop in 2010.

However, market players are very optimistic about their business prospects despite the shrinking revenues of last year. ERP developers are convinced that companies – even SMEs – will invest in ERP systems.

The general economic setback brought about by the crisis delayed the introduction of ERP systems at many companies. The seven to ten year product cycle of the first major ERP development wave that started at the beginning of the last decade was prolonged by the crisis. Therefore many companies in Hungary struggle with obsolete ERP systems with a high operation cost.

The time is thus ripe for new investment, ERP companies argue. “Although the introduction of an ERP system can take years in the cases of big corporations, the investment is recouped in one or two years,” Tamás Herger, head of consultancy at SAP Hungary explained.

HumanSoft, fourth on the BBJ’s list, confirmed this. “According to an international survey by Nucleus Research, the financial investment of adopting Microsoft Dynamics AX was recouped in the first two years,” says Katalin Pap, division director of Microsoft Dynamics products at HumanSoft.

Customers apparently agree, since the demand for ERP systems dropped only slightly in the darkest years of the crisis. “Since compa-

nies have realized that the implementation of ERP applications improves the operational efficiency of the business, and results in optimized spending, they are ready to take on the extra cost,” Kata Molnár, head of marketing at MultiSoft explained.

A growing demand for mobility will add another boost to the business. So-called cloud solutions that facilitate mobile access to the company’s ERP system through the Internet are on the rise. Cloud technology allows colleagues to have mobile access to the corporate ERP system. Therefore the rising market penetration of the technology will have a positive impact in driving the evolution of how enterprise applications are delivered in the future, developers agree.

According to some of the biggest ERP companies, the market penetration of cloud ERP will grow in the near future. Smaller cloud ERP systems are already available abroad, and will probably arrive in Hungary in the following year.

However, ERP companies do not plan to introduce overall cloud ERP systems for their customers. Its use will probably be limited to specific functions where cloud-based services bring a real advantage.

For example, users who usually spend their working hours in an office and use a stable network connection during their day may need mobile cloud solutions when traveling: they can access their mail, approve the travel expenditures of employees and other invoices. IFS Hungary, 13th on the BBJ’s list of the biggest ERP

companies, will start testing touch screen mobile applications for such tasks this fall.

Despite their optimism, ERP companies expect growth only from the middle of next year. “There was some buzz in ERP in the second quarter of this year, but it was overshadowed later by negative economic data,” IFS Hungary told the BBJ. Therefore, while this year may not bring the long-awaited intensive revival, companies still expect slightly better results compared to last year.

ERP companies are preparing for the extra business an economic revival would bring, however, and projected growth in new technologies.

The R&D department of IFS is currently working on how to incorporate certain functions of social media into ERP systems: it is testing IFS Talk, which works like a message board, and IFS Communicator, which integrates the chat function into the ERP system. The IFS Communicator can also save audio and video files, provided a web camera was used during the chat. n

Moving on

+5 places HostLogic +3 places rEVOLUTION Software +1 place MultiSoft -1 place HUMANsoft -1 place XAPT Largest changes in the list

➔➔ ➔ ➔➔

BBJ

[ partner content ]

SAP IT forum in Tihany SAP Hungary is to hold its main annual event in Tihany, next to Lake Balaton. Balázs Ablonczy, managing director of the company’s Hungarian subsidiary, writes about the changes in the business information technology sector on the occasion of the event in this promotional feature. balázs ablonczy managing director sap hungary

The SAP software company will hold its main annual event in the town next to Lake Balaton in mid-September. The conference, hosting 700 corporate decision makers and IT leaders, is the biggest business IT event in the country. We asked Balázs Ablonczy, managing director of the company’s Hungarian subsidiary about changes in the business information technology sector on the occasion of the event.

According to the top man of SAP Hungary Kft, IT leaders still have to provide a similar or even higher level of service from a smaller budget than before the crisis, while the real decision makers of developments are the people responsible for the business. “Companies generally look for efficiency increasing solutions that can be flexibly adapted to market changes,” Ablonczy says.

He thinks that platform-free technologies such as cloud services and mobile devices that provide access for employees to the company data anytime, anywhere, or in-memory technology, which he considers to be the most remarkable innovation recently, all meet these requirements. The essence of this technology is that reports and statements that took hours or even days to generate earlier can be presented in a fraction of a sec-

ond, due to the fact that data processing happens in the computer’s memory, and not on the disk.

Ablonczy thinks that how – and in how much time – existing information can be utilized will be a key issue for companies, and it will be of strategic importance in the future. This is underlined by the fact that the market for business intelligence such as data mining, data visualization and decision making, grows steadily, both in Hungary and worldwide. However, the director stresses, only implementations that can be quickly recouped have a true future on the domestic market. These are applications such as those supporting human capital management, legal compliance, risk management and controlling.

At the Hungarian station of the international SAP World Tour – advertised with the motto “Run Better!”

– customers and partners will summarize their own experiences and projects in addition to presentations by professionals of the software company. The ecosystem of SAP will present how companies can improve their efficiency. The organizers promise that apart from the strong professional side, leisure programs and networking will play an important role during the three-day event, made even more colorful by keynote presentations.

www.sap.hu

NOTE: ALL ARTICLES MARKED partner content are promotional content for which the Budapest Business Journal does not take responsibility

www .hu www..bbjonline bbj.hu

Budapest – March Budapest Business Business Journal Journal | | March Sept 9 –12Sept 22 26

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largest erp companies

Rank

Company Website

Net revenue from ERP software sales (HUF mln)

YOU DO THE MATH.

AGILE = YOU x BUSINESS TIME ERP

Ranked by total net revenue in 2010

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thefocus lists 17 1

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No. of full-time employees on Sept.

1, 2011 Year established

IFS—FOR AGILE BUSINESS

www.IFSWORLD.com

Ownership (%): Hungarian Non-Hungarian

Top local executive Finance director Marketing director

Address Phone Fax Email

in 2010

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364 1997

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Balázs Ablonczy György Simon Gergely Karkiss

1031 Budapest, Záhony utca 7.

(1) 457-8344 (1) 885-7300 info.hungary@sap.com

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Oracle

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163 1993

– Oracle Netherlands B.V. (99.40), Oracle Corporation Nominees Ltd. (0.60)

Csaba Reményi Balázs Torbágyi –

1095 Budapest, Lechner Ödön fasor 7.

(1) 224-1700 (1) 214-0070 applications_hu@oracle.com

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SAP

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Synergon Informatika Nyrt (100) –

Zoltán Jutasi, Dávid Pap – –

1047 Budapest, Baross utca 91–95.

(1) 399-5500 (1) 399-5599 info@sri.hu

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SAP

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26

investor (72.01), investors (20.38) investors (7.61)

Zoltán Görbics Csaba Angelmayer Péter Fárizs

1134 Budapest, Váci út 49.

(1) 237-1730 (1) 350-4113 info@hostlogic.hu

212 1989

FreeSoft Nyrt (100) –

András Mezey, Béla Tóth Tamás Koppány Gábor Somlyai

1037 Budapest, Montevideo utca 8.

(1) 270-7600 (1) 270-7679 humansoft@humansoft.hu

100 1993

– S&T AG (100)

Kálmán Kelemen – –

2040 Budaörs, Kinizsi utca 2/B (1) 371-8000 (1) 371-8001 info@snt.hu

Főnix IT Consulting (60.50), András Kohajda (30.35), Tamás Tóth (8.95) –

György Szajbély István Bokor Krisztián Walter

6723 Szeged, Felső-Tisza part 31–34.

(1) 450-2200 (1) 239-0056 info@griffsoft.hu

SAP Hungary Kft www.sap.hu

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2

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Oracle Hungary Kft

12,192

Synergon Systems Integrator Kft

11,524

www.oracle.hu

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www.sri.hu

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HostLogic Kft

9,547

www.hostlogic.hu

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HUMANsoft Kft 26

29

Microsoft Dynamics AX, Microsoft Dynamics CSM

EGIS Gyógyszergyár Nyrt, ExxonMobil Üzletsegítő Központ Magyarország Kft, Wizz Air Hungary Kft, IT Services Hungary Ltd, MVMI Informatika Zrt, TEVA Gyógyszergyár Zrt

www.humansoft.hu

6,937 3,331

5 A

6

7

8

9

10

11

12

CSOPORT TAGJA

1994

S&T Consulting Hungary Kft

4,123

www.snt.hu

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

GriffSoft Informatikai Zrt www.griffsoft.hu

2,117 897

1,940

797

Forrás-SQL

Ÿ

Ÿ

XAPT Hungary Kft

2,110

www.xapt.hu

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

70 2000

– (100)

Zoltán Schvarcz – –

1118 Budapest, Rétköz utca 7.

(1) 889-2900 (1) 889-2957 info@xapt.hu

R&R Software Zrt

1,327

www.rrsoftware.hu

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

69 1991

Individuals (100) –

Csaba Rozenberszki Ilona Rétai Rónyai Zsolt Rozenberszki

1038 Budapest, Ráby Mátyás utca 7.

(1) 436-7850 (1) 436-7851 info@rrsoftware.hu

MultiSoft Kft

939 445

939

445

Microsoft Dynamics NAV, CRM, CAS CRM

FujiFilm Hungary Kft, DAF Hungary Kft, Shopguard Kft, Sodexo Pass Hungária Kft

Ÿ

58

Individuals (100) –

Gábor Kelemen Tamás Kelemen Kata Molnár

1112 Budapest, Kőérberki út 36.

(1) 310-1492 (1) 310-1497 sales@multisoft.hu

Ÿ

Ÿ

Epicor

Ÿ

57 1993

– Scala Ece Ltd Cyprus (100)

László Czékmány László Czékmány Johanna Both

1133 Budapest, Váci út 76.

(1) 452-7600 (1) 452-7610 info.hungary@epicor.com

Ÿ

Ÿ

Ÿ

Ÿ

56 2006

VOLÁN ELEKTRONIKA Zrt. (99), Carolinainvest Kft (1) –

Faur Kálmán – –

1113 Budapest, Karolina út 65.

(1) 372-3333 (1) 209-1477 info@mve.hu

30 2000

– IFS WORLD AB, IFS CEE (100)

Zsolt Weiszbart – Gábor Halász

1132 Budapest, Váci út 22–24.

(1) 236-3700 (1) 236-3701 infohu@ifsworld.com

29 1994

– ItelligenceInternational Business Service Holding GmbH (100)

Gábor Turner – –

1138 Budapest, Váci út 141.

(1) 452-3800 (1) 452-3839 info@itelligence.hu

35

investors Ÿ ( ) –

Ferenc Kustos – –

44

Ÿ Ÿ

Sándor Komáromi Gizella Koncz Szabó Éva Wernitzer

1118 Budapest, Homonna utca 8/A (1) 481-9000 (1) 481-9001 info@progen.hu

36

Ÿ Ÿ

Levente Balogh – István Somogyi

1138 Budapest, Váci út 168.

(1) 890-2000 (1) 412-1195 info@euronetrt.hu

33

– LLP Praha s.r.o. (100)

Attila Biber András Czermák –

1138 Budapest, Révész utca 27–29.

(1) 412-2400 (1) 412-2401 contact@hu.llpgroup.com

www.multisoft.hu

Epicor Software Hungary Kft

906

www.epicor.com/hungary

Ÿ

Libra Software Zrt

826

www.mve.hu

Ÿ

102

IFS Hungary Kft www.ifsworld.com

800 400

13

14

15

itelligence Hungary Kft www.itelligence.hu

Ÿ

rEVOLUTION Software Kereskedelmi Kft

680

www.revolution.hu

16

ProgEn Mérnöki Fejlesztő és Szolgáltató Kft www.progen.hu

17

Ÿ

672 325

Euronet Magyarország Informatika Zrt

580

LLP Hungary Kft

430

www.euronetrt.hu

18

726

www.llpgroup.hu

Ÿ

Ÿ

800

400

IFS Applications

Budapest Airport Zrt., Celebi Ground Handling Hungary Kft., Hajdu Group, Medikémia Zrt., Inno-Comp Kft., Eurofoam Kft.

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

552

283

sERPa integrált vállalatirányítási rendszer, Nagy Machinátor teljes körű ügyviteli rendszer, SAP Business One, maXprofit vezetői döntéstámogató rendszer

Magyar Turizmus Zrt, Young B.T.S. Kft, Bankár Holding Zrt, Rónatabak Kft, Formatex Kereskedelmi Kft, Stella Zrt

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

Ÿ

1133 Budapest, Váci út 76.

(1) 461-8030 (1) 352-1553 revol@revolution.hu

18 focus

Hungarian state-owned power wholesaler Magyar Villamos Művek (MVM) is keen to enter the country’s telecoms market for governmentbased services. An extraordinary general meeting of MVM decided on Friday the company would develop and operate the electronic backbone network for the government, communications director György Felkai told MTI. By taking on the task of developing and operating the network, MVM will take a “significant role” on the telecommunications market, Felkai said. The general meeting also decided MVM would buy out a minority stake from Euroinvest in Bakonyi Villamos Művek Termelő, which owns Hungary’s first peaking power plant.

Besides modernizing its telecom network, Telenor is also revamping all of its shops this year. The largest development project of the past ten years, covering the entire sales network, will involve deploying innovative digital solutions, featuring a live product wall with demo handsets in every shop.

Most of the old paper-based communication interfaces will be replaced with centrally updated touch screens, electronic posters and digital price tags. Select shops will feature refreshment corners and include a play corner with cartoons and toys for children.

The mobile operator also plans to add three self-owned points of sale to its existing network of 230 shops this year.

The per-minute wholesale price for mobile calls is set to fall from gross HUF 11.86 in 2011 to HUF 9.46 in 2012 and HUF 7.06 in 2013. A fresh market analysis by Hungary’s National Media and Infocommunications Authority (NMHH) shows per-minute tariffs for both mobile and land line calls are set to drop markedly in the next three years, with wholesale prices dropping as much as 40%. NMHH regulates wholesale prices that affect retail tariffs.

The authority intervenes on the market to make the best and cheapest services available to consumers.

The European Commission has written to eight EU Member States (Austria, Cyprus, Estonia, Germany, Hungary, Latvia, Lithuania and Luxemburg) seeking information about their implementation of the Audiovisual Media Services (AVMS) Directive. The Commission has asked the countries to reply within 10 weeks. The fact-finding letters are part of the Commission’s efforts to ensure that the national media laws of all states correctly implement all aspects of the AVMS rules.

Digitalization seen boosting growth on telecom market BBJ

telecom companies

-21%

Change in total net revenue of firms on the list in 2010

The telecoms market was hard hit by the crisis at the time of the decline of voice-based services. The economic setback accelerated downward trends and brought stagnation even in segments where solid demand was experienced. However, the transition to the era of integrated mobile devices and increased data flow is seen as bringing a breakthrough for the market.

BBJ Anna Szaniszló

The crisis hit the telecommunications sector at a critical time, when it was transitioning from audio-based (voice) to data-based (internet) services. Most affected by the crisis was the lower-end segment of the corporate telecommunications market, and the residential market. Customers disappeared very quickly, regardless of the technology. These negative trends naturally also accelerated the falling off of the mobile market, which followed the gradual decline of the landline telephone market.

However, the market is now showing some signs of revival – and a major boom on the market of data-based services. Market players are convinced that the transition to the era of integrated mobile devices and data transfer will bring a breakthrough. They project that demand for data transfer, storage and access, as well as the number of data connections, will grow exponentially.

“Digitalization in certain sectors such as public administration and healthcare will further intensify growth in this field,” said György Zsembery, the Chief Operating Officer (corporate and wholesale business unit) of Invitel, which is fourth on the Budapest Business Journal’s list of the biggest telecom service providers. “This trend will spread in the residential market in line with the growth of internet penetration,” Zsembery added.

In the meantime, using IP technology for phone calls in Hungary is growing nowhere near as dynamically as in Western Europe. Among big companies, the technological switch to IP technology happened three to six years ago, while it is spreading more slowly and gradually among SMEs. As for residential customers, around only 10-12% of them use this technology actively.

Therefore, this segment is currently stagnating, while there is a decline in the case of landline and mobile audio technologies.

Despite the general slowdown, the telecommunications market is going through constant changes. Tight competition and the economic environment have made survival very difficult

for the smallest companies with obsolete infrastructure. “A reasonable proportion of them could disappear from the market,” Krisztián Takács, managing director of Business Telecom (BTel) commented.

Bigger companies on the other hand, with a wide range of customers, can expand if they have an effective business development strategy. Most used the period of economic setback to carry out investments that will provide the basis for future growth.

BTel, ranked eight on the BBJ list, expanded its own microwave network this year and is planning to expand it nationwide, for example. The company has shown solid growth since it was founded in 2006. While it had revenue of HUF 94 million in 2007, it managed to continue growing through the crisis years, and revenue exceeded HUF 1 billion last year. Another player, Telenor, the second biggest mobile service provider in Hungary, started building out a newgeneration network in January that will result in better and faster service.

Market players have good reason to make investments since – unlike the mobile voice market – certain segments of telecoms services are showing signs of recovery. “In the segment of non-voice based services such as mobile internet, SMS and MMS, the pace of revenue growth has accelerated recently,” Telenor commented.

Business Telecom also confirmed that the mobile internet market is looking at a prosperous future. “There has been growing demand for mobile internet services in the last couple of months, and this trend will further continue and accelerate in the next two or three years,” Takács explained.

Telenor is of a similar opinion, seeing great potential in mobile internet.

In the meantime, the broadband internet market is stagnating, although there is stable demand for it among both business and residential customers. The same goes for mobile telephone services. With the continued spread of mobile devices, mobile voice services could soon become just another additional service, with data traffic-based packages taking over as the centerpiece of telecom services. n

Moving on UPC Invitel

➔ ➔

telco news

www.bbj.hu

Budapest Business Journal | Sept 9 – Sept 22

+1 place -1 place

Largest changes in the list

thefocus lists 19 1

www .hu www..bbjonline bbj.hu

Budapest – March Budapest Business Business Journal Journal | | March Sept 9 –12Sept 22 26

Telecom service providers

The BBJ’s Book of Lists contains 100+ sector-specific listings of leading companies. The Book of Lists comes free with a BBJ subscription, or can be ordered separately by e-mailing circulation@bbj.hu

www.telenor.hu

3

Vodafone Magyarország Kft

126,238

UPC Magyarország Kft

58,445

www.vodafone.hu

4

5

6

www.upc.hu

8

9

10

Ÿ

Ÿ

Invitel Távközlési Zrt

54,843

GTS Hungary Távközlési Kft

14,657

www.invitel.hu

www.gts.hu

7

165,749 77,191

Hungaro DigiTel Kft www.hdt.hu

Business Telecom Kft[1] www.btel.hu

Netfone Távközlési Kft www.netfone.hu

Hucom Telecom Kft www.hucom.hu

Ÿ

Ÿ

1,833 810

1,005 638

652

Ÿ

207

Ÿ

3,536,000

2,651,420

948,300

Cable internet

IPTV

Cable TV

Leased line

VOIP

Satellite tv

Other

Mobile network

Optical cabel network

Analog cable network

Analog wire network

ISDN

Other

















3G











–

–

–







–

–

–







–

–

–



–

–

–

–

–



–

–



–

–



–

–

–

3G

3G

–





–







–

–



–

–



–

–



–

–

–



–

–





–



Ÿ

Business package(s)

Mobile internet



Triple play (internet, TV, wire phone) Quadruple play (internet, TV, wire phone, mobile)

xDSL









Major clients in 2010

No. of full-time employees on Sept. 1, 2011 Year established

Ownership (%): Hungarian NonHungarian

Top local executive Finance director Marketing director

Address Phone Fax Email

Ÿ

Ÿ

Free float (40.79) Magyarcom Holding GmbH (59.21)

Christopher Mattheisen Thilo Kusch István Király

1013 Budapest, Krisztina körút 55.

(1) 458-0000 (1) 458-7176 –

1,074 1993

– Telenor Group (100)

Christopher Laska Fridtjof Rusten Sigvart Voss Eriksen

2045 Törökbálint, Pannon út 1.

(20) 2000-000 – sajto@telenor.hu

Microsoft

Ÿ

2310 SzigetszentmiklósLakihegy, Komp utca 2.

(1) 4888-500 (1) 4888-501 info@hdt.hu

43 2006

Individuals (100) –

Krisztián Takács Gizella Csizmadia Gábor Takács

6000 Kecskemét, Mindszenti körút 27.

(76) 585-020 (1) 999-5012 info@btel.hu

19 2007

Individuals (77) Scanwinavia AB (23)

Zsolt Wilhelm – István Kun

1026 Budapest, Gárdonyi Géza utca 62.

(1) 878-1800 (1) 325-5675 info@netfone.hu

19 2009

Individuals Ÿ ( ) Scanwinavia AB Ÿ ( )

Gábor Percze – –

1119 Budapest, Petzvál József utca 31-33.

(1) 696-0900 (1) 696-0901 info@hucom.hu





–

–

–









–







Ÿ



–



–



–

–





–

–

–



Ÿ 



–

Ÿ

Ÿ

Ÿ

Ÿ

–



OTP Bank Nyrt, Szerencsejáték Zrt, Shell Hungary Zrt, OMV Hungária Kft, ENI Hungária Zrt, Magyar Telekom Nyrt



BorsodChem Zrt, Észak-Magyarországi Regionális Munkaügyi Központ, Szerencs Város Polgármesteri Hivatal, Magyar Vöröskereszt Országos Igazgatósága, Samsung SDI Magyarország Zrt

27,600

Ÿ

Ÿ







–

–





–









–

–



–

–

–

Ÿ Ÿ Ÿ





–

–







Ÿ



–

Ÿ

–

–

–

–



–



–



–



–

Ÿ Ÿ Ÿ Ÿ Ÿ

Ÿ Ÿ Ÿ Ÿ Ÿ

–

–

–

–



–

Ÿ

–



–

Ÿ

2040 Budaörs, Puskás Tivadar utca 8–10.

(1) 801-1500 (1) 801-1501 info@invitel.co.hu

António Felizardo Éva Csíkné Illés –



–

Martin Lea Robert Bowker György Zsembery

Antenna Hungária (55.38) PT Participações SGPS (44.62)



–

1092 Budapest, Kinizsi utca 30–36.

(1) 456-2600 (1) 216-0058 –

2040 Budaörs, Ipartelep utca 13–15.

(1) 814-4000 (1) 814-4047 info@gts.hu



–

Betzalel Kenigsztein Zoltán Bodnár Judit Grósz

Pál Pauer – –



–

– Liberty Global Inc (100)

– GTS Central European Holding B.V. (100)



–

901 1994

Ÿ Ÿ

–

–

György Beck Frank Krause Péter Lakatos

1,157 1995



–

– Vodafone Group (100)

–

– Mid Europa Partners (100)

854,000

–

Ÿ

1096 Budapest, Lechner Ödön fasor 6.

(1) 288-3288 (1) 288-3523 ugyfelszolgalat@ vodafone.hu

Ÿ

Hungaroring Sport Zrt, Kuka Robotics Hungária Ipari Kft, Malév Zrt, MKB Bank Zrt, Veszprém Megyei Csolnoky Ferenc Kórház

Ÿ

1991



Satellite network

Telenor Magyarország Zrt

Ÿ

Ÿ

Mobile voice transmission

www.telekom.hu

No. of active subscribers

458,745

Package types sold

Infrastructure types

Satellite data transmission

2

Magyar Telekom Nyrt

Services

Landline transmission

1

Company Website

Total net revenue (HUF mln): 2010 H1 2011

Rank

Ranked by total net revenue in 2010





Ÿ

Ÿ

28

Ÿ

Notes: [1] Zrt from Sept 1., 2011

Ÿ=

This list was compiled from responses to questionnaires received by Sept 6, 2011 and publicly available data. To the best of the Budapest Business Journal’s knowledge, the information is accurate as of press would not disclose, NR = not ranked, NA = not applicable time. While every effort is made to ensure accuracy and thoroughness, omissions and typographical errors may occur. Additions or corrections to the list should be sent on letterhead to the research department, Budapest Business Journal, 1075 Budapest, Madách Imre út 13–14., or faxed to (1) 398-0345. The research department can be contacted at research@bbj.hu

BBJ LIFE LIFE & PEOPLE

Better know a CEO

Who's News

Eddy D’Hertoge, KBC Securities

People on the move

▶ page 22

▶ page 22

Cricket gains some ground(s) in Hungary

Photo: Dominic Arbuthnott

The development of cricket in Hungary got a kick-start four years ago when the Hungarian Cricket Association was formed. Now it is about to go to another level: the HCA wants to gain admission to the international cricket governing association. Membership will provide fresh sources as well as the opportunity to introduce an increasing number of Hungarians to the sport.

“People who know that I play some sort of field game often come up to me asking ’so you’re playing that thing with mallets and balls that you push through hoops on the grass, it’s croquet, right?’ and I have to correct them, ‘No, it is called cricket’,” says an Englishman who has lived in Hungary for 20 years and has been involved in the sport since his childhood.

Such misconceptions are fairly common among Hungarians about cricket, a game with more than 150 years of tradition and which is, perhaps surprisingly, said to be the second most popular sport in global terms. But things are about to change.

The Hungarian Cricket Association (HCA) is determined to promote the sport among Hungarians as well, and recent events might give the necessary push to achieve this.

The Hungarian cricket league aspires to become affiliate member of the International Cricket Council, the sport’s world governing body. At the beginning of August, representatives of the ICC arrived in Hungary to conduct the necessary audit and the visit had a positive echo.

“The ICC has 105 members. With the encouraging enthusiasm we see here, Hungary could be the 106th,” the Emerging Europe blog of the Wall Street Journal cited ICC regional development manager Richard Holdsworth as saying after the visit.

Joining the ICC will bring numerous advantages for the Hungarian association, and is also seen as a token for the sport’s further development in Hungary. Documentation for accession needs to be submitted to the international body by the end of the year, and decision will be made at its HQ in Dubai next June.

Gaining admission to the international association requires meeting certain criteria, most of which have already been fulfilled, says HCA president Gábor Török.

Aspiring members need to sport two dedicated grounds, as well an adequate number of teams, and the process also involves some budgetary issues.

On dedicated grounds Hungary’s first dedicated cricket ground is already in use. Located only a 20-minute drive from Budapest, the Sződliget Oval was set up by two businessmen who dug deep into their own pockets for the more than €200,000 development.

Mike Glover, head of the tax department at KPMG in Hungary, and treasurer at HCA, who serves as the ICC affiliation director when not in his day job, and KPMG partner Mark Bownas are both enthusiastic cricket players.

The ground, covering 2.5 hectares of land, was developed from a site comprised of two football fields that were merged into one fullsize grassed cricket surface, and is Central and Eastern Europe’s biggest cricket ground, the developers say.

And it has already been inaugurated: the 2011 Euro Twenty20 cup was held there on August 20-27. The tournament saw teams from seven countries in the region, five of which are not ICC members yet. Tournament host Hungary, fielding two teams, retained the title it won last year in Macedonia.

If everything falls into place, the ground could host ICC tournaments as soon as next season, HCA board members say.

Built on passion Hungary is actually far ahead of many, already affiliated countries, Török says. In neighboring countries the sport become popular more than a decade ago and some of these became ICC members only recently.

“Of course, there were cricket enthusiasts before that as well, mostly members of the expat community, but games weren’t played in an organized way,” Török recalls. “In 2006, the groundwork for cooperation at a national level was laid down, and a year later, we founded the association.”

life 21

www.bbj.hu

Budapest Business Journal | Sept 9 – Sept 22

As a result, six teams with a pool of about 100 active players were created in the spring of 2007.

Currently, there are two cricket leagues with 11 teams and about 200 club members.

In spite of the rapid development of the sport in Hungary, getting sponsorship remains a tough task. While large international companies already invest great amounts of money into the sport at a global level, companies in Hungary have so far been a bit tight-fisted.

But another advantage of ICC membership, once the Hungarian association is accepted, is that the flow of sponsors’ money will hopefully be smoother.

“If we go to a company now in the hope of getting sponsorship money from them, we often find ourselves not being taken seriously,” Török says. “But if our proposal is backed by the ICC, we will have a much greater chance of fruitful cooperation.”

Once an ICC member, the international organization will provide sources to employ a part-time administrator (and later a full-time one) and set up a proper office, so that HCA can operate in a professional way.

“We already have sponsors, but our budget is rather limited at the moment,” Glover says. “Although we have doubled it over the last two years and have some HUF 4.5 million in 2011, with the new cricket ground and ICC membership in the pipeline, we expect sponsors to be more interested in the sport,” Glover noted. Among companies already approached are Pepsi and LG (global sponsors of the sport), Invitel, Vodafone and KPMG (the latter was the main sponsor of the international tournament held at the Sződliget Oval at the end of August).

ICC’s goal is to promote and develop the sport in countries where it does not have great

traditions, therefore the more success the HCA can achieve, the more funding it can count on from the international association.

A sport of diversity Cricket is an integrating sport. Playing the game can be started as early as five or six, and one of the eldest players in Hungary is 72.

And it is not only a game for men. The Hungarian squad has two woman players, and – in line with the aims of ICC – board members at the Hungarian association hope that more women and young people will join the teams. HCA also aims to train coaches.

“Training has been on our agenda for years, and with support from ICC, we will be able to develop it,” Török says. The HCA has already introduced cricket in several schools, and it is dedicated to spreading it further.

Among its goals, the association wants to involve Hungary’s Roma youth in the sport.

“We have experienced a very positive attitude in areas where Roma population is significant,” Török says.

Cricket indeed is a sport of diversity: in Hungary, only about 25-30% of the players are Hungarian. The rest are expats who have lived here for years and come from countries such as Australia, India, Ireland, New Zealand, Pakistan and the UK. There is even a team of Afghan refugees in Debrecen.

While cricket cannot – and does not want to – compete with football, the favorite sport of many Hungarians, it can become an acknowledged minority sport, Glover says.

Besides being fun to play and the fact that, once tried, it can become addictive, its spirit is a very positive one.

“Cricket is not about winning. It is about winning in the right way,” Glover notes. n

upcoming events Sept. 13 AmCham Career School Series - 1st session with Lajos Mocsai, trainer & captain of the Men’s Handball Team Location AmCham Conference Room, Budapest, Dist. 5, Szent István tér 11 Time 2 p.m. – 3:30 p.m.

Fee HUF 30,000 + VAT/person for the entire series Organizer American Chamber of Commerce in Hungary Contact László Metzing, email: laszlo.metzing@amcham.hu, phone: 428-2082 Sept. 17 Third AmCham Family Sports Day & Annual Soccer Tournament Location GLOBALL Football Park and Sporthotel, 2089 Telki, Szajkó utca 39 Time 9 a.m. – 4:30 p.m.

Fee AmCham members in good standing: HUF 4,000 + VAT; non-members: HUF 9,000 + VAT Contact Anita Árvai, email: anita.arvai@amcham.hu, phone: 428-2086 Sept. 20 Speed Business Meeting Location Hotel Novotel Budapest Congress, Budapest, Dist. 12, Alkotás u. 63-67 Time 6 p.m. – 9 p.m.

Fee HUF 4,400 + VAT Sept. 28–Oct. 2 OMÉK National Agriculture and Food Industry Fair Location Hungexpo Budapest Fair Center, Dist. 10, Albertirsai út 10

Time 10 a.m.–6 p.m.

Organizer Agrármarketing Centrum Contact Phone: 450-8800, info@amc.hu, www.amc.hu Oct. 4 Finance conference in association with Citibank Location Continental Hotel Zara, Budapest, Dist. 7, Dohány utca 42-44 Time 8 a.m. – 3 p.m.

Organizer Canadian Chamber of Commerce in Hungary Contact Gusztáv Rapp, gusztav.rapp@ccch.hu; www.ccch.hu Oct. 4 Business Success in the US Location Best Western Hotel Hungária, Budapest, Dist. 7, Rákóczi út 90 Time 10 a.m. – 2 p.m.

Fee HUF 28,000 + VAT Organizer Piac és Profit Konferenciaközpont Contact Phone: 239-9597, email: konferencia@piacesprofit.hu The Budapest Business Journal is happy to publish news on business, social or charity events in its calendar section. Please submit your request at least two weeks in advance of publication date to mihaly. kovacs@bbj.hu

For community events visit our partner:

22 life

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Budapest Business Journal | Sept 9 – Sept 22

WHO'S NEWS

Name Grzegorz Strutyński Current company/position Skanska Property Hungary/managing director Previous company/position Skanska Property Poland/ regional director

Strutyński succeeds Andreas Lindelöf, who continues his career as managing director for Skanska Property Romania. For the last six years, Strutyński was with Skanska Property Poland, the last three as regional director.

Before joining Skanska, Strutyński was a tenants’ representative at Colliers International in Poland, where he acted as an exclusive advisor to international companies interested in finding new office locations in central Europe.

Do you know someone on the move?

Send information to research@bbj.hu

Name Máté Szombathelyi Current company/position CEVA/country manager Previous company/position CEVA/regional sales manager

Kiss has joined Orco Property Group to head its VÁCI1 shopping center. Previously, she worked with TriGranit for three years as leasing director for WestEnd City Center.

Kiss graduated from the international relations faculty of Stetson University in Florida.

Name Szilvia Kiss Current company/position Orco Property Group/ center manager Previous company/position TriGranit/leasing director

[ better know a ceo ]

Name Erika Lóska Current company/position Orco Property Group/ leasing and manager Previous company/position Skanska/leasing and marketing manager

Szombathelyi has eight years of experience in the logistics industry and joined CEVA in 2006 as sales manager for Hungary. He was promoted to regional sales manager for the Czech Republic, Hungary, Poland, Romania and Slovakia in 2008. Before joining CEVA, he worked for DHL as a sales executive.

Szombathelyi holds a master’s degree in economics from the University of Pécs.

Lóska joins Orco Group in Budapest as leasing and marketing manager for the office segment in Hungary.

She started her career with business center operator Regus, where she held operational and sales positions in Hungary for seven years. In 2005 she joined development and construction company Skanska Property in Budapest as leasing and marketing manager.

▶ What is the most

The head of KBC Securities in Hungary

D’Hertoge started his career at KBC Group in 1984 and has been with the company ever since. He has held various positions with the company, including senior auditor for financial markets, and he was also involved in private banking. In the area of retail banking, D’Hertoge has experience in investment advice, trade financing, branch managing, and loans for retail and SME clients. He graduated in applied communication sciences, and later completed market research studies. He also obtained a post-graduate degree in investment banking. Born in Belgium, he speaks fluent Dutch, French, English, and basic German. His hobbies are sailing, reading, cycling, playing chess and cooking.

Name László Erdei Current company/position ING Biztosító/sales and distribution director Previous company/position -/-

Name Zoltánné Lucz Current company/position Ernst & Young/tax consultant Previous company/position National Economy Ministry/ head of personal and value added taxes department

▶ What is the one thing

extravagant thing you’ve without which you done in your life? cannot imagine your

Speleology [the study of caves].

Unfortunately, I once was stuck for a couple of hours.

Eddy D’Hertoge

SPONSORED BY

What is your motto?

Always look on the bright side of life.

Which talent would you most like to have?

To be a talented speaker.

What is the trait you most disapprove of in others?

Not being open and having ‘hidden agendas’.

Which historical person do most identify with?

There are a lot of people who have done great things, and personally I am not the type who identifies with others. Although I have a great respect for Copernicus, the man who stated that the Sun was the center of the Universe and not the Earth. This was revolutionary in his time, however still remains valid because we humans sometimes act as if we were the center of the universe.

Erdei has been in the insurance sector for more than 20 years. He started his career at Generali in 1990, and worked as sales director between 1997 and 2000. In the following eight years, he was sales and marketing director and also a board member. He led his own firm for the last four years, but sold his stake when he joined ING.

Lucz comes tot tax consultancy firm Ernst & Young from the public sector with more than 25 years of experience in tax issues. Before joining the company, she was with the National Economy Ministry. She regularly publishes articles in professional journals, and is the author of several publications and educational materials on tax issues.

▶ What is your favorite

Hungarian dish?

Lecsó.

life in Hungary?

My bike.

What is your greatest regret?

Not listening to my father and continuing my studies after getting the first degree.

What is your greatest fear?

Not being able to cycle any more.

What makes you sad?

Sometimes the insanity of mankind and the (useless) violence that is a consequence of it.

When and where were you happiest?

There is no such moment that I am (or was) happier than any others. I am generally happy. Of course, not all days are the same but saying that I was happier in a particular case/situation than in others… I do not recall such a moment. As I stated before, I “always look on the bright side of life”.

Who is your favorite fictional hero?

Garp, from John Irving’s book “The world according to Garp”. The guy is searching for his antecedents and does so in situations that are sometimes so painful but comic, that it reminds the reader of one’s own life.

What is your most treasured possession?

My wife and daughter.

What kind of job did you dream of when you were a child?

To captain a sea ship.

What is the weirdest thing you have experienced in Hungary?

Nothing up till now.

What is your favorite Hungarian word?

Barátság.

What are the activities that help you to cope with stress?

Sport, in particular cycling. I bicycle four to five times a week, even during winter.

Which Hungarian habit did you get accustomed to most easily?

Enjoying food and drink, which is not that hard for a Belgian!

What is your dream to live to see?

Australia.

What three things would you take with you to a deserted island?

My wife, our little dog and my Leatherman pocket knife.

What is your greatest extravagance?

My weakness for watches and pens.

What would you do with €1 million?

I would keep on working, probably not as hard, and my wife and I would definitely ‘sponsor’ a child to get an appropriate education.

What was your favorite toy when you were a child?

My bike (and it still is).

PF

life 23

www.bbj.hu

Budapest Business Journal | Sept 9 – Sept 22

GREAT

〉

QUOTES

〉We should have gone to church more often

Gavril Balint, the coach of Moldavia’s national football team after being beaten 2-0 by the Hungarian team at a European Championship qualifying match thus ending Moldavia’s chance of taking part at the championship next year

〉We have noticed that the global economy is slowing down

National Economy Minister György Matolcsy, when introducing debt-cutting measures at a press conference at the government session in Lovasberény

〉Pay no attention to what I say to get elected

Prime Minister Viktor Orbán to European Union ambassadors back in 2006, a confidential US diplomacy documents recently revealed by WikiLeaks showed

〉I am fed up and not offered better opportunities

Péter Uj after leaving his editor-in-chief position at Index.hu, Hungary’s leading news portal, rumored to be coming under government influence

〉It’s encouraging that with growth

coming in weaker than expected, they (the Hungarian government) have announced some new measures

[ editorial ]

Field tactics

W

illpower, high goals and self-confidence are important in any war, even the Hungarian government’s war on debt. Yet attempting debt reduction at a time when even keeping this year’s budget deficit on target is a daily struggle might be going overboard.

The new round of announced tax hikes, raising the excise tax on cigarettes, alcohol and diesel fuel as well as the gambling tax to help fill a HUF 100 billion gap in the 2011 budget is probably not a bad idea in the current circumstances, when there is little room to maneuver.

However, we feel that there is a risk that others will follow this tax hike.

As analysts point out, there are several more “holes” in the budget, and many more could be caused if companies do not do well in a slow economy or if they are hobbled by a double-dip recession.

Meanwhile, the government is preoccupied with long-term investments such as state acquisitions. The buyback of a large chunk of MOL shares has shown what bad timing can do to such investments: falling markets can burn money faster than you can say “megszentségteleníthetetlenségeskeidéseitekért” (a real Hungarian word). And it has plans to re-privatize even more companies.

This is not to say that the high level of state debt is not a problem for Hungary: it is a very big problem in much of the developed world at the moment. It is way too expensive when there is little growth. We at the BBJ even agree with limiting it in the Constitution, if it works.

However, spending money on the reduction of state debt and taxing more to prop up the deficit will in our opinion only aggravate the problems. It is good that the government sees that this year’s deficit goals are in danger, however a further unpredictable raising of taxes would be sure to slow growth – and budget revenues.

There is, however, one cause for optimism: if Hungarian football might, after decades, be able to compete with Europe’s finest, fiscal policy could follow, too.

Head of Fitch’s EMEA sovereign ratings team Ed Parker on the sidelines of a conference

〉Besides several others, I could mention

the renaming of the Budapest airport to Ferenc Liszt [as an achievement]. These are the successes of cultural diplomacy State Secretary for Culture Géza Szőcs to Origo

〉Further controls can always be

implemented, but the question is whether the state has the right to intervene Russian Prime Minister Vladimir Putin about the freedom of the internet

BBJ-PARTNERS Netherlands - Hungarian Chamber of Commerce

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