Budapest Business Journal 2814

HUNGARY’S PRACTICAL BUSINESS BI-WEEKLY SINCE 1992 | WWW.BBJ.HU

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BUSINESS JOURNAL BUDAPEST

VOL. 28. NUMBER 14

JULY 17 – JULY 30, 2020

SPECIAL REPORT

Magyar Multinationals

SPECIAL REPORT

NNG Prepares for ‘Massive Investment’ in Automotive Cybersecurity NNG, which began corporate life in 2004 as Nav N Go and now boasts 550 employees globally, is increasingly focusing on automotive security systems designed to cope with anything from crude roadsign disfigurement to sophisticated IT hacking.  11

SPECIAL REPORT

The Big Picture: ‘Small is not an Option’ In the early 1990s, for companies emerging from the Eastern bloc with very limited free market experience, competition often proved a painful lesson.

Hungary’s OTP Bank, however, managed to grow significantly. 12

SOCIALITE

Gradually Coming back from COVID Like many other servicebased businesses, Budapest’s previously burgeoning wine bars and wine restaurants have taken a battering from the COVIDclampdown, but many appear to have successfully battened down the hatchets, and come through the other side. 17

Prospecting for Innovation Gold NEWS

Carbon Control: Not Enough Progress The coronavirus pandemic has had some beneficial effects, or revealed the chances for them. The temporary shutdown of production facilities significantly reduced noxious emissions. According to many analysts, this might be our last chance to reverse the effects of environmental destruction.  6

S PE

RE CI A L

PORT

Péter Ratatics, COO of oil and gas giant MOL, perhaps the quintessential Magyar multinational, talks to the BBJ about the impact of COVID and the move toward sustainability.14

BUSINESS

A Long Route to Recovery Although the industrial output reading in May was a slight improvement from April, the impact of coronavirus clearly continued to constrain industrial activity.  3

News

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Budapest Business Journal | July 17 – July 30, 2020

THE EDITOR SAYS

EDITOR-IN-CHIEF: Robin Marshall EDITORIAL CONTRIBUTORS: Zsófia Czifra, Kester Eddy,

Bence Gaál, Gergely Herpai, David Holzer, Christian Keszthelyi, Gary J. Morrell, Nicholas Pongratz, Ekaterina Sidorina, Robert Smyth, Zsófia Végh.

LISTS: BBJ Research (research@bbj.hu) NEWS AND PRESS RELEASES:

Should be submitted in English to news@bbj.hu LAYOUT: Zsolt Pataki PUBLISHER: Business Publishing Services Kft. CEO: Tamás Botka ADVERTISING: AMS Services Kft. CEO: Balázs Román SALES: sales@bbj.hu

CIRCULATION AND SUBSCRIPTIONS: circulation@bbj.hu

Address: Madách Trade Center 1075 Budapest, Madách Imre út 13-14, Building A, 8th floor. Telephone +36 (1) 398-0344, Fax +36 (1) 398-0345, www.bbj.hu

What We Stand For: The Budapest Business Journal aspires to be the most trusted newspaper in Hungary. We believe that managers should work on behalf of their shareholders. We believe that among the most important contributions a government can make to society is improving the business and investment climate so that its citizens may realize their full potential.

The Budapest Business Journal, HU ISSN 1216-7304, is published bi-weekly on Friday, registration No. 0109069462. It is distributed by HungaroPress.

Reproduction or use without permission of editorial or graphic content in any manner is prohibited. ©2017 BUSINESS MEDIA SERVICES LLC with all rights reserved.

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IN PRAISE OF THE MAGYAR MULTINATIONAL As a second-language publication, it is hardly a surprise that a fair proportion of our efforts are dedicated to the expat market, whether that’s our own Expat CEO of the Year awards, or our partnerships with the various chambers of commerce, or our good relations with English- and German-speaking embassies.

But it should be equally clear that those expats are based and do their business in Hungary (and for the main part in this singularly capital-centric country, that means in Budapest). It would be an act of folly, therefore, not to be equally engaged in the domestic scene. Indeed, you cannot report on one, without reporting on the other.

Our penultimate issue before the summer break therefore takes a deeper look at some of the local players. After all, as database company Opten Kft. reported last week, there are more than 10,000 companies registered in Hungary with annual net sales of more than HUF 1 billion, almost 7,000 of which are fully-owned by Hungarians.

I happen to believe this is a fascinating insight, so, just to complete the picture, origo.hu reports that Opten went on to say the number of “billionaire” companies in Hungary has been growing dynamically for several years.

While in 2011 there were only 6,500 such firms in the country, their number has increased by more than 50%.

And while the number of large foreign-owned companies is stagnant or has barely risen, the number of domesticowned companies is growing at an accelerating rate,

Opten’s data suggests: Compared to the 2017 figures, the 2018 data includes more than 1,000 new purely domestic companies with a turnover of more than HUF 1 bln.

So in this issue, rather than looking into foreign-owned multinationals, which you might consider to somewhat be our traditional patch, we look instead at a much rarer breed, the Magyar multinational. They might not be around in the same numbers, but they tick all the right boxes. Whether it is state-owned oil and gas giant MOL, or fellow Budapest Stock Exchange blue chip OTP Bank, with a footprint in many of the neighboring countries. Or pharma pioneer Richter Gedeon, with the tragic historical background of what happened to its founder in wartime Budapest. Or bornagain brand Tungsram, once bought up by GE, now finding its own path once again.

It is striking to me that the one characteristic that links all these companies, and indeed low cost airline Wizz Air (head towards the back of this paper to our Socialite section to find that story), despite their disparate backgrounds and ages, is their spirit of innovation. In a market as small as this, you have to cross the borders to grow, and that requires a certain flexibility and adaptability. These companies have that in spades; they will certainly continue to need it as COVID-19 continues to flare up again in many of their local markets, not to mention the Americas.

Robin Marshall Editor-in-chief

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Enjoy the fireworks with welcome sparkling wine, our Chef ’s teasing food choices with unlimited consumption, our selection of premium drinks, and DJ Miskó’s cozy background music.

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Participation fee: HUF 19,990 / person with an additional 12% service charge.

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Budapest Business Journal | July 17 – July 30, 2020

News///macroscope

A Long Road to Recovery Ahead for Hungary

Although the industrial output reading in May was a slight improvement from April, the impact of coronavirus clearly continued to constrain industrial activity.

Industrial Production in Hungary, 2001-2020 (January to May) Producer volume index (the same period of the previous year is equal to 100)

ZSÓFIA CZIFRA

The economic outfall of the pandemic still had a significant effect on production in May: according to a second estimate of industrial production, output declined by 30.7% on a yearly basis in the fifth month of the year, a reading unchanged from the preliminary data published on July 7.

Based on working-day adjusted data, production fell by 27.6% year-on-year.

However, there was a slight slowdown, with the industrial output 15.6% higher than in April, according to seasonally and working-day adjusted indices.

An outstanding fall was observed in the manufacture of transport equipment (which represents the largest “weight” in production), while the manufacture of computer, electronic and optical products, as well as the manufacture of food products, beverages and tobacco products declined to a lesser degree.

Within industry, production fell by 32% in manufacturing (representing the decisive weight of 95%) and it dropped by 18.5% in the much less significant mining and quarrying. The output of the energy industry declined by 6.2%.

Production volume decreased in all manufacturing subsections. The manufacture of transport equipment (representing 21% of manufacturing output) decreased at the highest rate,

by

53%

year-on-year.

The volume of motor vehicle manufacturing fell by 55%, the manufacture of parts and accessories for motor vehicles by 54%.

The manufacture of computer, electronic and optical products (accounting for 13% of manufacturing) declined by 21%. Of the two largest groups, the manufacture of electronic components and boards rose by 22%, while the manufacture of consumer electronics decreased by 25%.

Pharma on the Rise

The manufacture of food products, beverages and tobacco products (with a 13% share in manufacturing) was less affected

Source:

by the epidemic. The volume of production was 12% lower compared to the same month of the previous year, with decreases measured in both sales directions.

Meat preservation and processing, and the production of meat products (representing the largest weight at 23%) fell by 19.5%; the manufacture of beverages, the second most significant group dropped by 10.1%.

According to ING analyst Péter Virovácz, although a slow recovery had begun, reaching pre-pandemic levels of productivity will be a much longer process than the two months it took the economy to tank.

Production grew in three groups altogether. Of the two carrying the smallest weight , the processing and preserving of fish, crustaceans and mollusks went up

by

12.9%,

the manufacture of tobacco products increased by 5.6%, while the manufacture of vegetable and animal oils and fats, having a greater weight, rose by 9.8%.

Among the medium-weight representing subsections, the manufacture of rubber and

plastics products and other non-metallic mineral products decreased by 27%, while the manufacture of basic metals and fabricated metal products dropped by 33% year-on-year.

The manufacture of basic pharmaceutical products and pharmaceutical preparations declined by 3.4% only year-on-year, meaning that an increase was measured compared to April 2020.

Slow Rebound Expected

Although in a month-on-month comparison industrial output grew some 15%, there are worrying signs that indicate a slow recovery: the volume of new orders in the manufacturing sector was down 38% in May from a year before. New domestic orders fell by 30%, while new export orders were down by 39%; therefore, a fast recovery for the Hungarian industry is highly unlikely, analysts say.

According to ING analyst Péter Virovácz, although a slow recovery had begun, reaching pre-pandemic levels of productivity will be a much longer process than the two months it took the economy to tank.

Reopening the economy after the epidemic has helped various sectors unevenly, Virovácz said, with car manufacturing lagging behind. He thinks that the sector’s performance will improve in the coming months before slowing again in the fall. Also, he said there was little chance for a rebound to pre-pandemic levels this year.

Takarékbank head analyst Gergely Suppan said the rebound may be boosted by large car manufacturers picking up production in the coming weeks. Other

plants are also expected to start operating shortly, which may help a gradual recovery in the coming months.

Industrial output may fall by 7-8% in 2020 and rebound by as much

as

12-13%

from that low base in 2021, he said.

FocusEconomics Consensus Forecast panelists project industrial production to contract 9.1% in 2020, which is down 0.6 percentage points from last month’s projection. For 2021, the panel sees industrial output growing by 7.7%.

Numbers to Watch in the Coming Weeks The last two weeks of July will be relatively calm when it comes to macroeconomic data. The Central Statistical Office (KSH) will publish the April-June labor market figures on July 29. In the MarchMay period, the unemployment rate was 4.1% and there were 97,000 fewer people employed than a year before, a consequence of the novel coronavirus pandemic. After construction output was down more than 20% in May on a yearly basis, it will be interesting to see the number of construction permits in the first half of the year: that data will be released on July 30.

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News

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Budapest Business Journal | July 17 – July 30, 2020

Smart Buildings, Smart Cities in Fight Against Epidemics With the world in shock from the coronavirus pandemic, some future trends are emerging that may define our life and the global economy.

Tungsram’s smart solutions expert, Gabriella Zsivola, shares her vision in the second part of this joint mini-series with the Budapest Business Journal about the role of smart buildings and smart cities in human wellbeing.

BBJ STAFF

In the world of business and technology, buzzwords are always present; one of the most common in recent years is “smart”.

Smart cities, smart homes, smart lighting, smart solutions; all over the globe, products and services are being launched based on digitalized, automatized, and

computerized data analysis, aiming to contribute to human wellbeing in a costefficient, sustainable way.

The COVID-19 epidemic drove these trends into even more sharp focus; after all, we need smart solutions that can help curb epidemics and avoid infection, while also creating a society in which safety and self-sustenance stand at a higher level (remember the food supply panic at the beginning of the epidemic, or the fears concerning infected items arriving from faraway countries).

Here’s a real-world example: with the use of smart software and systems, the spread of the coronavirus can actually be halted where it is expected to spike, such as residential homes for the elderly or hospitals.

In these institutions, digital intelligence can be established that is indispensable for data-driven decision-making and for centralized, speedy management.

The smart system starts at the entrance, detecting whether someone who enters exhibits a high body temperature, and in case infection is confirmed, contact tracing can be completed by means of mobile technology.

The system also allows for the movements of individuals to be followed within the hospital or nursing home, for example by means of a smart bracelet.

Gabriella Zsivola That means it will be possible to pinpoint a resident’s exact position inside or outside the building, while the care staff can receive continuous information about the individual’s vital life signs.

Reducing groupings with an infection hazard is also possible, for example in hospitals, by optimizing the waiting time at consulting hours.

Hungarian Kick-off

This equipment is already present on the market; moreover, Hungarian entities are at game kick-off – sometimes almost literally: one of the country’s largest public buildings, the Puskás sports stadium, applies a Hungarian-developed facility management software (ArchiFM). This, together with the involvement of some partners, could be capable of managing the sort of system described above.

Cities around the world are working on completing smart city concepts, and not for the far future: Consulting company Roland

Vodafone Hungary 1 of the 1st to Switch to Permanent Remote Working Since the start of this month, Vodafone Hungary says it has been offering customer service staff the opportunity to work from home permanently.

BBJ STAFF

Teleworking was already normal for some parts of the company; however, experience from the recent shutdown has shown that

this approach can be introduced in areas such as customer service, where it had been unthinkable before.

The company says it is offering the option of continuing to work from home after the epidemic, thus taking what it says is a pioneering role in the development of innovative, digital ways of working.

In mid-March, Vodafone ordered all its staff working in the company’s Budapest offices to work from home. The telco says for many this did not cause any disruption, as home office had been part of the daily routine for years. However, there were colleagues for whom, due to the nature of their role, working from home had previously been unthinkable.

But in view of the pandemic, the company also reorganised the work of these colleagues, allowing almost all

of them to work from home during the emergency. That has proved so popular, the move to make it permanent was taken.

In the first phase, starting in early July, 50% of customer service staff will have the option to continue to work from home, a ratio the company says it plans to expand in the future.

Employee Interest

Although the pandemic accelerated this, employee interest was also increasingly growing: a survey found that nearly three-quarters of employees would take advantage of working remotely in the long run if they could. In addition to saving time and money on the commute, allowing for more flexible work, reducing stress and increasing job satisfaction, there are also benefits from the employer’s perspective.

Berger reviewed the world’s 15 smartest cities. Five were Chinese; but London, Birmingham, Paris and Vienna are also listed; the latter had already completed its digital architecture system in 2017, and has since been developing new services based on the feedback. At home, the most recent smart city candidate is Debrecen, which presented its 68-page smart city study plan for the city’s digital renewal a few weeks ago.

Tungsram sees smart city solutions in a very practical light: it believes outdoor lighting, more precisely the lampposts standing on every street at every five meters, are highly suitable for becoming the spine of a city’s smart infrastructure.

These lampposts can be equipped with sensors, measuring instruments, cameras, and signaling devices, all of which continuously provide data for the organizers of traffic and parking, as well as organizations monitoring air pollution, security, and other factors that influence our everyday lives.

The devices operating on the lampposts may help find an empty parking lot or assist in orienting self-driving cars; they can also direct attention to criminal acts occurring and provide public Wi-Fi, for example. Considering the new challenges raised by the coronavirus emergency, just as in the case of hospitals and elderly care homes, contact tracing and observing movement will also be possible from, and thus control the spread of illnesses and infections.

On top of all such advantages, these procedures will result in a continuous cost saving, since modern lighting is LEDbased with its energy consumption just a fraction of the earlier solutions.

Furthermore, a model already exists for financing it: so-called ESCO service providers pay for the entire investment, or a part of it, and the investor pays off the loan from the money gained through energy saving, while the maintenance costs that they pay during the loan’s duration basically remain the same as before.

With the need to commute to the office coming to an end, it will be possible to attract employees for whom commuting had previously been an issue. This means that people who live further from the office buildings or are potentially less mobile due to illness or care needs can also join the company.

“I believe that the negative effects of the coronavirus epidemic can be best mitigated by companies that learn from the experience of recent months, and incorporate their findings into their future operations,” says Gabriella Szentkuti, director of commercial operations at Vodafone Hungary.

“One such conclusion is that the efficiency of employees not only does not decrease, but in many cases actually increases when working from home. It is in view of this, as well as the needs of our employees, that we have decided to offer our customer service staff the opportunity to work remotely. In this regard, we are breaking new ground in Hungary, and we hope that, as a result, we will be able to welcome many talented new colleagues from all across the country in the future,” she adds.

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Budapest Business Journal | July 17 – July 30, 2020

News | 5

PRESENTED CONTENT

Producing Open-minded Talents for Debrecen and Beyond Trina Arsenault, director and elementary school principal, talks to the Budapest Business Journal about the unique International School Debrecen (ISD), which opened in September 2019 and has just completed its first school year.

Prologis Park Budapest-Harbor.

Prologis Acquires new Development Plot Leading Hungarian and regional logistic park developer and operator Prologis has acquired a 13-hectare development site adjacent to its fully developed and leased Prologis Park BudapestSziget. Based on the M0 Budapest ring road, plots have become increasingly difficult to source at this major Budapest logistics hub.

GARY J. MORRELL

The deal was facilitated by Modesta Real Estate; the location has all the necessary permits and potential for two logistics facilities totaling 60,000 sqm according to Prologis.

Although the logistics and light industrial sector has been hit by the coronavirus as with other market sectors, it is seen by many analysts as being the development and investment sector in the most favorable position for the post-COVID period.

The respective Central European governments have now reopened the borders to and from Austria, Croatia, the Czech Republic, Hungary, and Slovakia, enabling logistics traffic to run smoothly in the region.

At the same time low vacancy rates are forecast to continue due to high demand.

“Decision making processes have clearly slowed. Tenants are prioritizing their efforts and are mostly focusing on getting back their businesses to normal,” comments global commercial real estate firm Cushman & Wakefield in its latest market update.

“This means location searches, lease negotiations, contract negotiations etc. are slower than pre-COVID. Large-scale transactions have occurred over the past weeks and months despite the pandemic, depicting healthy demand and positive market sentiment,” it adds.

Record Low

The consultancy expects a record low vacancy rate as of summer thanks to the combination of continuing high demand and a very limited handover of new facilities. Hungary has had the lowest vacancy rate in the Central European region at 2.8%, a historic low in a market that is concentrated in the greater Budapest area with total stock estimated at 2.3 million sqm.

Few existing logistics schemes have 5,000 sqm plus spaces available according to the Budapest Research Forum (BRF), which consisting of CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL and Robertson Hungary.

Prologis has an occupancy rate of more than 99% in Hungary, compared to 95% in its Central European portfolio, according to the company.

“Projects already started pre-COVID are expected to be handed over with a quarter’s delay,” Cushman & Wakefield explains. “Developers are strongly focusing on BTS [built-to-suit] or semi-speculative opportunities with the price of BTS continuing

to be

10%

over the price of existing schemes.

The appearance of a new player (still unnamed) should have a positive effect on market liquidity and land transactions,” the consultancy adds.

The logistics provider Fiege Group has signed leases for a total of 38,000 sqm of space at Prologis Park Budapest-Harbor, bringing the total of space leased at the complex to 59,000 sqm. It also provides Prologis with its largest tenant in Hungary.

Regional industrial developers and park operators are developing sustainability accredited and more highly specified projects in reaction to changing tenant demands.

Prologis, for example, says it has achieved a reduction of 30% in heating costs, while LED lighting and large skylights cut electricity consumption by 45%. The complex provides electric car charging facilities and direct public transport links.

Prologis says it is now committed to developing sustainability-accredited space across Hungary and the region, and has six BREEAM accredited buildings at Prologis Park Budapest-Harbor and Prologis Park Budapest-Sziget.

BBJ STAFF

BBJ: How was the IB system welcomed in Debrecen? Is it true that the school is unique in the region and the teaching methods are different from a public school?

Trina Arsenault: Yes, we had a very warm welcome with many inquiries into our programs. The eastern part of Hungary, especially Debrecen, is developing, with numerous multi-national companies settling into the region. The city authorities reacted quickly to the demand for welleducated, English speaking teachers, and a school with an international program, resulting in the opening of the ISD. The school makes this area even more attractive for investors. As Debrecen is the capital of the region, the long-term plan of the municipal government envisaged the school as a part of the Modern Cities Program of Debrecen.

The teaching methods of the ISD are in line with the methodology of the IB (International Baccalaureate) World School system. This view has many advantages in regards of the development of the children. It supports open-minded, curious, intelligent, empathic young people with fantastic problem-solving skills. They are well equipped to be at the forefront of global competition and understanding by fostering a lifelong love of learning in every child.

With the help of independently accomplished projects, research and teamwork, our students will be equipped with the knowledge they need to be successful in a continuously changing society.

BBJ: What are the future plans after your first year of operation?

TA: We are happy that we have achieved higher student numbers than expected within our first year of operation. Our long-term plan is to run the school with a maximum capacity of approximately 500 children. The comprehensive educational system lasts from kindergarten to graduation where we plan to offer an

Trina Arsenault Early Years, Primary Years, Middle Years and Diploma Programs, which will serve to guide the pupils on to the best higher education institutions. Due to our flexibility, both foreign and Hungarian students can attend the school. The authorization for the IB Primary Years Program is already in process and should be finalized in fall 2021.

BBJ: The building looks outstanding.

What was the concept behind it?

TA: The school building was designed by the BORD Architectural Studio, which won gold classification at the A’Design Awards 2019-2020 and thereby became one of the world’s 40 best architectural constructions.

This award has honored the most talented designers in architecture of 180 countries in the past 11 years, and the building is one of the 40 most outstanding architectural projects of the world. The concept was based on the form of a circle. This simple, yet symbolic shape traditionally means protection, union and community, while it softly blends into the neighboring forest area of the Nagyerdő protected nature reserve.

International School of Debrecen isd.debrecen.hu

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Budapest Business Journal | July 17 – July 30, 2020

Business

greenhouse gases, Barbara Botos, Deputy Minister of State for Climate Policy said.

The goals include the issuance of a Green Bond, and support for the energy-related development of domestic companies, thereby supporting the goal that the share of renewable energy sources in Hungary should reach 21% by 2030.

Carbon Control: Not Enough Progress

While no one can doubt its devastating health and economic impacts, the coronavirus pandemic has also had some beneficial effects. Or it has at least revealed chances that we could take advantage of. The temporary shutdown of many production facilities significantly reduced noxious emissions. According to many analysts, this might be our last chance to reverse the effects of environmental destruction.

BBJ STAFF

The online “Race to Zero Carbon” conference organized by the Business Council for Sustainable Development in Hungary (BCSDH), the British Embassy, the Embassy of the Kingdom of the Netherlands and the German Embassy aimed at encouraging the domestic business sector to shift to a more sustainable, carbon-neutral economy after the pandemic.

“Since 1990, the British economy has grown by 75% but we have managed to cut emissions

by

45%.

That shows that green growth is absolutely possible; we have got new green industries.

The coronavirus crises has given us an opportunity to rebuild not what we had before, but to rebuild better, as we look ahead,” said the U.K. Ambassador to Hungary, Iain Lindsay.

“We need to unite behind a global green recovery, we have all got our parts to play whichever country we come from,” he continued.

“The race to zero as a campaign mobilizes actors and organizations outside of national governments to join the climate ambition alliance and send

Implemented Greening Programs in the Field of Energy

BUILDING ENERGY AND ENERGY EFFICIENCY • 28 public tenders • 584.000 households • HUF 96 billion support • -240 kto CO 2 /a • -1028 GWh/a

a strong message to governments that businesses, cities, regions, investors are united in meeting the Paris goals, creating a more resilient zero carbon economy,” he explained.

“Since climate change is not a local issue, Great Britain also develops projects outside the United Kingdom. We have launched a smart cities project here in Hungary and in the countries of Central and Eastern Europe, working with British embassies and partner organizations from the Baltic to the Black Sea, 50 cities from across the region working with British cities,” Lindsay said.

Mobilizing a Coalition

René van Hell, Ambassador of the Netherlands to Hungary, took a step further in describing the current context: there is not enough progress, and the Netherlands is even more at risk than other countries.

“Even though some cynics might argue that rising sea levels are business opportunities, for example selling our know how, as a result of centuries of experience of how to manage water, we have a feeling that this is not a way to go forward,” he said.

“Whether in London, Miami, Mumbai, Bangladesh, we are in the same boat and we can achieve our climate goals set in the Paris agreement only if we mobilize a coalition of net zero initiatives,” van Hell added.

The Netherlands' view is that a green deal must be reached in the EU. The Dutch government has an action agenda, the national energy climate plan, which, he explained, would require agreements with sectors to achieve these climate goals.

“Sectors like the electricity, industry, transport and agriculture. We have made some assessments of the costs and I hope we have made the right calculations and

ELECTROMOBILITY • ~3800 pcs. vehicles procurement • ~800 charging stations • Socialization • Awareness raising • 250-260 local governments • HUF 11.5 billion support

How can a Green Bond contribute to protecting the environment? The goal of issuing such a bond is to ensure adequate financing for the developing Hungarian green economy and promoting environmental sustainability, Botos explained.

The money collected through these bonds will be dedicated to six Eligible Green Expenditure categories: 1 Renewable Energy; 2 Energy Efficiency; 3 Land Use and Living Natural Resources; 4 Waste and Water Management; 5 Clean Transportation; and 6 Adaptation.

Hungary has already issued Green Bonds

worth

INDIVIDUAL PROJECTS • International climate finance, Western Balkan Green Fund • Enery efficiency demonstration projects • CNG demo projects • Water utility projects

EUR 1.5 billion,

living up to our commitments will be less than half a percent of our GDP

in

2030.

Green Deal, Green Bond

“On a practical level, my embassy in Budapest tries to be active on many levels and sustainability of course is the leading theme. One of the ways that the ministry of foreign affairs challenges us ambassadors is that we have to compete to achieve sustainability,” van Hell noted.

In Hungary, the Parliament recently passed a climate protection law, by which Hungary has committed to achieving net climate neutrality by 2050, more specifically to balance the emissions and absorption of

a significant success on the market, Botos noted.

Diána Ürge-Vorsatz, vice-chair of the Working Group of the United Nations Intergovernmental Panel on Climate Change (IPCC), warned that the coronavirus may be our last warning.

“If we do not change our relationship with nature radically, the survival of civilization is highly questionable. The health and economic crisis caused by the coronavirus is just a foretaste of what climate change will cause soon,” she said.

However, “The crisis and economic recovery have created many new opportunities to accelerate the economic and institutional changes needed for decarbonization, but these were very difficult to mobilize before the crisis. It’s up to us whether we return to the outdated 20th-century ‘normal’, or build a new, more livable, healthier, cooler and happier ‘new normal’,” she added.

This “new normal” should be a shift to a low carbon economy, digitalization and service orientation. A stimulus spending of only 2.5% of the annual GDP by all countries would be enough to solve carbon emission problems, Ürge-Vorsatz said.

Ongoing and Planned Greening Programs 2020-2030 period

ENENRGY INNOVATION PROJECTS Application to support pilot projects

TRANSPORT GREENING Public transport (green bus)

ENENRGY AND CLIMATE CONSCIOUS SOCIETY International climate finance

ENENRGY CONSCIOUS AND MODERN HUNGARIAN HOMES Green district heating systems based on renewable energy, smart meters

TRANSPORT GREENING Cars, trucks and lorries

IMPROVING ENERGY EFFICIENCY OF ECONOMY (EEOS) Subsidiaries - ESCO model for energy efficiency improvement investments

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Coronavirus ///roundup

Timing is Everything, in Generation Change Too dr. Gellért Menczel-Kiss Manager

Taking Stock From the Lockdown Experience As the COVID-19 emergency wanes, employees are now physically returning to work full-time, but according to a recent survey by Allianz Hungária Zrt., roughly 77.4% of respondents said that based on the experience of recent months they had become used to working from home office, and in fact had come to prefer it.

Only 26.9% of respondents said they feel more efficient in an office. More than half of the respondents in the survey positively indicated that they could sleep more in the morning and that they could spend more time with their families.

According to another survey from OTP Bank, some 34% of able-bodied workers went to work as normal during the coronavirus emergency, while

nearly

60%

performed their work duties from home.

The decision for employees to physically return to their workplaces is not only unfavorable for a majority of workers, but may also be counterintuitive for employers.

According to a recent study by DEVELOR, the vast majority of companies they surveyed felt that employee engagement had increased while employees worked from home during the curfew period.

This is corroborated somewhat by research from Organizational Psychologist and executive transition coach Hajnalka Szirtes, who found that nearly a quarter (23%) of employees worked on average two hours more from home office than in the pre-virus period.

Valuable Learning

Regardless of their feelings on their current working environment, many Hungarians were able to take away a valuable learning experience from the situation over the past few months.

According to a recent study commissioned by OTP Bank, some 70%

of respondents plan to set aside as much in savings or more in the coming months than they have so far, while only 7% feel unable to save at all in the future.

The financial stability of Hungarian households has significantly improved compared to the level of two years ago, and the number of those who consciously plan their finances has doubled, the Money Compass Foundation told state news agency MTI. According to the foundation's surveys, in 2018, barely half of households were able to cover a significant expenditure without external assistance, but in 2020, as many as 73% were able to.

According to a recent study performed by eNET on behalf of Magyar Telekom, spending more time together and rushing less are the two things that almost two-thirds of respondents would like to carry on to the post-virus period. More time for oneself and aiding others were also mentioned in the research by more than half of the respondents, and the study revealed that the role of cooperation and solidarity with each other has increased in the Hungarian population.

Hungarian companies largely share the optimism of the population. According to a survey of company executives from

24

European

countries conducted by Intrum, Hungarian companies are more optimistic than the European average, with about half of them saying that there will be no recession this year.

These feelings are not unfounded, as the latest Eurostat statistics show that the unemployment rate in Hungary is one of the lowest in the EU. The fact that the number of registered jobseekers has been steadily declining for the four weeks in a row now would certainly lend itself to that argument, according to State Secretary for Economic Strategy and Regulation László György, of the Ministry for Innovation and Technology.

Perhaps the resilience of Hungarian companies can be demonstrated by the fact more than 10,000 companies registered in Hungary have annual net sales of more than HUF 1 billion, with almost 7,000 among them being purely domestic ventures, according to Opten.

Making plans is a human trait. We prepare shopping lists, holidays, meetings, budgets.

While it may seem like we prefer the important events of our lives to be planned out ahead, there are areas we tend to neglect. Surprisingly, retirement is one of these.

The generation who established their business in the years of the political changes in Hungary at the beginning of the 1990s is slowly stepping back. Some might already have plans about what to do with the companies they lead, but this issue requires utmost care not just for economic reasons, but because of family considerations as well.

Even if the plans to retire are more or less decided, it is not easy to really take that final step back and give up the daily work, if only for personal rather than business reasons. We are often faced with the conflict of family and business interests combined, with the fears the founders have about future operations.

But if these decisions are not made in time, the heirs could end up in a situation that they have to run the business, whether that was what they intended or not. However, with a timely planning it can be ensured that the retirement of the founders is done in a smooth way, according to their intentions, ensuring the stability, unity and continuity of the business, avoiding family conflicts and the dismembering of the company.

Although in corporate inheritance there are no general approaches and best practices, as family relations have a key role, Hungarian legislation tries to keep up with these topics and it

provides beneficial solutions that can be alternatives worth considering, based on foreign experiences and practices.

Some new instruments have been introduced in Hungary recently.

Fiduciary management and trusts in the form of foundations are relatively new instruments in Hungary. The aim of these is to ensure the unity of the business in a way that the assets subject to these management forms acquire an economically independent form and designated persons may only acquire their profit based on the general operation of the company.

Establishing a fiduciary management and a foundation might be done on a tax-exempt way.

By this, the legal and economical ownership are divided and the assets (practically speaking the companies) start independent operation.

The asset management forms become independent taxpayers, subject to corporate income tax and other obligations under the general rules. Profit distribution to the designated persons – according to the establishing documents usually laid down by the retiring founder – is subject to dividend taxation on the level of the individuals.

Nevertheless, if the capital (here shares in the company) is distributed at some point, it can be treated as tax neutral again under specific conditions. This may happen when the preconditions laid down at the establishment are fulfilled or the whole construction is ceased. Thus, the handover of the assets may be postponed and linked to specific conditions to be fulfilled with the connected tax optimization.

Naturally, as always when dealing with taxation, the detailed provisions must be examined precisely in order to ensure the connected tax benefits at establishment and at later distribution.

Even if practical experiences are weak in this regard, we do believe that, similarly to international examples, the Hungarian legislation slowly moves in a direction that provides chances for a good tax planning opportunity. Timely planning may provide the chance to enjoy the time after retirement in a well-deserved calm environment.

LeitnerLeitner is one of the most influential tax consulting, accounting and auditing companies in Central Europe, with tested cooperation all over the World. Family business is a key area for us and we provide tailor-made services for family owned enterprises. Here the combination of tax experience and the consideration of family governance merge into advantageous solutions.

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INSIDE VIEW

LeitnerLeitner

NICHOLAS PONGRATZ

Business | 7

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The Corporate Finance Column Photo by Panchenko Vladimir / Shutterstock.com

Side-stepping the Small Business Trap Most people would think that it is more difficult to sell a large company than a small company. As he explains in his latest Corporate Finance Column, Les Nemethy is not one of those people.

While there are exceptions to every rule, I would suggest that it is easier to sell a larger company than a small company, everything else being equal, for the following five reasons, some of which are inter-related: 1 Investors are typically looking for larger acquisitions that will “move the needle”.

Depending on the industry, it becomes more difficult to find investors for companies with less than EUR 8-10 million in revenues and at least EUR 1 mln in cash flow.

2 It takes just as much work to buy or sell a small company as a large.

Because of the difficulty in obtaining information, sometimes it even requires more effort to conclude a transaction with respect to a small business.

Transaction costs as a percentage of transaction size are therefore much higher for small companies.

3 It is harder to obtain quality information from a small company.

Small companies often lack systems, whether Customer Relationship Management (CRM), Enterprise Resource Management (ERM), or even more sophisticated accounting packages that permit sophisticated management accounting analysis. Often smaller companies are run by an ownermanager who keeps information on excel spreadsheets. When performing

due diligence on a smaller company, obtaining appropriate information is like pulling teeth. A good advisor can be worth his weight in gold in helping the owner of a small company prepare for a due diligence; alas, small companies are least able to afford good advisors (part of the “trap”).

4 Small companies may lack depth in management.

Often the CEO is a “one man show”, and the company lacks a second tier of management capable of independently making decisions. As the owner of a company typically leaves after his company is acquired, this may leave an acquiror in a precarious situation.

This lack of management depth also creates a certain level of risk for small companies: in a large company, if someone leaves, a colleague is usually immediately available to fill the position. In a small company, the replacement will more likely be recruited from outside, adding delay and risk. Large companies are generally able to afford better staff and may have a little more built-in staff redundancy.

5 Valuation of larger companies is often more advantageous.

Certainly than for smaller companies, commanding substantially higher multiples of revenues, cash flow, EBITDA (Earnings before Interest, Tax, and Depreciation), etc.

I call this a “trap” because the above factors may make a small company completely unsaleable, or if saleable, at a valuation where the owner is unwilling to sell. For example, years ago, we had a sale mandate for a EUR 3 mln revenue business that organized conferences, where no buyer was willing to step forward, because the two owners of the business had full control of all information and sales, and the business would probably not have been able to sustain or grow revenues in the hands of a new manager.

So if you are the owner of a small-ish company, what steps might you take to make your company more saleable?

1 Identify one or more ideal buyers.

Who do you think might want to buy your business? Consider evolving your business in a direction that would be desirable to these buyers (e.g. market segments served, types of clients, etc.)

2 Aim to become a larger company.

You can do so by organic growth, merger or acquisition. This growth should ideally not be by way of diversification, but focused on a single core business, if possible.

3 Qualitatively improving the company.

Having it run more like a large company (e.g. with a high quality management team, better systems, better corporate governance) can help at least partially to dig the company out of the trap. Of course this must be carefully balanced with keeping expenses in check, and maintaining financial performance.

4 Prepare thoroughly for a sale.

Create an excellent teaser, information memorandum and data room, which will signal to investors that the company is well-managed and capable of generating quality information.

This may help shift the cost/benefit of investors in favor of considering an investment in your company.

A good advisor may help you anticipate the type of information an investor will require and prepare extensive information disclosure.

5 Be prepared to stay on for a longer transition.

This will help reduce risk for investors, particularly where there is an “earn-out” type transaction (e.g. 20-30% of the sale price is paid out one or two years after the first closing).

6 Select advisors that you can trust.

Carefully select your advisory team, lawyers and, if possible, financial advisors. Ideally, each should have many similar transactions under their belt.

There is no guarantee that the above measures will work, but they should take you in the right direction.

Les Nemethy is CEO of EuroPhoenix (www.europhoenix. com), a Central European corporate finance firm, author of Business Exit Planning (www.businessexitplanningbook. com) and a former president of the American Chamber of Commerce in Hungary.

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Hungary’s largest ICT employer, IT Services Hungary, rebranded to Deutsche Telekom IT Solutions as of July 1. The company says the aim of the name change is to streamline the German mother company’s international b2b telecommunications business structure, to enhance cooperation efficiency within the company group and to improve customer service.

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The changes will have no impact on the Hungarian subsidiary’s strategy and growth targets; the local leadership says it welcomes the development of the international structure and expects even more efficient cooperation between markets.

The rebranding comes in two stages Deutsche Telekom IT and Telecommunications Hungary Kft. were formed as of July 1. The remaining part of ITSH will be renamed Deutsche Telekom Systems Solutions Hungary Kft., effective from October 1. The two companies will be present in the job market under the joint brand name of Deutsche Telekom IT Solutions.

“The international restructuring will make cooperation simpler and more transparent within the company group,” explains ITSH managing director Erik Slooten.

“After the separation of telecommunications-related services, the entire Deutsche Telekom group, including its Hungarian subsidiaries, will be able to react to business customers’ TC [telecommunications] needs in an even more agile way.

Locally, high quality work will continue along our existing business strategy: we will carry on pursuing more complex projects and added value,” he says.

Commitment

Mariann Mészáros, vice president of human resources at ITSH adds, “Becoming Deutsche Telekom IT Solutions is an indication of

Erik Slooten commitment towards the shared values of the DT Group: customer focus, being technologically curious and acting as one team.

“We want to further encourage our present and future colleagues to create value together for customers and the industry. Also, the streamlined structure will well support them in utilizing and improving their knowledge and expertise in an inspiring international environment or even global projects.”

Established in Hungary in 2006 as IT Services Hungary, Deutsche Telekom IT Solutions provides a wide portfolio of IT and telecommunications services with more than 4,500 employees.

ITSH was awarded the Best in Educational Cooperation prize by the Hungarian Investment Promotion Agency in 2019, was acknowledged as one of the most attractive workplaces by PwC Hungary’s independent survey and won the title of the Most Ethical Multinational Company in 2019. The company has four Hungarian sites in Budapest, Debrecen, Pécs and Szeged.

INSIDE VIEW

Brownfield Investments in Rust Zones, Construction After COVID-19 Dr. Gabriella Gálik

Dr. Dénes Glavatity

Partner

Associate

KCG Partners Law Firm

KCG Partners Law Firm

COVID-19 is causing major economic disruption with more severe impacts expected than had to be managed after the global financial crisis in 2007, as it hits households, businesses, financial institutions and markets simultaneously. An interesting question is how the current situation will change with the reduced VAT rate announced by the government for the sale and rental of new homes resulting from brownfield real estate investments in so-called rust zones.

What are the effects of the virus on those involved in the construction industry?

The virus has detrimental impacts on the global construction business, since it influences both material and labor, key cost components of construction projects, and by doing so, challenges on-going project delivery, companies’ liquidity and business models.

There is no doubt that all participants of the construction industry have encountered, and will keep encountering, impacts on their operations due to the pandemic. These include, among others, delays, workforce disturbance, equipment and supply chain disruption, decreased efficiency due to on site health and safety measures, permit delays and financing limitations or cash flow shortages.

What happened with employment in the construction industry when the coronavirus appeared in Hungary?

Since the domestic construction industry has been struggling for years with a shortage of professionals in the sector, the share of foreign labor in construction in Hungary is high compared to the national average. However, foreign workers left the country when the virus appeared, and 15,000 workers, some 5% of construction labor, fell out of production immediately.

There have been about 30,000 construction workers and engineers working outside Hungary’s borders in recent years, an estimated 15-20% of whom may have returned home in April 2020 due to the pandemic.

Unfortunately, they could not satisfactorily make up for the scarcity in workforce either because of their different qualifications or simply because of the lower headcount.

What might be the implications of the government decisions regarding rust zones?

The return of 5% VAT on housing projects in the rust zones has been a hot topic since April 2020, and aims to encourage the construction of affordable new housing and create construction jobs. Newly built housing in these areas may make the real estate market in Budapest more balanced, as the growing supply may increase competition in the new housing market.

However, in the current uncertain market situation, it is impossible to predict future price developments.

Rust zones are areas that have not been used for decades, but once housed warehouses, old dwellings and factories.

As they have good transportation links, they are a great opportunity to set up flats, offices and shops after tidying them up.

At the end of 2018, there were a total of 3,507 brownfield plots in Budapest, across a total area of 2,945 hectares.

The largest rust zones in Budapest are in Districts III, IX, XI, XXI and XIII. What technological developments will help the construction industry in the future?

Construction companies can start embracing new technologies for project monitoring and management that lessen the need for physically being onsite. Experts claim that, in five years, we are going to see a lot more technological innovations being used across the industry. New technologies and construction methods will take priority in the near future as labor costs keep rising due to the increased health and safety regulations imposed by COVID-19. The future is in software and hardware such as communication tools, drone technology, augmented reality (AR), virtual reality (VR) and building information modeling (BIM).

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IT Services Hungary Renamed Deutsche Telekom IT Solutions

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Budapest Business Journal | July 17 – July 30, 2020

Changing Behavior Accelerates Consumer Embrace of Digital, Health, Sustainability The acceleration of consumer trends and behavior that was already underway before COVID-19 has taken another leap forward and will spark consumer-facing companies and retailers to reinvent the way they do business, according to a new PwC report.

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Although the report is global in nature, the trends will be important for Hungary, too. “Currently, the length of uncertainty brought by COVID-19 is unpredictable both on global and local levels,” says Anita Mekler, partner at PwC Hungary.

“Consumer markets’ players need to plan with and be prepared for several scenarios. Those who were able to switch their businesses online from one day to the other now have a clear advantage. Consequently, other market players are under intense pressure: they need to find new market channels to

survive and invent new communication strategies which work under the changed circumstances to stay close to the consumers,” she told the Budapest Business Journal.

The findings from a brace of surveys taken before and after the COVID-19 pandemic and published in PwC’s 11th annual Global Consumer Insights Survey focus on urban consumer purchasing habits and behaviors, and how global disruption has forced the acceleration of a more digital way of life.

Social distancing measures put in place because of the coronavirus have affected consumers in all aspects of life, including how they purchase groceries. Globally, while in-store grocery shopping is the main channel of choice, over a third of consumers (35%) are now buying food online; of those,

86% plan

Increase in Online Shopping Methods (Non-food)

Health and Safety

Focus on self-care has increased, with 51% of urban consumers agreeing or strongly agreeing that they are more focused on taking care of their mental health and wellbeing, physical health and diet as a result of COVID-19.

Urban dwellers surveyed after the outbreak viewed safety and security (49%), and healthcare (45%) as being just as important to their quality of life as employment prospects (45%).

Sustainability and a sense of civic duty are also coming to the fore; in survey results taken prior to the pandemic, 45% of global respondents say they avoid the use of plastic whenever possible, 43% expect businesses to be accountable for their environmental impact, and 41% expect retailers to eliminate plastic bags and packaging for perishable items.

Interestingly, when consumers were asked who was most responsible for encouraging sustainable behaviors in their city,

to continue doing so after social distancing measures are removed.

Prior to the pandemic, in-store shopping chose was still dominant for non-food items, with "me, the consumer," while 15% chose "the 47% of consumers saying they shopped at producer or manufacturer." brick-and-mortar stores daily or weekly compared to shopping via mobile phones (30%), computers (28%) and smart voice assistants (15%).

PwC conducted two separate online Since then, online shopping for nonsurveys, the first survey collected food items has seen a substantial increase responses from 19,098 consumers (mobile phone 45%; computer 41%; tablet from 27 countries or territories 33%), the trend is especially pronounced in and 74 cities between August and China and the Middle East, with 60% and September 2019. The second survey 58% of respondents respectively saying they shop more on their mobile phones.

20%

Tablet: 33% Computer: 41% Mobile: 45%

Asked about their willingness to share data, 49% of consumers said they were happy to do so if it helped improve their city.

“While certain trends have been on the upswing for quite some time, our research shows that the pandemic has sharpened consumers’ desire for transparency, sustainability and convenience,” says Steve Barr, global consumer markets leader at PwC US. Oz Ozturk, global consumer markets advisory leader with PwC UK said, “In our 11 years of surveying consumers around the globe, we have never documented such a clear convergence of themes around transparency, sustainability, and social consciousness. At such a pivotal moment, the need for consumer-facing companies to establish trust with potential customers could not be any clearer."

collected responses from 4,447 consumers from nine countries or territories and 35 cities between April and May 2020. The full report is available at www.pwc.com/ consumerinsights

Reload Hungary: 110 Startup Ideas From 8 Countries The Reload Hungary Incubation Program attracted dozens of startups with solutions to problems created by the pandemic covering recruitment, hospital administration, and the struggling hospitality industry, among others.

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The program received 110 applications from Hungarian innovators whose ages ranged from 17 to 70, and who were drawn from eight different countries, the organizers say. The selected teams will take part in online business development training to improve their startup ideas during the summer.

Representatives of HU.B (Hungarian Bridges), the founders of the Reload Hungary Program.

The program is the first joint initiative of HU.B (Hungarian Bridges), an umbrella organization bringing together

12 players

from the Hungarian startup ecosystem: Startup Campus, the Hungarian Export Development Agency, Tungsram, the NKFI Office, Hiventures (part of the MFB Group), MVM Smart Future Lab, Valor Hungariae, Hello Tomorrow Hungary, the Hungarian Intellectual Property Office (HIPO, or SZTNH as it is known in Hungarian), Eximbank, Millenáris and Kézmű, a stateowned company that employs Hungarians living with disabilities.

What makes the program unique is that, because the business development training will take place online, Hungarians from all over the world could apply, regardless of their physical location, Hungarian Bridges say.

All Ideas Welcome

As a result, organizers received applications from the likes of Germany, Great Britain, Malta, Romania, Serbia, Slovakia, and Spain, as well as Hungary.

Reload Hungary is not limited to one industry; ideas were welcomed from any areas. Solutions in the fields of clean energy, agricultural technology and the circular economy were already popular before the pandemic, therefore it was no

surprise to see many ideas from these areas submitted.

The pandemic highlighted other problems, however, and many applications address the new challenges of catering and tourism, education, recruitment, health and lifestyle.

Some ideas offer an alternative to social and professional networking for artists, who were highly affected by the economic consequences of the pandemic, while others focus on mental health issues or trying to improve digital working conditions.

The organizers have chosen the best ideas from

110

applications,

and the selected teams started their online incubation at the beginning of July. They will learn about lean startup methodology, business model canvas, financial planning, international validation and go-to-market strategies, while also taking part in individual mentoring.

After the online training, the best performing teams will be invited to a virtual Demo Day to present their products to investors from Hiventures and Startup Campus Incubator, as well as the online audience. Here they will have the chance to win a HUF 20 million investment to start their own company.

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Budapest Business Journal | July 17 – July 30, 2020

Special Report Magyar Multinationals

NNG Prepares for ‘Massive Investment’ in Automotive Cybersecurity

When Martin Pfeifle read last February that researchers had fooled several Tesla cars’ camera systems into accelerating the vehicles from the legal road speed of 35 mph (56 kmph) towards 85 mph (136 kmph), he felt both scared and happy.

KESTER EDDY

“I was scared, because this kind of manipulation could have been done, and will be done, not only by malicious hackers, but also by teenagers who do it for fun without thinking about the consequences,” he tells the Budapest Business Journal.

Indeed, as reported in the MIT Technology Review, the researchers had merely used a small piece of black tape to turn a 35 mph limit sign to read 85 mph and deceive the cars’ cruise control systems – a ruse so simple a five-year old could do it, assuming they could reach the sign.

But Pfeifle, who is chief technology officer of NNG, a Budapest-based automotive navigation and infotainment systems producer, was equally happy because NNG’s own technology is “not only based on processing information coming from sensors but also from static maps”, and thus would thwart any such malicious tomfoolery.

By employing NNG’s “sensor-fusion” technology in a vehicle, anyone with malevolent intent would have to be highly skilled to manipulate both maps and camera images to achieve unwanted acceleration, he says.

Zoltán Nagy, VP of Engineering, adds: “This story shows how easy it is to manipulate a car. However, to cause misbehavior or accident for one car is easy.

For me the really scary story would be if a whole fleet was hacked.”

NNG, which began corporate life in 2004 as Nav N Go and now boasts

550

employees

globally, is increasingly focusing on automotive security systems designed to cope with anything from crude roadsign disfigurement to sophisticated IT hacking.

All Connected

“From the connectivity standpoint, all modern cars are connected [to the internet]. Most have direct built-in cellular connectivity, and others are connected through external devices such as the driver’s mobile phone,” Ziv Levi, CEO of Arilou, NNG’s Israel-based automotive cybersecurity division, tells the BBJ. While such systems have greatly enhanced the driving experience of modern automobiles, they come with a catch: they also open a door for malicious players to get access to the vehicle systems and manipulate them.

“Like any connected system, cars can be hacked. While with other systems this usually means a breach of privacy or potentially a financial loss, in the case of cars, there’s also a real physical risk to passengers,” Levi stresses.

He points to modern steering systems, which will correct the course if a driver fails to keep properly within the road lane.

Ziv Levi, CEO of Arilou.

“Like other systems in the car, this is computerized. If someone hacks in, he can control your steering wheel. In a sense, computers are driving your car,

and if they are breached you have no control of the vehicle,” says Levi.

July

2022,

Zoltán Nagy, VP of Engineering.

It opens up the frightening prospect of criminal activity against individual drivers, or worse still, terrorist action against random cars, causing mayhem on highways.

and will become mandatory for all new vehicles produced from July 2024,” says Pfeifle.

This will trigger “massive investments” in automotive cyber security, he argues, pointing to a McKinsey report in March that predicts spending in this sector will almost double from USD 4.9 billion this year to USD 9.7 bln in 2030.

Sleepless Nights

Indeed, the issues involved in creating practical cyber protection systems for vehicles – which include technical, economic and complex legal arguments – have given both auto industry leaders and regulators sleepless nights for years as they ponder what action to take.

Meanwhile, Levi and his researchers have been working on protection systems, most notably their patented Intrusion Detection System (IDS) which monitors and analyses a vehicle’s electronic traffic in order to detect attacks or anomalies in the vehicle network.

This investment has already begun to make a return, with the New Zealandbased Ohmio Automation choosing an Arilou protection system for its new generation of autonomous buses, along with more deals in the pipeline.

‘Huge Collision’ as Older Autos Meet the Internet Age To simplify the array of wires and small servo-motors that began to appear in cars in the 1980s, German auto engineers invented the CAN (Controller Area Network) bus, which allows microcontrollers and devices to communicate without a host computer.

This was a major step forward in auto design, and worked very well.

But as Tamás Kerecsen, then chief technical officer with NNG, told the BBJ last year, it is also the reason why old cars are vulnerable to modern-day hackers today.

“The automotive industry is very iterative. Car makers build on the previous year’s model. They

“We are currently also working on other projects together with Tier1 suppliers and OEMs [original equipment manufacturers, in other words, vehicle or parts makers], but are not allowed to comment on these at present,” says NNG’s Pfeifle But this is merely a start. With the United Nations Economic Commission for Europe (UNECE) announcing new regulations on cybersecurity for vehicles at the end of June, NNG has the road map to fully exploit its know-how by tapping into a market of mind-boggling proportions.

“In the European Union, this new regulation makes cyber security mandatory for all new vehicle types from

[almost] never do it from scratch because it’s so incredibly complex, there are so many companies involved, so many pieces involved, nobody could build something from the ground up,” he said.

It means many cars into the early part of this decade rely on technology dating from the 1980s.

“Automakers know that the CAN bus works. They have all these pieces that connect to the CAN bus, and they don’t want to break that connection. There is this huge legacy of things that were proven to work 40 years ago, all in a car that’s shaking on the road, and they don’t want to try anything new,” he adds.

Martin Pfeifle, CTO. “The new UN Regulations will spur significant innovation and new economic opportunities among suppliers, IT companies, specialist niche firms and startups, particularly in the software development and services market,” Pfeifle predicts, with the clear implication that NNG is well placed to carve out its share of this growing market.

But in the last decade, car owners, armed with smart phones, have been demanding increased connectivity, meaning the legacy infrastructure is increasingly used by hi-tech applications for which it wasn’t designed.

“You have all this hi-tech stuff coming in and opening new doors into this unprotected network. This is a huge collision, happening now.

It’s the internet age coming into the car, which is completely vulnerable to this,” Kerecsen says.

Turning towards Arilou’s chief executive, he adds: “And that’s what Ziv has been working to find solutions for, to protect the old infrastructure that was designed for [physical] robustness and not for hacking protection.”

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Special Report

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Budapest Business Journal | July 17 – July 30, 2020

The Big Picture: ‘Small is not an Option’ It is not unusual in the digital age that startups skyrocket and become important players on the international market in a short time span. But in the early 1990s, for companies emerging from the Eastern bloc with very limited free market experience, competition often proved a painful lesson. Hungary’s OTP Bank, however, managed to grow significantly. Deputy CEO László Wolf tells the Budapest Business Journal how it succeeded.

BBJ STAFF

BBJ: The first major step for OTP in the market economy era was the privatization of the company. How was this conducted?

László Wolf: Back in the 1980s we had already acquired a solid profit and we had a very wide client base in Hungary, which gave us an advantage in the new circumstances. In 1995, we launched the initial public offering (IPO); this was the first step in the privatization, then we entered the stock market. The basics of entering the market for any company are: transparent procedures, a reliable reporting system, and a strategy. We implemented all these, plus organizational changes in the company, which allowed us to take the next step, to enter the stock market.

BBJ: Did the strategy also included regional expansion at this time, or did this come later?

LW: No, back in 1995 this was not yet a goal; we started thinking about that after 1997. That was the time when we told our investors that we were looking at foreign investment opportunities. We had sufficient profit for that and there were banks for sale in the region. We believed that the region would develop quickly and

BBJ: How much state support did you receive?

LW: We never depended on financial state support, we always relied on our own profits, even in times of crisis. On a diplomacy level, as for any other Hungarian company, we have always been supported by the government in power.

BBJ: The pandemic has significantly hit the world economy. How can OTP make plans in the current circumstances?

LW: It is difficult because we cannot foresee when the pandemic will end and if there will be a second wave.

We do make new plans, even under these difficult circumstances. What we already see is that our region will recover sooner than others. There are already positive signs the economy is restarting. While there are still uncertainties, we are pretty sure that we will have economic growth in 2021.

László Wolf we also saw huge differences between bank values. Of course some banks were way overpriced, but we acquired our first project in Slovakia at a very low price.

BBJ: What were the risks?

LW: The risks were the same as today, in any other acquisition: that the market would not expand as we expected, and the target would not bring the results we forecasted.

And yes, sometimes we made mistakes at the management level too, we did not correctly foresee the risks. But managing a foreign bank is not very easy, we did not know at the time how a network of banks should be managed efficiently. In Serbia, for example, we accepted high risks, which resulted in years of losses and low profit.

BBJ: Did you experience distrust at a government level in the target countries?

LW: First, let us define the role of the state in such transactions, which is to approve the transaction or make the sale, if it has a majority share. I negotiated our first acquisition, in Slovakia, where the state was the seller and also the authority to approve the transaction. During the negotiations I never experienced a negative approach towards us. It is true that we were buying a poorly performing bank, not a big one, but I never felt discriminated because we were a Hungarian bank. And we had no such problems in other countries either.

It was only in Romania where I had the feeling that, because of some reasons, the state authority was unwilling to sell us a big bank. But this was not politically motivated. In the early 2000s, there was a general belief that only Western banks are really good banks, and East European banks were somehow disregarded. An Austrian or Italian bank was more welcome than a Hungarian one. There was no political consideration in this, I just felt that Romania was reluctant to sell us a big bank.

BBJ: Why do you think that, of all the banks in the region, only OTP managed to become a regional player? Is it a matter of available money only?

LW: I can only answer that with immodesty. It is to the management’s merit; the management had the ambition and the vision to build this, and it was also the management which contradicted the general belief that a company from a former socialist country can survive only if acquired by a strategic investor. Two factors were needed for an Eastern European company to enter the regional market.

First, to avoid becoming a subsidiary of a multinational company and privatization based on its market value.

Second, ambition and vision within the management to complete this. But in all this, [chairman-CEO] Mr. [Sándor] Csányi had a significant role.

BBJ: Mr. Csányi is a prominent public figure, closely linked to the history and success of OTP. But how much can the results of such a large company as OTP be linked to a single person?

LW: Well, largely. Mr. Csányi likes to “think big”, he is always looking at the big picture, on an international scale and he also likes the approach to do things that are surprising and difficult.

Of course, our colleagues also made a significant contribution, but he was needed to encourage ambitious projects and to catalyze bold ideas.

OTP Group is the largest financial supplier in Hungary. The bank currently operates in 12 countries including Hungary.

OTP Group provides financial solutions to meet the needs of its almost 20 million private and corporate clients in the Central and Eastern European region through nearly 1,700 branches and 5,000 ATMs, internet and electronic channels and with its almost 40,000 employees.

The banking group holds market leader or near market leader

“We do make new plans, even under these difficult circumstances. What we already see is that our region will recover sooner than others. There are already positive signs the economy is restarting.

While there are still uncertainties, we are pretty sure that we will have economic growth in 2021.”

BBJ: Do you expect recession this year?

LW: Our analysts expect negative growth, not only in Hungary, but in most European countries. Credit lending and consumption will slow, but we expect a strong recovery by 2021.

BBJ: Are you planning new acquisitions?

LW: We are continuously watching the market. We have strong profits, we are stable and this is the time to gain an advantage. We are not eyeing big countries, because they are expensive and we do not wish to be small anywhere. I would say that we do not necessarily need to be leaders in a country, but we do need to reach a productive size in all countries.

Small is not an option.

position in Bulgaria, Hungary, Montenegro and Serbia.

OTP Bank operates nearly 400 branches in Hungary and has more than 10,000. It provides a wide range of financial services in the country, while offering, through the network of local subsidiaries, solutions for a number of other special financial needs, including investment funds, home and other specific savings, and auto financing.

In addition to retail, OTP and most subsidiary banks offer special products to agricultural companies.

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Budapest Business Journal | July 17 – July 30, 2020

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Special Report | 13

Tungsram: Let There Be Light (and Innovation) ArchiFM. This successful software is used in Hungary by Puskás Aréna, the Hungarian National Bank, MÜPA, MOL and Graphisoft Park. Tungsram and the team is now working on expanding the distribution of the software in the Far and Middle East. While the key concept of ArchiFM remains intact, it can leverage Tungsram’s mastery in all the noncore activities, thus making the new relationship even stronger.

“Shaping the future of urban living, providing technology-driven, smart, sustainable solutions for large metropolitan areas using lighting as a platform.” That’s the mission statement of Tungsram, once known for its light bulbs, but today a much more complex firm. The Budapest Business Journal sat down with Ferenc Pongrácz, GM of innovation at Tungsram Group.

BBJ: How have you coped with COVID, have you managed to keep your staff or did you need to lay off people?

FP: White-collar workers’ working hours were cut by 20% from May to July and a wage raise originally scheduled for April was cancelled. The salary of the top management, meanwhile, was cut by 25% on average and non-wage compensation will be scrapped for the year for all employees. Tungsram estimates that its revenue from manufacturing and marketing lighting equipment could fall by 30-40% in Q2, but the impact of the pandemic could be felt across the entire year.

“We are building up new businesses and exploring new areas where our expertise and capacity in manufacturing, innovation, engineering and global sales can be used. “

GERGELY HERPAI

BBJ: Tungsram is mainly known by the general public for being a maker of light bulbs. How has the company moved away from that image and embraced Industry 4.0?

Ferenc Pongrácz: Tungsram, an iconic name, returned to the global market in 2018 as an innovative, premium European brand with the acquisition of GE Lighting’s Europe, Middle East, Africa and Turkey general lighting business along with its global automotive operation, reinvigorating a 124-year-old tradition of playing a leading role in manufacturing technology and service solutions Our core business continues to be general lighting (outdoor and indoor, as well as industrial) and automotive lighting (for OEM’s and aftermarket) and we are building up a solutions business where we do complete lighting projects from design through production and contracting.

Besides these, we are building up new businesses and exploring new areas where our expertise and capacity in manufacturing, innovation, engineering and global sales can be used. Tungsram Group invests into future-safe technologies and dynamically growing global markets, such as smart solutions, smart cities, indoor farming and healthcare, while strengthening the lighting core of its business.

Ferenc Pongrácz sustainable solutions for large metropolitan areas using lighting as a platform.” The innovation business has a number of projects, three very promising right now are Agritech, Innohub and Proptech.

BBJ: What are the key differences between the lighting technology market of the past and today?

FP: Let me give you an example: our Agritech Division has built up a portfolio of lighting and smart solutions focusing closely on indoor plant growing and vertical farming. With highly optimized light sources, the yield of indoor gardens – both in regular and vertical orientations – can be optimized in an age when humanity needs more food products grown closer to urban areas, produced in a more efficient way and year-round.

The mission of Tungsram Agritech is to apply its expertise, acquired over decades in the field of LED lighting, to serve sustainable plant cultivation. This was not BBJ: What are the new operations and possible before cheap and effective LED technologies which Tungsram offers today? technology conquered the world of lighting.

FP: The mission statement of the company To understand the opportunities of LED is: “We are shaping the future of urban in farming Tungsram has, for example, living, providing technology-driven, smart, launched a joint experiment with the Soft

Fruit Technology Group at one of the most prestigious academic institutions in horticulture, the U.K.’s Reading University, on the use of LED lighting for out-ofseason glasshouse strawberry crops.

BBJ: How many people are employed in Hungary and across which sectors are they spread?

FP: Our supply chain is centered around our five factories in Hungary, working to the highest quality standards, with 4,000 employees and a network of 1,600 suppliers and partners around the globe.

BBJ: How many operations are there abroad?

FP: Tungsram is present in 100 global markets and exports 95% of its production.

As I said, we are exploring new areas where our expertise and capacity in global sales can be used.

BBJ: Which new markets do you hope to conquer with these new products and acquisitions?

FP: A good example is that Tungsram acquired the company behind the Hungarian facility management software,

BBJ: What are your plans in the ‘new normal’ defined by the possible waves of epidemics?

FP: Our 124 years of history has taught us that innovation always pulls a company through the crisis periods. That is why we want to share this, in line with Hungary’s economic policy, with the country’s SMEs. The first, great CEO of the company, Lipót Aschner, who made Tungsram a global player, was thinking in terms of what we would now call industrial, innovative ecosystems back in the 1920s-30s, and we are doing very much the same thing 100 years later. We are surrounding ourselves with startups with great ideas, and help them with manufacturing, product development and sales. We think innovation is not just an idea, but a process that leads to a successful product that customers actually want to buy. A great example for this kind of cooperation is ours with Hungarian startup Infratrainer. This is an effective and innovative solution in the fitness market, a special equipment combining two kinds of fitness methods, infralight and cycling for the sake of the highest possible efficiency. The Infratrainer had been highly successful in Hungary already, but to find global markets, to develop additional services and, last but not least, to manufacture in big enough quantities to supply the international markets, it needed a partner; that is, Tungsram. Our joint venture is currently working on all of these issues.

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Budapest Business Journal | July 17 – July 30, 2020

MOL Prospecting for new, Innovative Solutions BBJ: What are your plans for the coming period?

PR: The pandemic and the changes in consumers’ behaviors following the pandemic shed light on a many things. Besides risks and difficulties, we identified opportunities as well. The most apparent example is probably our MOL Hygi, the social relevance of which is unquestionable as well.

Hungarian oil and gas giant MOL is perhaps the quintessential Magyar multinational, one of the country’s biggest bluechips, with business interests around the world, though concentrated in the region. The Budapest Business Journal spoke with COO Péter Ratatics about the impact of COVID19 and the move toward sustainability.

“During the past few months, we have produced more than 2.5 million liters of hand and surface sanitizers and delivered it across the country so as to stop the spread of the coronavirus.”

ZSÓFIA VÉGH

BBJ: How did the COVID-19 pandemic affect MOL’s activities?

Péter Ratatics: In the past few decades, oil consumption has gradually but steadily shifted towards the transportation and logistics sectors. As these were the sectors that were affected most severely and rapidly when the boarders were closed, oil demand started to plummet by an unprecedented extent.

MOL has faced many shocking events in the past, but we’ve proven many times that we are a well-capitalized and viable company and we are ready to secure energy and service supply even under extreme circumstances. Thus, the company was able to maintain stable operations in a market with worsening prospects and worsening demand during the pandemic.

BBJ: To what extent did you need to modify previously approved plans?

PR: MOL switched to crisis economy mode in April and we reviewed our investment and development plans focusing on the most important tasks. Therefore we lowered our annual EBITDA goals by 25% and reduced our investment costs below USD 1-5 billion dollars. We also decreased our operational costs, while our liquidity is still strong, even with the completion of the purchase of the Chevron assets in Azerbaijan in April, so we have USD 2 bln-2.5 bln available to ride out the storm, even in the case of a prolonged crisis. We have also decided to take another step until things get back to normal: we are retaining our after-tax profit for 2019 fully, which might be paid out as dividends – partially or as a whole – at a later point if shareholders decide so.

Péter Ratatics BBJ: Which activities were affected and to what extent?

PR: Demand for fuel products decreased by almost 40% and for non-fuel products by 30% on a group-level. In line with that, we reduced the production of our refineries and optimized our operation on group-level so that we can flexibly adapt to changing demands. With that we managed to avoid shutting down our refineries, which, from a technical viewpoint, allowed us to increase capacity without any problem as the demand started to rise again. Today, we are running our refineries at 100% capacity again. Regarding non-fuel products, we have reached last year’s sales figures at our service stations. As for our petchem [petrochemical] division, we maintained last year’s sales volume in the case of polymer products during the entire period and even reached a new record in May. At the same time, the USD 20 oil price affected our upstream division quite negatively. Just like everybody else, we reduced the volume of produced barrels of oil.

BBJ: Were there any changes regarding employment, working hours or work scheduling?

PR: We introduced travel bans right after the coronavirus started to spread and then shifted to home office a couple of weeks later in the middle of March in every position

where it was possible. Those colleagues who were responsible for business-critical tasks continued to work at our sites as we could not operate our refineries without them when the whole region’s energy supply was at stake. We have honored their brave performance with a pandemic allowance, and protected their health with really strict preventive measures.

“Another strategic goal of ours is to invest into new, innovative solutions in the fields of both new business directions and the oil industry, such as e-mobility, self-driving cars, alternative fuel products and plastic recycling.”

The biggest challenge for HR was that the coronavirus kept setting new tasks and priorities: we had to completely change our work scheduling, immediately shift to the use of digital devices and had to address the changes in workload as well.

As for our long-term prospects, the importance of sustainability in the whole economy has exceeded our expectations of four or five years ago: political decision makers are setting ever more ambitious targets.

This creates an interesting situation: the pandemic may precisely accelerate the decrease of the role of fuels, the product that was originally the base of our long-term strategy in 2016.

As a response, we are decreasing the ratio of fuel production, while refinery products will be utilized as an expansion of our petchem and chemical portfolio. In parallel, we are also planning other investments in the petrochemical and chemicals value chain, part of which is that we are currently building a new polyol complex at Tiszaújváros. Another strategic goal of ours is to invest into new, innovative solutions in the fields of both new business directions and the oil industry, such as e-mobility, self-driving cars, alternative fuel products and plastic recycling, which support sustainability as well.

BBJ: What role did MOL have in fighting the pandemic?

PR: With the spread of pandemic accelerating, we decided to transform one of the production lines at our site in Almásfüzítő to support the preventive measures with our own means. During the past few months, we have produced more than 2.5 million liters of hand and surface sanitizers and delivered it across the country so as to stop the spread of the coronavirus. Since the end of March, we have been supplying institutions fighting in the frontline – hospitals, public utilities and transportation companies – but we also donated sanitizers. Thus, we handed out approximately 20,000 liters of MOL Hygi to the largest aid organizations and municipalities. More recently, we have just handed over a total of 13,000 liters of MOL Hygi hand sanitizer to the [subsidized summer] Erzsébet Camps in order to keep children safe.

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Budapest Business Journal | July 17 – July 30, 2020

Global Sales Help Richter Ride out Impact of Pandemic It might come as a surprise to the average Hungarian, but in far off Siberia, more than 6,000 km east of Budapest, medical professionals sing the praises of Richter Gedeon medicines.

Sales by Geographies Other Global Markets

Other Global Markets 10%

USA

11%

CIS 30%

USA

19%

“If I see two similar drugs, one produced

by Richter Gedeon and another by a local pharmaceutical company, I’d rather choose the first,” Svetlana Sizih, a Russian pediatrician from Ust-Ilimsk, Irkutsk region, tells the Budapest Business Journal.

Her colleague Svetlana Klimenok, a general practitioner, agrees. “[Richter] medications have proven to be very effective treatments, along with a great price to quality ratio,” she says.

These Russian doctors illustrate the strength and reach of the Richter brand. Reliable, effective and affordable medicines have made the blue-chip Hungarian pharmaceutical maker one of the biggest players in Central and Eastern Europe, and beyond.

Richter is currently present in more than 40 countries, operates five manufacturing facilities (in Germany, India Poland, Romania, and Russia) and boasts

38 sales

subsidiaries and wholesale companies globally.

The product portfolio includes women’s healthcare, the central nervous system and cardiovascular drugs. Total revenues in 2019 came to HUF 507.794 billion, almost 14% more than in 2018.

The company’s 2020 first quarter report shows more record numbers, with consolidated profit after tax hitting HUF 29.1 bln, up 31.7% year-on-year.

This year, the COVID-19 pandemic has brought complications to drug makers, as in every industry.

Nonetheless, relatively speaking, the pharmaceutical sector has been able to remain “shielded from the crisis shockwaves,” Gábor Orbán, Richter Gedeon Nyrt.’s chief executive, said in the company’s first quarter report.

Well Managed

Hungary “has managed the pandemic very well,” Zsuzsa Beke, head of public relations and public affairs at Richter Gedeon told the BBJ. Richter dramatically reduced personal contact and introduced online meetings where possible, but “business activities did not stop”, she stressed.

30% 17%

Q1 2019

Q1 2020 9%

11% 31%

EU

34%

Hungary

Hungary

EU15

EU15 EKATERINA SIDORINA

CIS

EU

EU12

Total: HUF 97.6 bln

+19.5% (HUF)

EU12

Total: HUF 116.6 bln Source: Richter

Inevitably, “online meetings have become dominant and an even more integral part of the daily operation,” he said; for their own safety, sales representatives had to stop personal visits, switching instead to online channels.

“This transition went smoothly and quickly, demonstrating that promotional activities can partly work on digital platforms,” Beke said, adding that the results are being carefully monitored to ascertain what works, and what doesn’t.

She admits that, ultimately, it seems new product launches remain impossible without personal visits.

Richter has also joined the scramble to find an antidote against the coronavirus, signing an agreement with U.S.-based biotechnological company INOVIO to support large-scale manufacturing of that company’s trial DNA vaccine for COVID-19, Beke said, stressing that this is still in the developmental phase.

The company is also involved in “several projects” to develop treatments for acute coronavirus infection, Beke revealed, while declining to provide further details at this early stage.

Richter’s management has clearly convinced Michal Kuzawinski, an analyst

with U.K.-based investment bank J.P. Morgan Cazenove. In a report on

May

8,

Kuzawinski wrote that Richter was “broadly unscathed by COVID-19 so far.”

“We have regained high conviction on Richter’s Vraylar story with management sounding very comfortable on supply chains and the drug’s prescriptions continuing to print ~100% growth throughout the U.S. lockdown,” he argued.

But even in these uncertain times, the circumstances seem to be in favor of Richter Gedeon. For example, Kuzawinski noted distinctive growth for Vraylar, higher demand for the company’s main products in the first quarter, wage pressures subsiding and costsupportive digitalization, together with foreign exchange trends, namely a strengthening dollar and euro against the forint, both compensating for a weaker Russian currency; the latter being a key Richter market.

“The key downside risks to our forecasts and rating is the large reliance of Richter’s earnings on a single drug, Vraylar,” Kuzawinski notes.

This posed potential risk should Vraylar be withdrawn from the U.S. market for some reason, for example if it turns out that it can cause a serious risk to patient’s health, he

Cariprazine: Not Just Good News for Richter Cariprazane, Richter Gedeon’s atypical antipsychotic, received the Medicine of the Year 2019 award from the Hungarian Society for Experimental and Clinical Pharmacology (MFT).

It’s active ingredient, a Hungarian development, was discovered in early 2000s. Since its launch in 2016, the drug has been used in the treatment of schizophrenia, bipolar mania, and bipolar depression. It has become well-known in many

countries and is especially popular in the United States, where more than two million prescriptions of Vraylar (the brand name for the drug in North America) have been made.

“The success of Cariprazine goes well beyond Richter,” says Erik Bogsch, Richter’s chairman. “It also has historical significance for the Hungarian pharmaceutical industry and medicine, as it is the first original product developed in Hungary to be introduced on the U.S. market.”

Zsuzsa Beke, head of public relations and public affairs at Richter Gedeon. said. Other potential dangers include costs inflation, and the vulnerability of Russia and the CIS to oil price or local currency risks.

At the time of writing (July 9), the share price stood at HUF 6,675, up 4 % this year.

In contrast, the Budapest Stock Exchange’s benchmark BUX index closed closed the same day down 22,36% this year, the slump primarily caused by COVID-19 concerns.

During the 28th Annual Meeting of the European Psychiatric Association (EPA) on July 4-7, Richter Gedeon presented new results of Cariprazine research. A 16-week observational study conducted in 116 outpatients in Latvia showed that the antipsychotic significantly improved the negative symptom domain of schizophrenia based on clinical judgment.

The majority of doctors were highly satisfied with both the effectiveness and tolerability profile of the drug, Richter Gedeon told prnewswire.com.

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Budapest Business Journal | July 17 – July 30, 2020

Socialite

We anticipate that there won’t be a consensus concerning restrictions among the 45 markets we operate in. This will keep on creating difficulties regarding which routes we can operate and where passengers can travel freely.

How Will Flying Look This Summer?

BBJ: What are the most popular destinations?

AR: Hungarians are heading for seaside destinations and returning to other parts of Europe for work.

After months of lockdown, David Holzer has finally begun to appreciate how Hungarians feel about not having an ocean anymore.

Now he says he is convinced that being unable to see the sea does contribute to a general sense of melancholy.

BBJ: What do people booking flights with Wizz Air absolutely need to be aware of?

AR: It’s of paramount importance that passengers check the restrictions in place at their destination before and at the time of their travels.

BBJ: Is there any extraordinary level of protection against cancellation or is standard cancellation insurance sufficient?

AR: We recommend that passengers add Wizz Flex to their booking, for hassle free peace of mind travel. That way they can cancel or modify their flight up to three hours before departure without a cancelation fee and get 100% of the original fare immediately reimbursed in airline credit, which can then be used within three months from the cancellation.

DAVID HOLZER

Apparently, there’s a mental state called the “blue mind.” The phrase was coined by marine biologist Wallace J. Nichols for his book of the same name. Nichols studied the effects of water on our health and well-being and concluded that being in, on, under or near water can reduce anxiety and increase our sense of calm.

I believe in the blue mind. Although we live by the majestic Tisza River and I walk along its banks most mornings, it’s not the same as gazing out across an expanse of water and being unable to see the other side.

But, in a few days, my Hungarian partner and I will be flying to the ocean with the de facto Hungarian carrier (and with its bases throughout the region something of a Magyar multi itself ), Wizz Air. Established in 2004, the company is often categorized as Central and Eastern Europe’s leading low-cost airline. It flies to more than 160 destinations in 45 countries and operates a network of close to 800 routes. It was the preferred choice of 40 million passengers in the financial year ending March 31, 2020.

Importantly for these times of ours, Wizz Air was recently named one of the world’s top 10 safest airlines by airlineratings.com, the world’s only safety and product rating agency.

Curious to find out how the airline has been coping in the past few months of lockdown and what we can expect on our flight, I recently spoke to András Radó, communications manager for Wizz Air. BBJ: How did Wizz Air operate through the months of lockdown?

BBJ: What is demand like for flights from Hungarians?

AR: We’re seeing growing demand and our surveys show that Hungarians would like to travel after the months’-long lockdown.

András Radó András Radó: We were heavily impacted by the restrictions. But we were one of the very few airlines that didn’t stop flying during the past months and offered those flights that were possible under the restrictions. Apart from carrying passengers for essential travel, we performed more than 100 humanitarian flights, bringing medical supplies from China, and repatriated close to 3,000 stranded passengers.

BBJ: What’s the situation now?

AR: With the arrival of the summer and parallel to the easing of the travel restrictions imposed by countries, we’re steadily ramping up operations and carrying more and more people. We’re currently operating at well over 50% capacity and seeing a growing number of bookings for the summer period. These are people traveling to or from Hungary for work as well as leisure and business travelers returning to flying.

BBJ: What safety measures is the company taking?

AR: We recently announced a range of enhanced hygiene measures.

Throughout the flight, both cabin crew and passengers are required to wear facemasks, with cabin crew also having

to wear gloves. Our aircraft are regularly put through an industry-leading cleaning process with an antiviral solution and, following our stringent daily cleaning schedule, all aircraft are disinfected overnight with the same antiviral solution.

Sanitizing wipes are handed to each passenger upon entering the aircraft. Onboard magazines have been removed and any onboard purchases are encouraged to be made by contactless payment. On flights from Budapest we are trialing payment by bank card only.

Passengers are requested to follow physical distancing measures introduced by the local health authorities and are encouraged to make all purchases prior to the flight online (checked in luggage, Wizz Priority, fast security track, for example) to minimize all possible physical contact at the airport.

BBJ: How does the company anticipate measures changing?

AR: We expect that restrictive measures will gradually ease, and we can restart even more routes.

BBJ: What challenges do you expect in the coming months?

AR: There will certainly be challenges.

BBJ: Looking to the future, does Wizz Air believe the nature of air travel has changed forever?

AR: We’re sure that air travel will gradually return to normal. Analysts have previously stated that it will take two-three years to reach pre-COVID-19 capacity, however for some airlines – such as ours – it will take less time. We expect to reach our pre-COVID-19 capacity by 2021.

BBJ: What predictions would you make for the future?

AR: Some non-sustainable airlines have already and will go bankrupt while profitable and stable airlines like ours will be able to further grow and add more capacity. Long-haul and business travel will recover last, while short- and medium-haul, point-to-point flights are expected to recover quicker.

It’s expected that younger people will return to traveling and flying sooner than the elderly.

For more on Magyar Multis, see our Special Report in this issue. And Look out for much more on the tourism industry in our next issue, the last before we take our traditional summer break in August.

If you are planning on flying Wizz this summer and would like to prepare yourself for what to expect, check out the airline’s “WIZZ Says YES to Enhanced Health & Safety” video on YouTube.

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Budapest Business Journal | July 17 – July 30, 2020

Gradually Coming Back From COVID Like many other service-based businesses, Budapest’s previously burgeoning wine bars and wine restaurants have taken a battering from the clampdown caused by COVID19, but many thankfully appear to have successfully battened down the hatchets, or in their case corks, and come through the other side.

ROBERT SMYTH

Indeed, there has been a shining light at the end of the tunnel for a pair of Budapest fine wine establishments, the first ever from Hungary to make Wine Spectator’s Restaurant Awards list.

“This year marks the addition of a new country to the Restaurant Awards program –Hungary, which has two first-time Award of Excellence winners, Fiaker and Felix Kitchen & Bar,” says Wine Spectator’s Cassia Schifter, who is the prestigious U.S. wine magazine’s associate tasting coordinator.

In 2020, the Award of Excellence, which recognizes thoughtfully chosen wine lists that offer quality and diversity, as well as compatibility with the restaurant’s style and menu, was earned by

2,289 restaurants,

Schifter adds.

Fiaker describes itself not as being a fine dining restaurant, but more of a bistro, and guests are entirely welcome to drop in only for a glass or two of wine. It is with its wine list that Fiaker stands out, with the territories of the late Austro-Hungarian Monarchy the focus, with the selections made by owner András Kálmán.

“It’s a big honor, it’s not only important for us but for the Hungarian wine scene in general. It’s put ourselves on the map, being included in a magazine that’s not only very well known in the U.S., but

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Esetleg Bar & Bistro, which is part of the Bálna (Whale) complex.

VinoPiano has a counter outside near the entrance of the craft beer mecca of Élesztő at Tűzoltó u. 22 in District IX, while the bar itself is in the same building.

Of the garden bars, Kőleves Kert, at Kazinczy u. 37 in the heart of District VII, has a small but very decent selection of wines by the glass.

Fine Dining

In the world of fine dining, the Michelinstarred Borkonyha (literally Wine Kitchen), which, as its name suggests, has a strong emphasis on wine, remains closed with the reopening date still uncertain, although sister restaurant Textúra reopened on May 29 with Borkonyha’s head chef Ákos Sárközi in charge of the kitchen.

Meanwhile, it was lovely to see wine lovers visiting wineries again during the Szekszárd open cellar weekend of

July

3-5,

albeit with COVID clearly considered.

Visitors had to pre-register and come at an allotted time. A relaxed, bibulous atmosphere ensued, yet with social distancing observed, at the Eszterbauer winery.

A (pre-COVID) indoor wine tasting event at Fiaker.

In Szekszárd to judge wine at Vinagora, Hungary’s sole international wine competition, I caught up with fellow also across the wine world,” he told the “We hope that the first award for Hungary judge and Eszterbauer winemaker, Miklós Klein. I asked him how they had Budapest Business Journal. brings us more guests who will appreciate coped during COVID. While Hungary and Austria dominate our wine concept,” Máté Horváth, Felix’s “Dolgoztunk,” (“we were working”) was Fiaker’s selection, there are also head sommelier, told Wine Spectator. his answer, and then whisked me off to see wines from Slovenia, Croatia, Serbia, If anything, wine bars might be set to some of the fruits of their labor. We were Transylvania and the north of Italy. benefit in future as people steer away joined by owner János Eszterbauer, who “The award also acknowledges the work from crowded, standing-room only pubs was clearly reveling in meeting up with of the producers we deal with. You don’t and clubs, though that’s not to say that fans of his wines. need to go to Bordeaux and Champagne to wine bars can’t be like that; think DiVino, He proudly showed us around the produce a wine list when there are exciting especially on a (pre-COVID) Friday night. stunningly designed and recently wines surrounding us. Our goal is to bring The good news is that, now we are in the more and more interesting wines from the heat of summer, there are plenty of outdoor completed new winery at Bor u. 8, as well as the plot of 100-year-old neighborhood,” said Kálmán. options for enjoying a glass of wine.

Kadarka vines.

The aforementioned DiVino, with Impressive Istria A new wine for me from Eszterbauer was its selection of wines from the young My last wine trip abroad before COVID “Napszámos” Néró Rozé 2019 (HUF 1,750 winemakers of the Junibor group, came was to Croatia, where I was very from www.eszterbauer-bor.hu), which even has a wine bar on Lupa Beach at impressed by the wines of the Kozlovic has a pale purple meets deep pink color, Budakalász, a town just 17 km north of winery from Istria at the Vinart wine fair positively oozes ripe strawberries and central Budapest). in Zagreb, and then thrilled to go on and raspberries, and has substantial body and Kadarka Bárka, close to the athletics visit the winery. weight for a rosé, with black pepper joining stadium on the Buda-facing side of I’m now happy to say that I can have a on the finish.

Margitsziget has a chilled beach-bar vibe glass of Kozlovic at Fiaker at Madách Imre It’s a bit fiery with 14% alcohol, but to go with some good wines. út 11. Also, having traveled extensively has the body to handle it. Ideal for those Another pleasant waterside setting around the Austrian wine regions, I looking for a fuller rosé, and distinctive too. with an airy terrace, this time in Pest, is applaud the team’s choice of Austrian wines, which really encapsulates all that’s exciting about Hungary’s neighbor, which actually has less land under vine than Hungary (approximately 46,000 hectares vs 64,000 hectares, respectively).

Incidentally, the Fiaker team are also behind KisBécs in Buda, which exclusively deals in Austrian wine, and has a lovely garden that’s ideal for summer imbibing.

Felix Kitchen & Bar is located in the Miklós Ybl-designed building that used to house the Várket Kiosk and later the Várkert Casino, at Ybl Miklós tér 9.

It makes my mouth-water to view the wine list that features Hungarian offerings such as Somló’s Kreinbacher, Tokaj’s Balassa, Szekszard’s Heimann, Badacson’s Villa Tolnay, and Frigyes Bott from Muzla in the Felvidék just across the Slovakian border, alongside many enticing international offerings.

For my pocket, it would be as dangerous as visiting the casino that The award-winning Fiaker can also host terrace-tasting. used to be housed there.

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Budapest Business Journal | July 17 – July 30, 2020

30 YEARS OF FREEDOM

The Exchange Palce was originally built in 1905 to house the Budapest Stock Exchange, designed by the famous Hungarian architect Ignác Alpár in the Beaux -Arts style. With the BÉT disbanded after World War II, it became the home of Hungarian national television MTV in 1955. It is now the largest privately owned historic landmark in Budapest, with ambitious plans to turn it into a retail and office space.

BÉT Opens for Business Again (After 50-year ‘Pause’) On June 21, the Budapest Stock exchange celebrated the 30th anniversary of its second foundation. This year also marks the five year anniversary of its most recent strategy, launched by its then new owner, the National Bank of Hungary (MNB), in 2016.

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Thirty years ago, on June 21, 1990, the Budapest Stock Exchange (known by its Hungarian acronym of BÉT), held its first meeting after a pause of roughly 50 years. Originally founded in 1864, the was disbanded in 1948 for the duration of the communist period, and was only reopened in 1990, as part of the regime change.

In January 1990, a draft bill (the Securities Act of 1989) was submitted to Parliament which came into force on March 1 of that year. Three months later, the newly opened BÉT was set up an independent legal entity with 41 founding members and one single equity, travel agency Ibusz.

The trading started with the ring of a bell received from the U.S. Securities and Exchange Commission: the reopening was witnessed by nearly 1,000 guests from 20 countries.

In its first ten months, the total turnover of the Exchange was HUF 10 billion, which corresponds to the current average daily share turnover today.

BUX, the main stock index, originally comprised 17 shares and started with a base of 1,000 points. Since 1990, almost 130 issuers have traded on the Budapest Stock Exchange.

Through the early ’90s, the BÉT was to play an important role in the privatization of many state-owned companies including Skála-Coop, MOL, OTP, Matáv (now Magyar Telekom), Domus, Globus and Richter Gedeon.

Over the years, the organization and its functions, operational conditions have changed a lot. The open-outcry system of the physical trading floor that characterized the spot market functioned with partial electronic support until 1995. From 1995 until November 1998, securities trading took place concurrently on the trading floor and in a remote trading system, when the new MultiMarket Trading System (MMTS), based entirely on remote trading was launched.

‘Battlefield Rumble’

The traditional “battlefield rumble” of the physical trading floor had ceased within a year by September 1999, at which time physical trading was entirely replaced by the electronic remote trading platform of the derivatives market, the organization writes in its historical summary.

Commemoration: As part of the 30th anniversary of the reopening of the BÉT, the National Bank of Hungary issued a silver collector coin with a face value of HUF 10,000 and its nonferrous metal version of HUF 2,000 on June 21, 2020. The collector coins were designed by applied artist Zoltán Endrődy. The thematic side presents how stock exchanges typically operate. On the vertical, middle axis, the Budapest Stock Exchange’s emblematic object, the bell on a compartment is featured symbolizing the trade opening at the stock exchange, which serves as a way of celebration when a security is first quoted in the market. The BÉT’s logo is at the bottom. The pictures of the bull, symbolizing an upward path at the stock exchange, and of the bear, representing a fall, are placed on the left and on the right on two separate horizontal lines.

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Budapest Business Journal | July 17 – July 30, 2020

Headquarters Since its reopening, the Budapest Stock Exchange has been housed in several different landmark buildings of the capital. The first trading hall was at Trade Center at Váci utca, an 80-sqm hall with no windows. In 1992, the organization was moved to the Deák Ferenc utca 5, to the Palace of Pesti Hazai Takarékpénztár at the corner of Vörösmarty tér and Deák Ferenc utca which, since 1933 has been registered as a part of UNESCO’s World Heritage, and is a historically preserved building. Between 2007 and 2015, the BÉT headquarters was at the Herzog Mansion on Andrássy utca 93, which was owned

by Lipót Mór Herzog, an art enthusiast and collector, whose 2,500-piece collection included pieces from El Greco, Lucas Cranach, Corot, and Renoir. From 2015, the BÉT has been based at the Bank Center building on Szabadság tér.

The derivatives market of the BÉT in futures and options contracts has been available to investors since 1995. BUX contracts have been available for trading

“BÉT’s position also needs to be looked at from a regional level. With the CEE being the fastest growing region on the continent, we are also constantly striving to build an internationally competitive, strong capital market ecosystem.” since the start of the futures market on March 31, 1995. In July 1998, the BÉT was among the first exchanges in the world to introduce contracts based on individual equities. Another series of standardized

derivatives in the options market appeared in February 2000 and on September 6, 2004, trading commenced in the exchange’s second index, the BUMIX. To maintain the organization’s competitiveness, in April 2002, from being an independent legal entity, the BÉT was converted into a business association.

On July 1, the Budapest Stock Exchange Company Zrt. (a privately founded company limited by shares) was launched (it became a publicly operated company limited by shares, or Nyrt., from April 2006) and the BÉT Council and BÉT Secretariat were replaced by a Board of Directors and an Executive Board.

With the integration of the Budapest Commodity Exchange and the BÉT, as of 2005, commodity market trading has taken place on the BÉT as well. In January 2010, the BÉT became a member of the CEE Stock Exchange Group.

On December 6, 2013, a new trading platform/system was introduced. On November 20, 2015, the National Bank of Hungary bought the Austrian CEESEG AG and Österreichische Kontrollbank AG, which had held a 68.8% ownership in the Budapest Stock Exchange. The MNB thus obtained controlling ownership in the bourse.

“What makes BÉT stand out from its regional peers, it is its portfolio,” Richárd Végh, CEO told the Budapest Business Journal. Among the products of the spot market, in addition to equity securities (shares, investment certificates) and debt securities (corporate bonds, mortgage bonds, government securities), structured products (ETFs, or exchange-traded funds, and certificates) are also available.

Special securities in the form of claims securities can also be found. In addition, the derivatives market also has significant turnover.

Regional Level

In the capital markets of the region, BÉT is also unique in the sense that it has nearly 47% ownership in the clearing house KELER CCP, which has an international EMIR license, and in the Central Clearing House and Depository Zrt. (KELER), that performs a central depository function.

“BÉT’s position also needs to be looked at from a regional level. With the CEE being the fastest growing region on the continent, we are also constantly striving to build an internationally competitive, strong capital market ecosystem”, Végh says.

“With that, every country and stock exchange in the region still has a long

The BÉT’s current Bank Center home.

Richárd Végh way to go to develop their capital markets, given the historical fact that these countries had to start building capital market institutions from scratch,” he adds.

“There was also a lack of continuity in the development of private companies and the growth of private wealth, which creates a huge gap between the region and Western European countries. We believe that an important element of economic catching up is the development of a capital market culture.”

The Budapest Stock Exchange has had some very active years behind it, both in terms of the implementation of the market development strategy and the listed issuers. This was coupled with the dynamic growth of trading activity, with a growing trend in the market turnover since 2015.

In its 2016-2020 strategy, a stock exchange presence as a form of financing and growth has been given a highlighted role among Hungarian-owned, emerging companies as well as providing profitable investment opportunities for local and international institutional investors.

In the past few years, the BÉT has created a package of services designed to help domestic medium- and large-sized companies enter the capital market. This includes everything from capital market knowledge to financial support to the creation of special sub-markets.

Future Outlook An early photo of the Exchange Palace, home to the BÉT from 1905-1948.

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As for the future, the bourse says it expects market consolidation efforts already taking place on international

markets to become more enhanced in this region as well in the next 5-10 years.

The Budapest Stock Exchange wishes to become an active part of this process, Végh says. “We also plan to list BÉT as a company on the stock exchange. This something already under preparation and will likely take place in the next five years,” he adds.

“For the BÉT, the key is to maintain consistency and stable growth.” This entails the stock market, the corporate bond market and the SME sector, as well as the development of services to support them, the building of international relations, the strengthening of investor confidence and the financial education of the population.

“Our important goal remains to support the growth of as many domestic companies as possible through providing access to capital market resources and other accompanying services.”

Listings In the year of its reopening in 1990, a grand total of six shares were listed on the BÉT. The first, as mentioned earlier was of Ibusz, followed

by First Hungarian Cooperative Brewery Rt., Konzum, Fotex, Dunaholding and Müszi. In the next three years, 31 more companies started trading, among them were Zalakerámia, Pick, Zwack Unicum, Globus, Domus, Graboplast, Egis, Richter Gedeon, Danubius. MOL and OTP Bank joined the trading floor in 1995, Matáv (Magyar Telekom) in 1997. The year that saw the highest number of new entries was 1999 when 16 companies listed their shares on the BÉT. Since the 2000s, the number of new listings has dropped; in the past five years there have been two per year.

Today, four blue-chips dominate the market: OTP Bank; MOL; Gedeon Richter; and, to a lesser extent, Magyar Telekom.

Wikipedia lists the BÉT as the second largest exchange in the region by market capitalization and liquidity.