Budapest Business Journal 3014 by Business Publishing Services Kft.

VOL. 30. NUMBER 14

JULY 15 – JULY 28, 2022

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Magyar Multis Rejuvenating the Crème de la Crème of Hungarian Cosmetics In 2004, a consortium of entrepreneurs took over Helia-D, a renowned Magyar cosmetics brand in the 1980s but then on the point of extinction. It is a story of regeneration.  15

4iG’s ‘Strategic Transformation’ Appointments Listed IT group 4iG says it has begun the strategic transformation and integration of its telecommunication companies, looking to make more efficient use of the synergies arising from business operations.  16

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Celebrating Return of the Sziget Festival After a COVID-enforced two-year break, a nondescript island in the Danube downriver from the heart of Budapest will once again become the Island of Freedom and host the annual Sziget Festival from August 10 to 15.  17

NEWS

MNB Makes 200 bp Base Rate Hike The MNB hiked the base rate by 200 basis points on July 12 to 9.75%, with the forint regaining some ground as a result against both the euro and the dollar.  3

SPECIAL REPORT

Wizz Air president Robert Carey explains how the low-cost carrier navigates the turbulence of a pandemic, inflation, skyrocketing fuel prices, deepening economic recession, fierce competition, and sudden changes in taxation.14 BUSINESS

Continuity in Policy Amidst new Energy Challenges Minister of Technology and Industry László Palkovics outlined innovation, defense, energy, and economic policies for the upcoming cycle at an AmCham business forum on July 11.  9

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Budapest Business Journal | July 15 – July 28, 2022

IMPRESSUM

THE EDITOR SAYS

ONE ISSUE, MULTIPLE ATTACKS

EDITOR-IN-CHIEF: Robin Marshall EDITORIAL CONTRIBUTORS: Balázs Barabás, Zsófia

Czifra, Kester Eddy, Bence Gaál, David Holzer, Christian Keszthelyi, Renáta Kónya, Gary J. Morrell, Nicholas Pongratz, Gergely Sebestyén, Robert Smyth. LISTS: BBJ Research (research@bbj.hu)

They say there are only two certainties in life: death and taxes. It is the latter that has dominated domestic headlines in the past few days. First came the news, apparently broken to the Hungarian government on July 8 but made public on Twitter the following day, that the United States had walked away from the dual taxation treaty it first signed in 1979. Pre-deadline commitments meant I could not attend the American Chamber of Commerce forum with the Minister of Technology and Industry László Palkovics on Monday. He was there to talk about the new government’s program, but according to the three colleagues we did have there, much of the conversation over coffee and croissants centered on this one topic and what its implications might be, especially (given the context of the meeting) for American companies. As our article on page five makes clear, at this stage, very little about those implications can be said definitively so soon after the event. I am sure AmCham’s taxation committee, headed by Károly Radnai, managing partner of Andersen in Hungary, will be looking into what it means, and you can be sure the Budapest Business Journal will be too. One interesting quirk of timing has become clear, however: has the U.S. government communicated its withdrawal in June, it would have been effective from January 2023; having arrived in July, it will not apply until 2024. The government has made it clear it believes the American withdrawal is a simple attempt to apply “pressure” on Hungary to give up its opposition to the global minimum corporate tax. The Hungarian argument is that, with the European Union looking to implement the tax first, it would put European markets at a disadvantage with those not yet applying it, threatening investments and thus jobs at a time when the war in Ukraine is already contributing to inflation, energy and growth concerns. But these aren’t the only tax issues facing the government. In a move reminiscent of when it first returned to power in 2010, the government presented new legislation on the Kata simplified tax regime and pushed

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it through Parliament in an expedited procedure with very little debate or industry consultation (ironically, Palkovics had praised the platforms available for just that in his AmCham presentation). It is true that there had been discussions about how the tax is implemented, with concerns employers were using it to hire what are effectively full-time salaried staff as freelancers to avoid having to make social security payments. Those criticisms were first aired by László Parragh, chairman of the Hungarian Chamber of Commerce and Industry (MKIK) and a government ally. Indeed, there is currently an MKIK consultation on what is next for Kata that has yet to report. Parragh himself has said he agrees with the direction of travel but found the implementation forceful and argued it should be introduced from January 2023, a new tax year, and not September this year, as the government intends. Others have been more critical, including employers, IT, accountants and doctors’ organizations. (It is noticeable taxi drivers have been given an exemption: students of Hungarian history since the change of regime will know the power of a taxi driver’s blockade.) The decision also prompted street protests that briefly closed a couple of bridges. The various governments of Viktor Orbán have never been shy of a fight but now face wide-ranging opposition that includes the United States, the European Union, several professional associations, and even (limited) public unrest. You might recall that just about the only time Fidesz has backed down was in the face of massed public protests at plans to tax the internet. The crowds that took to the streets on Tuesday were nothing like on that scale, but could they grow? Having started with one hoary old saying, I’ll leave you with another. Conventional military wisdom has it that you should never fight on two fronts. But Orbán has always enjoyed unorthodox approaches. Robin Marshall Editor-in-chief

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THEN & NOW In the color photo from state news agency MTI, Hungarian tennis players Natália Szabanin (on the left) and Luca Udvardy celebrate a point in their game against Taiwan’s Hsieh Yu-chieh and Indonesia’s Jessy Rompies in a doubles game at a tournament at the Római Tennis Academy in Hungary organized by the Women’s Tennis Association (WTA). In the black and white image from the Fortepan public archive, two women pose for the camera at a tennis court in an undisclosed location in Hungary in 1936

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• macroscope

Government, MNB Strive to Defend HUF, Curb Inflation, Control Budget Deficit

The National Bank of Hungary (MNB) has raised the base rate by 200 basis points as concerns over the economy rise, with inflation at heights not seen this millennium, the forint at record lows against the euro and the dollar, and the first half budget deficit edging towards 92% of the full-year target. KESTER EDDY

The economy, specifically inflation and the value of the forint, has Hungarians worried, at least if a brief survey of half a dozen shoppers in Buda’s Mammut shopping mall on Tuesday (July 12) is a fair measure: all but one expressed worries about both indicators. The response of László Hevesi, 27, an actor from Budapest, was typical. “It’s difficult to determine [the main problem], but the economy is in a real mess, as the inflation numbers show,” he said. Despite government assertions that the economic basics are sound, the negative assessment is understandable: in the week prior to the publication of this paper, data for June showed headline inflation had hit 11.7%, the highest in Hungary since 1998, and the forint had hit record lows against both the euro (HUF 416, briefly on July 6) and the U.S. dollar (HUF 414 on July 12). In response, the MNB hiked the base rate by 200 basis points on Tuesday to 9.75%, with the forint regaining some ground as a result against both major currencies, with the euro trading at around HUF 408 to the euro at the time of going to press on Wednesday morning. (It had been a scheduled meeting of the Monetary Council, but not one of the monthly rate-setting meetings; that was slated for July 26.) “The 200 bp increase [….] has resulted in the most aggressive amount of monetary tightening in decades,” Liam Peach, Emerging Markets Economist with Londonbased think tank Capital Economics, wrote in a note after the announcement. Although the rate rise had been foreshadowed by the MNB raising its oneweek deposit rate by a similar 200 basis points the previous week and was therefore largely symbolic, as Peach noted, the

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latest move means that the base rate has increased by 915 bp since May last year. This represents “the largest tightening cycle since the 1987-91 cycle,” the period encompassing the collapse of communism and the first years of democracy, he stressed.

Sharp Slowdown

As a result, “With fiscal policy tightening too and the Eurozone on the verge of recession, all the signs point to a sharp economic slowdown this year. [….] Overall, we expect Hungary’s economy to stagnate over the next three quarters, causing GDP growth to slow from 8.2% year-on-year in the first quarter of 2022 to less than 1% year-on-year in the second quarter of 2023,” Peach predicted. Such a gloomy prognosis is far from the latest calculations of the central bank, which early in July nudged up its forecast for GDP growth this year to 4.5-5.5%, based on strong growth of household consumption of some 8.5%. However, even the MNB, which has a track record for optimism, has raised its inflation outlook to 11-12.6% for this year. What are the problems? One issue is the protracted wrangling over the release of the European Union’s Recovery and Resilience Facility (RRF), funding created to help EU member countries overcome the economic hit caused by the COVID pandemic.

These were originally calculated at some EUR 7.2 bln for Hungary, but the European Commission has taken a surprisingly tough line on how it is spent, voicing concerns about the rule of law and corruption over awarding contracts. The government has been insisting for some time now that it has complied with all the EC’s requests and that any delay is due to opposition lobbying in Brussels. Yet, the commission has remained tight-lipped on its own views on the government’s latest filings and the financial markets, possibly remembering Prime Minister Viktor Orbán’s stonewalling talk on an IMF loan deal from a decade ago, don’t seem to trust the Hungarian government’s promises fully. In addition, the government has been pushing the line that the soaring inflation is a result of the war in Ukraine and poor policy decisions “by Brussels.” It is also quick to point the finger at others, saying inflation is a global phenomenon and that without its efforts to “protect Hungarian families” by, for example, capping utility, auto fuel and some food prices, things would be significantly worse.

Unsustainable Caps?

But independent analysts note that inflation in Hungary was running at 8% before the Russian attack on Ukraine.

Kata Tax Changes Spark Professional, Street Protests Unexpected legislation fast-tracked through parliament this week that the government says will plug tax loopholes has sparked protests from various professional bodies and fomented street demonstrations in Budapest and provincial cities. The moves affect the so-called Kata simplified tax system, used by an estimated 450,000 entrepreneurs and small businesses to avoid paperwork and bookkeeping fees. Speaking in the limited debate in parliament on Tuesday (July 12), State Secretary András Tállai

of the Ministry of Finance said the scheme had been “extremely successful” but had been abused, with companies effectively employing staff as freelancers to avoid paying social security payments. In its new iteration, except for taxi drivers, Kata will only be available to self-employed individuals for their primary occupation and only to those who serve private individuals, not companies or legal partnerships. Critics, which include associations representing employers, accountants, and

Moreover, many insist the price caps are unsustainable and merely building up trouble for the future. “Due to the [various] price caps, the interest rate caps, there is suppressed inflation in Hungary. The real inflation rate would be much higher, amounting to some 15-16% without the government measures,” Miklós Losoncz, professor of economics at Budapest Business School, told foreign journalists on July 8. But such interventions, made for political purposes, come “at a price,” he said. While the government budget cuts meant some savings in state spending after the elections, it continues to insist on “some political priorities,” such as the utility price caps. “This will lead to subsidies to MVM, the Hungarian energy company, for some HUF 1,000 bln-1,500 bln [this year]. How to finance this subsidy? This is the price of maintaining the reduced overhead costs.” In addition, the controversial taxes on companies in sectors deemed to have made “extra profits” as a result of the COVID pandemic and the Ukraine conflict “distort the market and have unfavorable repercussions,” Losoncz said, arguing that the tax on pharmaceutical companies would likely mean a reduction in the quality and range of medicines available in the future. Moreover, there was the inherent contradiction in that while the “extra profit” taxes targeted an additional HUF 815 bln for the state budget, “at the same time, the government envisages tax allowances totaling

Liam Peach, Capital Economics, London HUF 321 bln to corporations. So, on the one hand, the government is imposing extra taxes on certain companies, and on the other, it is ensuring tax preferences [to others],” Losoncz said. He added, “Of course, the structure of the two pools of companies is different.” Meanwhile, back in the Mammut mall, your correspondent found a happy exception to the dissatisfied majority. Asked for her thoughts on the economy, Dr. Margit Pálffy Palotás, a retired pharmacist, replied: “The situation is that I love shopping, though I can’t buy as much as I used to because my family keeps expanding. But everything’s OK, more or less.”

doctors, say this will effectively kill the tax altogether, as the vast majority of current users inevitably serve all forms of customers. Furthermore, making the law effective from September, during the current tax year, will create administrative chaos, they charge. Opposition MPs denounced the bill as unworkable, saying it is a sign of desperation on the part of the government to make up for the massive budget deficit caused by its pre-election spending spree. Peaceful street demonstrations in Budapest on Tuesday closed the Margaret and Elisabeth Bridges for periods during the day.

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A Tale of Gold, Gas, Tourism and Conflict

Crisis

At a two-day NATO summit in Madrid in late June, Prime Minister Viktor Orbán reiterated his position that achieving peace in Russia’s war with Ukraine would be the best solution to the economic turmoil it has caused, according to a video on his Facebook page.

the risks threatening Hungary’s security will abate,” he added. Consequently, brokering peace should be a top priority for NATO, which as a defense organization,

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Roundup

In this photo released by the Press Office of the Prime Minister on July 13, Prime Minister Viktor Orbán (third left) is seen with his Cabinet of Ministers at his Castle District offices in the Carmelite Monastery. On the agenda was the energy crisis in Europe; prices are rising because of the war in Ukraine, and it has become clear in recent days that there may not be enough gas in the EU countries in the fall-winter period. Photo by Zoltán Fischer/MTI/Prime Minister’s Press Office.

NICHOLAS PONGRATZ

“If there is peace, there will be no wartime inflation; [thus] Hungary is pro-peace,” he said. “Peace will bring about economic prosperity; there won’t be inflation in peacetime, and

Ukraine

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should not be dragged into the war, Orbán said. “Our position and Hungarian interests are clear: we must stay out of this war,” he said. This perspective was also shared by the Minister of Foreign Affairs and Trade Péter Szijjártó at the same event. He said that direct confrontation between NATO and Russia must be avoided at all costs, especially as the conflict in Ukraine is threatening to be drawn out. A protracted war “is likely to result in the senseless death of thousands, lingering wartime inflation deepening into a global economic crisis, and the energy sector taking a hit.” Szijjártó later defended Hungary’s position on maintaining its supply of Russian oil and gas. The minister told CNN’s veteran foreign affairs reporter and interviewer Christiane Amanpour on July 6 that the country’s geographical location and existing infrastructure require that it be exempt from the European Union ban on Russian crude. He explained that shifting the east-west energy delivery routes for Central Europe to a north-south direction would take at least “5,6,7 years” and “a lot of money.”

Gas Imports Fall

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Meanwhile, the amount of gas stored in Hungary had increased by a total of 48% in May compared to the same period last year, according to the monthly gas report from the Hungarian Energy and Utilities Administration. May was the first month since the outbreak of war where total imports to European markets fell compared to the same month of the previous year. In the months prior, higher LNG and

Norwegian gas deliveries could make up for the lost Russian imports, but in May, the size of all available sources decreased by 5%. Orbán said higher energy prices were weakening Europe and the euro in a post on Facebook on July 7. Energy prices are rising drastically, and that has been weakening Europe, he said. Together, the war and sanctions have made energy more expensive in Europe than anywhere else in the world, so Central Europe’s economies are being “pummeled” by these increasing energy prices. These difficulties are part of the reason it has become more difficult for the tourism sector than it was during COVID, according to Tamás Flesch, honorary president of the Association of Hungarian Hotels and Restaurants. “The price increase and labor shortage that is currently affecting tourism is a much bigger blow than COVID, even if we thought it wouldn’t be any more difficult,” he said. In addition, energy prices have already risen to four times their previous level, and raw material prices are also skyrocketing while a significant number of employees have left the sector. Yet, some are still making out well, despite, or because of, the times. Pawn broker BÁV’s gold bullion sales doubled in the first half of the year, climbing over HUF 1 billion, as inflation rose, the forint weakened, and the war in Ukraine progressed. BÁV said bullion sales spiked at the end of February with the start of the war, quickly exhausting stocks. It added that 100g gold bars accounted for about 45% of sales. Until more bullion arrived at BÁV’s shops, investors seeking a safe haven had bought used gold jewelry.

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The news of the U.S. cancellation of the double taxation treaty was broken, as is the way of the world today, by the Minister of Foreign Affairs and Trade Péter Szijjártó on his Facebook page on Saturday (July 9). According to Szijjártó, the reason was apparent: Hungary’s resistance to the introduction of the global minimum tax. ROBIN MARSHALL

According to the minister, Europe’s economy must now operate in a longterm wartime inflationary environment. He warned that if the tax burden of production companies were to increase under these circumstances, it would have a dramatic effect. Minister of Finance Mihály Varga used the same logic. While the news seemed to shock the public, Varga told state news agency MTI that the decision “came as no surprise,” adding that U.S. Treasury Secretary Janet Yellen had warned him by phone after a meeting of European Union finance ministers in

Photo by Eviart / Shutterstock.com

How Hungary’s Position on Global Minimum Tax has Evolved

June that the agreement between the two countries could be canceled if Hungary didn’t change its position on the global minimum corporate tax. Varga added that the government was officially informed of the termination on Friday (July 8). He said the government believes the “real reason” the agreement was canceled is not the official explanation from the States involving tax policy and technical issues but because Hungary has “stood up for its own long-term interests and those of the European Union.” Varga noted that Hungary had ratified a new version of the double taxation avoidance agreement with the United States in 2010 that addressed all of the concerns the Americans had now raised. Hungary’s position on the global minimum corporate tax has evolved over time. It had initially opposed the scheme as detrimental to Hungarian interests: the country has the lowest corporate tax rate in Europe. It would have to raise its tax rate to meet the minimum, robbing it of its competitive edge. Hungary (along with other holdouts Estonia, Ireland and Poland) fell

in line with the official EU position backing the tax in the fall of 2021, arguing it had won concessions that made implementation more equitable, not least a 10-year implementation period. At that time, all OECD and G20 countries supported the tax. There was some surprise and frustration in Brussels, therefore, when Hungary raised its objections again at the EU finance ministers’ meeting in mid-June, blocking a directive on imposing the minimum tax.

Tax a ‘low Blow’

The Hungarian government’s international spokesperson, Zoltán Kóvács, tweeted on June 15 that Szijjártó had told U.S. Secretary of State Antony Blinken that the global tax “would mean another ‘low blow’ for European competitiveness, as it would impose more taxes on companies in the middle of a war.” The result of Europe being the first to implement the tax, the foreign secretary has said, would also be detrimental to foreign direct investment and endanger jobs. That’s not the European view, however. “This veto has nothing to do with the

U.S. Termination of Double Tax Treaty ‘not Expected to Hurt Real Economy’ KESTER EDDY

News that the U.S. Treasury was moving to terminate the 1979 double taxation treaty with Hungary has left many alarmed about the potential damage to the local business environment. Cross-border taxation treaties are complex, and, as of now, the full impact may well depend on the detailed follow-up legislation. However, when consulted by the Budapest Business Journal, one Hungarian expert familiar with

international taxation matters said the U.S. move was not likely “to meaningfully affect the real economy.” Given the lack of detail as of now and the resulting legal uncertainty, the expert spoke on condition of anonymity. Here are his edited comments: “In general, this step is a typical example of it looking larger than it really is. A double tax treaty is first and foremost to protect a company or an individual from being taxed on the same item of income by two countries without limits. This could happen where a country from which an item of

income is sourced taxes that income by way of a so-called withholding tax, while the country of the recipient also levies a tax on it. “In such situations, the treaty kicks in and, in general, limits the right of the source country to tax the income at full rates of tax to reduce double taxation. As for Hungary and the U.S., this means that, first and foremost, the treaty is there to limit the application of these withholding taxes. “The U.S. applies such withholding taxes at a high rate of approximately 30%, while Hungary, in general, does

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[tax deal] or its technical issues,” French Finance Minister Bruno Le Maire had said in June. “There’s nothing to justify this veto. Hungary had already agreed to this. It was a surprise.” Ever since, Hungary has been coming under more pressure to lift its veto. On July 6, Members of the European Parliament adopted a resolution that called on Hungary to “immediately end its blockage,” according to state news agency MTI. Passed with a vote of 450 for, 132 against, and 55 abstentions, the MEPs said Hungary’s “reported demands” to win its support of the tax measure “were already largely taken into account in the international agreement.” The resolution also urged the European Commission and member states “not to engage in political bargaining” and to “refrain from approving Hungary’s national recovery and resilience plan unless all the criteria are fully complied with.” The MEPs added that if Hungary persists with its veto on the matter, alternative options should be explored to honor the EU’s commitments, including the possible use of “enhanced cooperation.” Tax matters are one of the few areas of policy within the EU that require unanimous approval, meaning that Hungary can continue to block the tax unless the European Commission changes how it operates. “We have to draw conclusions from these marathon discussions,” Le Maire was quoted as saying back in June by Euronews. “It is indispensable to get rid of unanimity in tax matters and move to qualified majority and give the EU more clout.” Hungary is, for now, doubling down on its veto. On Monday, July 11, its parliamentary economic affairs panel backed the government’s stance (little surprise given the size of the majority Prime Minister Viktor Orbán enjoys in the national assembly), stating: “Clearly overstepping its authority, the European Parliament would force Hungary to surrender its economic interests,” according to international news wire Reuters. The news agency added that the panel called on the government to defend Hungary’s interests “with all legal means” at EU forums.

not apply a withholding tax at all. As a result, terminating the treaty would affect investments from Hungary to the U.S., while it is not expected to have a significant impact on investments from the U.S. to Hungary. “Given Hungary is a small open economy with the potential to import capital rather than export it, the termination of the treaty is not expected to meaningfully affect the real economy. Another curious aspect is that the treaty is deemed terminated in the following calendar year after a six-month period has elapsed from the U.S. notification about its intention to terminate. Given this notification was sent to Hungary only in July, the treaty is meant to expire only in 2024 at the earliest, whereas if the notification had been sent in June, the treaty would have been invalid from 2023.”

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Budapest Business Journal | July 15 – July 28, 2022

Incentives Boost E-car Adoption but Raise tax Uncertainties Incentives and benefits created to bolster the broader adoption of electric vehicles are helping lift sales. But as rules and regulations struggle to keep pace, they come with tax uncertainties and cumbersome administration, Deloitte Hungary experts tell the Budapest Business Journal. CHRISTIAN KESZTHELYI

The spread of electric cars on the Hungarian roads is becoming ever more prominent. But as with any new, expensive technology, it is incentives that lift sales. When buying EVs, incentives come in many forms: tax benefits, tax exemptions and non-refundable state subsidies. Nevertheless, questions and uncertainties often surround such interventions. Deloitte Hungary, one of the local units of the Big Four consultancy firms, says Hungarian government subsidies (in the HUF 1.5 million-2.5 mln range, dependent on the final price of the vehicle) for purchasing electric cars have proven successful. The benefit

Automotive Sector Weighs on Industrial Input Hungary-based automotive companies’ spluttering output slowed the headline industrial growth indicator, mid-June figures from the Central Statistical Office, KSH, show. The sector, which represents 21% of manufacturing sector output, slowed April’s headline figure to a growth of 3.1%, down from the preceding month’s 3.6%.

Gloster wins EUR 700,000 Audi contract Listed Hungarian IT company Gloster has won a EUR 700,000 software development contract from German

Automotive Matters

A monthly look at automotive issues in Hungary and the region

An electric Skoda Enyaq tops up at an Ionity multiple charging station in Budapest. The provision of such infrastructure is one of the keys to accelerating EV take up. Photo by kasakphoto / Shutterstock.com is available through auto dealers registered with the government. But Deloitte warns about the importance of handling proper invoicing. Incomplete or incorrect invoicing on the car dealership side can result in the refusal of state aid, meaning traders must be alert. Another incentive for boosting electric car purchases is an exemption from paying the one-time registration and company car taxes. Such an incentive stimulates both e-car buys and the economy at large. But the scope is not the same, Deloitte Hungary warns; the one-time registration tax exemption only applies to fully electric cars, while the corporate car tax exemption includes environmentallyfriendly hybrid rides too. As more electric cars silently vroom the roads, the servicing infrastructure is also expanding and developing. Charging stations are springing up in

car maker Audi. Minero IT, which joined the Gloster group late last year, will renew Audi’s reporting system. It got the project from German partner Z-plus Consulting. Minero IT’s staff of more than 70 provides critical production software support for big automotive industry companies, such as Audi and BMW, as well as for organizations such as the German Red Cross.

MG Motor Eyes CEE Base in Budapest British brand MG Motor is considering setting up its regional base in Budapest to manage its CEE expansion. China’s SAIC Motor Corporation, the group’s

public areas, gas stations, shopping centers and office parking lots. Beyond the increasing market demand, the ability to reduce the corporate tax base further supports this expansion, says Zoltán Gábor, a director at Deloitte Hungary. He adds that a corporate tax discount is also available if equipment investment, renovation or operations support improved energy efficiency.

EV Perks

EV adoption can be accelerated by “perks” such as free charging at workplace facilities, dedicated parking bays for non-internal-combustion engine automobiles, and even by the fact that electric rides are becoming an increasingly popular option for car-sharing service operators. In this context, the support of e-car adoption with incentives and benefits is not welcome but a must.

owner, is planning to reposition its base in Europe. The brand is already available in 17 countries with more than 400 MG dealerships and service points in the region.

Employers may also consider supporting the home charging of corporate electric cars. But first, terms and conditions must be clarified, such as tracking whether the car’s charging goes toward corporate or private use. Questions and uncertainties undoubtedly follow in the wake of the speedy expansion of electric vehicles. Like any new technology, the electromobility sector has grown so fast that legislation and legal practice has not yet been able to catch up, says Béla Dan, a senior tax consultant at Deloitte Hungary. Uncertainties abound; the classification of e-car charging itself is still being debated: is it a product or a service? Prompt categorization is crucial for determining the correct tax treatment, and wrongly made decisions in this regard may carry a significant risk for taxpayers, the consultancy warns. Deloitte Hungary cautions that if electric charging of cars is categorized as a service, certain value-added tax exemptions can apply, although with limitations. If, however, the classification is tagged as a product, it will not fall under the VAT exclusion scheme but may be attractive on the user side for free charging options. Still, it will create significant extra spending in taxes for companies who opt to give the benefit to their employees as an incentive. Even assuming that electric charging is correctly classified, Deloitte Hungary said, further questions may arise in the constantly evolving market. As competition in electromobility increases, it creates additional uncertainties in handling transactions between sector players and the taxation that should be applied to them. With EVs gaining ever greater popularity (an inevitability given net-zero commitments to phase out carbon-fueled engines), Dan urges that legislation focuses on addressing taxation issues to avoid risks.

Salgglas Develops Smart Windshield

A consortium led by Hungarian glass maker Salgglas has developed a smart windshield in a HUF 1.4 bln project, the company told state news Rába Buys out agency MTI. Salgglas developed Rekard Owners the windshield, which can serve as Hungarian listed Rába Automotive an instrument panel and navigation Group has bought a 75.1% stake in display, as well as a custom sun peer Rekard Hajtómű- és Gépgyártó visor, with the Budapest University Kft. The move comes after Rába of Technology and TravelSoft acquired a 24.9% stake in Rekard earlier, Online. It showed prototypes of meaning Rába has now become the the windshield at the 2021 100% owner of its peer. The parties Automotive Hungary Expo. The agreed on the acquisition in May R&D project was supported by 2019, when they said the value of close to HUF 1 bln in European the transaction was HUF 700 million. Union and state grant money.

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E.ON Hungária Agrees 16,000 sqm BakerStreet Letting With Atenor Atenor has concluded a significant letting as E.ON Hungária will establish a 16,000 sqm Budapest headquarters at the Belgiumbased developer’s BakerStreet project, currently under development and due to be completed in the second quarter of 2024. The BREEAM “Excellent” and Access4You “Gold” certified project is located in District XI and will comprise two office buildings with a total leasable area of 42,000 sqm. GARY J. MORRELL

“Following the restructuring of the E.ON Hungária Group, we were looking for an ideal solution for all our colleagues: A headquarters building that adjusts to our increased headcount in the capital city, takes the commuting requirements of our Transdanubian employees into account

News | 7

consists of the 34,000 sqm Agora Tower and the 32,000 sqm Agora Hub. Likewise, Futureal has agreed a 14,400 letting with IBM Hungary for its headquarters at the phased 30,000 sqm Corvin Innovation Campus. The BREEAM “Excellent” and WELL “Platinum”-certified complex in Corvin Promenade is due to be completed next year. Atenor is present in 10 countries in Europe and has operated in Hungary

since

2008.

The company has a policy of developing campus projects. “This is developing sustainable office and residential schemes standing the test of time, blending organically into the city landscape and enriching the communities in which they are being developed, with landscaped community spaces and a wide range of services,” the company says.

BakerStreet by Atenor. and adapts to the changes of working trends, the ever more present hybrid way of working at the same time,” comments Zsolt Zsedényi, deputy CEO of E.ON Hungária Group, on the deal. “The new office building is being developed in one of the most dynamically developing areas of Budapest. Upon its selection, besides the economic considerations, the key aspects were sustainability, the application of future-proof solutions, and the adaptation of a flexible operational framework,” he adds. The transaction has been concluded at a time when analysts are voicing concerns over demand in the office market. “The fact that such an outstanding company, employing thousands of people, is moving to a newly developed office building proves that there is still a serious demand for modern, highly technical and aesthetic office spaces,” says Péter Würsching, head of leasing at JLL.

“E.ON’s new headquarters, in addition to meeting environmentally conscious and sustainable requirements, will serve the needs of the changing work culture and will also ensure the wellbeing of the employees,” he added. JLL represented the tenant on the deal while Colliers assisted Atenor.

International Lettings

This deal is just the latest of several that developers are concluding largescale lettings with international corporates establishing Hungarian and international headquarters. BP, for example, has agreed a 22,000 sqm lease for 1,800 global services staff at Agora Budapest by HB Reavis. Phase one of the development

“The fact that such an outstanding company, employing thousands of people, is moving to a newly developed office building proves that there is still a serious demand for modern, highly technical and aesthetic office spaces.” Zoltán Borbély, country director of Atenor Hungary, adds, “We are delighted and honored that E.ON chose BakerStreet as the future home of its Hungarian operations. We are convinced that ESG, which is at the heart of both of our businesses, will be increasingly important for large corporates in the future and will be essential in keeping a highly qualified workforce. Sustainable and human workplaces enhancing wellbeing are an important part of this, and Atenor is a partner providing exactly that to our tenants.”

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AutoWallis’ Shareholders Elect Supervisory Board Member

McKenzie. He has played a crucial role in the firm’s innovation and business development initiatives. As co-head of Budapest’s corporate and M&A group AutoWallis shareholders elected and head of the employment practice, Petra Birkás as a supervisory board he has earned high recognition in member at an extraordinary general both business and professional circles meeting on July 1, where they also and is listed as a leading expert in the decided on several other issues. recognized legal rankings. He is also Birkás was the co-head of the firm’s China client delegated by services practice. Széchenyi Alapok “I am honored to lead the Budapest Zrt., which office. The bar is high, as I take over the manages one of leadership of a very successful firm, but AutoWallis’s main I am committed to further strengthening shareholders, our business and organization,” Széchenyi Fehérváry said of his appointment. Alapok Kockázati “We must continue to offer our Tőkealap. clients innovative services with a Petra Birkás She worked solutions-based and business-focused as director for approach, further deepening our regulatory affairs industry knowledge and exploiting new at Széchenyi Alapok Zrt. for one year technologies. In the meantime, we will starting from February 2021 and is create a diverse and motivating working currently an advisor to the CEO. Birkás environment in which all members of our joined the company in 2019 as a risk team can develop,” he added. manager, having spent nine years at Outgoing the Ministry of Finance, where she had managing started as a statistician in a budgetary partner area and then worked with state-owned Hegymegibusiness associations and priority Barakonyi projects as an asset management analyst. commented, Representing the state as owner, “After nine years, Birkás was supervisory board member I am delighted at Beruházási, Műszaki Fejlesztési, and to hand over Sportüzemeltetési és Közbeszerzési Zrt. the leadership Ákos Fehérváry of the firm Before joining the finance ministry, she worked as a client manager, promoter, and to a colleague project manager at one of the financial who has earned companies of Regionális Fejlesztési Holding. the full trust of the partners based She graduated from the Budapest on his work and performance.” College of Finance and Accounting He added, “I am confident that in 2005 with a degree in business Ákos will successfully continue informatics and obtained her degree the work that began when Baker in economics (majoring in corporate McKenzie opened its Budapest office finance) in 2011. In 2018, she 35 years ago, and in doing so, will also completed the International further strengthen our firm’s position Sports Manager master’s course at in the Hungarian legal services market. Northumbria University, Newcastle For my part, I intend to help him upon Tyne, United Kingdom. achieve these goals, particularly by strengthening our intellectual property and competition practices.” Fehérváry Named

Managing Partner at Baker McKenzie Budapest Petrányi to Co-head CMS Tech, Media, Ákos Fehérváry took over as and Comms Group the managing partner of global law

firm Baker McKenzie’s Budapest office on July 1, replacing Zoltán Hegymegi-Barakonyi. At the same time, the name of the legal practice has changed to Hegymegi-Barakonyi and Fehérváry Baker & McKenzie Law Firm. Fehérváry is a highly qualified lawyer specializing in corporate law and domestic and cross-border M&A matters, with significant experience in employment law. His practice focuses on the oil and gas, automotive, energy/renewables, technology, and pharmaceutical industries. Over the years, he has led several landmark transactions in Hungary and the CEE region. The newly appointed managing partner started his legal career in 1997 as a junior lawyer at Baker

Dóra Petrányi (CMS Hungary) and Pietro Fringuelli (CMS Germany) will co-head the CMS Technology, Media and Communications Group, the company announced towards the end of June. Petrányi is CEE managing director and a partner at CMS in Hungary. She heads the TMC, data protection, and intellectual property (IP) practices and is a partner in the competition practice in the Budapest office. She has extensive experience in telecoms and media, focusing on all types of regulatory, competition, and general commercial matters. In addition, she has established and leads the firm’s managed legal services delivery center from Budapest. Petrányi is an expert in all three sectors of TMC and all types of

regulatory matters, having been general counsel for the largest telecommunications provider in the region. She is the co-author of the CMS publications “Digital Horizons,” a series of reports exploring CEE’s digital future, and “The Cybersecurity Challenge in Central and Eastern Europe,” and is a regular speaker at top international conferences, including the World Economic Forum (Davos), the Mobile World Congress and ECTA. Petrányi is the co-chairman of the regulatory and ethics committee of the Hungarian AI Coalition. She is also a member of the Digital Civil Code Review Dóra Petrányi Working Group, the only outside counsel on the team. She is the first and only lawyer to be a member of the co-regulatory committee between the local teleco regulatory authority and the Association of Hungarian Content Providers. She is also a member of the board of directors of UNICEF Hungary.

“The daily operation and success of every organization and company depend on how strongly they are able to rely on modern digital technologies and on their ability to adapt to unexpected situations that are becoming more frequent these days,” he explained. “Rethinking business, work habits, and our way of life is more relevant than ever. I want to help our customers as effectively as possible with Microsoft solutions throughout their digitalization journey,” Szabó added. His predecessor, Chris Mattheisen, is leaving Microsoft Hungary but will work alongside Szabó to make the transition as smooth as possible until the end of July.

Tihamér Tóth Appointed European Court Judge

Tihamér Tóth, co-head of Dentons’ competition and antitrust and regulated industries practice in Budapest, has been appointed a European Court judge following his nomination by the Hungarian government. His six-year term in the EU General Court, part of the European Court of Justice, began on July 6. “With the appointment of Dr. Tihamér Tóth, the judicial Szabó Promoted system of to Country Manager the European at Microsoft Union gains a Péter Szabó took over as country prominent expert manager for Microsoft Hungary from with outstanding July 1, replacing Chris Mattheisen, business Tihamér Tóth and practical the company tells the Budapest Business Journal. experience. Not Szabó is not new to Microsoft Hungary, only has he as he joined the company more than provided world-class advice to clients, six years ago, where he first worked as but he has also built and nurtured regional director of its retail business a highly regarded competition and and then as director of the corporate antitrust practice here in Hungary,” and partnership business. said Gábor Király, managing officer In this latter position, he of Dentons Budapest. was responsible for managing With Tóth’s departure to Luxembourg, Microsoft’s partner ecosystem Tünde Gönczöl will assume leadership in Hungary and delivering digital of Dentons’ competition and antitrust transformation in the small and practice in Hungary. medium corporate market segment. “We look forward to his return to our The new office following the completion of his country manager mandate. Until then, we will continue is an experienced to provide top-quality competition law business leader advice under Tünde Gönczöl’s capable who spent leadership,” Király added. 17 years at Besides his academic career at Unilever before Péter Pázmány Catholic University joining Microsoft, and the Hungarian Academy of successfully Sciences, Tóth has been a practicing implementing lawyer since 2010. He has been Péter Szabó a paradigmof-counsel at Dentons’ Budapest shifting office for the last seven years and was reorganization previously a lawyer at White & Case. in the Adriatic region, including One of the most renowned reorganizing the distribution/ competition lawyers in Hungary, logistics network. he served as vice president of the After joining Microsoft, he served Hungarian Competition Authority in the geographical regrouping of the and chairman of the Competition Czech-Slovak-Hungarian territory Council between 2003 and 2009. in the retail and asset sales department. He is the author of 110 scientific “I am thrilled to have the opportunity publications and, in 2017, was to lead Microsoft Hungary. The awarded the civil division of development of digital capabilities the Knight of Cross from the has never been more urgent and Hungarian Order of Merit for his important in Hungary than today,” work in strengthening competition Szabó said regarding his promotion. law culture and research.

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Palkovics Hails Continuity in Policy Amidst new Energy Challenges

The American Chamber of Commerce in Hungary (AmCham) held a business forum on Monday (July 11) featuring the Minister of Technology and Industry (MTI) László Palkovics. He outlined the government’s innovation, defense, energy, and economic policies for the upcoming cycle while reflecting on the progress made in these fields in the past decade. BENCE GAÁL

Palkovics began by highlighting the performance of the Ministry of Innovation and Technology (ITM), the predecessor of MTI, which he had also headed. “What is the strategic vision? What is a technology industry? And how can you, as a minister, support that? I think it’s easier to identify and explain what we have done so far. The ITM was the largest ministry of Hungary and the government, and we had four very good years before the crisis hit us only at the end,” he noted., Palkovics added that cooperation between the Hungarian government and industry players is “outstanding” and functions at a high level, noting forums such as the Artificial Intelligence Coalition, the Hungarian Hydrogen Association, and the Circular Economy Technology Platform provides the opportunity for effective consultation.

solar, “Because we don’t have anything else,” he said, referring to the lack of natural resources in the country. Palkovics reaffirmed the government’s commitment to sustainability. “The circular economy is not just a thing we should think about, but one we have to realize.” Citing research by Big Four firm KPMG, he also praised the country’s progress towards achieving carbon neutrality, as Hungary

ranked

13th

in KPMG’s Net-Zero Readiness ranking. “Sometimes, we are asked why we don’t have a climate and environmental ministry, but if you look at the tasks, these are all leading to some technological solutions and to some industrial solutions, and I say it’s better to keep them in one hand,” the minister explained.

Business Forum with László Palkovics, Minister of Technology & Industry. One of the cornerstones of ITM’s work in the previous cycle was the reorganization of the university ownership structure. “The experiences so far are good,” the minister argued, noting that the financing universities receive the equivalent of about

2% of GDP,

which, Palkovics claimed, is “outstanding in the European Union.” He also referred to Hungary as a high-tech country, noting that industrial production in the field stands at around 70%, “the same as in Germany or Denmark.” Reflecting on the importance of the transportation industry, he said, “The bus strategy we generated seems to work; we have four bus manufacturers producing in Hungary, they are able to produce different kinds of buses.” He added that Hungary would continue with its rolling stock development program.

Motorway Network

In connection with transportation, the minister also highlighted that, between 2010 and 2020, Hungary built the third-longest new motorway network, behind only Luxembourg and the Czech Republic. Another critical aspect of the Hungarian economy is the defense industry. “We had it [the industry] before the political changes in ’89, then it went in a totally wrong direction,” Palkovics argued, noting that crucial developments such as

“Sometimes, we are asked why we don’t have a climate and environmental ministry, but if you look at the tasks, these are all leading to some technological solutions and to some industrial solutions, and I say it’s better to keep them in one hand.”

the Rheinmetall factory and the Airbus helicopter plant were handed over recently. “With the right technology partners, if you have a willingness, you will be able He told AmCham that the government to do so [carry out developments], and is continuing the technology and this is just an example of what we have done, and we are going to continue doing,” industry policy reforms started in the past four years to improve productivity Palkovics told the AmCham delegates. and competitiveness, support high Foreign Direct Investment has value-added developments, ensure long been an essential aspect of the stable, affordable and sustainable energy domestic economy, and, according to supply, and promote economic growth Palkovics, Hungary is now among the while maintaining full employment. top countries in the EU. The minister also shared a message “Last year, FDI was 29% in Hungary, in which Prime Minister Viktor so the FDI is actually the highest, or Orbán explained why he had tapped second-highest after Ireland in the Palkovics to lead MTI in the current European Union. But, of course, it also government cycle. means that we need to provide the “In the next period, the industry necessary labor force,” he said, telling and energy sectors are facing a his audience that this means about major transformation. I solicited László Palkovics to continue with the technological and industrial policy additional employees. reforms that we started in the previous Energy security has become one four years,” the PM’s message read. of the most burning issues on the “There is no doubt that the minister continent after the Russian invasion has been given the most complicated of Ukraine earlier this year, and the government task: adapt the Hungarian minister also recognized that the energy system to the challenges of the situation poses new challenges. new age, manage the dangers arising “So far, we talked about affordable, from uncertain energy supply chains, accessible, and green energy; we’ll be manage the growing consumption talking about energy security as well,” needs, manage the situation caused by he acknowledged. the soaring global energy prices, while reducing emissions in the economy and Sacrificing Climate Goals? harmonize the aspects of economic Regarding sacrificing climate goals for growth and environmental protection. energy independence, he admitted that And all that at once! I don’t know if this doing so might be a possibility, but only can be solved, but if there is someone who temporarily, as Hungary has to harness can do it, it is Minister Palkovics, winner the potential of green energy, especially of the Széchenyi Price,” Orbán said.

40,000

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The Riskiest Macroeconomic Environment of the 21st Century

Chair of the Federal Reserve Jerome Powell declared he wants to see a trend of lower consumer price index (CPI) data before the Fed takes the foot off the monetary tightening pedal. The Fed calling itself “data dependent” is like driving using the rearview mirror. The Fed intends to continue to raise interest rates until data, which by definition lags, shows a favorable CPI trend. What if raising interest rates kills demand but not inflation? Then the Fed continues to tighten, literally until something breaks. At the same time, consumer expenditures are falling off a cliff. Both bond and equity markets have had their worst half year since the Great Depression. Powell seems to think he can “do a Volcker” and tame inflation. But the world is a very different place than under his predecessor Paul Volcker, the 12th chair of the Fed. U.S. government debt is at 120% of GDP, compared to 40% under Volcker, making the U.S. government far less able to withstand high interest rates. Individual, corporate, and government debt have seen similar increases the globe over, making the world ever-so-fragile. The number of emerging market countries experiencing crisis is increasing by the month. High U.S. interest rates are sucking money out of emerging markets into the States. This is because much of the emerging market debt is denominated in USD, making it harder to service given higher U.S. interest rates and a higher U.S. dollar.

War. Epidemiologists are again raising concerns about the newest variants, while Russia’s President Vladimir Putin just 20 keeps escalating. The above list is far from exhaustive. There are many other vulnerabilities. 15 Certain European banks have equity to asset ratios below 3%. Demonstrations are going on by deposit holders in China 10 who have been unable to withdraw deposits since April. Meanwhile, Evergrande’s default on more than USD 5 300 billion of debt continues to work its way through the system. Much is already breaking. The economy 0 is rapidly decelerating. In the United States, Q1 2022 came in at -1.6% growth; the Atlanta Fed estimates Q2 growth at -5 -2.1%. (two negative growth quarters are the definition of a technical recession). Danger signals, such as inversions of -10 yield curves and reverse repos at new records, are flashing. 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 The trillion-dollar question is when the U.S. Fed will pivot from Quantitative Tightening to Quantitative Easing. It is the Total disruption of Russian hydrocarbon high levels of debt that could make the next While oil and many other commodity supplies to Europe is now a very real crash the most dramatic of this century. prices have dipped a bit, prices remain scenario and would make matters worse. Powell seems to think that there is very high by historical standards. In Inventory shortages and supply-side the economic equivalent of a feedback addition, underinvestment in energy and disruptions in the fertilizer and food sectors loop, whereby high interest rates are commodities has been so severe that it risk creating famine, further price spirals, enough to drive down inflation. But has created capacity constraints. and political unrest. Inventories of critical what if other things (increased money Potential for Price Surges commodities like wheat are extremely low. supply, supply bottlenecks, inflation It will take many years to bring on new Despite Quantitative Tightening (QT) expectations, etc.) keep inflation from supplies. Tight supply conditions will in the United States already having responding? The economy may crash continue to buoy prices, with the potential caused so much pain, real interest rates in before inflation comes down. for price surges upon disruption. In the America and Europe remain high; in the Think of a dry forest with meantime, wholesale electricity prices in case of Europe, the trend is frightening. an accumulation of flammable Europe are going through the roof. The European Central Bank is in a “damned undergrowth. There may never be a High electricity and gas prices (the if you do, damned if you don’t” dilemma. forest fire, but one tiny spark has the latter at quadruple the U.S. prices) due It desperately needs to raise interest rates. potential to cause a conflagration. to the war in Ukraine are contributing However, raising interest rates would put to Germany’s loss of competitiveness, a strain on the periphery (in other words, which means it cannot fuel its export Italy) and further dampen GDP growth. Les Nemethy is CEO of Euro-Phoenix Financial machine. Indeed, for the first time Advisers Ltd. (www.europhoenix.com), a in more than 30 years, Germany had Central European corporate finance firm. He Consequences a trade deficit. Its economic model is a former World Banker, author of Business and Uncertainties is based on cheap Russian energy; Exit Planning (www.businessexitplanningbook. On top of all this, we have the Germany willingly threw away com), and a previous president of the the option of atomic diversification, consequences and uncertainties of the American Chamber of Commerce in Hungary. shutting its nuclear power plants. COVID-19 pandemic and the Ukraine

Consumer expenditures on goods – from 2004 to 2022

Percent change from year ago

Corporate Finance columnist Les Nemethy believes the macro environment is riskier than before the Dotcom Bubble and before the Great Financial Bubble. Why? A nasty cocktail of factors that may reinforce each other.

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Matild Palace 1 Year on: ‘It’s all About the People.’ Puck and the “hidden” Duchess bar, it allows for three very different culinary experiences under one roof (or above it, in the case of The Duchess). And innovations will continue to be added to the mix. “Wolfgang’s operation is very strong in doing new or exceptional things like sushi. We might be bringing in a sushi concept in the near future, maybe towards the end of this year or the beginning of next,” says Ölmez. The real potential for growth lies in the international markets, although that won’t happen overnight. “I think it will take at least another year or maybe two to establish ourselves properly,” the GM reckons. Not that anything is being left to chance, with investment into marketing in the U.K. and U.S. markets continuing.

When Selim Ölmez moved from hotel manager of the Matild Palace to general manager in May, his overall responsibilities grew, and his time shrank, as you might expect. But his point of focus also changed. It became “all about people,” he says.

“We are continuously asking for their [the staff] feedback by doing surveys. I need to look after my people so they can look after our guests. This is how it works.”

ROBIN MARSHALL

“My job profile changed enormously when I took this new position. It’s all about people right now; I’m always on the floor. I’m not an office guy anymore, sitting down and taking meetings,” he laughs. “I’m available to the company employees, chatting with them, trying to understand what we can do to improve their well-being; we listen to their concerns,” he says. It’s an essential investment of his time. Since the developed world began to emerge from the worst of COVID, there has been a reassessment of what many people want from life. The “Great Resignation” has become something all HR departments are grappling with, but perhaps no sector has been harder hit than hospitality, restaurants and catering. “When I started in this business approximately 25 years ago, it was the ‘sexiest’ in the market, you know, to meet new people, to serve them, to make them happy. It was very attractive. Today, it’s the opposite; to attract people to this industry is quite difficult,” Ölmez says. Matild Palace began pre-opening during the pandemic. The timing was a challenge, but the hotel had some advantages going for it. The first was the historical nature of the building itself and what the owners, the Ozyer Group, wanted to do in recreating its role as a social hub. The Luxury Collection Hotel brand was another attraction. “When we started introducing the Matild Palace to the labor market, and when we did our first recruitment base, we met almost

1,000 people

in two days of recruitment. So, it was a very, very good start,” the GM recalls. But it was only the start. If half the battle is finding talents, keeping hold of them is just as important. The hotel is,

Selim Ölmez as Ölmez says, a “very big family” of approximately 220 people under the same roof, hence the dedication of so much of his time to the issue.

Good Signs

“We are not bad in terms of retention. Maybe 70-75% of the team in the property have been with us since the beginning, so it’s a good sign for the future. We are continuously asking for their feedback by doing surveys. I need to look after my people so they can look after our guests. This is how it works,” the Turkish national says. The hotel has just celebrated its first full year of operations, having opened in June 2021, a decision some saw as brave. The opening had already been postponed twice due to the pandemic. By the summer of last year, things were certainly better, but social distancing and mask-wearing restrictions were still in place. “We are happy with the figures at the moment. I would not say it is excellent because we know what the market was in 2018-19, pre-COVID, and, of course, we are still not there yet,” he says. Some European countries such as Italy, Spain, and Greece are doing well, with full resorts, and are already ahead of their budget plans, Ölmez estimates. “But in Central Europe, including Hungary, as we are neighbors to Ukraine,

there is still a little bit of hesitation, especially with guests from the United States,” he says. “We can see the same impact in the river cruise segment, for example; they are operating

50-60%

of their potential. And it’s the same for the luxury hotels.” The four- and five-star hotels are doing “much better,” he believes, because the Central European markets offer a price advantage. “Guests with budget concerns still travel to Hungary heavily. A single room in Italy is EUR 500-600 minimum, but in Budapest, it is EUR 200, maybe even less.” For all that, Ölmez insists there is a “very positive outlook. [….] Quarter two is much better than quarter one. We believe the third quarter will be much better than quarter two. We see growth in the market, which makes us quite happy.”

Fully Operational

Part of the optimism is based on the fact that the hotel is now 100% operational following the opening of the Matild Café in May, although the cabaret and dinner show element probably won’t start until mid- to late September. Alongside the Spago restaurant by celebrity chef Wolfgang

But what one might call “destination evolution” is also organic. “The more brands, the more options we have in a city, the better it is for the destination. Now, we are here. In the future, new projects and new hotel brands will be coming to the city. That will bring more attention to Budapest; the more options the city provides, the better visibility it gets. We are continuously investing into this awareness of Matild Palace and Budapest.” How do the guests break down by sector? “This is a new property, and establishing corporate contracts takes time. I think next year we will be very strong in the corporate segment as it’s growing. Leisure has been strong since the beginning because of our attractiveness in terms of the food and beverage offering,” he explains. “It doesn’t matter where they stay in the city, these guests visit our restaurants and bars. We are a focal point where local and international guests can get together. The quality is here, the selection is here, the service excellence is here. I think our strength in leisure will continue,” Ölmez argues. “We also see increasing MICE [Meetings, Incentives, Conferences & Exhibitions] traffic. Our destination is attractive in terms of pricing, so I think Central Europe, not only Hungary, is growing. We believe 2023 will be much better regarding our business mix.” One final thought. Ölmez probably knows the hotel better than anyone. If he ever has five quiet minutes to himself, away from talking with staff and guests, attending meetings, or handling the admin, does he have a favorite spot to retreat to? His response is instant. “Yes,” he says with a laugh. “The Duchess.”

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Company Aldi Raising Wages 8-19%

The local unit of German discount chain Aldi was to raise wages by 8-19% from July 1, Aldi Hungary said on June 30, according to hrportal.hu. Aldi already increased wages by 8% in January and is raising them again to keep them competitive. The company said the sharp rise in prices in recent months and the rise in inflation led to the additional increase. A full-time Aldi worker will get starting pay of at least HUF 391,600 a month, gross, while shop staff wages will top out at a gross of HUF 542,400 a month. Management salaries will range between a gross monthly HUF 749,500 and HUF 1.157 million.

Alstom Adds Bogie Production for Hydrogenpowered Trains France’s Alstom has added the production of bogies for hydrogenpowered trains at its factory in

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Mátranovák (115 km northeast of Budapest), according to autopro.hu. The first bogie was recently produced at the plant where Alstom is investing more than HUF 1.3 billion. The company plans to make 100 new hires at the base. The bogies will be used for Alstom’s Coradia iLint, the world’s only hydrogen-powered passenger train, produced at its factory in Salzgitter, Germany. Alstom already has orders for the train from Germany, Italy and France. Alstom bought the bogie plant in Mátranovák in January 2021. With a headcount of 660, it is among Nográd County’s biggest employers.

Budapest Airport Launching HUF 1.2 bln Noise Insulation Program

Ferenc Liszt International operator Budapest Airport Zrt. said on July 5 that it would launch a three-year HUF 1.2 billion residential noise insulation

Wizz Air Books EUR 450 mln Q1 Loss Hungarian low-fare airline Wizz Air said it had a net loss of around EUR 450 million in the first quarter of its business year, which started on April 1, in an update issued on July 11, ahead of an earnings release scheduled for July 27. Wizz Air attributed the loss to unrealized FX losses, the cost of disruptions, lower utilization in the quarter and the pricing environment. The airline noted that it had an unrealized FX loss of EUR 136 mln for the quarter as the dollar strengthened against the euro. Available seat kilometers (ASK) rose

program in September, according to napi.hu [Daily]. The scheme will support retrofitting or replacing windows and doors in homes near the airport. Budapest Airport will inform around 4,000 homeowners eligible for the program. Budapest Airport will use proceeds from “deep sleep charges” paid by airlines for take-offs and landings between midnight and 5:00 in the morning to support the noise protection program. Budapest Airport has run a similar program for more than 10 years, supporting noise insulation investments in some 1,500 homes.

Magyar Telekom Switches off 3G Network

Magyar Telekom has switched off its 3G network, according to an announcement on the website of the Budapest Stock Exchange. The service provider decided to switch it off due to its unused capacity; in terms of its customer base, just 2.3% of the total voice traffic and only 0.84% of the data traffic were managed by the network. Magyar Telekom said it is preparing for the needs of the future and will continue its multiyear network

30% year-on-year as most pandemic restrictions were discontinued and as capacity reallocations related to the war in Ukraine started to take effect, Wizz Air said. Revenue per available seat kilometer (RASK) fell 10% as load factor dropped nine percentage points to 8 5%, reflecting efforts to pass through higher input costs into fares, it added. Despite the factors impacting Q1, Wizz Air expects “a material operational profit” in the second quarter as revenue and pricing momentum improves. RASK is set to see a “high single-digit” improvement on the back of higher fares and load factors, while ASK growth is expected to be around 35%, it added.

modernization program launched in 2020 to maintain and improve service quality and increase capacity.

MVM Zöld Generáció Launching HUF 11.5 bln Solar Park Project

MVM Zöld Generáció, the renewable energy unit of state-owned utility company MVM, announced the launch of a HUF 11.5 billion, 28.8 MW solar park project it will build in the southern industrial park of Debrecen (225 km east of Budapest), next to the local airport, according to portfolio.hu. The project is supported by HUF 4.3 bln in European Union and state money, MVM deputy CEO Csaba Kiss said at the cornerstone ceremony. Mayor László Papp noted that the municipality had provided a 52-hectare area for the investment in the 710-hectare industrial park. The solar park will generate enough electricity to power close to 15,000 homes and start operating in October.

Nice LMS Building HUF 5.2 bln Plant in Vác

South Korean company Nice LMS will build a HUF 5.2 billion plant in Vác (35 km north of Budapest) to make batteries for electric vehicles, Minister of Foreign Affairs and Trade Péter Szijjártó said on July 7, according to origo.hu. The investment, which will create 60 jobs, is supported by a HUF 467 million government grant. The plant will be the company’s first in Europe. It already has bases in Vietnam and China, in addition to South Korea. Szijjártó noted that Hungary has the third-largest EV battery production capacity in the world, which will increase from 50 GWh per year at present to 150 GWh by 2025. He added that Hungary takes fifth place globally in terms of EV battery exports.

CE Glass Completes HUF 2 bln Investment

CE Glass Zrt., which makes glass for buildings, has completed a HUF 2 billion investment at its base on the outskirts of Szeged (170 southeast of Budapest), nearly doubling its safety glass capacity, the company told state news agency MTI. The firm added 5,400 sqm at the base, bringing the total production area to more than 35,000 sqm. European Union grant money covered 40% of the costs of the investment. CE Glass had net sales revenue of HUF 7.5 bln last year, according to public records.

Magyar Posta Operating ‘Several Hundred’ More Parcel Lockers this Fall

An Airbus A320neo belonging to the low-cost carrier. Photo by Wizz Air

Hungary’s state-owned postal service Magyar Posta will start operating “several hundred” more parcel lockers in the fall, it said on July 8, after installing the first new locker in the capital, writes novekedes.hu [Growth]. Magyar Posta, which already operates 51 parcel lockers, will install half of the new facilities in Budapest and the surrounding Pest County. The rest will be placed in bigger provincial cities. It put the cost of the investment “in the billions” of forints.

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Budapest Business Journal | July 15 – July 28, 2022

Business | 13

Cashier-free Store Closer to Entering the Hungarian Market Financial payments and transfer technology company Mastercard has presented a checkoutfree store it is supporting, equipped with artificial intelligence-based technology that it says is unique in Hungary. RENÁTA KÓNYA

The new mobile, cashier-less container store, equipped with AI-controlled systems, can make the shopping experience faster and more enjoyable for customers, Mastercard says. The latest research suggests that rapid and efficient shopping with minimal waiting time is increasingly important to customers.

“At Mastercard, we are constantly working to make payment as simple as possible for customers in all situations. Nobody likes to pay, so we all want to spend as little time as possible at the cash register,” says Ferenc Szász, Mastercard's business development director. Shopping in the store is simple: to enter, visitors need to download and open an application on their phones, freely collect the products from the shelves in the shopping area and pack the selected items into their bags, and then leave without being checked out by a cashier or using a self-checkout station.

The application used to enter takes care of payment once the customer walks out of the store, making for a unique shopping experience. With the help of AI-controlled cameras and weight sensors, the app determines which products were chosen. It does so in a GDPR-compliant way by following general privacy guidelines, as cameras do not record the faces of the shoppers, the company insists.

Background Payment

Payments happen in the background, with the customer’s bank card, which is connected to the app. Kende Retail

Operation Kft. has presented the store, which was open for the public to try at Budapest Park until July 10, as an exclusive distributor. “Technology now makes it possible to complete the purchase without waiting, as all the necessary processes take place in the background with the usual security. This is when check-in is also check-out,” Szász explains. Mastercard says it is happy to support the new technology, as it is with the help of such innovations that the process of everyday payments will become smoother. For now, there are two similar containers in Hungary, but the distributor is confident that the cash register could soon disappear from several retail stores, although no shop brands or precise timetable have been given as yet. According to the plans, the mobile container store can next be visited at the Business Days conference in the fall, besides Mastercard’s own events. The so-called “just walk out” technology was revolutionized in the United States by Amazon Go, which has already applied this innovative paying method in larger grocery stores and opened its first such store in the United Kingdom in 2021.

Franchisee: T-SOLUZIONI ZRT., H-1054 Budapest, Szabadság tér 7.

+36-30-591-7998

EACH AGENCY INDEPENDENTLY OWNED AND OPERATED.

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Special Report Magyar Multinationals

The Hungarian Airline Applying Multinational and Local Mindsets With its first flight in 2004, Wizz Air celebrated 18 years of operations on the Hungarian aviation market this year. That’s a long time, even for a small company, but in a sector shaken by a pandemic, inflation, skyrocketing fuel prices, deepening economic recession, fierce competition, and sudden changes in taxation, Wizz Air has proved it is resilient. The Budapest Business Journal discussed the challenges with the low-cost carrier’s president Robert Carey. BALÁZS BARABÁS

BBJ: What makes Wizz Air competitive as a multinational company? Robert Carey: There are several factors here. First, while Wizz Air is based in Hungary, if you look at it, employees come from all over Eastern and Western Europe and the world. Diversity of opinion is very important in making a strong multinational company because we need to serve the demands of many customers across many markets, so we have the perspective there. Second, we really try to make sure that we are operating as a local airline in a local market. In Romania, the local management team and the crew there are, for the most part, Romanian. In Italy, we have a lot of Italians. Lufthansa is a German company, no matter where

Robert Carey you fly in the world. Wizz Air is a multinational company operating everywhere it serves, serving the local demand. And that is important because at the end of the day, the customers we are serving in each market come from that market. Third, if you look at the management team that József [Váradi, the company’s CEO] has brought in, if you look at the investment team, it comes from all over the world, and this is really important in bringing the diversity of opinion and thinking, different approaches. That challenges the way we operate and makes us operate at high levels. We bring in the best practices and challenge ourselves with what is working well elsewhere in the world that we can bring in. BBJ: State-owned airlines are struggling, many have gone out of business. What is it that these companies are doing wrong? RC: I think this comes down to one thing: customers are buying a commodity. When was the last time you chose a flight based on the food served on board? Never. No customer makes that decision. In shortand medium-haul travel, they look at price and schedule. Many times, the legacy carriers are very caught up in having a very high level of service on board; they say: “I need to be serving destinations that are strategic,” but may not make sense; “I need to have a business class on board because there is a segment of the population we need to serve,” and so on. So, they are not thinking from a

shareholder mindset, which is: What is it that the customers actually want and, more importantly, what is it that the customers are actually going to pay for? I think that what Wizz brings is discipline and focus in making sure that we operate everything in the most efficient way possible. So, we have the most efficient aircraft, we operate high utilization of those planes during the day, and we use high utilization of the productivity of our people. That all keeps our costs low; ultimately, our customers want that, and many legacy carriers have forgotten that. BBJ: We are currently in a very challenging economic situation that has probably not reached its end. How is Wizz Air coping with this toxic mix of challenges: inflation, rising interest rates, and everything else? RC: It is a challenging economic environment, true. We have higher fuel costs, inflation. The one thing that is positive within the industry is that we have seen the impact of high fuel prices and recession before. Maybe not of this level

Robert Carey started his position as president at Wizz Air in June 2021. He has a bachelor of science degree in industrial engineering from Arizona State University as well as a master’s in business administration from Harvard Business School. He started his career in aviation

and magnitude but unlike COVID, which was very new and unknown to us, this we have seen before. What you see happening in this environment is that customers look for the lowest cost alternative for their travel. They don’t want to pay a premium for a high-level class of service; they want to get the most economical solution. So that helps low-cost carriers. Two: as costs rise for everybody, this puts pressure on the higher-cost players. Because, again, if I get less of a margin and no one is paying a premium on high-class service, those with higher costs suffer more. They then pull high capacity out of the market, and that causes equilibrium to return. In that equation, every time we’ve seen it – 2001, 2008, 2013, every time we had a combination of some sort of economic downturn or high fuel costs – low-cost carriers are the ones that have won.

“Customers are buying a commodity. When was the last time you chose a flight based on the food served on board? Never. No customer makes that decision. In short- and medium-haul travel, they look at price and schedule.” BBJ: Should customers expect higher prices because of the situation? RC: I think, ultimately, yes. Anything you buy these days is more expensive, right? Airlines are not immune. The costs of air travel in the last 20-30 years have gone down, not up, so we are probably coming back to where they should be. That said, I think what we do is to try to keep these costs as low as possible. We have invested in the newest technology out there. Those aircraft are operating 20% cheaper than the commonly used technology because they have more efficient fuel burn and carry more passengers for the same fuel price. That allows that, even though the costs are higher, we can make sure that we can give the lowest price to our customers.

20 years ago with America West Airlines, followed by Delta Air Lines. Carey then spent more than a decade at McKinsey and Company, where he was a partner in the airline practice. He joined easyJet in 2017, where he was the chief commercial and customer officer.

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Budapest Business Journal | July 15 – July 28, 2022

Rejuvenating the Crème de la Crème of Hungarian Cosmetics In 2004, a consortium of entrepreneurs took over Helia-D, a renowned Magyar cosmetics brand in the 1980s but then on the point of extinction. The consortium set out to change that. KESTER EDDY

Péter Budaházy seems a modest, easygoing guy: he is prepared to pick up visiting journalists from the local rail station in his car, and walking around the shop floor of his production facilities in Veszprém, 120 km southwest of Budapest, he greets all the “associates” he meets with a “te,” the informal form of “you” in Hungarian. But as managing director and owner of Helia-D, Hungary’s home-grown cosmetics company, he is anything but lax on vital issues: Such is the emphasis on hygiene that everyone washes hands and dons protective laboratory coats, shoe, and hair covers before entering the clean production areas of the plant. Once inside, Budaházy points to tanks and mixing units costing up to EUR 400,000 apiece.

long, the phenomenon attracted media attention, which in turn alerted professionals in the sector. By 1982, after careful testing in the laboratory, Biogal, a stateowned pharmaceutical company, began industrial production of her preparations under the brand name Helia-D, most unusually in black glass jars. “These were good quality products, using plant-based ingredients, and had, I think, nine different patents altogether, because there was the sunflower stem extract, maize leaf extract, Tokaj aszú extract [and others]. It became a success story in Hungary and abroad. In the United States, Zsa Zsa Gabor [the Hollywood actress born in Hungary] was using it,” Budaházy relates enthusiastically. But with the collapse of the Socialist system and subsequent privatizations of the 1990s, Helia-D, passing between different owners, became something of an orphan in the high-pressure world of the freemarket. By 2004, when Budaházy learned it was up for sale, its product portfolio had shrunk from a peak of 150 items to just four.

Good Revenues

“The active ingredients typically only make up between 0.1 and 2% [of the cosmetic], but we use only the highest quality. One, Copper Tripeptide-1, is more expensive than gold,” he says. This is all a far cry from the Csepel Island village, south of Budapest, where,

in the

1970s,

Mrs. Jenő Nedeczky, an English teacher, started to produce her own cosmetic creams based on sunflower stem extract from her home. Starved of good quality cosmetic products at the time, as word got around, the public queued up outside to sample her “miracle” wares. Before

Yet, even this much-diminished operation was, surprisingly, still generating good revenues. Budaházy, a former investment banker now trying his hand as a freelance venture capitalist, had an eye for the future potential and, with a group of likeminded friends, made a bid. “It was a good opportunity and not very expensive,” he says of the transaction. (Budaházy declines to reveal details of the deal today, but the Menedzsment Fórum (Management Forum) website mfor.hu states that the consortium paid U.K.-based multinational Unilever “a few hundred million forints” for the brand.) Seeking to revive the company’s fortunes was no simple task, however, especially since Budaházy lacked any specialist knowledge of the sector. “At the beginning, I had a partner who was already in the cosmetic business, so that’s why I didn’t manage the company for the first five years. I was looking at it from a distance,” he admits. After hiring a managing director and an assistant, the new team set

Péter Budaházy out to rejuvenate the company, moving production to Veszprém and launching

new products

within the first year. “As we learned the business, it became obvious that the key [to success] was product development. You have to keep developing new, competitive, good quality products,” Budaházy argues. As part of this philosophy, Helia-D worked to develop its older, classic range, in many cases upgrading with natural rather than unnatural ingredients in the original formulae. This means, for example, that traditional vaseline, a petroleum product, has been dropped in favor of a plant-based version. Today, as a result of this policy, most Helia-D products can carry the Vegan stamp of approval. Slowly but surely, the former investment banker bought out his partners and, with his vastly improved knowledge of the sector, took over as managing director in 2009.

Special Report | 15 Model Endorsement

A few years later, the company was ready to launch television and other marketing campaigns, signing up Ágnes Pataki, Hungary’s best-known female model in the late 1970s and 1980s in 2019 to promote its anti-aging products. It was a deal Budaházy personally worked hard to seal. “I convinced her by saying L’Oreal was using Jane Fonda and Helen Mirren [in promotions]. What is very special about Ági is she is 70 now, and she is still beautiful,” he says. Today, the Helia-D range comprises more than 200 individual products. The company also produces a variety of subbrands, including Helia-D Professional for beauty salons and cosmeticians and Officina, a separate brand for sales in pharmacies. (Cosmetic companies typically have a different brand for overthe-counter pharmacy purchases.) Total sales amounted to HUF 2.2 billion in 2001. In parallel with these developments, Budaházy expanded into other domestic cosmetic companies, most notably with the purchase of the original production premises in Veszprem after its BritishDutch owners went into administration in the 2008-09 economic crisis. Now dubbed PL Beauty Cosmetics, it focuses mainly on contract orders, with 95% of production, worth some HUF 4.5 billion, destined for foreign markets. (Most of the Helia-D range is today produced in a smaller, separate unit in Veszprém.) Today, all told, Budaházy’s cosmetic companies employ some

240 people,

a spectacular advance on the skeleton operation his consortium took over in 2004. However, one target set at that time has proved elusive. According to the mfor.hu article, the new owners were hoping to garner some 20-30% of Helia-D revenues from exports by 2005. In reality, as of last year exports constituted a mere 5% of sales. With intense competition from strong global brands and local operations, foreign sales are “only growing slowly,” Budaházy acknowledges. “We were quite successful in Russia, we have had some success in the U.S., and we are making some first sales in Taiwan, Azerbaijan and Albania,” he says. “We have to be even more competitive. [….] The quality is there, and our designs are good for the Hungarian market, but perhaps we need something a little bit different for other markets.”

The Origin of the Brand Name Helia-D Helia-D is a somewhat odd brand name, but there’s a simple tale behind its origin. It’s one Krisztina Somogyi, who runs the “Herbal House” in Tolcsva, a village 240 km northeast of Budapest, tells several times a day in summer. The facility, a kind of “hands-on” cosmetic kitchen-cum museum, was established by Péter Budaházy for guests to enjoy an introduction to cosmetics and create their own skin creams. It is proving a popular alternative tourist attraction to the

many wineries in the surrounding Tokaj wine region. “Helia-D first started production at the Biogal plant, in the city of Debrecen, near here, 40 years ago, and the first product was based on sunflower stem extract,” she says. “So the ‘D’ in the name comes from the location, the first letter of Debrecen, and Helia refers to the sunflower, because its scientific name is Helianthus annuus, itself from Helios, the god of sun.”

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Special Report

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Budapest Business Journal | July 15 – July 28, 2022

4iG Makes ‘Strategic Transformation’ Appointments The listed IT group 4iG, which has a portfolio covering domestic and international markets, says it has begun the strategic transformation and integration of its telecommunication companies. The goal is for the companies to make more efficient use of the cooperation opportunities within the group and the synergies arising from business operations.

István Király portfolio of 4iG Nyrt., from July 1. As the top manager of the business, he will coordinate business processes, improve the effectiveness of the group by exploiting operational synergies, and define the joint development and business strategy of the telecoms companies. Király was described by the 4iG as “one of the most outstanding managers of the domestic telecommunications market” with deep industry expertise. He previously worked in high-profile positions at Magyar Telekom, Vodafone, and Digi Hungary. He also played a crucial role in managing four large-scale mergers in the Hungarian ICT market and the integration that followed them. Róbert Budafoki, who has outstanding international experience, took over the management of the foreign subsidiaries

RENÁTA KÓNYA

István Király assumed the position of CEO of Antenna Hungária Zrt., which combines the telecommunications

News

in Brief

4iG Wins HUF 2.4 bln Contract Listed IT company 4iG said on July 6 that a consortium it leads had won a HUF 2.4 billion contract to expand and develop an integrated public services information system used by central government institutions and local authorities, according to an announcement on the website of the Budapest Stock Exchange. The contract runs until the end of June 2023.

ICSID Favors MOL in INA Arbitration Case The International Center for Settlement of Investment Disputes (ICSID) has decided in favor of Hungarian oil and gas company MOL in an arbitration case involving the state of Croatia over a breach of contract, according to portfolio.hu. MOL notified the market of the verdict in an announcement posted on the website of the Budapest Stock Exchange on July 6. MOL noted that it had filed a request for arbitration against Croatia in 2013 for breach of contract related to agreements concerning Croatian energy company INA signed in 2009. MOL owns 49.1% of INA but has management rights in the company. The state of Croatia owns 44.8% of INA, with the remaining 6.1% held by private and institutional investors. “The

ICSID award clearly states that Croatia’s bribery-related allegations are unfounded,” MOL said. “The three-member council unanimously rejected Croatia’s objection that the 2009 agreements are a result of criminal conduct,” it added. Croatian Prime Minister Andrej Plenkovic said the award by the ICSID was a fraction of the compensation MOL had sought, adding that the government would pursue the matter further. Plenkovic said MOL was awarded USD 184 million, well under the USD 1.1 billion in compensation for which the Hungarian company had asked. “We inherited this case, and we’ll take the only possible path from here: pursuing the matter further and supporting the Croatian position,” Plenkovic said.

Jász-Plasztik Inaugurates HUF 10 bln Capacity Expansion

Hungarian-owned Jász-Plasztik, which makes plastic products, tools, and batteries, inaugurated a HUF 10 billion capacity expansion on July 5, according to uzletem.hu [My Business]. Owner and managing director János Kasza said the company added production facilities at three bases while upgrading production lines, acquiring equipment, and adding a solar park at the plant in Jászberény (75 km east of Budapest). Minister of Finance Mihály Varga noted that the government

Róbert Budafoki

Tamás Tábori

Csaba Bőthe

of the telecoms business branch and was appointed the top manager of 4iG International, a new organizational unit established within 4iG with its headquarters in Tirana, Albania. Budafoki will be responsible for the operation and development of the Montenegrin mobile service provider ONE Crna Gora and two Albanian telecommunications subsidiaries: One Telecommunications, and ALBtelecom. His first task will be to oversee the integration and unification of the two Albanian subsidiaries under one brand name. The management of Digi Telecommunication and Service Provider Kft. and its subsidiaries (Invitel Zrt., Digi Infrastructura Zrt. and i-TV Zrt.) will be taken over by Tamás Tábori, who has experience in organizational

integration and the introduction of agile operations. The board of 4iG expects Tábori to increase the efficiency of business operations, develop the services of the DIGI group, and prepare the company for integration. Finally, Csaba Bőthe, as the new general manager of Invitech, takes over the duties of Gerald Grace, who is stepping down from his role as the head of the company. Bőthe, who has three decades of professional experience, joins the company from Yettel, although he previously managed 4iG’s marketing and business support areas between 20182019. In his new role, he will support the integration processes, increase the business efficiency of individual subsidiaries, and establish the conditions for effective market operations.

had contributed to the investment with HUF 3.6 billion in grant money earmarked for big companies ineligible for European Union funding. JászPlasztik employs around 6,000 people at six plants in two countries. According to public records, the company had net sales revenue of HUF 180 bln last year.

according to a disclosure posted on the website of the Budapest Stock Exchange on July 1. The buyout offer is being made by Trevelin Holding and Geraldton Invest (both controlled by Daniel Jellinek, the head of property developer Indotek); High Yield, owned by György Waberer, who built the company up over more than two decades; and MHB Optimum. Trevelin Holding and Geraldton Invest own a combined stake of just under 31% in Waberer’s, High Yield owns 20%, and MHB Optimum holds 21%. The shareholders have submitted their buyout offer to the National Bank of Hungary (MNB) for approval. In a separate announcement posted on the bourse website, Waberer’s said MHB Optimum was acquired by property developer BDPST Equity Zrt. from the investor Ferenc Mike. BDPST Equity is part of BDPST Group, owned by István Tiborcz, the son-in-law of Prime Minister Viktor Orbán. In separate news, Waberer’s also announced via the Budapest Stock Exchange website that it had wound up the acquisition of local peer Gyarmati Trans after receiving regulatory approval from Hungary’s competition office GVH. Waberer’s said it would support the food industry customers of Gyarmati Trans with logistics services from July 1. The company reiterated that its new customers represent a revenue potential of HUF 1 billion a year for the group and will be consolidated into its Regional Contract Logistics segment. Gyarmati Trans’s activities focus on refrigerated transport and warehousing for the food industry, mainly meat companies, in the east of Hungary, Waberer’s said.

OTP Receives Final Module of HUF 7.3 bln Supercomputer

OTP Bank has taken delivery of the final module of a HUF 7.3 billion supercomputer that will use artificial intelligence to manage the lender’s telephone customer service, the bank said on July 5, according to novekedes.hu [Growth]. Hungary’s National R&D Fund is supporting the project with more than HUF 2.5 bln in grant money. The government aims to use the self-learning AI based on OTP’s customer service to deliver faster and more efficient Hungarian language services in public administration, education, and the business sector. OTP earlier signed an agreement on the delivery of the supercomputer with Silicon Valley’s SambaNova Systems.

Waberer’s Minority Stakeholders Make Buyout Offer Minority stakeholders in listed Hungarian hauler Waberer’s International will make a buyout offer for outstanding shares in the company at a price of just under HUF 2,336 per share, the statutory minimum,

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Celebrating the Return of the Sziget Festival After a COVID-enforced two-year break, a nondescript island in the Danube downriver from the heart of Budapest will once again become the Island of Freedom and host the annual Sziget Festival from August 10 to 15. I will be going. It will be my fourth Sziget. DAVID HOLZER

When I first visited Hungary, to see in 2015 at a New Year’s party, the guy who invited me to this country painted a picture of Sziget as a kind of utopian free for all. We’d met at that year’s Burning Man, which really was wild. I found the idea that something similar could happen in a country that even I could see was hardly a byword for freedom more than a little intriguing. I also liked the idea that we could trundle down to the Island of Freedom from downtown Budapest by train and be back in our beds by midnight. My first Sziget was in 2015. I wouldn’t describe it, as the website Index.hu did, as “an electronically amplified, warped amusement park that has nothing to do with reality.” It was rather more modest than that, and all the better for it. It was great fun, felt friendly and safe, and it didn’t rain. Robbie Williams headlined on the day we went, and he was so comfortable on stage that he managed to turn Sziget

into his own living room. I also saw the Hungarian Péterfy Bori & Love Band in a funky little side tent. They were superb and are well worth checking out. So, like millions of “Szitizens,” as fans of the festival are known, I’m glad to see Sziget back, and I’ll be happily schlepping along for at least one day this year As I’ve come to expect, each night of the festival is headlined by a pretty decent act; not a truly super-duper-star, but up there. The artists represent all the genres that make today’s world of pop so wonderful, from Arctic Monkeys, who by all accounts are on fire, to Dua Lipa and the United Kingdom’s publicityprovoking British rapper Slowthai. The only problem will be, as in previous years, choosing which day to go. In 2020, I plumped for the day the 1975 headlined, only to find out my partner was a closet Foo Fighters fan, and they were playing the next night.

By all accounts, the Foos (as we don’t call them) played a blinder, and I’ve never quite lived that down. Choosing which day to go this year won’t be so difficult as, to the best of my knowledge, my partner’s no fan of any of the headliners and neither am I. Although it’s fun to see a great band smash it live, as the youth say, what I like most is checking out the acts in the smaller tents and, ahem, soaking up the Sziget vibe. Despite how well it’s organized, there’s also a genuinely slightly alternative feel to Sziget. I guess this is rooted in its history.

Alternative beginnings in 1993 If you’ve ever wondered why Hungary has so many festivals, it could be because there was already a healthy summer scene under communism. After 1989, music fans had to find ways to fund their own gatherings. It took a while for that to happen. Sziget began in 1993 and was originally called Diáksziget (Student’s Island). Musician, visual artist, and novelist drMarias, who I interviewed for the June 17 issue (see “From Charming Budapest Art Deco to the Social Surgery of drMáriás”), was there. “I was asked to play that first year as a substitute bass player for the Hungarian art-rock band A. E. Bizottság; the name means ‘Albert Einstein Committee.’ They formed in 1980 and made a couple of albums before breaking up in 1985. Now they were having a kind of reunion, in a pretty improvized sense,” he recalls. “Suddenly, I found myself on a huge stage in an enormous field packed with

more than a thousand people. While my mates in the band did a performance with giant dolls that they carried on their heads then tore to pieces, we played improvised music for 45 minutes. People went mad, cheering wildly. When we came off the stage, my fingers were bleeding. I played with my band Tudósok at Sziget for the next 20 years, but that first festival was the funniest and weirdest.” Despite being some kind of artistic triumph, that first Sziget apparently resulted in sizeable debts that took a few years to repay. But, presumably seeing its potential, PepsiCo began sponsoring the event in 1996, renaming it Pepsi Sziget. The festival’s early years were “wild and fabulous,” according to drMarias. “Anything could happen. People like David Bowie and Henry Rollins did great shows. It was possible to meet famous musicians, but there were also performances by little-known artists from Hungary and abroad. The security didn’t prevent people from meeting freely. You could rub shoulders with famous musicians and party until dawn. It was as if we were in a dream.” PepsiCo’s sponsorship ended in 2001, and the event became Sziget Festival in 2002.

Károly Gerendai and the selling of Sziget My account of Károly Gerendai’s rise and rise is mainly drawn from Wikipedia. His entry there credits him with being the sole founder of the original Diáksziget. It also describes him Continued on page 18 ›››

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Continued from page 17 ››› growing up in Budapest as part of “an intellectual family with noble ancestry.” From humble beginnings as a fly poster for bands and a tour manager, Gerendai’s career accelerated at a pretty rapid rate. He moved on to managing bands then, if Wikipedia’s chronology is correct, working for a time in publishing before starting Sziget in 1993. PostSziget, his rise through the festival scene appears to have been meteoric. In 1999, he was elected vicepresident of Yourope, the European Festival Association established in 1998, although Sziget Festival was not one of the founding members. Nowadays, Yourope describes itself as “the most important association of European popular music festivals [...] it represents 112 festivals and associated members from 26 European countries.” Gerendai, and I assume the three other Hungarian individuals who owned Sziget Festival, sold it in 2017 for a figure reported as being a little over EUR 49 million to LMF Luxco sárl, a privately owned producer and marketer of distilled beverages and liqueurs. Since then, Gerendai has remained involved with Sziget and is also the owner of the excellent Costes restaurants in Budapest. The original Costes opened on Raday utca in 2008 and became Hungary’s first Michelin-

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Budapest Business Journal | July 15 – July 28, 2022

This chance to hop across genres, from rock and roll to liquid drum and bass, certainly appeals to me in theory. Like many of us who have taken to streaming music for large chunks of the day, I’m far more open to different genres than I ever was. The only problem is that I don’t really possess the stamina to dad-dance in a succession of different funky tents. Maybe it’s because I’m a music fan of a particular vintage, but I can only focus on one great band per day. No matter how good they are, the rest blur into colorful noise. Another factor in the rise of music festivals is the preference for experiences over material goods, particularly among millennials. This has led to a growth in what’s called the “experiential economy.” As PepsiCo’s early involvement with Sziget proves, brands early on realized the potential of the modern festival to promote their products and services to a captive audience. The benefits of having a large audience in place, especially at a festival with the Foo Fighters, Sziget 2019. kudos of a Sziget or Glastonbury, also appeal to artists themselves. Apparently, promoters generally pay acts more to starred restaurant. A sister outlet, Costes appear at their festival than the artist “Having started with just a 46,000 Downtown, opened in 2015 and received capacity in 1993, it greeted its three would get for a single gig as part of a tour. a Michelin Star the following year. Bands also play on a stage already set millionth punter in 2004, hit six million Never having met Gerendai, I imagine up, so they don’t have to cover the cost of in 2012, nine million in 2018, and was him as not dissimilar to Richard Branson. on course for 10 million ‘Szitizens’ to hauling their own ornate show to a festival. That is, an extremely smart guy and This has led to acts appearing only at have crossed the Danube to paradise in adept businessman who realized early festivals. In 2017, performers including Iggy 2020. You’ve Covid to thank, then, for on that there was good money to be giving you the chance to bag the honor.” Azalea, The Chainsmokers, and Macklemore, made in the music industry. flew into Hungary just to play Sziget. It is a clear indication of the enduring “He’s the most talented manager of All these factors have contributed to appeal of Sziget. a whole generation,’ drMarias told me. the rise and rise of Sziget, to the point “He managed to build up Sziget to where it attracts total audiences of nearly The rise and rise the point where it won ‘Best Major 500,000 people, many of whom come of festivals European Festival’ in 2011 and 2014.” from outside Hungary. There are good reasons why the number At the time of the sale, the Budapest A British friend of mine in his late of European festivals has proliferated Business Journal said that the work of 30s summed up the appeal of Sziget for over the past 20 years. the Sziget Festival team would now be many Western European millennials. As anyone who contemplates going to “supported by James Barton, the founder “We flew to Hungary with Ryanair or concerts knows, ticket prices have gone of Creamfields festival and former music EasyJet six years ago,” he told me. “We stratospheric this year. This is partly director of LiveNation, as well as Paul were there for only one day, but it felt like understandable, as the costs of touring – Bedford, former financial director of we were there for a week. I liked the fact especially fuel – must have skyrocketed. Cream Group.” that the sun was shining and that it was But there’s also a sense that bands in The involvement of such heavy hitters easily accessible from the city center.” their dotage are mopping up as much clearly indicated that Sziget had become While this is wonderful for Sziget big business. But the festival’s challenge, available fan cash as possible, as they organizers and the economy of Budapest, it are with never-ending reissues of their as one of the organizers told the has, as drMarias told me, made the festival classic albums in different formats. Hungarian news portal index.hu at the “too expensive for most Hungarians. In In contrast, the cost of a festival ticket, spite of this, many still go, and there are time was that “Sziget is seen as a great leader among other festivals and because EUR 85 for a day at Sziget, looks like an performances by Hungarian bands.” absolute bargain. (If you feel committed, of this we also have to change, so we For me, it’s the fact that, as long as a full six-day festival pass costs EUR don’t become just one in a million.” my knees hold out, I can see Hungarian Talking of one in a million, one Szitizen 335.) You have the opportunity to see bands, hip-hop artists, and DJs I’ve never several world-class artists as well as this year could be genuinely significant. heard of and wouldn’t have encountered local bands and DJs you might never According to Mark Beaumont, writing otherwise that ultimately sells me on have heard of while mooching around in in NME, this year could well see the 10 Szeged. That and the fact that I can be a thoroughly pleasant space. millionth visitor to the festival. in a comfortable bed by midnight.

Environmentalist Jane Goodall speaks at Sziget 2019.

Ed Sheeran, Sziget 2019.

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Budapest Business Journal | July 15 – July 28, 2022

Off the Beaten Track and Well Beyond In my last column, I reported on the marvelous marketing savvy of Mád’s Mad winery from the Tokaj region, with cutting-edge informationproviding smart chip technology installed in the label of one of its wines. Nevertheless, it can also be reassuring to uncover a gem that seemingly doesn’t have a clue about how to get its message out to the public. ROBERT SMYTH

In the Tokaj village of Táylla (224 km northeast of Budapest by road), the Szent Benedek winery very much flies under the radar, but its wines ought not to. Guiding visitors on a trip to the winery earlier this summer provided a unique opportunity to gain insight into this lesser-known cellar. After a tour of the bijou but atmospheric cellar, which is covered in the benign white mold that is believed to keep the air clean, winemaker József Ádám brought wines up in a plastic bucket. He is a real believer in the Hárslevelű grape, and it is the dominant variety in the estate blend. The single varietal and singlevineyard dry wines that are currently available date all the way back to the

2011 vintage.

It is a great and rare thing to be able to taste older vintages as we don’t yet have much experience of how grapes like Furmint and Hárslevelű develop with age, given that the history of making top-notch dry wines from then is barely a two-decade story in the case of the former, and even less in the case of the latter. For its part, Furmint can be sharp and uninteresting as a young wine. Ádám speaks of the importance of the “place of growth” and points up to the elevated, volcanic rock-based, and

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London Gatwick, I happened upon a wine bar, Vagabond Wines, with a selection of wines by the glass, including in mini-tasting portions, which are excellent for getting acquainted with many different wines. Among them, much to my surprise, were several Hungarian wines. There’s even a Hungarian waitress working there. One of them was a 2019 Orange wine from Etyeki kúria’s MSP series (MSP stands for Merész Sándor project, which enables winemaker Sándor Merész to flex his winemaking wings). This was made from the Pinot Gris grape, fermented on the skins for

14 days,

The Tokaj Wine Region and its Historic Cultural Landscape is a UNESCO World Heritage Site. Photo by Andocs / Shutterstock.com south-facing Nyírjes dűlő (vineyard) from which the 2011 dry Hárslevelű comes; this is the highest place where Szent Benedek has grapes.

certain leading Hungarian sommeliers quip that “the best Furmint is Hárslevelű.” For a light, refreshing, and organically-grown take on the Hárslevelű grape, ideal for summer Incredibly Complex imbibing, Gróf Degenfeld’s fresh, fruity The 2011 Hárslevelű Nyírjes dűlő is and floral Hárslevelű (Bio) 2021 is a oily, waxy, and honeyed, with edgy good choice. It was fermented and aged stoniness but also generous tropical in the tank to preserve its freshness and fruit (pineapple) and eastern spices. It is costs HUF 2,950 from Bortársaság. incredibly complex and long. It not only Also, from the Tokaj village of Tarcal, tasted great as the church bells chimed Kikelet winery’s Stephanie Berecz is in Tállya, but it also stood up nicely in another great lover of “Hárs” (pronounced the cool light of day later when I tried “harsh”) as she often calls the grape, it in the less romantic setting of home a making single-vineyard offerings from the week or so later. It is excellent value at variety: her wines are anything but harsh. HUF 4,200 from borterasz.hu. Benedek’s sweet wines are also The 2011 Furmint is textured and quite outstanding. 2014 was an extremely Burgundian in character, with a pleasant challenging vintage for dry wines, but it touch of oak, and is also an excellent worked out well for sweet wines. “Tokaj wine, but the Nyírjes dűlő Hárslevelű Guide” editor Gergely Ripka recently is more complex, reflecting the grape’s told me he was impressed with the remarkable ability to age. Hárslevelű, cellar’s 2014 sweets. which accounts for almost a third of Hungarian Surprise Tokaj’s plantings, should be considered On a side note, having time to kill every bit the equal of Furmint (which around Battersea Power Station before makes up two-thirds of Tokaj’s vines) a recent flight back to Budapest from in the making of dry wines. Indeed,

and aged for 10 months in a mix of old (2,000-liter) and new (300-liter) Hungarian barrels. The wine is both unfiltered and unfined at bottling. I thought the MSP range of wines was only available at the winery, so I was surprised to find them in this cool London wine bar. It is also an urban winery, and the winemaking equipment, such as a pneumatic press and tanks, can be seen towards the back of the bar. Incidentally, wines made from Zenit, a Hungarian variety, are also doing well in the United Kingdom at present. English wine itself is enjoying exciting times as plantings increase, and even renowned Champagne houses have been setting up shop in the south of the country. Bortársaság has started selling several of the classy and multiple award-winning Nyetimber traditional-method sparkling wines. In a recent blind tasting, many of us were mightily impressed by a vintage Nyetimber that had most of us thinking it was fine champagne. Incidentally, you’ll have to wait until September 2023 to try the next vintage of the MSP Orange wine. In the meantime, the Sauvignon Blanc, for which Etyeki kúria is better known, will delightfully quench summer thirst with its fresh acidity and elegant green aromas and flavors. The 2021 vintage costs HUF 2,490 from Bortársaság.