Books on Hungary
% of GDP
Update No: 092 - (01/01/05)
Historia in profundus
Hungary lost two-thirds of its territory and one-third of its population when
its borders were redrawn after World War I. The modern European state system was
grafted onto Eastern Europe at the end of the nineteenth and beginning of the
twentieth centuries with the collapse of the Ottoman Empire and the defeat of
the Austro-Hungarian Empire in World War I. Crafted from the dual and
conflicting motives of maximizing national self-determination and punishing the
vanquished, the new states were plagued by the presence of ethnic minorities
with irredentist and often revanchist aims. Often systematically disadvantaged
by the majorities in the new states, the minorities had all the more reason to
hold themselves hostile and apart.
Grievances persisted and frequently deepened during the four decades of
Communist rule after World War II. With the fall of the Soviet bloc, Eastern
European states continued to face the issues posed by aggrieved minorities, but
now in an environment in which the minorities could be more open, forthright and
assertive in pursuing aspirations for separation, union with their ethnic
homelands or autonomy.
Except in the former Yugoslavia, the minorities question has not been answered
by military force. That eventuality has been prevented elsewhere by the
overriding vital interest of all the Eastern European states in integrating into
the E.U., which requires that members do not systematically discriminate against
or exploit minorities.
Nonetheless, the legacy of the past still poses some obstacles to the creation
of a post-industrial and harmonious multi-national Europe united by market
democracy and a Western lifestyle. Of the millions of ethnic Hungarians living
as minorities in neighbouring countries, up to two million are in Romania,
600,000 in Slovakia, and others in Croatia, Ukraine, Slovenia and Austria.
The diaspora disdained
There was hope among ethnic Hungarians living outside Hungary, the modern
diaspora, that a referendum in Hungary on December 5th would enable them to have
Hungarian citizenship once again. But their dreams were shattered when election
officials said the referendum was invalid because most voters stayed away from
Results showed that the "yes" votes slightly edged out those against.
But the result is not binding on the Socialist-led government because less than
the required 25-percent of Hungary's eight million eligible voters supported it.
Hungarian Prime Minister Ferenc Gyurcsany, who voted against granting
citizenship and discouraged people from participating in the referendum, said he
was pleased with the outcome. In his words Hungary had shown it "does not
confuse nationalism with responsible patriotism." Mr. Gyurcsany's
government had expressed concern that at least hundreds of thousands of
beneficiaries of citizenship would come to Hungary to receive social benefits,
costing the country up to three billion dollars annually. Prime Minister
Gyurcsany also said it could destabilize the region.
The leader of the country's conservative opposition, former Prime Minister
Viktor Orbán insisted that the vote was valid. Orbán's camp was campaigning
for the approval of both motions. "The 'yes' votes won, the 'no' votes
lost. The referendum was valid," he said. He blamed the prevailing
existential problems for the low turnout and called on the government to support
dual citizenship despite the vote.
Leaders of the estimated three million ethnic Hungarians in neighbouring
countries criticized Hungary's government for not supporting the referendum and
a "yes" vote. Joining the chorus of critics is Andras Agoston, the
chairman of the Democratic Party of Vojvodina, a Serbian province with an
estimated 300,000 ethnic Hungarians. Mr. Agoston suggests the Budapest
government has betrayed his Hungarian community.
Hungary in the former Yugoslavia
The Hungarian Defense Forces have taken part in the IFOR/SFOR activities in
Bosnia since 1995. The first deployed unit was an engineer contingent, which
contributed to the reconstruction of the Old Bridge in Mostar. After withdrawing
the engineers in 2002, Hungary offered a Multinational Specialized Unit to SFOR
with a maximum strength of 200 troops.
MOL reports record-breaking earnings in third quarter
Oil and gas company MOL Rt recently announced third-quarter profits that broke
all previous records, Budapest Business Journal reported recently.
Its nine-month profit surged 261% over the corresponding period in 2003, driven
by high refinery margins, plus excellent performances from its gas business and
its Slovak subsidiary, Slovnaft AS.
MOL reported net profit of Ft 153.4bn in the first nine months of 2004,
according to its consolidated preliminary report.
In the third quarter alone, MOL recorded net profit of Ft 73.6bn, up 139%
year-on-year, and well over the market consensus forecast of Ft 50bn.
Tamas Pletser, CEE oil and gas analyst at Erste Bank Investment Rt, said the
report contained two positive surprises in the downstream and upstream oil
"The downstream result was a surprise for us and for the market,"
Pletser said, adding that he forecast Q3 operating profit of Ft 40bn, against
the actual Ft 59.1bn recorded.
However, he said the reasons are well known.
"The higher refinery margins, higher sales volume, and higher than average
spread between Brent and Ural crude were the main factors," he said.
"Also, MOL made large profits on inventories, owing to a strong price
increase during the reporting period."
On the upstream division, Pletser said that the performance was less of a
surprise. Still, he added, the operating profit was higher than expected,
primarily thanks to lower costs and higher sales volume.
"All other sectors performed pretty much in line with our
expectations," he concluded.
For January-September, MOL's revenue came to Ft 1,334bn, up 27% from the same
period of 2003. Revenue in Q3 alone rose 27% year-on-year to Ft 450.6bn.
Nine-month operating profit more than tripled, from Ft 57.1bn in 2003 to Ft
189.2bn in 2004.
Slovnaft accounted for Ft 56.5bn of the nine-month operating profit. MOL's
recently divested gas business contributed Ft 44.3bn of the operating profit,
some ten times the figure recorded in the same period of 2003. MOL said the
division's profit was a result of adopting EU-complaint regulations.
On the question of whether such a stellar performance will be sustained, Erste
Bank's Pletser said it is highly probable in the short term. He explained that
structural changes in the entire oil industry have seen the sector performing
well globally, as well as locally.
"The fundamental change is that increased demand, from the US and China in
particular, has outstripped the pace of growth in refining capacity. That means
that the high margins will probably remain for the next one to one-and-a-half
years," he asserted. "As a result, the short-term outlook for MOL, as
well as other regional oil companies, such as [Austria's} OMV or [Poland's] PKN
Orlen, is very positive."
Pletser said the key is how long the current situation lasts, noting that
industry analysts are now starting to recalculate MOL's long-term fair value
with higher refinery margins.
"If we look at the current share price, and we believe margins will remain
this high for 18 months, then it does not look expensive at all," he said.
"Conversely, if the margins were to return to the level of three to four
years previously, the share is overpriced. But I cannot really see that
FOOD & DRINK
Zwack boosts pre-tax income
Alcoholic beverage maker Zwack Unicum Rt reported on November 10th pre-tax
income of HUF 1.598 billion for the first three quarters of 2004, 22.3 per cent
higher than in the base period. Pre-tax income in the third quarter alone was up
a significant 56 per cent to HUF 787 million, Interfax News Agency reported.
Net revenues were up 2 per cent in the period, but with material costs falling
by 8 per cent, the firm was able to boost its gross margin by 13 per cent.
However, "other costs," mostly related to higher marketing spending
and logistics costs, increased by 24 per cent, watering down growth in operating
performance to just over 10 per cent. Within domestic sales, the sales of
Zwack's own products were up 3 per cent, led by 15 per cent growth in sales of
premium products such as Unicum Next and the re-positioned "Futyulos"
line of fruit brandies.
Synergon expects year-end profit
Synergon Information Technology Rt, which is listed on the Budapest Stock
Exchange Rt (BET), posted a loss for the first nine months of 2004, but its
management asserts that it would finish the year profitable, Budapest Business
Journal reported recently.
"During the first nine months, the Synergon group managed to achieve its
targets," said Synergon CEO Lorant Szaray, predicting overall profits for
2004 of Ft 80m - Ft 120m (€330,000-€495,000).
"A significant improving tendency is visible in the profit indicators of
the group compared to the same period of 2003," he said.
Synergon slashed net losses in the first nine months to Ft 85.43m, compared to
Ft 488m in the same period of 2003. Net sales stood at Ft 13.627bn for the first
nine months, up 10% on the corresponding period in 2003.
However, the company's profit forecast is over-confident, according to Peter
Makray, an analyst at Erste Bank Investment Rt.
"Generally the company is doing fine, and sales are going OK, but the
company's prediction of a profit for 2004 of between Ft 80m and Ft 120m is too
optimistic. I expect a net loss for 2004," he said.
He added that Synergon has been too optimistic in previous forecasts.
Makray played down the importance of Synergon's performance so far this year,
emphasising that the key period of the year is still ahead of the company.
"Much more hangs on Q4. The company can't do much about sales, and at most
can concentrate on cost cutting, with which it is doing a good job," he
Yet Synergon remains a worthy investment, despite struggling to realise profits
in the short term, Makray maintained.
Synergon Chairman Ferenc Czako said the company is eyeing further acquisitions
in Central and Eastern Europe. He said it sees particular promise in Slovakia,
due to its location, favourable tax rates and logistics advantages. Synergon has
a subsidiary in Bratislava, currently just a sales office.
Synergon's last foreign acquisition came at the end of March, when Czech IT firm
BrnoData-IS spol sro was 100% bought by Synergon's Czech subsidiary, Infinity
as. While not a huge transaction, it was seen as showing Synergon's commitment
to becoming a strong regional player.
Makray said recently that Synergon's Czech and Croatian subsidiaries did not
perform well last year, while the Hungarian market was relatively buoyant.
Nevertheless, Czako asserted that the Czech market presents an important source
of future growth, partly because of great activity among small companies, an
important category of customers for Synergon.
"The Czech market is more exciting than the Hungarian market at the moment,
and Czech SME's are more dynamic," he said.
Czako added that Synergon is seeking contracts in Bulgaria, where it is more
likely to work with a partner than to set up a subsidiary, as Bulgaria falls
outside its geographical realm.
MINERALS AND METALS
Steel rolling restarts at Diosgyor
DAM 2004 Kft, the firm operating at the Diosgyor site of the bankrupted DAM
Steel Rt, re-launched metal rolling recently, with management saying the plant
will focus on producing high-quality fine steel products, New Europe reported.
DAM 2004 belongs to the Ukrainian-Swiss Donbass-Duferco steelworks consortium,
which also bought the Dunaferr Rt steelworks in Dunaujvros in September.
Bela Toth, managing director of DAM 2004, said he expects 3%-5% growth in demand
for fine steel products, twice as much as the expected growth in demand for
average quality steel. The so-called "prime category" fine steel has a
high content of alloy that far exceeds average commercial steel in terms of wear
and corrosion resistance, he explained.
"High quality fine steel will account for 70% of our production," said
Toth. "These products are mainly used in the car industry, and in some
segments of the machinery industry, for example manufacturing axles, cogs, etc.
We are improving and altering our existing machinery to make them able to meet
the requirements of producing top-quality fine steel."
Toth put the estimated cost of these developments, due by the end of 2005, at
around Ft 5bn (€20.2m).
Production at Diosgyor ceased in February 2004. After two months of preparatory
work the rolling lines started operating again. Toth said steel production
proper can be expected to begin in February or March, 2005. DAM aims to sell
half of its product domestically, and half in other European countries.
Toth said he expects revenue of only around Ft 2.5bn for 2004, but predicted
that turnover would total Ft43bn-45bn in 2005. "As of November, all our
capacity is covered by orders," he said.
DAM 2004 bought the properties and tools of DAM Steel from its Italian owner,
Cogne Acciai Speciali srl, in early September. At that time, DAM Steel was
already under liquidation. DAM 2004 immediately started preparation to restart
operations at Diosgyor, and rehired 700 employees by October 1st.
Egis' sales and exports grow, beat expectations
Hungarian pharmaceutical producer Egis Rt boosted net income by 59 per cent to
HUF 1.966 billion in the fourth quarter of its 2004 financial year, period ended
on September 30th. For the year as a whole, Egis' net income came in at HUF
7.391 billion, 29 per cent higher than that of a year earlier. Sales revenues
were up 12 per cent in the fourth quarter, as domestic sales increased by 24 per
cent and exports rose 18 per cent in US$ terms, New Europe reported.
Export growth was led by central and eastern European markets, showing 44 per
cent growth, while sales to Russia/CIS were up 4 per cent over a high base.
Western European finished product sales also recovered in the third quarter,
Egis said. A favourable shift in the structure of sales revenues resulted in a
high gross margin of 61 per cent, while controlled growth in indirect expenses
resulted in an 87 per cent increase in operating income to HUF 2.179 billion in
the fourth quarter - this is also 20 per cent higher than the average of the
first three quarters, the company noted.
Among indirect cost of sales, research and development expenses were up 2 per
cent, while commercial and general administrative costs climbed 7-8 per cent,
well below the rate of sales growth. For the year as a whole, the 12 per cent
increase in indirect costs is below the company's original plans, Egis stressed.
CFO, Laszlo Marosffy, said on November 11th that Egis' operating margin may
improve somewhat in the coming period, as the expansion of the company's sales
network abroad, which contributed considerably to indirect costs in the past,
has now levelled off.
At the same time, operating performance was mitigated by an increase in
"other expenditures" - this was mostly due to higher risk provisions
and customer discounts in the current period, as well as payments into the
state's drug subsidy budget.
HTCC acquires PanTel shares
Hungarian Telephone and Cable Corp (HTCC) announced recently that it had
completed its agreements with the two minority shareholders of PanTel Rt by
purchasing their 24.9 per cent equity stake in PanTel, Interfax News Agency
HTCC noted that this is the first step in the firm's previously announced
agreement to ultimately purchase the business of PanTel for an aggregate
purchase price of 26.9m Euro (US$34.7m) and 250,000 shares of HTCC common stock.
The final step in the transaction will culminate with the purchase by HTCC of
Royal KPN NV's interest in the PanTel business. KPN is the current majority
shareholder (75.1 per cent) of PanTel.
Fixed-line, ISDN penetration down
There were 3,569,031 fixed telephone lines in Hungary at the end of September,
some 2,000 less than a month earlier, according to figures published by the
National Communication Authority (NHH) on November 9th. Accordingly, overall
fixed-line telecom penetration dropped to 35.33 per cent from 35.35 per cent in
the period, New Europe reported.
Mobile penetration was more than double this level at 83 per cent at the end of
September, NHH figures indicated. The ratio of ISDN lines declined slightly to
16.64 per cent in September; ISDN penetration has stagnated between 16.6-16.7
per cent since September 2003, likely a result of rapidly growing broadband
Matav's nine-month income down 20.6%
Amid increased competition in fixed-line telephony. Matav Rt, the nation's
leading telecom, saw its third-quarter profit drop by over 40% compared to Q3
2003, the company announced to the Budapest Stock Exchange Rt (BET) recently,
Budapest Business Journal reported recently.
The larger than expected decline in the quarter means Matav's results for the
January-September period are 20.6% down on the corresponding period in 2003.
Fixed-line revenues fell by 7% in the first nine months of the year to Ft
228.3bn. In its report, Matav, majority owned by Deutsche Telekom AG, stated
that despite rising mobile and data transmission revenues and higher equipment
sales, falling revenues from domestic and international traffic contributed to
the poor performance. (€929m), with an EBITDA margin of 35.7%. Combined
domestic and international traffic revenues declined by 13.9%, mainly as a
result of a drop in volumes, together with price discounts.
Conversely, Matav stated that revenues of its mobile unit, T-Mobile Hungary Rt,
grew by 4.0% over the first nine months.
The mobile unit's EBITDA increased to Ft 77.4bn, with an EBITDA margin of 39.7%.
Operating profit declined by 7.3%, as the vast majority of the write-off
relating to the rebranding of the mobile unit, formerly called Westel, was
accounted for in the first quarter of 2004, Matav said.
T-Mobile Hungary maintained its market leading position in the first nine
months, with a market share of 47.6%.
The Matav group's operating profit fell to Ft 82.2bn in the year to September,
mainly driven by an 11.9% increase in employee-related expenses due to
restructuring (predominantly at Matav's Macedonian subsidiary MakTel), and a
7.9% increase in depreciation and amortisation.
Commenting on Matav's report, Peter Tordai, head of research at K&H Equities
Rt, said total revenues were slightly below the market consensus forecast,
stating that as expected, slowing growth of mobile revenues was unable to
compensate for the dip in domestic fixed-line turnover.
"The figures were disappointing overall. The market had expected an EBITDA
margin of 41% versus the actual 37.4%, and net profit of Ft 14.8bn versus the
actual Ft 10.8bn," he said. "Management is maintaining its annual
targets of revenues above Ft 600bn and an EBITDA margin of around 40%. However,
in our view, the report could raise concerns about the achievement of those
Assessing the results, Matav CEO Elek Straub said that performance of the
fixed-line segment weakened during the reporting period, driven by strengthening
competition and regulatory pressure. On the mobile division, he noted that in
spite of more intense competition on tariffs and services, as well as on entry
barriers, T-Mobile Hungary had again managed to maintain its leading market
Looking forward, Straub said that in order to maintain efficiency, the company
is continuing its cost reduction drive.
"I would also like to reassure our shareholders that we are on track in
executing our mid-term value creation program," he said. "In order to
maintain efficiency, we plan to reduce the parent company head-count by some
2,600 by the end of 2006."
Five buyers line up for Antenna
Following the announcement by the State Privatisation and Holding Rt (APV) that
it will sell its stake in broadcaster and telco Antenna Hungaria Rt, potential
buyers are emerging for the company, Budapest Business Journal reported
Five strategic investors have been named in press reports as being interested:
Ceske Radio-komunikace (CRa), Telediffusion de France SA, Portugal Telecom SA,
Spain's Retevision SA, and Italian Telespazio SpA.
"CRa is interested in the acquisition of a majority stake in Antenna
Hungaria," said CRa spokesman Pavel Kocis. "The Hungarian company
provides identical or very similar services to those of CRa, and both companies
cooperate on a long-term basis."
Italy's Telespazio is only interested in purchasing a part of Antenna,
corresponding to an area in which Telespazio specialises, according to a source
at the company.
"Antenna is important in Hungary, and everybody's interested in the
Hungarian market. However, Antenna does not completely overlap with our
business, it has a wider range of services," said the source, who requested
anonymity. "We would consider bidding for its satellite transmission
A source from Barcelona-based Retevision confirmed that company's interest.
However, this source declined to disclose further details.
Besides these strategic investors, the management of venture capital fund Advent
International has also expressed an interest, according to press reports.
A stake of 75% plus one vote is up for sale through public tender. According to
the APV, the transaction should be concluded by the middle of 2005.
"The privatisation is necessary in order for Hungarian broadcasting to be
able to keep abreast of the technical revolution," said an earlier
statement from the APV. "In developed countries, analogue systems are being
replaced by digital broadcasting, which promises significantly better picture
quality. Many more channels will be available, and television sets themselves
will become suitable for numerous other services."
Antenna was initially listed on the Budapest Stock Exchange Rt (BET) in 1992,
with a 92.5% stake remaining in state hands. The APV subsequently sold Antenna
shares in 1994 for compensation sold Antenna shares in 1994 for compensation
coupons, reducing its holding to 83.2%.
The privatisation of a significant part of the company's state-owned shares was
first attempted four years ago in 2000. However, the sale fell through amid
unfavourable capital market conditions at the time, and the APV put off the