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Disappearing doctors

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EU’s boost to GDP set to wane in 2017 The European Commission said Hungary’s growth should slow next year, and that the following year will provide an opportunity to see how the economy fares without major help from EU funds. 3

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Government sells bank shares, farmland

Dr. Tamás Dénes, chairman of the country’s physician’s association, says salaries and conditions must be improved to stop the exodus of doctors that is plaguing Hungarian health care. 17

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Usually more interested in renationalization, the government sold its shares of OTP Bank and said it would auction off state farmland. Critics say the land will end up in the hands of government friends. 7

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A proposal by the Interior Minister, that would have required media outlets to allow government agents in their newsrooms, was quickly killed after an apparent groundswell of opinion against it. 6

As Skanska’s new Nordic Light office building celebrated it’s ‘topping out’, realtors said they are seeing a remarkable lack of vacancies in CEE, and in the Hungarian market in particular. 10

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Business Journal clinics grow Private, cash-based the state care in popularity as lack of funds system suffers a the country. and doctors flee

Vol. 23. number 21

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A proposal by the Interior Minister, that would have required media outlets to allow government agents in their newsrooms, was quickly killed after an apparent groundswell of opinion against it. 6

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It’s time for us all to admit health care is sick When communism ended, Hungary’s new government inherited a broken health service. The health insurance that taxpayers contributed was not enough to support the system, and the official pay of a doctor was roughly equal to that of a bus driver. It was common at the time to tip doctors and nurses – an acknowledgement that they were underpaid and an incentive for them to give the kind of decent, attentive care that every patient wants. Roughly 25 years later, the position of doctors and nurses, the custom of tipping and the state of medical care has not changed very much. What is different is that, thanks to European Union membership in 2004, doctors can easily leave Hungary – and they have been doing so at a rate of approximately 1,000 a year for some time now. Past efforts to help defray the cost of medicine have included a “visit fee” of HUF 300, to be paid by each patient on visiting the doctor, a plan initiated under the Socialist government that preceded this one. Because Fidesz was so indignant at the idea of anyone paying for medical care in Hungary, they stopped the visit fee when they came to power in 2010. But Fidesz has not come up with an alternative. In fact it has shown how little it cares about the issue by putting a state secretary, instead of a full minister, in charge of health care. Of course, a fee of HUF 300 per visit is not going to solve the whole problem – not when you consider the real costs of doctors’ and nurses’ time, as well as the cost

of medical equipment and facilities. Paying for quality health care is very expensive, and no government seems to be ready to tell Hungarians that they have to pick up the bill. But Hungarians, apparently, do not need to be told: They have unilaterally decided to start paying for care themselves, taking out private insurance and going to private clinics. It seems the market is giving the government a break, as people are figuring out their own solutions. But the government needs to give the market a break, to make it easier to help everyone get the care they need. For example, a recent program at the Uzsoki Hospital in Budapest’s District XIV sought to mix public and private payment systems by allowing patients to pay extra for additional services, like not having to wait several months for their operation to be scheduled. Again, the Fidesz government expressed the sentiment that no one should have to pay for public health services, and the program was killed. Instead of seeking to stop creative solutions, the government needs to do more to encourage private initiatives that can help pay for health care. Meanwhile, the electorate needs to understand that meaningful health reform will cost a lot, and that any politician who promises otherwise is not being honest. If we don’t do the hard work of reforming health care, the system will stay the way it is. And it is not clear that Hungarian health care, or Hungarians, can survive this way for another 25 years.

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The Budapest Business Journal, HU ISSN 1216-7304, is published bi-weekly on Friday, registration No. 0109069462. It is distributed by HungaroPress. Reproduction or use without permission of editorial or graphic content in any manner is prohibited. ©2011 BUSINESS MEDIA SERVICES LLC with all rights reserved.

Above are the construction works of SOTE Tower, the Theory Block of Hungary’s world-renowned medical school Semmelweis University, in 1974, and the block photographed in 2008 on the left. Located at Nagyvárad tér, the tower, at 88 meters, is Hungary’s highest building in the category of residential and office buildings.

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EC: Hungary flies solo in 2017 The Commission said that it won’t be until after next year that we get a real feel for how the Hungarian economy fares without a heavy boost from European Union grants to local governments and firms. zsófia czifra

After slowing to 2.2% next year, Hungary’s real GDP growth is expected to pick up again to 2.5% in 2017, and that will be the first year when the country’s economic performance can be judged without the distortion of European Union funding, the European Commission (EC) said in its fall forecast on November 5. The Commission’s 2.9% growth projected for this year is ten percentage points higher than it stated in its spring forecast. On top of that endorsement, the country got a boost from Moody’s on November 6. In gauging Hungary’s economic growth, the Commission emphasized that the country’s GDP is strongly linked to EU fund absorption. “Growth figures over this forecast horizon are heavily influenced by Hungary’s absorption of EU funds, which helped propel investment growth to 11.2% in 2014 and which, after a timid increase this year, may lead to temporarily negative figures in 2016. From 2017, funds from the current programming period of EU funding will start to positively affect investment again,” according to the November 5 document. The growth forecast by the EC is below the Hungarian government’s 3.1% projection for 2017. According to estimates, EU funding contributed to Hungary’s GDP growth by an average 0.6 percentage points between 2007 and 2013. As the amount of EU funding is likely to significantly decrease this year and the next, the year 2017 could be a testing period of the Hungarian growth model, Brussels-based Bruxinfo.hu wrote in a reaction to the EC forecast. “2017 can be the moment of truth,” the portal cites an unnamed source as saying. “That is going to be the year when we will find out what performance the Hungarian economy is capable of without the large volume of EU transfers. Some say that the country should look for alternative growth resources.”

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Eager shoppers line up at a newly opened Pápai Hús shop in Győr in 2010. Founded in 1913, the firm declared bankruptcy on November 9, but two days later was declared by the government to be a company of ‘elevated strategic importance’. As such, it could be eligible for government support, possibly including European Union funds. According to the European Commission, Hungary will not be able to artificially prop up the economy with EU funds after 2017.

“That is going to be the year when we will find out what performance the Hungarian economy is capable of without the large volume of EU transfers.” Inflation to remain near zero

The Commission doesn’t think that the general government deficit would break loose in the upcoming three years. The 2015 general government deficit is projected to reach 2.3 % of GDP, from 2.5% in the previous year. “The fiscal outlook has improved due to the robust dynamics of tax revenues and declining interest outlays,” the forecast reads. Regarding risks, the EC mentions that the net cost of EU-funded projects could turn out to be higher than planned in 2015 and 2016, with a negative outcome of pending financial corrections. In addition, the tight operating budgets for healthcare and education sectors carry significant implementation risks. As for inflation, the EC expects it to be around zero for this year. Looking ahead, the figure for 2016, close to 2%, could turn out to be lower than previously anticipated due to lower than expected

oil prices, subdued imported inflation, low food prices, and regulated energy price cuts. As the output gap closes, inflationary pressures from the real economy will drive up inflation to 2.5% in 2017, reaching the central bank’s target of 3% only at the end of the year. These expectations are more or less in line with analysts’ views from major banks present in Hungary, including Citi and CIB Bank.

One step closer In the meantime, Hungary got one step closer to regaining its investment grade, as Moody’s Investors Service affirmed Hungary’s long-term FX credit rating at Ba1, one notch below investment grade, and improved the outlook from stable to positive in a regular review published late on November 6. Moody’s has cited a sustained downward trend in government debt, reduction of FX related vulnerability, and external debt vulnerability and improving growth outlook as key rationales for the outlook change. “In our view, stable 2-3% annual household consumption growth may support medium-term GDP growth prospects. Still, the stock of externallyfunded government debt remains a key source of risk,” Eszter Gárgyán, a Budapest-based analyst at Citi, said in a research note.

“Moody’s would consider upgrading Hungary’s rating if the country’s economic and fiscal metrics continued to improve, resulting in a further reduction of the public debt ratio. In particular, an upgrade would be dependent on further confirmation that economic policy-making is more stable than in the past, in turn supporting sustained economic growth, fiscal consolidation and a further reduction of external vulnerabilities,” the rating agency wrote in its press release.

Fitch comes next Following the move from Moody’s, Hungary has a positive outlook from two major rating agencies now, the other being Fitch. This suggests that barring unexpected external shocks or adverse policy twists, Hungary has a good chance of regaining investment grade and thereby attracting new types of foreign portfolio investors as the FX portion of government debt is likely to decline sharply in 2016. All eyes are now on Fitch’s next regular rating review, which is due on November 20. A report released on November 3 by Fitch suggests that it is very likely that the rating agency will put Hungary back on the investment map. The country remained in the BB+ (junk) category with a stable outlook at Standard & Poor’s in September.

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NEWS in brief OECD: Hungary’s GDP forecast for 2016 up to 2.4% Hungary’s GDP forecast for next year has been raised to 2.4% by the OECD in its projection published on November 9, up from 2.2% in the previous outlook released in June, while GDP is expected to be around 3% this year and 3.1% in 2017. “Economic growth was strong in 2015 but is projected to slow in 2016 as public investment declines and the fiscal stance becomes less accommodative,” the OECD said, according to a report by Hungarian news agency MTI. “Activity should rebound in 2017 on the back of renewed public investment. Private demand should remain fairly robust over the coming two years,” OECD added. OECD expects investments to fall by 3.2% next year as a result of lower disbursement of European Union funding at the start of the new funding cycle, before recovering to 0.8% growth in 2017, MTI reported. However, OECD projected private consumption growth picking up from 3% in 2015 to reach 3.2% in the following two years, MTI added. According to OECD, domestic risks for the growth forecast were mainly on the upside, while downside risks were mostly external. With a concentration of automotive companies in its industrial sector, Hungary is vulnerable to fallout from the recent VW Group diesel engine scandal; also, a faster-than-expected normalization of monetary policy in the United States could force the National Bank of Hungary to tighten its own policy rate earlier than expected, OECD said, according to Hungarian news agency MTI. According to the news agency, the OECD projects Hungary’s general government deficit as a percentage of GDP will narrow from 2.3% in 2015 to 1.9% next year and 1.5% in 2017, all well under the 3% Maastricht threshold. The ratio of state debt to GDP is set to fall to 74.6% in 2016 and 72% in 2017.

Soros: Orbán is ‘attacking my views’

Hungarian-born business magnate George Soros said he and his organization stand by their principles, even if people like Hungary’s Prime Minister Viktor Orbán oppose them, The Wall Street Journal reported on November 8. Speaking after meetings on the refugee crisis with the local chapter of his Open Society Foundations and Turkish officials in Istanbul this weekend, Soros said “My own and the Foundation’s principles are not generally accepted, and we have many people opposed to us. But we stand by our principles,” WSJ reported. “We are actively engaged with everyone, particularly in my native Hungary, where our approach is in direct opposition to the one advocated by the current prime minister, Viktor Orbán; he is currently engaged in attacking my views,” WSJ reported. Speaking at a

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conference on October 30 that was meant to address future challenges, Orbán said a few well-organized activist leaders who think beyond nation states and are moving large funds might be background actors behind current events. “If you think about the Soros Foundation now, it is not gratuitous,” Orbán said. On November 2, a few days after Orbán’s speech, Soros said that the actions of Orbán “undermine” European values, adding that a six-point plan published by the Soros foundation is intended to “uphold European values.” Still, like Orbán, Soros is against the EUʼs quota system. “I’m opposed to compulsory quotas – they don’t work and they contravene the legal framework of the European Union and the international convention on refugees. There are many countries in the European Union that are not willing to accept voluntarily,” Soros said, according to the WSJ. He said Europe is able to absorb approximately one million refugees, but only on a “voluntary basis,” WSJ reported.

Lázár: Hungary could build fence on Romanian border, if necessary

There is a real risk of “migrants” appearing at the Romanian-Hungarian border, and a fence could be built there “if necessary”, Hungary’s Cabinet Chief János Lázár said on November 5 at a residential forum in Makó, Hungarian online daily origo.hu reported. The Hungarian Defense Force (MH) is stationing “significant powers” in the barracks of Hódmezővásárhely, and Hungarian forces and their Czech and Slovak counterparts are also helping, Lázár said, according to origo.hu. “If necessary, they will be able to construct a border closure on the relevant stretch,” Lázár said, adding that the government will stave off “migrants” entering the area of Makó, origo.hu reported.

The Economist: Orbán could ‘undermine’ Merkel’s ‘stature’

Hungary’s Prime Minister Viktor Orbán and Minister-President of Bavaria Horst Seehofer are “two more of Europe’s many difficult men” who “threaten to undermine” Germany’s Chancellor Angela Merkel’s “stature”, The Economist said in a report posted on its website on November 6. Viktor Orbán is “the illiberal Hungarian prime minister whose answer to the refugees has been barbed-wire fences. Speaking for several eastern members of the EU, he has called Merkel’s welcome of the refugees ‘moral imperialism’,” The Economist writes. “That a nationalist demagogue should cause trouble is hardly a shock,” it adds in reference to Orbán’s attitude towards Merkel. Seehofer, the leader of Christian Social Union (CSU), which is the regional sister party of Merkel’s national Christian Democratic Union (CDU), earlier called Merkel’s embrace of refugees a “big mistake”, The Economist reports. Seehofer

Hungary’s biggest souvenir shop Get in line for cans of goose liver and lace doilies! The Paprika Market, billed as Budapest’s biggest souvenir store, opened on Vörösmarty tér on November 9. Located in the heart of the pedestrianized tourist zone, an area already thick with souvenir shops, the Paprika Market boasts the capital’s largest collection of ‘Hungarikums’ – items that are truly Hungarian. (Photo: MTI/Noemi Bruzák) invited Orbán to a “CSU gathering as guest speaker and smiled smugly as the Hungarian railed against the chancellor,” The Economist added. The Hungarian government has been maintaining an anti-immigrant rhetoric since the influx of refugees to the European Union increased dramatically at the beginning of this year. Hungary sealed off its entire border with both Croatia and Serbia, and refugees arriving on the continent are now bypassing the country. Commenting on this, Orbán said last week that Hungary had entered “a new time zone” and when EU members discuss possible solutions for the “migrant crisis” Hungary “does not understand it” anymore. Speaking at a demographic forum, the prime minister once again emphasized that the future of Europe, which is demographically growing old, lies in establishing families and encouraging people to have children rather than welcoming “immigrants.” Orbán is a strong opponent of the EU’s quota system, claiming that it only encourages “migrants” to come to the continent, thereby threatening the foundation of “Christian Europe”, as “migrants” have different values, cultural backgrounds and religions. Although the EU approved the quota system – or a process of “voluntary” distribution of refugees among member states – the Hungarian Parliament on November 3 instigated a legal battle with the European Union by approving a resolution that would reject the EU plan.

KSH: Hungary’s CPI up 0.1% in October

Hungary’s Consumer Price Index (CPI) saw a year-on-year increase of 0.1% in October, Hungary’s Central Statistical Office (KSH)

reported on November 10 in a first release of data. London-based emerging markets economists said ahead of the data release that Hungary’s headline y.o.y. consumer inflation is likely to have accelerated to around zero in the past few months, as inflation was driven especially low last year due to utility price cuts, Hungarian news agency MTI reported. Food prices rose by a y.o.y. 1.7% in October, with the price of milk being cut by 9.8%, cheese prices by 8.2% and pork prices by 2.5%, KSH reported. The price of alcoholic beverages and tobacco saw a rise of 3.7% in October, while the price of consumer durables rose by 1.8%, services by 1.7% and clothing and footwear by 0.5% on average. According to KSH, the price of electricity, gas and other fuels was cut by 0.4% on average in October, and within this, the price of butane and propane gas by 13.9%. Consumers paid 6.3% less for other goods (including pharmaceutical products, motor fuels, household products and recreational goods), and within this, 16.5% less for motor fuels, KSH said. In a month-on-month comparison, consumer prices increased by 0.2% on average. Food prices rose by 0.8%, the price of consumer durables was up 0.4%, the price of alcoholic beverages and tobacco by 0.3%, while the price of electricity, gas and other fuels was unchanged, KSH said. The price of services was reduced by 0.2%, within which the price of recreational services was reduced by 1.3%, KSH added.

Moody’s changes Budapest rating outlook to ‘positive’

Hungary’s capital should have an easier time raising funds for Metro upgrades and other projects now that ratings agency Moody’s announced on November 9 it had

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raised the outlook on the city of Budapest from “stable” to “positive.” Moody’s also affirmed the city’s “Ba1” rating, Hungarian news agency MTI reported. Moody’s justified the action citing “the improving Hungarian operating environment” and “the strong correlation between sovereign and sub-sovereign credit risk,” the news agency added. The ratings agency noted that about 90% of Budapest’s operating revenue last year was from intergovernmental revenue, in the form of shared taxes and central government transfers that are set at the national level, MTI said. Moody’s raised the outlook on Hungary’s “Ba1” sovereign long-term issuer rating, one notch under investment grade, from “stable” to “positive” in a scheduled review on November 6. The following day, Saturday, Hungary’s National Economy Ministry said that Moody’s rating change shows “Hungarian reforms are working.”

Hungary’s trade surplus down to €814 mln in September

Hungary’s surplus on the trade balance was down by €126 million to €814 mln (HUF 255 billion) in September in year-on-year terms, Hungary’s Central Statistical Office (KSH) said on November 9. Exports amounted to €8.2 bln (HUF 2.561 trillion) and imports to €7.4 bln (HUF 2.306 trillion), both an increase in y.o.y. terms of 5.6% and 8.2%, respectively, KSH said. Data from KSH suggest that the share of European Union member states was 80% in exports and 76% in imports. In the first nine months, the euro value of exports and imports rose by 7.2% and 5.9% respectively, reaching a value of €67.6 bln (HUF 20.874 tln) and €61.5 bln (HUF 18.980 tln), respectively. The surplus on the trade balance came to €6.1 bln (HUF 1.894 tln), €1.1 bln higher than in the same period a year earlier, KSH said.

Széchenyi Card expenditures exceed HUF 1.5 trillion

Expenditures made within the framework of the Széchenyi Card Program – a statesponsored scheme offering businesses revolving credit – have exceeded HUF 1.5 trillion, Hungarian news agency MTI reported on November 9. László Krisán, CEO of KAVOSZ, which runs the scheme, said that since the launch of the scheme in 2002, more than 224,000 credit contracts have been signed with companies, MTI said. National Economy Minister Mihály Varga had said the Hungarian government supported the program with an annual HUF 4 billion, MTI reported. The minister, however, noted that the credit generated HUF 40-48 bln of additional tax revenue, MTI said.

Past tents Tents are loaded on trucks by disaster relief employees at the temporary registration point for illegal immigrants on the grounds of the Körmendi Rendészeti Secondary School, which is near the Austrian border, on November 6. Now that Hungary is preventing refugees from entering the country, the camp is no longer needed. The tents, and camping beds and sheets, are being transported to Slovenia, where they can be put to use. (Photo: MTI/György Varga) adjusted indices – was above the level of the previous month by 2.9%,” KSH said. KSH official Miklós Schindele said vehicle manufacturing remained the main driver of industrial output growth in September, Hungarian news agency MTI reported. The month-on-month rise followed respective drops of 2% and 0.7% in the previous two months, he added. Schindele said the September data was not influenced by the Volkswagen emissions scandal, MTI added. Detailed industrial data for September is scheduled to be published by KSH on November 12 and preliminary data for October on December 8, MTI noted.

KSH: Industrial production up 7.8% in September Orbán: Family considered ‘taboo’ Hungary’s industrial output saw a yearon-year rise of 7.8% in September, with in Europe the adjusted index for working days being equal to the non-adjusted index, Hungary’s Central Statistical Office (KSH) said in a first release on November 6. The growth of output, in y.o.y. terms, accelerated from August’s 6.2%, according to KSH data. In the January-September period, industrial output saw a y.o.y. rise of 6.7%, KSH data suggests. “The volume of industrial production in September – according to seasonally and working-day

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The subject of family is considered “taboo” in today’s Europe, despite the fact that the continent is growing older and “our civilization is at stake,” Hungary’s Prime Minister Viktor Orbán said in Budapest on November 5 at a demography forum, online daily index. hu reported. The prime minister said it is time for Europe to speak about the notion of family without it being a taboo subject, and about the “population

problem in Europe,” bearing in mind that the “continent is growing old,” index.hu reported. According to Orbán, people would rather speak about “things of lesser importance such as the marriage of homosexuals,” index.hu said. “The gender debate and the marriage of homosexuals are important issues, but they are not the key issues,” the prime minister said, according to index.hu. Orbán believes the “key question” is who will inhabit the Europe of the future, as the population is growing old, and available data suggests that the population will soon decline. In half the EU member states, deaths outnumber births, the prime minister said. According to the prime minister, there are a number of solutions available. He mentioned cloning, for example, which he hopes “the Good Lord will save us from”, index.hu reported. He also mentioned immigration as a possible solution, which is “dangerous,” because these populations that are from “a different culture, and have different ideas about family” tilt the balance, index.hu reported. “We want a Europe built on families and not on immigrants,” Orbán said, adding that having children is not only “a blessing” for a family, but for the nation as well.

Szijjártó: ‘Dublin system is dead’ With a few exceptions, no country has adhered to the Dublin regulation, under which asylum-seekers registered in the European Union are sent back to the country from which they entered the EU, and therefore, the system is “dead”, Hungary’s Foreign Minister Péter Szijjártó said on November 11 in response to reports that Germany would start sending Syrian refugees back to their country of entry. As a reversal of a policy the country has maintained since August, Germany has decided to apply to the Dublin Convention once again for Syrians, the interior ministry told DPA news agency, online daily euobserver. com reported late yesterday. According to the online daily, Syrian refugees will be sent back to the first country in which they arrived into the EU. According to Hungarian news agency MTI, Berlin is applying the Dublin Regulation to all EU members, except Greece. Szijjártó said that if somebody leaves Syria for Europe, then it is “physically impossible” for them to enter the European Union in Hungary, therefore “it is not reasonable that any Syrians be sent back to Hungary”, MTI reported.

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Government quickly rethinks plan for newsroom spies A proposed amendment, which was interpreted as saying that news outlets would have to allow security agents to work in their organizations, was killed with surprising speed. zsuzsa szabó

It was a surprising reversal for a government that rarely seems to back down: On November 5, one day after the Interior Ministry proposed legislation that could be interpreted as requiring media outlets to accept government security agents in the newsroom, the idea was killed. In an email response to a query from the Budapest Business Journal, the Interior Ministry explained that the ministry would never want to do anything that would appear to interfere with the workings of the free press. “The Ministry of Interior intends to keep the activities of the intelligence services within the legal framework in the future,” the statement said. When it was first proposed, the Hungarian Publishers’ Association said

that if Parliament passed the measure, it could “harshly interfere with and damage” media freedom, increasing the possibility for censorship in the name of national security. Many others criticized it too. According to some observers, the government responded quickly due to the unusual public outcry, something that was reminiscent of the government’s illadvised and eventually abandoned plan for an internet tax. Before the government gave up on the idea of taxing people for using the internet last year, 100,000 demonstrators had taken to the streets. Observers suggested that, by pulling the latest measure in a big hurry, the government showed it has learned its lesson, and knows better than to get the populace riled up over civil rights issues.

‘Strategically important institutions’ The initial proposal, submitted by Interior Minister Sándor Pintér on November 4, stipulated that strategically important institutions – including media outlets, postal and telecommunications services – fall under the national security law. The proposal said that, in these important institutions, the companies could be required to employ government security agents, if the ministry asks them to do so. Pintér justified the amendment by saying that the liberalization of the

news market and postal service market, as well as changes in government structure, make this extra level of surveillance necessary. By the next day, Imre Vas, an MP with the ruling Fidesz party, said the clause about requiring agents was too vague, and would have to be stricken from the amendment. According to the Interior Ministry’s email to the BBJ, the plan was never intended to allow for spying on news organizations, and it was simply misunderstood by critics. “Good faith, or even deliberate misinterpretations do not detract anything from the professional value of the draft legislation,” the email said. The day the proposal was first released Tamás Bodoky, editor-inchief of Átlátszó, said that, if everyone in the newsroom knew whom the spy was, it would not work very well. He added that other types of spying, which may already be taking place, are more disconcerting. “We are much more worried about secret surveillance on the digital and phone communication of journalists, or secret agents infiltrating the organization undercover,” Bodoky told the web page of the Organized Crime and Corruption Reporting Project. “If they send someone openly, it will just be fun.”

Interior Minister Sándor Pintér speaks to police officers on November 9 before they go to Slovenia on temporary assignment, to help with controlling refugee traffic on Slovenia’s borders. Just days earlier, Pintér’s proposal for amendments to the national security law were withdrawn. (Photo: MTI/ Zoltán Máthé)

Dutcham, the business community Since its foundation in 2002, The Netherlands-Hungarian Chamber of Commerce (Dutcham) evolved into one of the most vibrant business communities in Budapest. We asked Joris Huijsmans, board member, of Dutcham and managing director at HEINEKEN Hungary about his role in shaping the chamber. What was your main motivation to become a Board Member of Dutcham? One of the roles of a foreign chamber in any given country is to offer networking opportunities for its members. Heineken has been an expert in social networking for the last 150 years and I wanted to bring this expertise into Dutcham by becoming a Board Member. I have a strong personal drive to make things happen and I felt that by becoming a Board Member, I could make a bigger contribution to this community. Why should companies join the Chamber? It has been emphasized by several foreign investors that a predictable and balanced governance is of crucial importance

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to secure the growth of investments in Hungary. Together we can make a much bigger impact and represent our companies’ interest in a much more efficient way. The Netherlands is one of the top 5 investors in Hungary, and Dutcham should represent the companies that contribute to this fact. It is also a great way to learn from each other and for companies that are new in Hungary, Dutcham is a great source of information and knowledge. As a member of the board, which area are you contributing to the most? I would like to drive the thinking on how we can differentiate Dutcham from all the other foreign chambers in Hungary, and find the area that we become experts on. At the same time, I would like to help identify the synergies that we can explore and make a real difference together. Differentiation and synergies can create an impact that will drive an increased number of memberships and the satisfaction of our current members. What activities are on the agenda of Dutcham? Our informal networking events, the Business Lunch and Business Drinks series are very popular and we are actively organizing seminars on HR/Leadership, Real Estate, Logistics, Taxation and other business topics.

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Budapest Business Journal | Nov 13 – Nov 26, 2015

The richest people in Hungary Sándor Csányi, became the first Hungarian on the Forbes list of dollar billionaires in November. Below are the top ten richest people in the country, according to November’s Hungarian edition of Forbes. 1. Sándor Csányi Wealth: HUF 287.9 bln Age: 63. The head of Hungary’s largest bank, OTP, since around the time it was privatized in 1992, Csányi’s wide range of investments, includes large-scale farming businesses and, according to Forbes, a holding in a Singapore investment fund worth HUF 159.5 bln. 2. György Gattyán Wealth: HUF 165.4 bln Age: 45 The founder of jasmin.com, a web-cam-based online sex site, Gattyán also owns il Bacio di Stile, the luxury department store on Andrássy út where they pump out a perfume aroma on the streets. (Go by Andrássy út 19 and take a whiff.) 3. László Bige Wealth: HUF 157.3 bln Age: 57 The king of the Hungarian fertilizer market, this former canoe coach made his firm Nitrogénművek Zrt. successful by privatizing the old state-owned Tisza Chemical Company in the 1990s. Bige reportedly owns a helicopter worth HUF 2 billion. 4. Sándor Demján Wealth: HUF 155.6 bln Age: 72 The man behind the TriGranit real estate development company raised a lot of money by selling his portfolio with that firm. His wide range of interests include an investment in the Russian lottery. 5. Gábor Széles Wealth: HUF125 bln Age: 70 Involved in Videoton since 1991, Széles apparently made his fortune through the privatization of that firm. Videoton has been an electronics manufacturer since the communist days, and is now the largest Hungarian industrial group in private local ownership. Széles has also been involved in airports near Lake Balaton, as well as media outlets, which he sometimes uses to weigh in on current affairs. 6. Lajos Simicska, Wealth: HUF 112 bln Age: 55 The angry oligarch, a long-time friend of Prime Minister Viktor Orbán, saw his wealth increase dramatically with the election of Fidesz in 2010, making big income from his media holdings as well as his construction firm Közgép, which used to receive more money in Hungarian government tenders than any other company. Since Simicka had a public falling out in February over Orbán’s moves in the media market, Közgép has been denied the right to bid in government tenders, but it is fighting the ban on tendering in court. 7. Tibor Veres Wealth: HUF 107 bln Age: 53 Owner of Graboplast flooring, a successful and growing construction business supplier, Veres is also an owner of Wing real estate, which is currently developing V17, one of the major office buildings underway in Budapest, and recently acquired ownership of MOM park. 8. Lajos Kasza Wealth: HUF 92.8 bln Age: 65 An important man in Jászberény, where his company Jász-Plasztik Kft. processes plastic and produces tools and rechargeable batteries. Kasza’s firm was founded in 1990, just around the time privatization was beginning. 9. György Wáberer Wealth: HUF 81.3 bln Age: 59 Back in 1994, he privatized Volán Tefu Pte. Co. and created Waberer’s trucking and logistics company, now a market leader in the field. Recently honored as EY’s World Entrepreneur of the Year, Wáberer was also named the government’s commissioner for road haulage and logistics developments this summer. 10. Tamás Rákosi Wealth: HUF 78 bln Age: 79 The long-time media mogul was part owner of RTL Klub, Hungary’s most popular and highest-earning TV station, until selling his stake a couple of years ago. (Photo: mmonline.hu)

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Government sells bank, farmland In a break from its usual activity of renationalizing property, the government started planning a few sales in November. Analysts said the auctioning of farmland is probably aimed at getting property into the hands of friendly oligarchs. BBJ staff

The Hungarian government, often one of the most eager purchasers of property in the country, started cashing out some of its assets this month, selling its 5% ownership in the country’s biggest bank and announcing that it would be auctioning off state-owned farm land on November 16. Although there was no obvious need for the state to raise cash, experts said the government will probably use the money from the deals to plug holes in the state budget, while also ensuring that the properties for sale, especially the farmland, ends up in the hands of friends. “The prime minister clearly talks about the establishment of a ‘national ownership class’,” said Zoltán Somogyi, sociologist and political analyst, adding that the government wants to choose the oligarchs who will make up that ownership class. He said that this has always been the idea behind the renationalization of properties that the current Fidesz government has undertaken since its election in 2010. “Although the Orbán government is often labeled socialist,” because it is renationalizing, “state ownership is just the first step,” Somogyi said. “The real question is who will be the owners of these assets afterwards, let them be farmland, banks, or utility service providers.” Cabinet Chief János Lázár reportedly said that the October 29 sale of 14 million shares of OTP Bank – with an estimated value of roughly HUF 80 billion – would provide the state with cash for investments and developments. Lázár indicated that the sale of OTP Bank shares is part of a government review intended to determine unneeded state assets. He added that the government had no problem selling ownership in the bank, because it had already achieved its goal of ensuring that at least 50% of the banking system is in Hungarian hands.

Making friends with farmers Lázár also mentioned the importance of having properties in Hungarian hands on October 15, when he announced the pending auction of 380,000 hectares of state-owned farmland in six counties: Győr-Moson-Sopron, Heves, Pest, Szabolcs, Vas and Nógrád.

Give this cow a home: Hungarian farmland is becoming available. While the sale of OTP might have been intended to produce more funds for the state budget, according to Attila Juhász, chief analyst at Political Capital, the farmland sale seemed more openly political. “In the budget, the government has calculated on significant income from selling state assets,” Juhász said. “However, in the case of the farmlands, the aims are surely not only budgetary, but also include helping the Fideszfriendly clientele acquire farmland.” During a late-October parliamentary debate over the land auctions, farm minister Sándor Fazekas said plans were to put 20% of state land into the hands of farmers. He said the point was to strengthen family farms, help make farmers more competitive, strengthen the position of small farms against big companies and protect Hungarian land from foreign buyers. The size of land to be auctioned is capped at 300 hectares, Fazekas said. Opposition members of Parliament rejected this explanation and said the lands were going to friends of the government. Benedek R. Sallai of the Green (LMP) party said at an October 26 press conference that Hungarian elites have always been “stealing whatever they could put their hands on” and now they are taking what is left: The country’s most important natural resource. LMP also protested that some of the land for sale is in nature-protected areas that should not be sold. In fact, farmers are already leasing a lot of the land being sold from the state, and critics saw politics in this process too. News portal Világgazdaság noted that the National Land Management Fund would not be auctioning the farmland used by billionaire Sándor Csányi – who is the head of OTP Bank and also heavily involved in agriculture – while it will be selling lands used by Lajos Simicska, the media oligarch who had a spectacular falling out with the prime minister early this year. And, according to origo.hu, Lőrinc Mészáros will have a chance to buy HUF 1 bln worth of farmland. Mészáros, the mayor of Prime Minister Viktor Orbán’s small hometown of Felcsút, has made himself into a forint billionaire in a short time and has attributed his success to “luck, God and Viktor Orbán.”

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COMPANY news

Szijjártó: Continental creates 681 new jobs in Hungary

As part of its latest investment of HUF 5.1 billion, Continental Hungary will create 681 new jobs in Hungary, chiefly in Nyíregyháza, Hungary’s foreign minister Péter Szijjártó said on November 10 at a press conference, the Ministry of Foreign Affairs and Trade reported. The Hungarian government is supporting the project to install new equipment, renovate a production hall of approximately 4,000 sqm, build a new warehouse and expand production, with a HUF 1.7 bln investment. Germany’s Continental Group is the world’s largest automotive supplier, and the automotive sector is the “flagship” of the Hungarian economy, hence the government’s support, Szijjártó said. Continental Group employs 200,000 workers around the world, with approximately 7,000 employees in Hungary, said László Jókay, the CEO of Contitech Hungária Kft.’s plant in Nyíregyháza.

OTP Bank recalls IT chief Hungary’s OTP Bank recalled the deputyCEO in charge of its IT and operations division, effective immediately, the lender said after close of markets on November 9, Hungarian news agency MTI reported. The bank’s board decided to recall Miroslav Stanimirov Vichev “due to his management concepts differing from the unified approach of the management board,” OTP said in a statement posted on the website of the Budapest Stock Exchange. From November 10, 2015, Vichev will be an advisor to OTP’s chairman-CEO, it added. Vichevʼs deputy, Ervin Banyái, will take over the IT and operations division at the same time. Vichev became head of the division in July 2014.

Duna House initiates public share offering Hungarian real estate broker Duna House launched a public offering for its shares on November 9, with the maximum share price set at HUF 4,250, the company said, according to Hungarian news agency MTI. The offering runs until November 20, with investors able to purchase shares at the branches of Concorde Értékpapír, Equilor Befektetési, Erste Befektetési and Raiffeisen Bank. The real estate broker is planning to offer a maximum of one million shares – from the total 3.06 million – for purchase, with an option of selling another 100,000 on high demand, the news agency reported. At least 180,000 shares will be offered for sale publicly and 820,000 will go on sale in a closed procedure for institutional investors. On high demand, the company says, another 600,000 shares at

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the closed auction could be reclassified and made available for public sale, MTI reported. Duna House foresees an income of between HUF 765 million and HUF 4.675 billion as a result of the sale, the news agency added. Duna House reported in mid-October that it would begin listing shares on the Budapest Stock Exchange (BSE) in order to expand and become a regional player. Duna House’s net sales revenue rose 34% to HUF 1.34 bln in the first half of 2015 from a year earlier, the company said. After-tax profits rose almost 45% to HUF 422 mln in the period, it added.

to a y.o.y. rise of 28.9%, boosted significantly by the “Funding for Growth Scheme”, which lifted interest in Ford’s small commercial vehicles and Ranger models. “Considering the first ten months of the year, the monthly average sales reached almost 1,000, while in four of these months, including October, sales were even better as we registered almost 1,100 new Ford vehicles in Hungary,” Viktor Szamosi, CEO of Ford Hungary said.

Erste Bank Hungary loss shrinks in Q1-Q3 Erste Bank Hungary’s net loss in Q1Q3 2015 narrowed to €47.2 million from €370.7 mln in the same period a year

earlier, as a €360.8 mln provision related to the Hungarian consumer loan law did not recur, according to a consolidated earnings report by Erste Group published November 6. Net interest income fell 23.4% to €157.6 mln, mainly due to lower loan volumes and lower contributions from securities. Net income from fees and commissions edged down 0.2% to €103.5 mln. Operating expenses increased by 4.3% to €132 mln on the back of higher personnel costs, following temporary hiring to execute an FX conversion program. Headcount increased by 3.9% from 2,766 at the end of December 2014 to 2,873 at the end of September 2015.

Decathlon Hungary projects revenue of HUF 34 bln in 2015 Sporting goods retailer Decathlon’s sales in Hungary are projected to reach HUF 34 billion in 2015, up HUF 5.5 bln from 2014, the stores’ operator, Tízpróba Magyarország, told Hungarian news agency MTI on November 6. Decathlon’s sales in Hungary rose 17% in January-October as compared to a year earlier. Tízpróba Magyarország employs 1,000 workers and had revenue of HUF 28.5 bln in 2014. Pre-tax profit came to HUF 680 million. Decathlon said it is about to open its 17th store in Szolnok, eastern Hungary, and plans to open additional, smaller units in Budapest and other cities across Hungary.

MOLʼs retail sales up 16% in Q1-Q3 in Romania Retail sales of fuels and lubricants saw a year-on-year rise of 16% in the first three quarters of the year at the Romanian units of Hungary’s oil and gas company MOL, Hungarian news agency MTI reported on November 6. During the period, sales this year amounted to 433,000 tons as compared to 373,000 in the first nine months of the previous year, MTI said. Diesel sales grew by 14%, reaching 309,000 tons, while vehicle gas sales were up 17%, at 112,000 tons, MTI added. MOL’s market share in Romania is approximately 15% with a total of 208 gas stations in the country.

Ford sales in Hungary up 15.8% in Mo. 1-10 Sales of Ford vehicles in Hungary saw a yearon-year rise of 15% in the first ten months of the year, surpassing its competitors in the market with 1,400 vehicles, Ford Hungary said November 6 in a press release. Ford sold 1,087 vehicles in Hungary, while the total sold this year reached 9,815, allowing the company to retain a leading position in the market with 12.2% market share, the announcement added. Ford’s market growth in the first ten months amounted

Rubber plant opens Prime Minister Viktor Orbán speaks at the November 10 opening ceremony for a new plant in Tiszaújváros that produces butadiene, the most important component of synthetic rubber. While the new plant was launched, MOL laid the cornerstone of a plant that will manufacture the final product from butadiene: synthetic rubber. That plant is to be completed in two years. (Photo: MTI/Zsolt Czeglédi)

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Operating results fell 31.3% to €131.5 mln and the cost/income ratio rose to 50.1% from 39.8%. Erste paid €74.6 mln on the bank levy and financial transaction duty. Erste Bank Hungary had total assets of €6.21 bln at the end of September, down 2.55% from 12 months earlier. The NPL ratio of the Hungarian unit was 21.9% as of September 30, with the volume of nonperforming loans reaching €789 mln.

Commerzbank welcomes new CEO Klaus Windheuser has been appointed President-CEO of Commerzbank in Budapest, as of November 1, and will replace András Kozma, who is leaving the bank after eight years, according to an announcement issued on November 5. Windheuser’s main task will be to further develop the bank’s business sector activities in Hungary, the announcement said. Windheuser has worked with Commerzbank since 1988. After receiving his degree, he filled in various positions at Commerzbank AG in the field of crediting. In 2007 he became the leader of Commerzbank AG’s residential client segment, responsible for risk and credit transactions. “I am happy that our colleague Klaus Windheuser is joining us at our international branch, with serious professional experience in crediting and business banking,” Sven Gohlke, Regional Manager Europe at Commerzbank AG, said. “I am thankful for András Kozma’s years-long cooperation, he has contributed to the establishment of the bank’s business strategy in Hungary,” he added. Commerzbank has been present in Hungary since 1993. Beyond their headquarters in Budapest, the bank is present in three other cities in Hungary: Kecskemét, Miskolc and Győr.

MTel Q3 profits fall 12% on higher amortization, depreciation costs Magyar Telekom’s third-quarter net income fell 12% to HUF 9.3 billion from the same period a year earlier, an earnings report published on November 4 shows. Revenue was practically flat at HUF 158 bln and EBITDA was steady at HUF 48.9 bln, but higher depreciation and amortization costs as well as a bigger financial loss weighed on the bottom line, MTel said in the report. Depreciation and amortization costs rose 11% to HUF 27.7 bln and financial losses widened 8% to HUF 7.1 bln. In a breakdown of revenue, MTel said mobile turnover fell 4% to HUF 79.1 bln, but fixed line revenue rose 2% to HUF 52.7 bln. Revenue from system integration and IT climbed 17% to HUF 16.8 bln, and revenue from energy services was up 8% at HUF 9.4 bln. MTel exited the retail gas market at the end of the previous quarter, but kept its presence on the corporate energy market. Direct costs of sales edged down 1% to HUF 53.8 bln. Gross margin inched up 1% to HUF 104.2 bln. CEO Christopher Mattheisen noted that MTel had managed to return to positive Free Cash Flow generation during the quarter, “which will serve as a basis for the resumption of dividend payments on this year’s earnings”. He also revised guidance for 2015 EBITDA to an “approximate match” with last year’s HUF 181.2 bln, compared to a previous projection of up to a 3% decline. CAPEX guidance remained at HUF 105 bln. MTel had total assets of HUF 1.184 trillion at the end of September, down 0.5% from the end of last year. Net assets were up 3.6% at HUF 543.4 bln. Net debt stood at HUF 425.7 bln giving the company a gearing ratio of 43.9%.

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The man behind ‘flow’ From left are Professor Mihály Csíkszentmihályi, Minister of Human Capacities Zoltán Balog, and IQ Consulting CEO Zsadány Vécsei, at a press conference about a state-funded talent management program, apparently held in honor of Csíkszentmihályi’s visit to Budapest. Csíkszentmihályi has earned world renown for pushing his concept of ‘flow’, which he says can help individuals achieve their maximum potential, and help businesses in the same way. He has toured the world presenting his concept, and on November 9, it was Budapest’s turn for his presentation called ‘FLOW: The Evolution of Success’. Experiencing flow is often called being in the zone – a mental state in which a person is entirely immersed in the activity, fully concentrated and energized. Someone experiencing flow achieves full involvement, and it is often accompanied by the distortion of time, Csíkszentmihályi said. He added that, the more employees experience flow in a company during their working time, the better the organization performs. Therefore, Csíkszentmihályi said, companies should establish clear goals for employees, provide adequate feedback, skills of the workers should be matched to the opportunities for action, more control should be introduced and use of time should be specified by rhythms internal to the worker, the professor says based on his findings. According to Csíkszentmihályi, determining one’s strengths and building upon them is the key. ‘It is certainly more enjoyable, as well as more productive, to work from one’s proficiencies instead of struggling against the grain,’ Csíkszentmihályi argued. (Photo: MTI/Zoltán Balogh) Wizz Air’s profit flies high in H1 The after-tax profit of Hungary’s low-cost airline Wizz Air saw a year-on-year rise of 15.2%, to €182 million, in the first half of its 2016 business year, which began on April 1, according to an earnings report issued by the airline on November 4. Due to passenger numbers climbing by 20.4% to 10.65 million, the airline’s total revenue saw a y.o.y. increase of 15% in the period, reaching €836 mln, the report shows. In the first half, load factor saw a 1.6 percentage point increase, reaching 90.7%, the report added. Although fuel costs and costs per available seat kilometer were both lower by 22.1% and 5%, respectively, total operating expenses of the company still saw a rise of 11.1% to €623.7 mln. The rise was due to higher staff, maintenance, aircraft rental and marketing costs, together with higher airport charges, the report reveals. By the end of its financial

year, the airline predicts a €190-200 mln underlying net profit, while the company left its annual forecast unchanged.

Zwack profit up on falling costs despite health tax Zwack Unicum, Hungary’s best-known spirits maker, posted after-tax profit on November 3 of HUF 711 million in the first half of its business year that ended on September 30, up 21.2% from a year ago, as the fall of net revenue slowed and costs were kept down. In the first quarter of its business year, Zwackʼs after-tax profit grew 6.1% from a year earlier. Gross sales increased 2% to HUF 9.435 billion but sales net of taxes fell 1.3% to HUF 5.525 bln in the first half, after falling 8.4% in the first quarter, the company’s un-audited IFRS earnings report showed yesterday. A public

health product tax was levied on a wide range of spirits as of January 1 of this year. But Zwack reined in operating costs by 27% in the first quarter, and operating expenses were down 0.3% on average in the first half. Operating profit was up 23.3% in the first half to HUF 939 mln, after rising 25% to HUF 460 in the first quarter. Net domestic sales were down 1.7% to HUF 4.882 bln with sales in the Diageo portfolio dropping 9.5% and others up 5.8%, while export earnings increased 1.7% to HUF 643 mln. Late June, shareholders approved a HUF 1,200-pershare dividend on the 2014/15 financial year that ended on March 31. In its previous financial year, Zwack had after-tax profit of HUF 1.77 bln, 16.7% more than in the preceding year, according to Hungarian accounting standards. Zwack has tapped profit reserves to top up its dividends for several years.

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Real Estate news Skanska holds topping out ceremony for Nordic Light Property developer Skanska held a topping out ceremony on November 5 to celebrate the milestone of its Vaci út office building Nordic Light, the leasing of which is exclusively handled by CBRE, an announcement issued today reveals. Nordic Light, which already has tenants despite only being structurally complete, will be one of the most effective and most modern office buildings in the capital, the announcement added. The construction of this category “A” office building, designed by Mérték Group, began in October 2014, and will be developed in two phases with the first phase to be delivered in Q2 2016 and the second phase to follow in Q3 2016. The office complex, construction and sales of which are managed by Skanska Hungary Property Ltd., will have a floor space of 26,000 sqm on seven floors including a restaurant and many other facilities. It will feature a three-level underground parking garage and a bicycle storage room, a shower and a changing room for those cycling to work. The office building has a preliminary lease contract signed for more than 10% of its available office space, that is, the entire first floor. The global specialist in energy management and automation Schneider Electric is expected to move into a 3,200 sqm office in the fall of 2016. The office building has already acquired the LEED Gold preliminary certificate and achieved a remarkably high score according to the sustainability criteria of the international green building rating system. “Its venue, energy efficient technology systems and outstanding architectural solutions make Nordic Light one of the most attractive office market developments in Budapest and the next remarkable green building in Skanska’s portfolio,” said Zoltán Linczmayer, managing director of Skanska Hungary Property Ltd. “We are proud to be the exclusive letting agents for Skanska’s latest office building, that will create new green gardens open to the public,” said Lóránt Kibédi Varga, managing director of CBRE. “Nordic Light is the only fully speculative office project on the Váci Corridor and will be handed over in 2016. Many international companies have already shown interest in the building, and lease negotiations are close to being finalized,” Kibédi Varga added.

Vacant office space continues to decline in Central Europe As a result of companies leasing more new spaces in the first half of this year

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The Nordic Light building. than new developments being made available, the ratio of vacant space continues to decrease, averaging 6.8% in Central Europe – the lowest figure in the last nine years – Cushman & Wakefield said in its “Central European Industrial Market Report” on November 2. “The decrease is most prominent in Hungary where the vacancy rate decreased by two percentage points to the current 13.7% within six months. If Hungary keeps this pace up, it could reach a healthy vacancy rate of about 10% around the turn of the year,” says Ferdinand Hlobil, head of Cushman & Wakefield’s CE Industrial Team. Both the development and take-up of industrial parks in Central Europe, including Hungary, is continuing and slightly accelerating in comparison to last year, Cushman & Wakefield added. The appetite for investing in commercial properties is also increasing, with a shortage on the supply side making buyers willing to pay more, Cushman & Wakefield said in its regional report which covers Poland, Czech Republic, Hungary, Slovakia, and Romania. According to Cushman & Wakefield this trend is most obvious for logistic and production facilities.

Graphisoft Park earnings grow with increased occupancy Graphisoft Park, a listed company that owns and operates a business park in the north of the capital, had after-tax profit of €2,237,000 in Q1-Q3, up 35% from the same period a year earlier as occupancy grew, an earnings report published on November 4 shows.

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Graphisoft Parkʼs revenue increased 18% to €7,145,000 during the period. Occupancy rose to 97% in Q3 from 90% in the same period a year earlier. The company noted that management software company SAP, the parkʼs largest tenant, had renewed its contract in the first half of 2015 and said further expansion was warranted. Graphisoft Park plans to add 8,000 sqm of office space and an underground car park, with the first phase of the expansion being completed by the beginning of 2017. Graphisoft Park said it projects a 12% increase in revenue to €9.5 million this year. It sees net profit climbing at the same pace to €2.7 mln, minus a one-off €500,000 for demolition and refurbishment work. Next year, the company targets revenue of €9.4 mln and net profit of €2.7 mln. Revenue and profit are set to rise again after the planned expansion is completed, Graphisoft Park said.

MOM Park Office Towers.

The largest transactions were renewals to existing tenants VFT (an IT services company) occupying 555 sqm and Vertis (an environmental commodities broker) MOM Park Office Towers closes five occupying 423 sqm, while new leases to rent deals new tenants included Wolf & Partners (a Budapest’s Grade “A” MOM Park Office trading company) 314 sqm, OrienTax (a Towers have successfully closed five deals tax advisory firm) and Venodia (a holding extending to approximately 2,000 sqms company) acquiring 383 sqm and 135 of office space with the representation of sqm respectively. Cushman & Wakefield (C&W), including “MOM Park Towers has always three new tenants entering the scheme and performed well, even during the recession, the successful retention of two key tenants, however, the volume of transactions we have closed recently far outperforms the C&W said November 3 in a press release. As a result of these transactions, the sub-market, despite the recovery in the vacancy rate in the complex has decreased occupier market as a whole. We are in detailed discussions with other parties to 7.50%, the announcement said.

for existing and vacant space, and I am confident we can improve on the already impressive 7.50% vacancy by the end of Q4 2015,’’ David Johnston MRICS, head of office agency at C&W said. The 11,500 sqm office complex, is located in Budapest’s 12th district close to Déli (Southern) Railway Station and in the core catchment area of highways M1 and M7.

IMMOFINANZ sells entire logistics portfolio to Blackstone IMMOFINANZ is selling its entire logistics portfolio to Blackstone under an agreement signed November 2, and the

portfolio includes five properties it owns in Hungary. The purchase price has been determined by the property value of approximately €536 million, less construction costs of approximately €28 mln for the three development projects. The ownership of all 36 logistics standing investments with approximately one million sqms of rentable space – Germany (24), Hungary (5), Romania (3), Poland (2), Slovakia (1) and Russia (1) – will be transferred to Blackstone. Blackstone is also purchasing three development projects with approximately 65,000 sqm currently under construction in Hamburg, Germany, and Bucharest and Ploiesti, Romania, which will be completed by IMMOFINANZ, as well as land reserves. Blackstone will integrate all the assets into Logicor, its European logistics platform. “As announced nearly three months ago, the sale of the logistics portfolio represents an important step to further simplify and optimize our portfolio structure and strengthen the focus on our core expertise in the retail and office segments,” explained IMMOFINANZ CEO Oliver Schumy. “The liquid funds released by the transaction will be invested in the expansion of our German portfolio, which will grow to nearly 200,000 sqm of rentable space and up to approximately €40 mln of rental income per year by mid-2018 with the office development projects currently in progress.”

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3Special Report BBJ

A private market for care and insurance  14

‘Nurse in Black’ a hero to workers in white  16

Health care is hurting

Private, cash-based clinics grow in popularity as the state care system suffers a lack of funds and doctors flee the country.

BBJ_2321_spec_report.indd 13

2015.11.11. 19:33

www.bbj.hu

Budapest Business Journal | Nov 13 – Nov 26, 2015

With state system ailing, private clinics thrive Pay-as-you-go medical care and private health insurance are becoming more popular, helping to build a new market. zsófia végh

Limited access to surgeries and long waiting lists are causing ever more Hungarians to turn to private health care. Effectively they are choosing to pay out of pocket for medical services instead of using the state care for which they have already paid through their taxes. A legal change in 2012 allows private insurers to capitalize on the weakness of the state-run system and create a parallel, private healthcare market. Hungarians are taking out private health insurance plans in increasing numbers. Meanwhile the number of private health centers is growing, and there appears to be a demand for even more of these clinics. Réka Kun decided to switch to private health care after she had been mistreated at a public surgery. “I lost faith in public facilities and went to see a private physician on friends’ recommendations,” she told the Budapest Business Journal. “In public health care, they don’t care about you and there is too much waiting.” Working on the administrative staff of the Budapest branch of an international firm, Kun earns no more than the average wage, yet she is willing to pay extra for better treatment. She belongs to a growing group of individuals who, despite their modest earnings, set aside money for private health care. Many of them are young adults who have finished at least high school, and most are women, apparently because women tend to be more health conscious than men, according to people working at the private clinics. A large proportion of these private patients apparently keep paying state medical insurance while seeing a private physician. Private health care has long ceased to be the privilege of the rich. In fact, the most well off do not get treatment in Hungary at all. It is the middle-class that makes up the clientele of these private facilities, Edit Schranz, head of press at Róbert Károly Private Clinic, told the BBJ. Hungarians account for 90% of its patients, two-thirds of whom live in Budapest or nearby; most (80%) use out-patient services, and the proportion of in-patients is low (20%), according to Schranz. Annually, she said, physicians at the clinic treat 30,000 patients, perform 3,500 operations, deliver 700 babies and provide 600 fertility treatments. The latter two fields have seen the most dynamic expansion, Schranz said. Every year, the number of its patients increases by 15-20%. The growth is steady despite several new private surgeries/clinics opening in Budapest. Buda Health Center, a private healthcare facility in Buda has also seen a double-digit growth in recent years. Its

BBJ_2321_spec_report.indd 14

A procedure underway at the Róbert Károly Private Clinic.

People, especially the young, treat healthcare like any other service they use, said András Kiss of Buda Health Center. They go online and compare packages and prices, just as they would when booking a hotel or a flight. Doctors at the Buda Health Center. target group, the upper middle class, was less impacted by the crisis thus it did not see its clientele shrinking, even in 2009. The center says it has 1,000 new patients every month, and since opening in 2002 it has treated 170,000 clients. The center has a solid base of Hungarian patients, who outnumber corporate clients and foreigners. According to Buda Health Center, the typical customer pays in cash for the various fee-for-services packages that it offers, as opposed to the flat-rate policies offered by some other companies. Except for the unemployed, nearly all the customers at the center use some kind of private healthcare insurance, even if it is only modest coverage for an annual fee, said András Kiss, the center’s marketing director.

Number with private insurance grows

The market for private health insurance really took off in 2012, when legislation allowed employers to give their employees private health insurance tax-free. This helped widen the circle of privately insured patients and allowed people with a lower income to use private healthcare. It also made business sense for firms who originally insured top-level management only. Growth is steady, but the boom

the market expected three years ago is yet to come. In Hungary, 1-2% of the population has private health insurance, calculates Gábor Karai, managing director of Advance Medical Hungary Kft. This compares with 25% of the population (or more than ten million people) in Spain, where Advance Medical is headquartered. Advance Medical Hungary Kft. acts as an agent, finding the best doctors, hospitals and clinics for the clients of private insurance companies. The company said it first checks whether the insurance covers the patient’s needs, then looks for the best doctor, hospital, etc., makes the appointment and takes care of all the rest, so a patient only needs to show up at the hospital. Few people have heard of this service, as the segment is in an early stage, and there is a lot of room for growth, Karai said. Beyond offering more time and care to patients, a pleasant environment in clinics and lounges, and less time in the waiting room, private health firms are attracting customers through a marketdriven mindset. People, especially the young, treat health care like any other service they use, said Kiss of Buda Health Center. They go online and compare packages and

prices, just as they would when booking a hotel or a flight. The center, therefore, relies heavily on online advertisement like Google Adwords, SEO, blogs, and Facebook. “We think in patient lifecycles from the moment they visit our webpage until after their care/treatment ends, and they can check their test results online. We have a strong marketing approach and wish to be very visible online,” Kiss said. A market-driven mindset is reflected in the way it uses resources – for instance seeking to ensure that medical equipment is used to its full capacity. To keep the clinic busy, it fills potential downtimes resulting from, say, someone cancelling an appointment, by offering the vacant places at a discount of up to 30%. “We currently have 1,000 people signed up for our ‘last minute list’,” Kiss noted. With the demand for their services rising, all major private health care facilities are expanding: Some have opened new branches, as Medicover did this year in Paks and Székesfehérvár, others are considering expanding existing facilities. The business potential is high in these services, which involve far less risk than complex operations or intensive care wards, which in Hungary are run only by staterun hospitals. From an insurer’s viewpoint, there is room to grow. According to Karai, people insure their cars and homes; compared to these, the penetration level of health care is far behind.

2015.11.11. 19:33

www.bbj.hu

The system has been broken for years, but no government since before the change of regime has been up to making the needed reforms. The current leadership clearly has no big plans. zsófia végh

Woefully underfunded and in need of reform since before the change of regime, the state healthcare system is State secretary for health Zoltán sick and getting sicker. Ónodi-Szűcs. (Photo: kormany.hu) No modern government has appeared willing or able to undertake the expensive and unpopular task of trying Better administration needed to overhaul health care, so that services Lack of money is not the only problem continue to deteriorate as debts pile up. hospitals suffer from – state leadership is The current cabinet, in which health also missing. This year alone, Hungary care is overseen by a state secretary has seen two healthcare secretaries: instead of a full-fledged minister, does After a month with no one in charge, not seem ready to give the system the Zoltán Ónodi-Szűcs entered office in October to replace Gábor Zombor, strong medicine it needs. The government did agree to transfer who resigned in August citing, a touch an emergency bailout of roughly HUF 62 ironically, health issues. billion in state funds in May and June, Zombor had an ambitious agenda, to settle hospital suppliers’ but reportedly was unable invoices that had been due to carry it through due to since March, but that money “Health care lackluster support from the only partly alleviated the government. Expectations pain. According to reports, should be treated are low for his replacement, hospitals were in debt to the according to its who is also likely to receive tune of HUF 70 bln at the end no backing, according to experts. They say the lack of 2014; that had dropped to worth.” of a ministry for health HUF 40 bln by the end of is proof of how little the July, but experts predict it will be back up to HUF 50 bln by the government cares, and note that Hungary spends 4.3% of the country’s end of this year. The immediate cause of hospital GDP on health care, while neighboring shortfalls is that they are not sufficiently states spend between 6-10%. reimbursed for treatment, experts said. “Health care should be treated “The National Health Insurance Fund according to its worth,” Velkey said. of Hungary (OEP) pays 20-25% less for A major complaint about the system a case in general,” Eszter Sinkó, health is that, due to lack of resources and economist told the Budapest Business personnel, patients can wait months for Journal. If the health fund paid an extra surgery, or other important procedures. 20% for each procedure, Sinkó said, the The Uzsoki Hospital in District XIV system would have an additional HUF developed a system whereby patients 70 bln a year, and that would solve the who did not want to wait could pay more to move up the queue, but the problem in the long-term. OEP has paid the same amount – government suspended the program, around HUF 150,000 – for homogenous for fear it would blur the lines between disease groups (HBCS) for nearly a private and state medicine. decade, while the cost of curing these In treating the nagging symptoms diseases has gone up, György Velkey, of chronic debt in the system, capital president of the Hungarian Hospital injections are necessary, and in the longAssociation said. “You can’t run good term, health care also needs a bigger hospitals from that little money,” he said. budget, according to Sinkó. But a more The level of indebtedness of hospitals permanent cure for the system will also is around 8-10%, a critical level in any require improved efficiency, she said. field according to economists, Velkey This could come from improved costsaid. No resources remained untapped monitoring, better tendering practices, in the system – it is a miracle that a shift from in-patient to out-patient some hospitals operate at all with any treatment carried out by family doctors, level of effectiveness from such limited and a more balanced distribution of resources, he added. patients among hospitals she said.

BBJ_2321_spec_report.indd 15

expert opinion

Cartel in the pharma sector Réka BerekmériVarró Attorney at law Jeantet d’Ornano Iroda

In its decision in mid-September, the Hungarian Competition Authority (GVH) established that three pharmaceutical wholesalers and two consultants violated the competition law in relation to a tender issued by the Budapesti Egészségközpont Zrt. in 2011 for the procurement of medicinal products and infusion solutions for hospitals valued at HUF 5 billion (approximately EUR 16 million). This article summarizes the potential risks related to cartels in public procurement, with special regard to the recent decision of the GVH. The GVH’s decision According to the GVH’s decision, the pharmaceutical wholesalers (EuromedicPharma Gyógyszernagykereskedelmi Zrt., Hungaropharma Gyógyszerkereskedelmi Zrt. and Teva Gyógyszergyár Zrt.) - with the assistance of two consultant companies (PharmAudit Kft. and Mezadin Kft.) - influenced the tender terms in a manner that only they could fulfil the conditions and participate in the tender. Also, the wholesalers did not determine their bids independently, but considered each other’s prices to become tender winners in the ratio of their intentions. Based on the GVH’s decision, the undertakings infringed Article 11 of the Competition Act through price fixing and market sharing. The GVH established that the undertakings committed a single, complex and continuous infringement aiming at and having the effect of restricting competition in the context of the above-mentioned public procurement procedure. The fine imposed on the undertakings altogether was almost HUF 2,5 billion (approximately EUR 8 million). The pharmaceutical wholesalers requested the court review of the GVH’s decision. Risks associated with cartels in public procurement According to the competition laws of the European Union and the Member States, it is prohibited for competitors to fix purchase or selling prices, share markets, share confidential information, and to enter into agreements to boycott competitors or business partners. Depending on the extent to which the trade among Member States is affected,

the European Commission or one or more competition authorities may proceed to investigate if a conduct may be capable of restricting competition on the market. In Hungary, the GVH is entitled to proceed in cartel cases. If the GVH establishes an infringement, it can impose fines on the undertakings involved in it. According to the Competition Act, the maximum amount of the fine is 10% of the net turnover, achieved by the undertaking (or the group of undertakings to which the infringing undertaking belongs) in the business year preceding the year in which the decision establishing the violation has been adopted. Further, persons having suffered harm caused by a cartel are entitled to bring an action for damages before the court. Based on the Competition Act, a 10 % increase of the prices resulting from a cartel can be presumed and the infringing undertaking must present evidence to the contrary. In Hungary, the infringing companies and their executive officers may face other serious sanctions as well, depending on the nature of the infringement. Based on the Public Procurement Act, an entity which participated in a cartel in public procurement can be excluded from future tenders, provided that the breach of law was established by a final decision and a fine was imposed on the company in the past three years. Also, executive officers, and members of the infringing companies may face serious criminal sanctions in case of illegal manipulation of the tender’s outcome. According to the Act on Criminal Code, any person who enters into an agreement aiming to manipulate the outcome of a public procurement procedure by fixing the prices or any other term of the contract, or sharing the market, and restricting competition by that, commits a crime punishable by imprisonment of 1-5 years. To conclude, company’s must be cautious when they participate in tenders and should avoid entering into any potentially unlawful discussions and agreements with competitors, as such conduct can not only have negative legal and economic consequences for the company, but also for its executive officers and members.

Jeantet, the leading French business law firm, has opened two new offices in Budapest and Kiev under the leadership of partners François d’Ornano and Karl Hepp de Sevelinges. This move confirms the commitment of Jeantet to its international expansion and to assisting its clients in Central and Eastern Europe. Réka Berekméri-Varró is leading the Competition & Regulatory practice at the Budapest office of Jeantet with special focus on the pharmaceutical industry.

www.jeantet.fr

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

Health care in critical condition

Budapest Business Journal | Nov 13 – Nov 26, 2015

2015.11.11. 19:33

www.bbj.hu

Budapest Business Journal | Nov 13 – Nov 26, 2015

‘Nurse in Black’ leads health workers’ protests Nurses say Hungarian hospitals are woefully understaffed and workers are underpaid. They also charge that the healthcare system is compromised by corruption. A black-clad nurse has been leading a campaign to raise awareness. levente hörömpöli-tóth

The nurse leaned over a baby in intensive care, with tears streaming down her face. She was supposed to be by the deathbed of her father to say a last goodbye. Yet, she had no choice but to carry on with her shift as there was no one to jump in for her, even for those few crucial hours. So she continued to work, sobbing. Witnessing this heartbreaking scene was enough to inspire the woman’s colleague, nurse Mária Sándor, to start a movement of healthcare workers, who are rejecting their official representatives as they fight for what they say are minimal pay and benefits. They are also demanding that the government backs increases in staff. As Sándor notes, the shortage of nurses is at a critically low level now. Only in the past five months, 912 of them have left the country; many more are said to be considering following suit. Those who stay behind to tend to Hungary’s sick are overwhelmed. “The first thought when you start your shift is to select what is not important and what you won’t do from among your tasks. You make these tough bargains every day, which is excruciating,” Sándor told the Budapest Business Journal.

Hopelessly overwhelmed, badly underpaid Nurses in Hungary work 200 to 220 hours per month instead of the standard 160 hours. Their salary is the lowest among all professions. According to KSH, the Central Statistical Office, their gross salary is HUF 141,000 on average, around €450. In contrast, the average gross income in the country is HUF 238,000. Overtime means health workers are entitled to extra income, however, notoriously that money is often not paid. This desperate situation led Sándor to seek public attention. She dressed in black in protest (she is now known as the “Nurse in Black”) and gave an interview to RTL Klub, the TV channel with the biggest viewership in Hungary, in February 2015. “I described how overwhelmed we are. My superior, the hospital’s general manager, was also asked to make a statement and he claimed that up to 150 in-patients could be looked after by one nurse while shrugging with indifference,” Sándor recalled.

BBJ_2321_spec_report.indd 16

Mária Sándor, in black, leads recent demonstrations demanding better conditions for health workers.

“The first thought when you start your shift is to select what is not important and what you won’t do from among your tasks. You make these tough bargains every day, which is excruciating.” On wards for the terminally ill, for instance, a ratio of 10-15 patients per nurse is common in Hungary. In Germany, that number is eight, at a maximum.

The cynicism of corruption After the TV interview, Sándor pushed the issue further, organizing a street demonstration in April, which was followed by others, including a flash mob in September where the traffic on Elizabeth Bridge was briefly blocked to raise awareness. “A shortage of trained workers is one serious issue. But there’s corruption too. There is no money to pay overtime, but resources are always found to settle the high bills for retired hospital CEOs who return to work as consultants,” Sándor added. “And they get a lot, up to HUF 1 million a month, as long as they are active as top managers. Meanwhile, the person sterilizing equipment for surgery is paid HUF 80-90,000 net. Now, whose job is more important?” The government insists it did, in fact, transfer the money to pay the total 200 to 220 hours of nurse work per month to hospitals on a regular basis, but the money apparently never ended up with those who were entitled to it. An investigation has been launched to investigate why. In the meantime, Zoltán Balog, Minister for Human Resources promised to compensate all health care personnel with outstanding payments on July 1; as yet, though, the overdue amounts have not been transferred in full.

A cross-government issue Sándor’s activity did not go unnoticed at her workplace. At first they offered her a job with better conditions to try and keep her quiet. In the end, however, she quit because the representative body of healthcare workers, MEKSZ, made membership compulsory. “Why would I become a member of an organization that doesn’t represent us or the patients? One of the senior members of that body was my immediate superior. It’s another example of people holding several different positions and raking in big sums of money while not doing anything to improve conditions.” Sándor is unemployed now, and says she is unlikely to find work at hospitals, where she’s viewed with suspicion. She is currently getting by cleaning private homes, but says she has not given up on her cause, and is continuing the fight for fair patient care by organizing more rallies, now in the eastern part of Hungary.

“I described how overwhelmed we are. My superior, the hospital’s general manager, was also asked to make a statement and he claimed that up to 150 in-patients could be looked after by one nurse while shrugging with indifference.” “I have no political affiliation, I am not against any particular government. I am rather critical of the executives of the hospitals who let this go on and say nothing. We are touring the country with my fellow colleagues in order to mobilize civil society. Our message is simple: Health care in Hungary has collapsed. People deserve better. They should join the protest.”

2015.11.11. 19:33

www.bbj.hu

Budapest Business Journal | Nov 13 – Nov 26, 2015

Care suffers as Hungary hemorrhages doctors Medical students were asked: How critical (on a scale of 1-5) do you believe the situation of the following factors are in Hungarian health care? 4

1 (least important)

Being overwhelmed

83%

15%

none

Low pay

82%

13%

none

Doctors’ emigration

63%

22%

13%

Poor appreciation

54%

28%

13%

none

Source: Medical Student Survey conducted by Szinapszis Kft. at the order of Hungarian Resident Doctor’s Association (MRSZ) , June 2014.

Budapest’s trauma hospital in District VIII.

With nearly 2,000 physicians’ positions unfilled, and health professionals emigrating at a high rate, Hungarian health care is on the verge of collapse. But the government has no plans for meaningful reform.

5 (most important)

Hungarian healthcare workers applying for certificates to work abroad in H1 of 2015 600

Women

500

Men

400 300 200

levente hörömpöli-tóth

The mass emigration of Hungarian healthcare professionals seems unstoppable. A survey by Szinapszis, a research firm shows that 70% of medical graduates plan to work abroad, and twothirds of them would do so for at least five years or for good. Given the existing meager pay, low social appreciation and what many say are the unbearable working conditions in the sector, it is no wonder health workers are leaving. The exodus is a heavy loss for the Hungarian healthcare system. According to government data, positions for 1,917 doctors and 4,088 specialized staff cannot be filled. And the future prognosis is not good. Hungarian health care was already underfunded and struggling by the 1980s, but solutions are expensive and require a lot of political goodwill. No Hungarian government since then has been up to the task of overhauling the system. In the current administration, health care is not dealt with by a separate ministry, but is instead delegated to a state secretariat. As economist Balázs Rékassy pointed out in a recent interview with Radio Lánchíd, this means that the state secretary in charge has no opportunity to speak up in government meetings and his job is restricted to executing government decisions. “No sign is visible that there is

BBJ_2321_spec_report.indd 17

100 0 Total

Doctor

Dentist

Pharmacist

Nurse

Midwife

Others

Source: Health Registration and Training Centre (ENKK)

“The system needs around HUF 150-180 billion extra after-tax funding which is 0.5% of Hungary’s GDP.” any serious will for radical change or to mobilize more resources,” he said. In fact, the position of the state secretary for health care was vacant for more than a month, another unusual thing in the case of such a key sector. In mid-October, Dr. Zoltán Ónodi-Szűcs was appointed, but it’s wishful thinking to expect him to do more than seek to keep conflicts at bay. “The new healthcare secretary will not be supported if he does not understand how serious the situation is due to the lack of healthcare workers,” Dr. Tamás Dénes, chairman of the Hungarian Resident Doctors’ Association (MRSZ) told the Budapest Business Journal.

A shortage of funding and a surplus of soft corruption It is common wisdom that a substantial salary raise with immediate effect is the highest priority. Real wages in the sector slumped by 13% between 2006 and 2013, and average pay is the lowest of all industries in Hungary. “The system needs around HUF 150180 billion extra after-tax funding which is 0.5% of Hungary’s GDP,” Dénes estimates. Hungary’s spending on health care, including private expenditure, accounts for only 7.4% of GDP, someway behind the OECD average of 8.9%. However, fatter salary slips are only a start. Current unacceptable practices must be tackled with equal determination, as health care is based on the abundance of the so-called “gratitude money” patients give to doctors and nurses in the hope of getting improved or faster care. “This makes our life unpredictable, which frustrates everyone, and junior

doctors do not want to live and work in such a system,” Dénes noted. “Some government has got to be brave enough to change this soft-corrupt system.”

It’s up to us too Dénes maintains that improvement won’t happen without citizen engagement. “Everybody needs to make it clear that the healthcare system is important enough to get more funds from the central budget, Dénes said. “People can press their MP to make the government change some of its priorities.” The Hungarian Resident Doctors’ Association does its part in raising awareness. It makes proposals based on surveys of its members, some of which have been taken up as government policy. As a member of a group called Honestly About Health Care, it has organized two demonstrations in 2015, but since not much happened as a result, now as a last resort a strike is being considered. The campaign is dubbed “Two hours for your life”. “This is a plan of a twohour-strike that would increase by one hour every six months, should the government’s attitude not change towards salaries,” Dénes said. It is not only hospitals that are in trouble; there are 231 general physician (GP) posts vacant in the country, meaning that 300,000 people don’t have access to primary care. And those who do have GPs find them overwhelmed. On top of that, 30% are older than 65 and, since such positions are not popular with junior doctors, the situation is bound to get worse. “Altering primary care will take around ten years and a lot of money. But afterwards it will save a lot for the budget,” Dénes said. “Our healthcare services may fare better than those in Africa, but compared to Austria they are not so great. There are not enough nurses and doctors to ensure patients’ safety anymore. There is no time for hesitation.”

2015.11.11. 19:33

www.bbj.hu

Budapest Business Journal | Nov 13 – Nov 26, 2015

Pharma: Once-key sector enjoying good year Richter has The automotive industry stunning Q3 Total sales in Hungary’s pharma industry may have eclipsed pharmaceuticals, but R&D remains strong here. BBJ staff

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After several years in the doldrums, pharmaceutical companies have been enjoying a good year thus far. The value of Hungary’s pharmaceutical production reached HUF 48.1 billion in August, which was slightly less than the same month a year before, but every other month of this year has seen an improvement over 2014, according to the Central Statistical Office. Hungary’s traditional role as a leader in the pharmaceuticals business goes back more than a century, and the country remains important in the sector within Europe. But competition from cheaper manufacturers in Asia have taken a serious bite out of profits here, and other production sectors – especially automotive – have become more important to the Hungarian economy. For comparison, production of transport vehicles in Hungary in August had a value of HUF 488 bln, a little more than ten times that of pharma.

European countries when it comes to R&D expenditures. In 2013, 26% of Hungary’s R&D spending was in the pharmaceutical sector. The only countries spending a bigger proportion of R&D totals on pharma were Belgium (31%), Switzerland (30%) and the United Kingdom (28%).

Hungarian pharmaceutical company Richter Gedeon’s profit from operations increased 97%, in both forint and euro terms in the third quarter, as a result of a substantial, one-off milestone payment, higher turnover and improving gross margins, as well as lower sales and marketing and R&D expenditures, the company announced on November 4. Aside from being Hungary’s largest pharma, Richter is one of the older firms in the country and an important blue chip on the Budapest Stock exchange. The Russian market, where Richter made 24% of its sales last year, remains slow, but sales were strong in the European Union and China, the company reported. “Mostly as a result of a substantial oneoff milestone payment received from Allergan related to U.S. Food and Drug Administration approval of Richter’s experimental drug Cariprazine to treat bipolar disorder and schizophrenia, operating profit soared to HUF 20.73 billion in the third quarter from HUF F7.44 bln a year earlier,” according to Margit Feher, writing for Market Watch. Richter’s sales in the first nine months of 2015 increased by 4.9% as compared to the same period in 2014. Sales increased in every region, except Ukraine where sales dropped by 52.5%. Total international sales were €808.8 million in the first nine months.

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(in HUF millions)

2014

80000

2015

70000 60000 50000 40000 30000 20000 10000 0

Source: Hungarian Central Statistical Office.

As a sales venue, Hungary is relatively unimportant. While Hungarian pharmaceuticals probably have a higher proportion of the market here than anywhere else, it is international sales that keep local producers alive. Hungary is still among the top

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TEL: (+36) 1 377-6737 WEB: www.drrose.hu ADDRESS: Széchenyi square 7/8, 1051 Budapest

2015.11.11. 19:34

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Budapest Business Journal | Nov 13 – Nov 26, 2015

Pharmaceutical manufacturers

Company Website

RiCHteR gedeon nyRt. www.richter.hu

total net Revenue in 2014 (HuF mln)

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