Budapest Business Journal 2623

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BUSINESS JOURNAL BUDAPEST

VOL. 26. NUMBER 23

DECEMBER 14, 2018 – JANUARY 17, 2019

SPECIAL REPORT Deals of the Year SPECIAL REPORT

Strong Demand in Development and Investment Continues Real estate investment volume for the year is expected to be in the region of EUR 1.6 billion-1.7 billion, roughly in line with the 2017 level of EUR 1.8 bln.  17 SPECIAL REPORT

Deals of the Year 2018: IT, Tech, Food & Drink, Pharma At the beginning of the year, experts predicted that 2018 would see a livening deals market, both globally and in Hungary. Time has proved them right, at least for the first half of the year.  20

SOCIALITE

Budapest’s Hippest Eyewear A lifelong wearer of spectacles, David Holzer is always looking for alternatives to eye wateringly expensive luxury brand eyewear or bland, shopping mall goggles. The specs and sunglasses on display in the window of Vinylize are something else, he says.  28

Transparent, Digital and Here to Stay NEWS

OTP Real Estate Buys Corvin Office Portfolio Futureal Group has sold its Corvin office buildings to the Hungarian OTP Real Estate Investment Fund.

The transaction involves six operating buildings and two centers under construction. 6

FOCUS

NE BUSI

SS

Zdenek Turek, the CEO of Citibank Europe talks exclusively to the Budapest Business Journal about Citi’s commitment to the country and how he thinks the market will develope. 7

Expanding Insurance Sector Signals Economic Growth The Hungarian insurance sector saw a record year in 2017, shattering the glass ceiling of a historic figure that dates back a decade.

The expanding Hungarian economy means that people can spend more, own more, and therefore have more assets to insured.  24

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Budapest Business Journal | December 14, 2018 – January 17, 2019

THE EDITOR SAYS

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

Gaál, David Holzer, Christian Keszthelyi, Gary J. Morrell, Robert Smyth, Zsófia Végh, Zalán Zubor.

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News Services Hungary A.M., Energy Today, Regional Today 1 year, from HUF 179,000+VAT 6 months, from HUF 104,900+VAT 3 months, from HUF 58,900+VAT Book of Lists 2017-2018: HUF 19,120+VAT DigiBOL HUF 39,900+VAT Call +36 1 398-0344 or email circulation@bbj.hu What We Stand For: The Budapest Business Journal aspires to be the most trusted newspaper in Hungary. We believe that managers should work on behalf of their shareholders. We believe that among the most important contributions a government can make to society is improving the business and investment climate so that its citizens may realize their full potential.

As the year nears its turn, it is naturally to look back, and so it is appropriate that our focus for this issue, as has become traditional, is a recap of the past 12 months, and more especially the biggest business and real estate deals.

In our business section, ITSH looks back on a year which saw it move into a purpose built HQ. Law firm Bird & Bird is looking even further back, ten years, to be precise, to the founding of its office in Hungary. There is an exclusive interview with the CEO of Citibank Europe, Zdenek Turek, who recalls his own time as head of the Hungarian operation in 2002, and Citi’s operations here going back to 1985.

One organization unlikely to be looking back on 2018 favorably, however, is the Central European University. The news conference it called on December 3 to announce it had been “forced out” after a December 1 deadline expired without agreement with the government surprised no one.

The CEU confirmed students beginning their U.S.accredited courses would, from the start of the 2019 academic year, do so in Vienna. Those already embarked on their courses here will finish them in Budapest. CEU is still an accredited Hungarian university, and insists it will stay in Budapest (a city Rector Michael Ignatieff said “we call home”) as long as it can.

The university says that under Hungary’s amended higher education law (known by many as Lex CEU because they argue the new rules were written to target the George Soros-founded graduate school), without an agreement with the government of Hungary, it cannot accept new students after January 1, 2019. With no indication the government would sign, it decided it had to act now to give it enough time to recruit staff and students.

The government, for its part, insists the December 1 deadline was arbitrary, and that the university has chosen to leave. In a video message on the government’s official Magyarország Kormánya Facebook page, spokesman István Hollik said the fact that CEU has vowed to remain in the city “makes it clear to everybody that the whole affair is nothing else but the usual political bluff by Soros, which the government does not wish to deal with,” Hungary Today wrote.

News of the move drew much criticism from the West, with news organizations such as the Washington Post describing it as “a humbling for the West”, and former U.S. diplomat William J. vanden Heuvel writing in the “Opinion” section of the New York Times: “We should recall our ambassador. The attempted silencing of a great university should be met with unyielding resistance.”

U.S. senators Roger Wicker (Republican) and Ben Cardin (Democrat), speaking for the U.S. Commission on Security and Cooperation in Europe (also known as the U.S. Helsinki Commission, an independent body set up by Congress in 1975), said the “Hungarian government was resolved not to take ‘Yes’ for an answer”.

That seems a sobering way to end the year, so let me instead end by wishing you all, whatever you do, a happy and relaxing Christmas and a peaceful, and prosperous New Year. The Budapest Business Journal’s print edition will be back for our first issue of 2019 on January 18, looking at what might be in store in the year ahead.

Until then, happy holidays.

Robin Marshall Editor-in-chief

Photo: MTI / Balázs Mohai

Photo: Fortepan.hu / Brigitta Kővári

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

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Divers disguised as Santa Claus place ornaments on an underwater Christmas tree at Budapest’s Tropicarium on December 6. Times change, and so do the generations; in the black and white picture, a group of children pose with St. Nicholas and Krampusz in 1936.

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News///macroscope

Fuel Prices Lower Inflation in November

Hungary’s inflation showed a decline after accelerating for eight months, and was lower than the consensus expectation of analysts. At the same time, the Central Statistical Office revised thirdquarter GDP data, and the industrial output in October that exceeded expectations will surely contribute to an even better growth figure for 2018.

ZSÓFIA CZIFRA

Changes in fuel prices can be detected behind the slowing inflation rate in November. According to the latest data from the Central Statistical Office (KSH), the consumer price index in November dropped 0.7 of a percentage point from a five-and-a-half year high in October.

Inflation fell back to 3.1% in November from a nearly six-year high of 3.8% in October, thus approaching the midpoint of the Central Bank’s target range of 3%, plus or minus one percentage point. Annual average inflation remained stable at a fiveyear high of 2.8% in November.

Data shows that November’s decline was mainly driven by lower prices for services and motor fuels. Core consumer prices, which exclude volatile items such as fresh food and fuel, grew

0.1% from

the previous month in November, down from October’s 0.5% increase. Lastly, core inflation remained stable at October’s 2.6% in November.

According to Péter Virovácz, head analyst at ING Bank, the drop in the inflation rate can solely be attributed to the changes in fuel prices. At the same time, the price of food stuffs continued to rise, and this, paired with a more than 6% increase in the price of tobacco products keep the inflation rate steadily above 3%, the analyst pointed out.

The National Bank of Hungary will translate the fresh data as supporting the maintenance of the loose monetary policy; however, ING Bank analysts say that inflation pressure is likely to build up and will force the central bank to act in 2019. According to an ING Bank forecast, inflation will be at around 3% for the full 12 months this year and rise to 3.4% in 2019.

Low Pressure

Takarékbank analyst Gergely Suppan also believes that fuel prices were the main attributors to the decelerating inflation.

Real inflation pressure is low, which is reflected in the core inflation figure, which remained the same as in October.

Takarékbank foresees an annual inflation rate of 2.9% for this year.

Erste Bank analyst Orsolya Nyeste said that the central bank can still maintain its dovish policy. She predicts an annual inflation rate of 2.9% for this year, and a similar figure for the next.

The past weeks have also seen the release of the second estimate of Q3 GDP data, which showed that the robust growth continued in the third quarter of the year. Revised data even shows an increase compared to the first estimate: the Hungarian economy, boosted by strong consumer spending, expanded by 4.9% on an annual basis. The first estimate, released a month ago, put it at 4.8%.

The GDP figure marked the fastest expansion since the fourth quarter

of

2005,

long before the financial crisis hit. The main driver of the growth was, again,

domestic demand, which accelerated from 5% annual growth in Q2 to 7.2%. Private consumption expanded by a strong 4.7% in Q3, marginally below Q2’s 4.8% rise.

Consumer spending was buttressed by strong wage growth and an extremely tight labor market.

There was a remarkable 20% year-onyear jump in capital spending in Q3, up from 15% in Q2. This was boosted by strong absorption of EU funds, improving business confidence, and the continuing boom in the real estate market. The most notable increases were seen in construction, and machinery and equipment. In the meantime, government spending ADVERTISEMENT

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slowed somewhat in Q3, growing by only 0.1% on a year-on-year basis, down from a 0.6% increase in Q2.

Slow but Steady

Both local and international analysts agree that the growth of the Hungarian economy will slow down from next year, but will still remain healthy. Deceleration is likely to be led by a slowing absorption of EU funds, and consumer spending will also likely to fall back a little from the current heights, as wage growth gradually declines in the coming years.

As for this year, however, the October performance of the industry gives ground to heated expectations, and contributed much to the fourth quarter GDP and thus to full year’s data.

In October 2018, the volume of industrial output in Hungary grew by 5.9% year-onyear. Based on working day-adjusted data, production rose by 3.3%, according to a first estimate of monthly data from the KSH. Industrial output in October – according to seasonally and working-dayadjusted indices – was 2% above the level of the previous month.

The expansion of the electronics industry was particularly significant in October, but output growth in automotive manufacturing, as one of the key drivers of Hungarian industry, remained behind the overall average growth. The good news, however, was that it managed to turn positive again after three months of decline.

Analysts unanimously said the October data well exceeded expectations after the 0.6% decline in output in September. They put industrial performance growth for the full year at between 3.5% and 4% on a yearon-year basis.

Numbers to Watch in the Coming Weeks The yearend will not bring much excitement in the macroeconomic calendar.

On December 14, the KSH will publish data on how the construction sector performed in October. Four days later, the second estimates of October retail trade data will be released, followed by earning regarding the January-October period, on December 20.

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HungaroControl: Drone Industry on ‘Brink of a Revolution’ Drone technology stands a good chance of becoming a lucrative business in Hungary. However, for investors and industry players to move forward, legislation is badly needed.

ZSÓFIA VÉGH

With Christmas only a few days away, it means that, much to delight of the tech-savvy, many a drone will land under the Christmas tree, besides smart phones, consoles and other gadgets.

Business Proposition

According to the Hungarian National Drone Association (MNDSZ), the number of drones in Hungary

surpassed

100,000

in early fall and their popularity just keeps growing. That should come a little wonder: with a price of between

HUF 50,000 and HUF 150,000, a decent entry-level drone is now affordable for many.

“The drone industry is on the brink of a revolution,” Kornél Szepessy, CEO of Hungarian air navigation service provider HungaroControl, said at the First Hungarian Drone Expo and Conference last month.

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“Manufacturers are working hard to meet demand but the resourcefulness of people as to where to use of drones is also incredible.” The number of drones in Europe could reach ten million in the next five-or-six years, he added.

In Hungary alone, experts expect to see 27,000 flights per day by 2025.

By way of a comparison, today the volume of the entire civil aviation in Europe is 30,000 flights per day.

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Although the majority of these flights are and will continue to be made by hobbyist – last year only 3% of the 383,000 flights in Hungary were commercial, this year it will be 8% of the estimated 811,000, HungaroControl calculates – drones are an attractive business proposition as well. Drone technology and related services will see around USD 60 billion investment in the next five years, Goldman Sachs reports. Extrapolating the drone industry’s contribution to global GDP will result in approximately HUF 72 million in revenues in Hungary in 2025, Szepessy said.

No industry will remain unaffected.

At the expo, MyActionCam, a drone and camera specialist, had a recent cropspraying drone on display from one of market-leading Chinese manufacturer, DJI. At first sight, the approximately HUF 3 mln-plus price tag in Hungary might suggest that only large farms could afford to use it but that’s not necessarily the case.

The return on investment might be longer for smaller farms, yet the

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Budapest Business Journal | December 14, 2018 – January 17, 2019

efficiencies achieved by drones could still make it a worthwhile investment.

They can, for example, navigate difficult terrain, like sloping ground, which ground sprayers cannot. It is little wonder that the wine industry is interested in them worldwide.

“A new tractor costs anything

from

HUF 8 mln

onwards, the sprayer [attachment] is another HUF 1 mln-2 mln,” says Péter Bakonyi of the eponymous Bakonyi Winery. “But what’s more important is that drones don’t push down the ground while spraying, which results in less compaction and, therefore, healthier soil,” he adds.

Beyond sales and renting, MyActionCam offers a range of services including training to its clients, who range from agriculture, to energy and the media.

“Several organizations buy drones to improve their businesses but don’t know how and when to use them,” Ferenc Damak, the managing director told the Budapest Business Journal. “We help them integrate drones into their business from the selection of suitable equipment, to training of the staff, to integration into internal processes.”

Utilities and network operators are among the largest potential drone users. To better maintain its power grid network and decrease outage issues, E.On Hungary has bought a number of drones and trained staff to use them.

“This technology gives us an excellent overview of the grid from a different perspective,” Gábor Gyimesi, head of power network department at E.On Dél-dunántúli Áramhálózat Zrt. told the BBJ. Using the data gained during power line inspections, E.On teaches the drones to recognize and detect typical damage or faults and process the information, which is then forwarded to maintenance team.

Robotized Drones

E.On also uses drones to supervise the work quality of its contractors, for example pruning, Gyimesi says.

The power company operates nearly 85,000 km of network, the maintenance of which requires

55

people

working full time a year. At this stage, it is hard to estimate how many people the drones could replace, as they need to be operated by staff so only part of the work is taken over, the expert says.

Eventually, the company plans to partner with specialized service providers and operate robotized drones remotely.

This could happen in the very near future, Gyimesi says.

The major obstacle to moving forward is not technology but legislation, or rather the lack of it. Today, people are not required by law to register their drones: a permit from the authorities and insurance is basically what one needs to fly. In the case of non-private use, the activity must

be reported to the aviation authority. To obtain a permit to fly, one must submit an application to the Military Aviation Authority at least 30 days prior to the planned flight.

This 30-day deadline isn’t realistic, many professionals claim. “I am now working on

“Several organizations buy drones to improve their businesses but don’t know how and when to use them. We help them integrate drones into their business from the selection of suitable equipment, to training of the staff, to integration into internal processes.” the set of an action movie where often it is only days before I find out if they need a drone or not,” says Attila Pethe, the owner of Skyviewair, a drone-related service provider. “All I want is that [the rules for] professional flying are made simpler.”

To make things easier, HungaroControl created Mydronespace, a website and an app that aims to cut the red tape somewhat by allowing previously

registered and approved users to request a permit. Using one’s phone to obtain approval rather than sending documentation via post or email is indeed more true-to-life and means you can also see up-to-date information on the airspace, weather conditions, etc.

However, until new legislation comes into effect, the app is deactivated. It also isn’t clear how long in advance users will have to apply.

Red tape also promotes illegal usage by individuals. Should someone wish to tape a wedding, for example, but forgets to submit a request within the allotted timeframe, they will either make a video from the ground or, probably more likely, will fly the drone illegally. another problem is that the current legislation does not distinguish between a drone being flown illegally but in an area of airspace over with no other traffic in it and at a height of five meters, or flying your drone illegally at Budapest Airport.

HungaroControl would like the new legislation to fix that, Szepessy notes.

To coordinate issues related to Unmanned Traffic Management (UTM), HungaroControl has created a so-called UTM Innovation Hub, it was announced at the conference, which aims to overview the industry potential and give input to lawmakers. When this will be finalized remains to be seen.

“I hope that the UTM innovation hub announced today will help the players concerned understand the needs of the industry and will boost the creation of a concept,” Szepessy said at the time.

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OTP Real Estate Buys Corvin Promenade Office Portfolio Futureal Group has sold its portfolio of Corvin office buildings to the Hungarian OTP Real Estate Investment Fund. The transaction involves the six operating office buildings at the mixed-use Corvin Promenade urban regeneration project in addition to two offices centers currently under construction.

The eight class “A” buildings have a combined GLA of almost 80,000 sqm.

GARY J. MORRELL

Corvin ONE was built in the first construction phase of the Corvin Promenade urban regeneration project completed in 2008, and represented the start of what was to be one the largest ever office development projects in the center of Budapest, according to Futureal. Corvin

Skypark in Budapest, purchased by OTP RE Fund.

Towers, realized in the second phase, consists of four office blocks, and was followed by Corvin Corner.

In addition to the completed office projects OTP Prime Real Estate Investment Fund has entered a preliminary agreement to purchase the twin-phased, 27,000 sqm Corvin Technology Park, currently being constructed adjacent to the Skypark building.

In addition to the Corvin Technology Park, Futureal plans to continue to develop the Corvin 7 office center.

“The resources released will provide a solid basis for further development of the Futureal Group. Over the years, the company has become a leading real estate developer and investor in CEE. Currently we are managing more than

30

projects

simultaneously, with a total value of EUR 1 billion and a gross area of over

700,000 sqm,” says Gábor Futó, the founder of Futureal Group.

The deal concluded between a Hungary-based developer and a local investment fund reflects the increasing role of domestic capital at the top end of the Budapest investment market. Local investors are able to develop long-term relationships with developers and exploit these contacts to react quickly when an asset becomes available.

Reassuring Capital

“The share of local investors should amount to some 50% of the total transaction volume,” says Benjamin Perez-Ellischewitz, head of capital markets at JLL Hungary.

“A significant pool of local capital should be reassuring as it shows a positive

Wing Commences Liberty Project WING has started preparatory works for its latest office, the 40,000 sqm Liberty building, next to the Magyar Telekom Group headquarters. Wing completed the 58,000 sqm headquarters, located in District IX, adjacent to the Groupama Ferencváros Stadium earlier in the year. The new speculative project is being developed on the remaining development plot at the site.

GARY J. MORRELL

Wing has started preparatory works for its latest office, the 40,000 sqm Liberty building, next to the Magyar Telekom Group headquarters. Wing completed the 58,000 sqm headquarters, located in District IX, adjacent to the Groupama Ferencváros Stadium earlier in the year. The new speculative project is being developed on the remaining development plot at the site.

The Hungarian developer is seeking BREEAM “Very Good” certification for the Liberty project, designed by DPI

Design. In addition to the implementation of technology for energy efficiency, the building will also include a rooftop sky bar,

680 parking

spaces and 250 bicycle racks with changing facilities.

“It is ideally suited as headquarters for a single company or for multiple tenants.

There is already substantial interest in the office building,” says Noah Steinberg president & CEO of Wing.

The building is at the intersection of Könyves Kálmán körút and Üllői út with

direct metro, tram and road access; these types of links are increasingly a basic requirement from tenants. Wing acquired the three-hectare development site from the state after a public auction and such well-located plots are difficult to source in central Budapest.

Second Nobel Phase

Wing is also developing a second 22,000 sqm phase of the Nobel Prize Winners Research & Development Park that will deliver another 22,000 sqm Budapest headquarters for evosoft Hungary –

evolution in the accumulation of capital and the development of local based saving systems from private investors – this is the role of local open-ended funds – and also the development of local private groups including developers and asset managers.

This gives international investors a clear sign that local investors can provide liquidity to the market if there is an exit of international capital.” JLL provided advisory services to Futureal on the transaction.

“The OTP Real Estate Investment Fund’s net asset value has increased dynamically over the last year to almost HUF 380 bln, up by HUF 170 bln,” says Zsolt Perlaky, director of real estate management at OTP Real Estate Investment Fund Management.

It was launched by OTP Real Estate with the aim of investing in class “A” real estate.

Last year the fund acquired the 25,000 sqm Skypark office building from Futureal, the first element of the eastern block of Corvin Promenade.

JLL forecast the annual transaction volume to reach EUR 1.6 bln-1.7 bln roughly in line with the 2017 level of EUR 1.8 bln.

“We still have a few significant transactions, including a retail portfolio and a prime high street asset, due to close before yearend. Prognostics

for

2019

are difficult as the official pipeline is limited but several off-market discussions are ongoing, so I would give EUR 1.5 bln1.7 bln as my estimate,” comments PerezEllischewitz on the expected volume for the year ahead.

Cushman & Wakefield have traced EUR 1.5 bln in investment volume for the first three months of 2019, with Hungary providing a 70-100 basis point yield premium on Warsaw and Prague.

“The purchase of the office buildings in Bulgaria represents an important milestone in our company’s history through expansion to the international markets.

This move is optimally aligned with our development strategy. The end of last year saw us venture into a new real estate market segment – residential homes – and now we are entering a geographically new market,” comments Steinberg.

The management of Wing has hedged its bets with development projects in the office, retail, logistics, hotel and residential sectors in Hungary. This year Wing has developed 165,000 sqm of space with an investment of EUR 256 million.

100% owned

by Siemens – in the south Buda sub-market that has developed into a high-tech hub.

This is another example of the sort of built-to-suit office development project that Wing has undertaken for both Magyar Telekom and Ericsson Hungary.

In an expansion of its activities, WING has purchased the Bulmag and DXC office centers in Sofia, its first international transaction. The purchase was made through indirectly-owned project companies.

Liberty office project by Wing.

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Budapest Business Journal | December 14, 2018 – January 17, 2019

Business

Committed to a Transparent, Digital Future

Unless you are a corporate with a Citibank account – and there are many in this country – your understanding of the bank in Hungary might well be limited to the sale of its retail business to Austria’s Erste back in 2015.

But Citi has been in Hungary a long time, and it is committed to staying, Citibank Europe Plc CEO Zdenek Turek tells the Budapest Business Journal in an exclusive interview.

ROBIN MARSHALL

“We like Hungary. We have been here since 1985. Today, in addition to our core banking business, we operate our own service center here with more than 1,800 people, supporting the whole of Europe and beyond, and supporting our Dublin headquarters,” Turek says. “We have a lot in Hungary, that means we believe in it, are committed and want to grow our business here.”

He was making a whistle-stop visit to Budapest, seeing staff, alumni and clients of the bank, after what he characterizes as a “very good year” for Citi. But – and this must be something of a doubleedged sword for the current CEO of Central Europe and country head for Hungary, Kevin A. Murray – Turek also has a personal connection to the country; older readers might well recognize that distinctive Czech name.

“I monitor this branch very closely,” Turek admits. “I used to work here for three and a half years; it goes to my core.”

He did not just work here, of course. In 2002, he was made Citi country officer of Hungary, while also overseeing a Central European cluster of five countries.

Let’s deal with that service center first: is Hungary’s labor crisis making it hard to find colleagues? “Yes, there’s pressure there. SSCs are an area in which people change jobs more often. So, we have to defend ourselves. How? We work with

on the supply side, primarily labor; that tells you capacity issues might become cost issues as labor becomes more expensive,” he notes.

That said, investments are still being made, and companies are still growing.

So what is Turek’s prediction for the year ahead? “A modest slowdown can be expected, but still very good growth.” And the banks are part and parcel of that. “The banking sector is in good shape. Banks are lending, but it is very competitive.”

Broadly speaking, the same picture can be seen across the region, he says.

Poland, clearly, dominates through the sheer size of its market. Hungary is more comparable to Turek’s homeland, though he points out one interesting difference.

“There are a lot of international companies that came here [Hungary] in the ’80s and ’90s. These are more sizeable compared to the Czech market; there are more local companies there.”

The area of differentiation for corporate banks in the very near future will be digitalization, the CEO says. “It has [already] changed the landscape in retail banking.”

He expects commercial banking to follow suite, with “straight through processing” (electronic account-toaccount transfers without human involvement) dealing with perhaps as much as 90% of transactions “because we want it and the clients want it [….] transparency of transactions and speed will be the battleground for banks”.

But if that sounds like a call for a digital revolution, then it is not one devoid of personal interaction. “People will always need to be part of the equation. I am not saying banking will become the play of machines. Your people, that is where the value is added.”

Citi is in the process of looking at what services it should provide; banks must specialize, he says. “Today, many banks are still trying to run a very universal model. We should identify what we are really good at and concentrate on that.”

Brief Bio Zdenek Turek the best people. We are good at retaining well qualified middle managers. Part of it is to make sure you have interesting jobs for people, and that may mean moving less interesting jobs to other territories,” Turek explains.

Developing the Curriculum “Another part is to work with the education system, the universities, to help develop the right curriculum.” Colleagues need the right skills sets – soft and hard – to prepare them for a working life very different to what has gone before, he says.

“Last, but not least, we are international, so some gaps [that are hard to fill] we can cover from our network. We can get people here on assignments from elsewhere.” And that is also a two-way street, Turek points out. Hungarians who are interested in broadening their horizons can seek assignments across the borders.

Did the sale of the retail business have any impact on business? Turek shakes his head. “We worked with our partner [Erste]

very closely to ensure there was a good outcome for our retail customers. I do not think it impacted us in any negative way.”

He makes the point that, since the sale was part of Citi’s global reposition away from retail markets, corporate clients could see it would leave the bank better able to focus on them.

Those clients are drawn from three major groups: large Hungarian firms, often with an international outlook; SMEs on a growth path; and the subsidiaries of multinational companies operating in Hungary, “a traditional stronghold” many of which have been with Citi since it opened in Hungary. “We are a window for foreign companies coming into Hungary and a window for Hungarian companies going abroad.”

Good Macroeconomics Citi’s success is built on a number of factors, Turek says. “It has been a very good year. The economy is growing very nicely, and not for the first year, so the macroeconomics are helping us, but most importantly our clients are doing well. Hungary faces some challenges

Zdenek Turek is CEO of Dublinbased Citibank Europe Plc., which employs 9,000 people across 22 countries. He is also the Europe cluster head, which includes 25 countries across the region. He joined Citi in his native Czech Republic in 1991, before moving to Citi Romania in 1998 as Citi Country Officer. In 2002, Zdenek became Citi Country Officer of Hungary, while also overseeing the Central European Cluster of five countries. He has also worked at management level for Citi in South Africa, Russia, and the United Kingdom Zdenek was born in Kolin, Czech Republic. He graduated with an MA in Finance and Banking from University of Economics, Prague in 1986.

His further studies included the Advanced Management Development Program at the Wharton School of the University of Pennsylvania in 1997 and the Executive MBA program at INSEAD, from which he graduated in 2010.

8| 2

Business

PRESENTED CONTENT

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PRESENTED CONTENT Budapest Business Journal | December 14, 2018 – January 17, 2019

Celebrating 10 years With a Full Service Offering and a Long-term Strategy Bird & Bird celebrated its tenth anniversary on the Hungarian market this year. It is a significant moment for any law firm, let alone one launched in the teeth of the financial crisis. But it also caps a year of major landmarks for the Budapest-based office.

ROBIN MARSHALL

Siegler Bird & Bird Ügyvédi Iroda, to give the firm its full title, opened new offices on June 25 in the capital’s Víziváros district on the Buda side at the corner of Csalogány utca and Kapás utca, just below the curtain walls of the royal palace atop the Castle District.

That move into the LEED “Gold” certified Víziváros Office Center was made necessary by perhaps the most significant development for Bird & Bird since its launch in Hungary. From February 1, it was joined by two partners, three senior counsels and a team of 15 lawyers from Weil, Gotshal & Manges, which pulled out of Hungary on the same date.

The combination of the two teams provided a significant and strategic boost to Bird & Bird’s Hungarian offering. Since opening ten years ago, the Budapest

energy, banking and finance, telecom and media sectors.

The new combined Bird & Bird team totaled just shy of 30 lawyers, and also created a strong presence in the sports

“It was very useful for us that we did not really have IP, IT, or data protection experience. Now that we have come inhouse, we collectively have a fullyfledged full service firm.” sector and real estate market. This has enabled it to offer a far broader range of services to its existing clients in Hungary, and in the wider Central and Eastern European region.

As the year comes to an end, the most obvious question is this: how has the merger of the two teams worked? “The most interesting development, the most significant [in the past ten years] was when the people joined from Weil,” says partner Bálint Halász, who heads the intellectual property group in Budapest and has been with Bird & Bird since it opened in 2008.

The Weil, Gotshal & Manges team brought with them experience and, perhaps just as significant, additional resources in areas where the Hungarian Bird & Bird office may have been perceived to be lacking, says Halász.

Additional Resources

László Nanyista office has developed strong expertise in intellectual property, technology and communications, commercial, dispute resolution and data protection matters. These were complemented by the new team’s market leading expertise in corporate, competition, dispute resolution, regulatory and finance work, with key clients in the

“If someone suddenly needed M&A advice, we might not previously have had the numbers to put together a team of ten, say, to work on it overnight,” he says. “We had the experience, but we lacked the resources, I would say. We had clients who before had said to us ‘I will contact you with IP and data protection issues without question, including transactions where these are the core issues, but you do not have an M&A team with enough people to deal with a larger transaction.’ Now we are being invited to pitch for M&A jobs where we would not have been previously.” Equally, commercial clients of the former Weil team will now contact them on IP- or

IT-related issues, where that was not seen as a strength, before.

If that has been a welcome development, it is probably trumped by the way the two teams have managed to dovetail.

“You never know what is going to come with such a change. Over all it has been extremely positive; everyone has been supportive of each other.

I think the flexibility of the joining team was the biggest surprise, for me,” Halász recalls.

Pál Szabó, another partner and head of the corporate/M&A group, was among those who joined from Weil, Gotshal & Manges. He points out that, though far from an everyday event, it is not unknown for international law firms to pull out of a market. That, in turn, often leads to teams moving firms, but it is rare that they can do so in their entirety, given the overlap of practice areas.

“In our case, it was different,” says Szabó. “It was very useful for us since we did not really have a very strong and well-established IP, technology or data protection practice such as Bird & Bird has. Now that we have come in-house, we collectively have a fully-fledged full service firm. [.…] So far we have not had any negative experiences. The client feedback has been really positive.” Szabó, who started his career at Allen & Overy, says he has been impressed with the way Bird & Bird operates.

“It is such a flexible firm. Here we can really feel that this is an integrated platform. We are divided by industry sectors, not by jurisdictions. In these sectors, lawyers from various practice areas and jurisdictions seamlessly work together on specific projects or just brainstorm on how we could develop our services to fit our clients’ ever-changing needs better.”

Litigation expert László Nanyista, is another of the Weil joiners, and was made a partner in the dispute resolution

“You never know what is going to come with such a change. Over all it has been extremely positive; everyone has been supportive of each other. I think the flexibility of the joining team was the biggest surprise, for me.” practice group in November. He, too, references the “perfect match, because there are no overlaps” and judges the way the two teams have come together as a genuine success, both for the firm and its clients. Given that the Budapest office of Bird & Bird was a relatively small firm in Hungary, he had wondered how the Weil unit would fit in.

Striking Similarities

“Although there might have been different approaches and views, there were no

hardships in terms of working together. It has been as smooth as you can get. That really has been a high point. [….] Both personally and professionally it has been the similarities that have been striking for me, and particularly the attitude to clients is huge in this, because we have the same approach: how can we best help our clients.”

That theme, the strategic philosophy behind the firm, is something the three partners return to again and again over the hour and a half that we spoke.

Bird & Bird is an old firm (for more on this, see box), but it is not one of the “Magic Circle”, the five London-based law firms with the largest revenues (a somewhat nebulous term, the members

Bálint Halász are generally taken to be: Allen & Overy; Clifford Chance; Freshfields Bruckhaus Deringer; Linklaters; and Slaughter and May, although The Lawyer, the magazine that coined the phrase in the first place, no longer considers Slaughter and May to be a Magic Circle firm). Nor is Bird & Bird one of the U.S.-based “White Shoe firms”. How, therefore, does it seek to differentiate itself?

“What I really admire about Bird & Bird, one of the reasons I joined and stayed at the firm, is that the management takes a really long-term view of business. Bird & Bird is not a law firm that likes to close offices,” explains Halász. It also has a “client first” attitude, he says. “I can pick up a phone and talk to someone in Dusseldorf, or London, or Paris to ask them for advice, and their first question is not ‘What is the matter number?’ [so the time can be billed], but ‘How can we help the client?’ We are working for the same firm. What is good for the firm in Budapest is also good for the firm in Germany. This working method makes sense, I think.”

Szabó agrees. “Bird & Bird is a real one-firm platform. All the big firms call themselves integrated, but are they really?

Here, people are happy to help because they understand that it is an investment in personal relations with their colleagues, with their clients, or just because they are simply nice people. But it is genuine, and I think that in the long-term success will rely on this.”

All three partners talk about the “commodity phenomenon”, where everything is reduced to billable hours.

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Budapest Business Journal | December 14, 2018 – January 17, 2019

That is, in part, driven by the clients.

“The legal market is not so mature in Hungary,” says Halász. “Procurement departments are obsessed with rates.”

But Nanyista adds that law firms themselves also contribute to this, by putting less experienced attorneys on a job, to lower prices, or forgoing quality for quantity. “We try to compete on quality and user experience,” Halász says.

“Both personally and professionally it has been the similarities that have been striking for me, and particularly the attitude to clients is huge in this, because we have the same approach: how can we best help our clients.”

Szabó agrees. “We live in times where we face a real price challenge with clients, but what we cannot compromise on is quality. We try to come up with alternative fee arrangements. We openly discuss what is fair, and what we cannot cut costs on. We work very hard to understand what the client needs, rather than what we can sell them.” Bird & Bird sells itself as being a firm that uses technology to find the best solutions that are creative and focused on problem solving, he says.

Halász adds that a Bird & Bird characteristic is cultivating longterm relationships with clients, which becomes a win-win for both sides. “We recently had our annual partner retreat where the CFO made the point that long-standing clients usually generate more profits. A lot of people – and certain law firms – are obsessed with

finding new clients, new work, and sometimes they forget the existing relationships.”

in client relationships and its people, in particular in its junior associates, who will be the future of the firm.

Client-first

Nanyista identifies this client-first approach as “another area of striking similarity” between the two groups that now form one team. “There is a big value put on relationships between colleagues and with clients. You build a relationship, and sometimes you see your role as helping these individuals solving their day-to-day tasks, not only a general corporate interest, which is naturally also important. But you need that human point of contact, and in the end you are trying to help your contact as much as the client. You have to be very careful about looking after the client’s interests, and not seeing them as a commodity.

I think that is the way forward,” the litigation specialist says.

But he also says this attitude is a twoway street, a place where common ground can be found between client and service provider. “In the past ten years, clients’ focus has been almost exclusively on price; I think the pendulum is swinging back over time to where real quality will be what matters more.”

What comes across is that Bird & Bird is committed to a long-term game plan. It invests in its offices, in new technologies,

A Story of Two Birds (Abridged) With its vision to be the number one law firm in the world for organizations impacted by technology and digitization, Bird & Bird (www.twobirds.com) somehow feels like a young firm, and yet it was founded in Dickensian London, in 1846 to be precise, just nine years into the reign of Queen Victoria. The initial founder was one

Pál Szabó Szabó says it is important that senior lawyers of his age accept and understand that junior associates are no longer interested in working 20 hours on the trot

William Frederick Wratislaw Bird, who was joined by James Moore to form Bird & Moore. The second Bird, appropriately William Bird II, joined in 1875, and was made a partner in 1880. (He only retired from running the firm shortly before his death in 1950.) A cousin, Ernest Bird, joined in 1905 and the name changed to Bird & Bird.

The following years saw a series of small but significant mergers, with the first international office

Business | 9

just because that is the way it has always been. Flexibility and balance are the new watchwords.

“I tell the juniors they should have an entrepreneurial spirit toward the law firm, rather than act as employees, because one day it will be their law firm.

For juniors today, time spent out of office hours is important, they want more balance. And it is important law firms recognize that if they want to be here in the long-term.”

So juniors are taken along to client negotiations, asked to provide their opinion, given opportunities to work on varied projects, even to go abroad on trips or secondments. “From the beginning, we try to treat juniors as if they were already qualified attorneys; I think that is the best way to build for the future.”

Nanyista agrees. He joined the interview after the others because he had been involved in an internal seminar, organized by the junior associates for the junior associates. “We try to help them understand how to build a presentation, how to talk to a group.” The seniors also run a one on one mentoring program, where they cover issues such as how you deal with criticism when it comes your way. It is all part of a comprehensive package to help the next generation navigate their way around an international law firm, he says.

opened in Brussels in 1992. Paris followed in 2000, the Netherlands in 2001, Dusseldorf in 2002 and Milan in 2003. Beijing was added in 2004, and Spain in 2005. In 2008, Bird & Bird was awarded the title “International Law Firm of the Year”

by The Lawyer, and opened offices in Budapest, Bratislava, Prague and Warsaw. From 2010 onwards offices and partnership arrangements opened in Africa and the AsiaPacific region.

10 | 2

Business

www.bbj.hu

Budapest Business Journal | December 14, 2018 – January 17, 2019

Cogito: ‘Like Wikipedia for Universities’ Cogito aims to help university students by creating a social e-learning platform. The Budapest Business Journal asks CEO Máté Majtán about the project.

BENCE GAÁL

Cogito’s team at the Pitch@Palace Hungary event.

“My friend and co-founder Bence and I are both studying medicine at Semmelweis University. The immense amount of lexical knowledge, huge stress and the lack of reliable materials for studying left us no choice but to find and realize a solution as fast as possible, since it was crucial for our – and our peers’ – professional progress,” he says of the inspiration behind the startup.

“We found that the currently used e-learning platforms were developed many years ago and, overall, had a one-way approach for teaching.

Changing this was, and still, is our main goal.”

Majtán explains that Cogito’s idea revolves around using social platforms not only in everyday communication, but in both teaching and studying as well.

“Cogito offers a collaborative interface for students to create up-to-date, reliable notes together, that can be validated by their teachers afterwards. In this way, the students and teachers can work to a common goal in an interactive environment. It’s like a Wikipedia for universities. Besides this, we offer a news feed for the professional insights of teachers and institutes. Thus professors can gain more attention and engagement online,” the CEO adds.

The startup now consists of six “motivated, hard-working” young people. Five are university students, though some of them are nearing the end of their academic studies, and one person who has already graduated: software engineer Máté Papp.

“The team is one of our biggest assets, we think. Bence Stubnya is responsible for sales and marketing; development is overseen by Kristóf Kovács-Egri, our product manager, and the actual development is done by Berci Körmendy and Máté Papp, with the screens and UX/UI prepared by Ádám Lobler, our designer,” Majtán says.

Big Breakthrough

The team’s first big breakthrough came in February, when the startup got into the Start it @K&H Incubator. “Getting the help of our mentor and having the office there gave us a huge boost in our progress,” Majtán added. Cogito also got into Design Terminal’s Accelerator in September, and

into Pitch@Palace Hungary event, organized by the Duke of York startup network. Cogito won third place at the event itself, and the People’s Choice Award, voted by the public online, which Majtán considers the biggest achievement so far.

“Thanks to that third place, we have been invited to the London Global Final of the Pitch@Palace event, which will take place between December 9-12, where we have the opportunity to pitch our idea to people from the royal family and influential British business people, and maybe even Her Majesty the Queen,” he noted.

The CEO expects the working MVP (minimum viable product) to be ready for testing on December 17, and in January, Cognito will start institutional testing at Semmelweis University, which Majtán says is their first paying customer.

“We are ahead of an exciting year; we’ll continue distribution in Hungary with universities who are already on our subscription list, but we also aspire to start testing in neighboring countries and Great Britain as well. Next year we will also focus on getting the first corporate partnerships. In the long run, we believe Cogito can become an effective tool for education, creating an online environment without frustration, where people can collaboratively help each other reach their common goals,” the CEO concludes.

S TA R T U P S P O T L I G H T

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PRESENTED CONTENT

Changing Mindsets, Widening Horizons The CEO of IT Services Hungary sees a golden opportunity for the Hungarian workforce to make the most of their European culture and embrace their inner ambitions.

ROBIN MARSHALL

Dutch national Erik Slooten says ITSH, having built up an excellent reputation with parent company T-Systems International GmbH in the past decade, has now reached the level of maturity where, rather than waiting to have positions assigned to it, it needs to go out and grab them. It must move from being reactive to proactive.

“This represents a paradigm shift from ITSH’s point of view,” says Slooten, who joined ITSH in January 2018. The new approach of deliberately going after value added work was introduced in the last financial year “but we have already started to focus much more on what we do, from a cost savings and value added perspective.”

ITSH is a cost center; it exists to offer savings to the international group. That makes it an interesting company when it comes to measuring success. “Our EBITA needs to be as low as possible for us to be effective,” Slooten points out.

ITSH opened in Budapest

in

2006,

but it has since expanded across the country. Its second biggest site opened in Debrecen in 2007, Pécs was added in 2012 and then came Szeged. Overall, it employs 4,500 people in Hungary.

In staffing terms, the highlight of the year was moving into it brand new, purpose built Budapest head office in Mill Park on August 30 (see ‘Outstanding’ ITSH Moving in and Moving On for more on this). But that sort of investment in staff is not unique to Budapest.

Modern Offices

“On last Wednesday we finished a move in Debrecen from two buildings into one. It is not as new as this [Mill Park], but it is a very modern, open space.” Salaries have also been increased, the CEO says. “We want our people to understand that we understand the cost of living is rising in Hungary.”

Better salaries and better offices are all part of the process by which shared services centers such as ITSH look to find and, just as importantly, keep staff. Slooten says the attrition rate for staff turnover at his company is 12%; enough to ensure new life is brought into the workforce without

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Business | 11

ever tightening labor market. That has prompted ITSH to get creative. “We are now looking at how we can make language students into specialists in some IT areas.

If we take fluent German speakers – we are talking C1 level, near native speakers – and give them six months training, they can start working in beginner jobs in ITSH; not full IT engineers, but with specific engineering skills.”

Put crudely, it is quicker to find gifted language students and teach them IT skills than to give programmers language lessons. “This isn’t a dream, we are already doing this in Debrecen. In Szeged and Pécs we are talking with the universities right now.” The idea is to find students at the end of their second year of studies, and then to give them specific IT training, provided by ITSH, alongside their language lessons. Students have to keep up their language ability, but if they graduate they will be offered a guaranteed a job at ITSH for a couple of years.

Slooten says he is offering the students an opportunity to join an international organization, with all the international opportunities that go with that. But they have to embrace that. There is a wider world out there, and Hungarians have every chance to be part of it.

“They should not forget that Hungary’s USP is that it is part of European culture and has been for hundreds of years. It is not an island but is connected to these cultures.” That’s true for ITSH staff as well.

“It is time to take on more responsibility, particularly where we can see we can solve problems. It will take effort, but it is a change of mindset, and that is what we are working really hard on, making them see that and believe in it.”

Bio Box Erik Slooten Erik Slooten it becoming a problem to fill new places or backfill old. He puts the industry average for Hungary at around 15%.

“Recruitment will continue to be a point of focus because it is our lifeline,” he says, simply. The approach includes everything from using headhunters to social media such as Facebook and LinkedIn. But the targets aren’t limited to those in Hungary.

“We are looking at what we can do to bring Hungarians back to Hungary.

I am having dinner with the head of one of the SSCs that has been very successful at attracting Hungarians back from abroad. Some have done well at this, others, such as ITSH, not so well. I will learn from anyone I can. Part of the opportunity we have is making it financially possible for international people to come back and also giving them leadership possibilities here.”

And since ITSH has three countryside centers beyond Budapest, it can also attract emigre Hungarians from those areas who might want to return for family reasons. “We should definitely tap into that opportunity.”

Slooten makes the point that the SSC sector hasn’t always been great at telling potential hires what it does, let alone what the opportunities for career development are. He thinks companies like ITSH need better branding to reflect their values, but also the

opportunities, and “to be more specific about our ambitions”. ITSH has

500

job types;

a person could find new high level challenges every couple of years without ever leaving. T-Systems International’s European-based cloud platform, for example, is operated from Hungary.

Language Matrix

SSCs often say that one of the things that attracts them to Hungary is the availability of a workforce with good language skills, which can appear counterintuitive considering Hungary’s low position in language learning league tables compared to almost every other state in the EU. But Slooten points out that language skills form part of a particular matrix in Hungary: cost, education and languages.

“We offer lower costs because we are near shore, a high degree of engineering skills, and language skills. If you just wanted language skills, you might go to Scandinavia, but the costs are much higher there, and there aren’t so many engineers. Hungary has all three, but it is that balance that we businesses, as well as the government, must focus on keeping as healthy as possible.”

It is well known, however, that IT skills are at a premium in Hungary’s

• Chief Executive Officer, ITSH Jan 2018 – Present • Chief Information Officer, eircom Ireland Aug 2015 – Jan 2018 • Regional VP Processes and Systems, T-Mobile, Czech Republic Oct 2014 – Jul 2015 • Group IT Director, GTS Central Europe, Czech Republic Dec 2011 – Oct 2014 • VIVACOM, Sofia, Bulgaria Director IT (Aug 2010 – Nov 2011) and Director IT Applications (Nov 2008 – Aug 2010) • Earlier roles with Slovak Telecom, Wistar, Czech Republic; Czech Telecom, Galileo Management Consulting BV, Enertel, Netherlands Education Bachelor’s degree in International Law and Legal Studies (1990–1995) from University of Groningen, one of the oldest universities in the Netherlands (founded in 1614, the university ranks amongst the top 100 in the world).

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Business

www.bbj.hu

Budapest Business Journal | December 14, 2018 – January 17, 2019

The Digital Frontier Gets Ever Nearer Building a Good Mood

Around the time he finished explaining this, he pointed out how the conference room’s blinders had adjusted themselves to prevent the sun shining into the eyes of participants; just one way in which smart buildings can be people-friendly as well.

“Good mood leads to better work,” he noted.

Regarding the popularity of the so-called proptech movement, which aims at incorporating digital tech elements into real estate, KPMG’s global survey revealed that while a vast majority of the surveyed real estate companies thought that digitalization is important already last year, this year the ratio

Big Four firm KPMG’s experts discussed the opportunities in digitalizing business, real estate, and healthcare among other fields at a breakfast conference attended by the Budapest Business Journal.

was

97%.

BENCE GAÁL

The event was opened by KPMG Hungary head Robert Stöllinger, who listed the company’s achievements over the last year. In the 12 months ending in September, KPMG registered a total of HUF 23 billion in revenues, with the business advisory branch spearheading growth. Stöllinger also noted that, alongside its 1,200 employees, the firm also employs two robots. “We do not only sell concepts, we are also able to realize them,” he noted.

Partner Attila Ságodi began his speech by reviewing the history of digitalization, noting that it the concept has existed “since the first computers. It has been present in the ’80s and ’90s, and today, even if companies use it, it is not integrated into their operations.”

Regarding the Hungarian labor market, he said, “The lack of people does not drive digitalization, just as the Stone Age did not end due to the lack of stones.”

Analyzing the numbers of the DESI index, which measures a country’s efforts and results of digitalization, Ságodi clarified that while Hungary is ahead of countries such as Bulgaria, Poland, and Romania in some aspects, it is well behind the leaders in digitalization, which are generally Scandinavian countries. Putting Hungary’s achievements into perspective, he noted that the country’s scores were half as high as that of the Denmark’s.

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Attila Ságodi To illustrate how digitalization may impact a business, he added that while a steel factory may have employed

1,000 workers

some decades ago, the same processes can now be completed by about ten employees.

Ságodi was followed by Pál Dános, the director of KPMG Hungary’s real estate advisory. Acknowledging how digitalization can be useful in the real estate industry, he also mentioned how real estate has a long-standing tradition.

“It is a 1,000 years old, truly the mammoth of industries. Except it is not extinct,” he said. Talking about progress, he noted how architectural software from Hungary-based Graphisoft has become the industry standard in architecture.

The next step, he said, is placing sensors in buildings to gather information. “Success depends on knowing what information you want to get, and placing sensors accordingly, even building the house around the sensors,” Dános said. The data can serve a range of uses, such as reducing emissions and saving money, which can then be reinvested.

However, while in 2017 about onethird of companies said they possess a comprehensive digitalization strategy, that ratio had failed to grow this year. In Hungary, Dános noted that there are only about a dozen developers employing more than 250 people, which means that there are few efficient supporters of startups aiming at digitalizing real estate.

While Dános admitted that, in most cases the market does not yet pay for smart homes, Ságodi had an interesting interjection. “The market, however, pays for crap. The same tiler who did a shitty job years ago gets three times the money for the same work. Only the owner’s willingness matters,” he argued.

Healthcare is another area where digitalization may help tackle the arising challenges, according to Margó Kohanecz, director of health and life sciences at KPMG. She noted how Hungary is currently missing a staggering 25,000 healthcare workers, and how globally the aim of most governments is to stop healthcare expenses from growing.

“The lack of people does not drive digitalization, just as the Stone Age did not end due to the lack of stones.”

There are a variety of ways in which digitalization may help healthcare. In Australia, there are apps which tell the user about waiting times at local clinics, so that the user can pick the one with the least wait, alleviating the burden on the most popular locations. Closer to Hungary, there is an ER chatbot system in place in Europe, which decides whether a patient’s problem is serious enough to warrant a visit to the emergency room, Kohanecz said.

In Hungary, the so called EESZT (Electronic Healthcare Service Space) system is in place, containing anonymized data of patients. The e-system facilitates identification as well as storing doctors’ notes, among other features. “If the system becomes more efficient, the labor shortage becomes less serious,” Kohanecz argued.

Pál Dános

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Business | 13

Can Hungarian Wine Crack the Export Market?

Despite some funds aimed at improved marketing, Hungarian wine exports have been pretty much stagnant for the past two decades. In 1985, exports stood at three million hectoliters – in 2016, the entire Hungarian wine production accounted for the same amount, only a fifth of which was export.

ZSÓFIA VÉGH

Some good news came last year, which saw this figure rise higher going, but that was largely due to poor harvests in France and Italy, László Kopacsy, head of the marketing-management faculty at Budapest Business School (BGE) says.

The main problem is that the majority of export is sold as bulk wine without designation of origin and at a very low price: around one euro per liter or less.

In 2016, the average price was EUR 1.14/liter – half of that of Austrian wine exports.

Among the reasons is the lack of an organization that could help coordinate export and marketing activities, meaning most wineries have to build ties abroad themselves, Kopácsy tells the Budapest Business Journal.

Agrármarketing Centrum is the organization responsible for the marketing activity of Hungarian wine sector. It does take wineries to international fairs, but only a handful

Not everyone is aiming to export more.

“Our main market is Hungary but I believe that is fine,” says Andrea Gere of Gere Winery. Look elsewhere in the region, and you will see that the majority of wines produced are consumed within a country, she adds. Roughly 80-85% of Gere wines are sold in Hungary, the rest goes for export.

“What we focus on is that our wines are positioned well on foreign markets and are in wine shops and restaurants where there is a chance to tell customers about them.” Being relatively little known abroad, Hungarian wines can only be sold when you can communicate with customers, have them taste it, Gere says.

Exports have received less emphasis in the past few years at Varga Winery.

Tokaji and Egri Bikavér, the two wines that sell abroad, constitutes roughly 300,000-400,000 bottles of the winery’s annual production of 15 million bottles this year.

“Due to the growing expansion of Alföldi wines on export markets, we no longer have a competitive edge abroad,” says Máté Varga. Since demand for low quality wines in Hungary is declining, Peter McCombie, Master of Wine, speaking at the wineries at Alföld sell more abroad, Franc&Franc conference in Villány in November. Varga explains. When it comes to export, Hungarian wineries should aim for countries in the region such Poland borders.” Having confidence is good are able to travel with them or take or even Germany, where they know but there is always something one can advantage of funds and tenders, the Hungary and its wines, Varga says. improve, he adds. “So don’t be complacent, expert says. get out there in the market because people German ownership need to see you.”

Being the largest wine exporter Another reason is that many of the largest In terms of building ties, many in the country, hypermarket wineries in Hungary are owned by German wineries rely on personal contacts; that chain Lidl has had a marked companies which buy the bulk wine to is how they get to places like Taiwan, as effect on export figures. Nearly improve their harvest, though there are no Heumann Winery has. Exporting 70% of 15 million bottles of Hungarian statistics on that, Kopácsy notes. its production, the winery in Villány is an wine were sold by Lidl Hungary The solution, he believes, lies in markets exception to most that export 10% or less. in 2017, of which about half was such as Germany and Poland. “Hungarian Heumann’s main markets are for export – a 20% increase wines would have a market there; we have Switzerland and the United States, but also compared to the 2016 figures. century-long traditions with them. We the United Kingdom and Taiwan, “In the The wines most in demand were would also need to build ties,” he adds. last 30 years, I was privately involved in Királyleányka, Tokaji Furmint To make that happen, wine growing wine: I was reading, tasting a lot”, says and Szürkebarát, according to regions should “get out there”, Peter owner Erhard Heumann, who used to work data by Lidl Magyarország. The McCombie, Master of Wine told in the banking sector. company organizes a wine expo the wineries of Villány at the fourth every year where international The Right Approach Franc&Franc conference at the end of experts can select the wines “By reading you learn where the November. they wish to put on Lidl store important markets are and my “Villány has a comfortable place within shelves abroad. background in banking helped: you Hungary,” McCombie says. “But it doesn’t know how to approach them.” have a comfortable place beyond its

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NNG Sees Shifting Priorities for Automotive Industry Hungary-based navigation company NNG says innovation in the automotive industry is growing hugely here, President and co-founder David Wiernik talks to the Budapest Business Journal about what the future promises, and threatens.

CHRISTIAN KESZTHELYI

“There are exciting R&D projects going on, and it is great to see how universities are at the forefront of it. Excellent engineers are being trained, and we see more and more Hungary-based companies in the automotive space, working together with the largest OEMs on the most cutting edge technologies,” says Wiernik.

“We convinced JLR [Jaguar Landrover] to make its new engineering center in Hungary by showing them the potential, expertise, amazing government support, and infrastructure,” he explains.

It is widely expected that connectivity will bring enormous benefits in terms of safety, convenience, comfort and efficiency, both for individuals and municipalities.

Such solutions could include, for example, predictive navigation that can “learn” a driver’s habits and calculate a route based on such information.

Involving municipalities, NNG suggests that two cars driving from the same place to the same location at the same time could receive different navigation routes to avoid congestion.

Such solutions may well be the foyer for autonomous driving.

At the Forefront

“I believe Hungary is not just following up on trends, but is at the forefront of efforts with the self-driving track initiative [at Zalaegerszeg, western Hungary]. The country also has an outstanding 4G network that is

necessary for the above described to be fully introduced. This helps a lot in the current development stage.

Future

5G

and beyond networks will be required in order to enable the vast use of communication that will be required for autonomous driving,” Wiernik says.

Latest statistics suggest that the penetration of connected cars in the Hungarian market is already at around 2% in 2018. In the upcoming half a decade, this figure is expected to grow significantly.

“The excellent 4G network is a necessary enabler for that. Built-in navigation is a

“Luckily, NNG has a lot of experience and an amazing reputation and history in leading automotive into the right direction and this is thanks to the amazing engineering capabilities and the talents of the Hungarian engineers that are, in my opinion, second to none.” standard feature in premium cars, but also now moving very fast into family cars and even basic cars; it is becoming a must and not a luxury,” Wiernik says.

David Wiernik “We see today that smartphones are heavily used for navigation. This is due to a lack of connectivity in cars. However, as more cars become connected, the more you will see built-in navigation systems fully integrated into the car systems with many features for safety – ADAS, advanced driver-assistance systems – and comfort that can be achieved only with integrated systems and large displays.”

It is not only physical features and the performance of an auto that need to be top-notch nowadays; so does the software.

“Just some of the challenges: vehicle systems are becoming extremely complex, we see more screens entering the car. This poses the great question: how many screens are too many? How can we make sure the driver is not distracted but aided? Connectivity brings an array of new features as well as a new kind of threat; Cyber security vulnerability needs to be addressed, and it needs to be addressed now,” Wiernik warns. He adds that car ownership will change, and he believes that mobility as a service (MaaS) will shape market demand on the long run.

New Dawn

The automotive industry is at the dawn of a new era, with standards only now being formed, but automakers need to make decisions today that could well

determine their future. NNG’s president warns that, get those wrong and it could mean the end of a company.

“They hesitate today about what to choose, what direction to take, who is really good and who is just promising, as they need to rely more on outsourcing in areas where they do not have expertise,” he says.

“This make the life of companies more difficult due to the need to convince them about the right direction. Luckily, NNG has a lot of experience and an amazing reputation and history in leading automotive into the right direction and this is thanks to the amazing engineering capabilities and the talents of the Hungarian engineers that are, in my opinion, second to none,” Wiernik adds.

There are other threats, however, and not just to company life. “As connectivity becomes ubiquitous, new areas of vulnerability open up. The threat to the vehicle comes from the architecture of the in-vehicle network over which all the connected components, or electronic control units and car systems, communicate. Designed in a time before wireless connectivity was a realistic

“We convinced JLR [Jaguar Land-rover] to make its new engineering center in Hungary by showing them the potential, expertise, amazing government support, and infrastructure.” consideration for the car, there is no inherent security, and connected ECUs communicate freely with each other with no authentication,” Wiernik describes.

In theory, terrorists could take control over hundreds of cars or shut down whole transportation systems. Such a threat must be eliminated, NNG believes.

“This is a totally new area for automakers where they have to excel, and the pressure is high: consumers are focusing more on this problem, and governments have also realized that, similarly to other safety regulations in the car like the seatbelt, this also needs to be addressed,” Wiernik concludes.

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Special Report Deals of the Year

A look back at some of Hungary’s most important business deals of 2018.

Strong Demand in Development and Investment Continues Deals of the Year 2018: IT, Tech, Food & Drink, Pharma

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Strong Demand in Development and Investment Continues

Special Report | 17 of capital markets at JLL Hungary, with regard to the role of domestic capital.

In a rare forward purchase deal involving a class “A” office complex by a Hungarian fund, Erste Asset Management has completed the purchase, agreed last year, of

the

25,000 sqm

Real estate investment volume for the year is expected to be in the region of EUR 1.6 billion-1.7 billion, roughly in line with the 2017 level of EUR 1.8 bln.

GARY J. MORRELL

Acquisitions by Hungarian investors are approaching 50% of the volume; with the three major domestic funds, in addition to other Hungarian investors, competing with returning international investors, the proportion of investment volume concluded by domestic capital has doubled over the past three years.

Yields for Budapest provide a 70-100 basis point premium on Warsaw and Prague according to Cushman & Wakefield.

Váci Greens D by Atenor.

Over the year, available investment assets were quickly snapped with multiple bids from investors. Tenant demand has remained strong in all market sectors, with record low vacancy.

Evosoft headquarters by Wing.

The Office Market

In the office segment deliveries for the year will amount to 240,000 sqm, with 80% of this pre-let according to JLL. Around 130,000 sqm delivery is expected for 2019, of which 30% is already pre-let, and roughly 300,000 sqm is expected for 2020-2021, of which 50% is prelet. Budapest office vacancy has fallen to a record low of 7.6%.

With regard to investments, there have been a number of notable office transactions during 2018, with well-known, earlier generation class “A” assets such as Science Park, Alkotás Point and Central Udvar all trading.

“A significant pool of local capital should be reassuring as it shows positive evolution in the accumulation of capital and the development of a locally-based saving systems from private investors – this is the role of local open-ended funds – and also the development of local private groups including developers and asset managers,” said Benjamin Perez-Ellischewitz, head

Promenade Gardens from Horizon Development; this reflects the increasing role of Hungarian capital at the high end of the Budapest investment market.

“The funds provide a healthy level of liquidity for the market that was not present in the previous cycle. This has enabled investors to confidently underwrite their exit yields and therefore helped stimulate more transactions,” says Ben Barclay, senior investment consultant at CBRE Hungary, on the role of Hungarian investors in the office and retail markets.

“However, they are also putting off potential core capital from targeting Hungary as they increasingly realize they cannot compete with the local funds. A few years ago these local players were unable to transact lot sizes of EUR 60 million plus, meaning that there was still a gap in the market for international institutional equity, but this gap has now closed as the funds can afford even the largest lot sizes, as shown this year with Erste Fund’s acquisition of Mill Park and OTP Fund’s acquisition of MOM Park,” Barclay adds.

Portfolio Sold

As reported on page six in this issue, Futureal Group has just sold its portfolio of Corvin office buildings to the Hungarian OTP Real Estate Investment Fund. The transaction involves all six of the operating office buildings at the mixed-use Corvin Promenade urban regeneration project in addition to two offices centers currently under construction. Combined, the eight class “A” buildings have a total GLA of circa 80,000 sqm. The OTP Prime Real Estate Investment Fund has also entered a preliminary agreement to purchase the two-phased 27,000 sqm Corvin Technology Park, currently under construction at the complex.

In what HB Reavis describes as one of the largest and most complex leasing transactions in 2018, the European regional developer has agreed a prelease of around 20,000 sqm with Raiffeisen Bank at the Agora Budapest office development, where Raiffeisen will establish Continued on page 18 ‣ ‣ ‣

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Budapest Business Journal | December 14, 2018 – January 17, 2019

Mammut shopping center Continued from page 17 ‣ ‣ ‣ its Budapest headquarters for around 1,300 staff at the 34,000 sqm Agora Tower, the first building scheduled to complete in 2020. Agora will consist of around 136,000 sqm of office, retail and service space and the long-term, phased development project is scheduled to complete in 2023.

In the landlord dominated Budapest office market, more developers are opting for speculative development, with both HB Reavis and Atenor undertaking large, phased, long-term projects.

“This is one of the most complex leasing transactions on the Hungarian market in 2018. The deal is a very important milestone for HB Reavis: this is one of the largest leasing transactions in the history of HB Reavis across Europe to date, and the bank being the first tenant in the development will occupy

nearly

60%

of the first building at Agora Budapest,” HB Reavis comments on the letting.

Wing has commenced development of the second phase of the Hungarian NobelPrize Winners’ R&D Park on the Buda bank of the Danube. The new building will consist of 22,000 sqm of space with

20,400 sqm let to Siemens. A flexible software developer office concept will be implemented for more than 1,500 software developers. In the same area, Wing has also purchased the 18,500 sqm Infopark D office building. The Hungarian firm

“Despite the negative story around retail at a European and global level, the market in Budapest has continued to thrive as investors understand the attractive pricing and strong market fundamentals.” has become a niche developer of builtto-suit high tech office headquarters in recent years, while the south Buda area has become the high-tech hub of Budapest.

Another leading office developer, Atenor, has leased a total of 16,200 sqm in 2018.

Nikolett Püschl, leasing and development manager at Atenor Hungary, sees one of the most significant transactions as a 5,500

sqm prelease at Váci Greens F – due to be delivered in 2020 – for NN Insurance.

Staff Wellbeing

“It was crucial for us that our colleagues should work in an easily accessible place where they can make good use of the services in the vicinity and a high standard technical content is guaranteed. All of these contribute to the well-being of our colleagues,” says Krisztián Pásti, director of operations at NN Biztosító.

In another deal, Ford has leased 4,000 sqm at Váci Greens. “Ford was searching for an ideal location for its shared service center of the European Business Service unit of Ford CEE Sales. Váci Greens was their choice because it is a campus style location, the best solution for an SSC where any expansion requirement can be easily handled,” adds Püschl.

The first four buildings of Váci Greens, consisting of nearly 80,000 sqm have a 100% occupancy rate according to Atenor; Buildings E and F will add an

additional

50,000 sqm.

GE has expanded its presence at Building B by 1,300 sqm and now occupies 48,000 sqm across four buildings.

Other significant office deals have been a 15,000 sqm letting at the Vigadó Palota

in the Central Business District, and a 10,600 sqm prelease at Skanska’s Nordic Light Trio, the third 14,000 sqm phase of the Nordic Light office complex in Váci út. Having acquired the 20,000 sqm Alkotás Point from Heitman the Hungarian investor, Diófa Asset Management plans to upgrade this earlier generation office center to meet current requirements.

The Budapest-based serviced offices provider, New Work Services has extended its Budapest network to eight centers with the opening of the 3,600 sqm BSQ, it first center on the Buda side of the Danube, and the 2,500 sqm RM2 in the Váci Corridor.

Property systems, the owner, now has 25 centers totaling 60,000 sqm in six CEE countries. The New Work shared services office center network (NWSO) has an 85% plus occupation rate in Budapest.

With regard to portfolio asset management, Immofinanz has achieved 58,000 sqm in lettings and lease extensions for the year. This has brought occupancy in its Hungarian portfolio to around 95%.

Retail Market

The major Budapest retail project under construction is the 54,000 sqm Etele Plaza, due in September 2020. Futureal says it has already achieved some significant prelets for the project. Consultants argue that

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market conditions are now appropriate for the delivery of new Budapest shopping centers that would freshen the market considerably after no major delivery for a decade.

That said, several investors and developers are undertaking redevelopment of earlier generation centers in response

“A few years ago these local players were unable to transact lot sizes of EUR 60 million plus, meaning that there was still a gap in the market for international institutional equity, but this gap has now closed as the funds can afford even the largest lot sizes, as shown this year with Erste Fund’s acquisition of Mill Park and OTP Fund’s acquisition of MOM Park.” to the changing demands of retailers and consumers. There are waiting lists at all the leading retail centers where vacancy is close to zero. Also on the demand side, consumer numbers have continued to rise despite the perceived threat to retail real estate from e-commerce.

“Despite the negative story around retail at a European and global level, the market in Budapest has continued to thrive as investors understand the attractive pricing and strong market fundamentals.

This has been highlighted by NEPI Rockcastle increasing their exposure to the market with the acquisition of the 44,000 sqm Mammut shopping center, which represented a landmark retail deal for the market,” comments Barclay. The South African investor, NEPI Rockcastle had already bought the 66,000 sqm Arena Plaza in the fall of last year, along with an adjacent development plot.

“The vendor (CBRE Client) managed to secure this shopping center [Mammut] – and perform a number of complicated asset and management actions to improve the center, bring new tenants and ideas to increase the value of the center before

Special Report | 19

performing an off-market sale to NEPI Rockcastle who made their second strategy acquisition in Budapest,” CBRE explains.

“This is also the largest investment retail sale in Budapest in 2018. The vendor managed to release an increase in value and profit and maximize their returns within a short period of time with the support of CBRE Hungary,” the real estate consultancy adds.

German Fund Returns

The retail market has also saw the return of the first German open-ended fund to the market within this cycle, with CBRE assisting in the acquisition of the Premier Outlet Center in Biatorbágy.

OTP Real Estate has made its largest single acquisition with the purchase of the 50,000 sqm MOM Park shopping and office center from a consortium of Wing, Morgan Stanley Real Estate Investing and CC Real. The group carried out significant investments in the center that enhanced the value of the project.

“At a time when there is a lot of talk about retail, [these deals] show the commitment of some investors to established and strategically located shopping centers,” comments Perez-Ellischewitz.

Elsewhere, Diófa Asset Management has completed its Shopmark redevelopment project. “A substantial achievement for Diófa is the complete refurbishment of the Shopmark shopping center, the first full refurbishment of a shopping center in Hungary. The center will be fully let with further stores opening next year,” commented Balázs Czifra, real estate investment director at Diófa Asset Management.

Goodman Üllő Airport Logistics Center,

Industrial Market

Only 25,000 sqm of logistics space were delivered in 2018 in the Budapest area according to JLL; this is regarded as suboptimal as the pipeline is significantly higher for 2019 with 200,000 sqm under construction, of which

50% is prelet.

Logistics vacancy in the Budapest area stands at a record low of 3.5%.

In this landlord favorable market industrial developers are looking at the speculative development option in addition to developing on a built-to-suit (BTS) basis. Due to rising construction costs and high demand Prologis has commenced construction of a 10,600 sqm speculative facility at Prologis Park Budapest-Harbor.

“In addition to new lease agreements for nearly 30,000 sqm, we have concluded renewals for 90,000 sqm and the disposal of three of our parks,”

comments László Kemenes, country manager for Prologis Hungary.

Extending Activity

The CPI Property Group has extended its Budapest activities with the 55,000 sqm Airport Logistics Park in Vecsés, where the company celebrated the 10th anniversary of the park with Csaba Szlahó, mayor of Vecsés and Gábor Soóki Tóth, organizer of the Airport Cluster. At the same time CPI topped-out the latest speculative 13,000 sqm phase of the project. Buildings E and F are around 50% let to Agility and CEVA and with deals pending, András Bodahelyi, leasing manager at the logistics park, expects the complex to be as much as 80% let by hand over next year.

Auchan Retail Hungary is increasing its commercial capacity in Hungary, with the international industrial park operator and developer Goodman undertaking construction of a new logistics center for the French-based retailer at Üllő Airport Logistics Center, close to Budapest. The logistics park is owned and operated by Goodman. The 87,000 sqm center will be the largest of its kind yet built in Hungary according to Auchan.

The CEE regional industrial park operator and developer, CTP has increased its market share in Hungary to 18% according to the company. It expects to increase its portfolio through development and investment

to

515,000 sqm

Prologis Park Budapest-Harbor.

in ten parks by yearend. Outside of the capital the logistics operator, DB Schenker has leased 15,500 sqm at CTPark Székesfehérvár and in the Budapest area DHL has let circa 8,000 sqm at CTPark Budapest East. Also in Budapest, at CTPark Budapest West, Gebrüder Weiss has agreed a 17,000 sqm renewal.

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Deals of the Year 2018: IT, Tech, Food & Drink, Pharma At the beginning of the year, experts predicted that 2018 would see a livening deals market, both globally and in Hungary. Time has proved them right, at least for the first half of the year. For the yearend, however, geopolitical uncertainties and the dubious outcome of trade disputes and Brexit saw M&A appetite dipping to four-year low at a global level, which naturally also had an effect on the deals market in Hungary as well.

ZSÓFIA CZIFRA

Although a recent EY survey describes 2018 as being on track to become a nearrecord year for the number of global M&A, it is quick to point out that corporate acquisition appetite is at a four-year low.

Deal plans are subdued in part due to increasing geopolitical concerns, says the 19th EY Global Capital Confidence Barometer (CCB).

With rising regulatory uncertainty, and ongoing trade and tariff negotiations — including Brexit talks and the on-going on-off U.S.-China trade disputes — weighing-in on M&A sentiment, 46% of the

2,600 respondents

cite regulation and political uncertainty as the biggest potential risk to deal making in the next 12 months. Only 46% are now planning to acquire in the next 12 months —down from 56% a year ago.

“Geopolitical, trade and tariff uncertainties have made many dealmakers to suspend deals, therefore, despite the stronger-thanexpected first-half year we can expect

this year to finish with much weaker M&A than how it started,” EY country managing partner for Hungary Botond Rencz commented on the survey in a press release.

“Companies are now focusing on integrating the large number of deals they overtook in the past year. This pause is likely to be temporary, and the dealmaking appetite is expected to return in the second half of 2019.”

According to the EY survey, despite ongoing global trade and tariff uncertainty, many companies are still planning crossborder deals to mitigate the potential impact, with 20% of executives focusing more on international opportunities, including those within the United Kingdom, which is the number two destination of M&A choice for executives globally, up from the fifth position in the April 2018 survey. Overall, the top five investment destinations for executives surveyed are the United States, Britain, Canada, Germany and France.

Pause for Thought

“Uncertainty is giving some executives pause for M&A thought, and that will likely result in a fall from current deal

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highs in the next 12 months. However, we can expect higher M&A activity into next year. Portfolio reviews today will yield asset sales in due course,” Steve Krouskos, EY global vice chair at the transaction advisory services of the firm, says in the survey.

“Getting ahead of technological disruption and navigating geopolitical shifts will require M&A. And with growing competition for assets among private equity and other private capital, those corporate executives who are opting to wait on the sidelines will likely find they are compelled to return to the deal table in 12–18 months’ time,” he adds .

The study also highlights that M&A imperatives and macroeconomic fundamentals remain robust.

According to

90%

of respondents,

the global M&A market is likely to improve, while 9% expects it to remain stable in the next 12 months. The majority of executives believe global economic growth prospects are improving, with only 2% predicting short-term market stability to decline and 2% predicting equity valuations to deteriorate.

“Geopolitical, trade and tariff uncertainties have made many dealmakers to suspend deals, therefore, despite the stronger-than-expected first-half year we can expect this year to finish with much weaker M&A than how it started.”

As for deals activity in Hungary, the first six months of the year saw a stable M&A market. For the full year, expectations vary; some say that investors

Botond Rencz are taking a wait-and-see attitude, while others expect the increased activity to remain thorough the year.

According to the EY M&A barometer for the first half of 2018, 66 deals were disclosed and published in Hungary in the given time period. This is on a par with the number of transactions in H1 2017. But look back over a few more years and we can see that the first six months of 2018 were the fourth most active period (together with H1 2017) since H1 2010, in terms of the number of publicly disclosed transactions.

Limited Transaction Values

Translating this to numbers, it shows that based on the publicly available information, the estimated value of the Hungarian M&A market was USD $2.31 billion. This represents a 136% increase from USD $0.98 bln in H1 2017, but a 24% decrease from USD $3.04 bln in H2 2017. It is important to note, however, that transaction values were disclosed and published in just 18% (12) of the deals,

3

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Budapest Business Journal | December 14, 2018 – January 17, 2019

Ferenc Nagy, M&A transaction advisor at EY says that, based on

USD $100 million

the real estate sector is the most active on the M&A market both in Hungary and in the region. This tendency continued thorough the second half of the year.

“Interestingly, both in Hungary and in the region, food companies have also showed increased activity,” Nagy said.

According to Balázs Bíró, managing partner leading the Financial Advisory Services at Deloitte Central Europe, traditional sectors, such as industry and consumer sector dominated the deals market in 2018, but financial, services and IT sectors have also been active.

below

increased to USD $14.7 mln, which represents a 25% increase from USD $11.7 mln in H1 2017. The increase was due to the large deal size in the real estate market and IT area.

Similarly to the previous years, the Hungarian transactions market was dominated by domestic deals. The share of domestic transactions, where both the target and buyer were Hungarian entities, decreased by nine percentage points to 50%.

The most frequent origin of inbound investments includes the United Kingdom, Germany, France, Austria and Switzerland. As for outbound transactions, only four publicly disclosed deals were registered in H1 2018, one of them being the acquisition of the U.S.-based Jive Communications, which provides enterprise-grade hosted VoIP (Voice over IP) and unified communications to businesses and institutions worldwide, by the Hungarian cloud-based communication and collaboration solution provider LogMeIn. In line with the previous year, strategic investors were in the majority in Hungary in the first half of 2018.

Approximately 68% of the deals were carried out by strategic investors.

H1 data,

Regionl Trends

“Hungary fits in the regional trends, however, due to the digital transformation, technology sector is on the rise. Therefore this area will

Most Active

The most active sector was the real estate (see separate story “Strong Demand in Development and Investment Continues” on pages 17-19), followed by IT and technology. The food and beverages and the pharmaceutical and services sectors were also present with six major transactions each.

“Deals closed this year show that the TMT [technology, media and telecommunications] sector, manufacturing companies and real estate firms were the most active in the Hungarian transactions market,” Csaba Polacsek, director of the financial and transactions division of PwC Hungary told the Budapest Business Journal.

“Deals closed this year show that the TMT [technology, media and telecommunications] sector, manufacturing companies and real estate firms were the most active in the Hungarian transactions market.”

“About half of the buyers were foreign investors, investing mainly into real estate, and companies successful on the global market.

The vast majority of the buyers were strategic, while those financial investors that are active in the region showed a modest activity on the Hungarian market,” he added.

Balázs Bíró see an increasing number of deals in the coming years,” Bíró said.

While global uncertainties certainly have a slowing effect on investors’ appetite, this cannot be felt on the Hungarian M&A market, according to Deloitte’s Bíró.

EY’s Nagy, on the other hand, says that he expects that the number of deals in the second half of the year will be less than it was in the first six months. “We still have a month to go, but a sort of wait-and-see attitude can be detected on the market,” he opined.

As for the coming years, the fact that many Hungarian companies are about to carry out a generation-shift, as a large number of firms that were established at the beginning of the ’90s are about to change ownership, could give a boost to the deals market.

“The market has been waiting for such deals for a while now, but it is still uncertain when such transactions will happen in a large number,” says Nagy.

“The tendency has started, but we haven’t seen a notable boom yet. Interestingly, the earlier generation of Hungarian company leaders tend to think that selling their Continued on page 22 ‣ ‣ ‣

INSIDE VIEW

Schoenherr CEE experts advise Telenor on sale of regional assets to PPF Group Zita Albert

Márton Gervai

Partner

Attorney at law

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The Hungarian media has been abuzz with reports about major telecom acquisitions since last year. One of the major transactions is the intended acquisition

by Digi of the retail and small business customers of its rival Invitel. Another exciting piece of news was the May 9 announcement

by Vodafone Group Plc. of its purchase of UPC Hungary as part of a multistage acquisition of Liberty Global’s operations in Czech Republic, Romania and Germany. The whole process is expected to be completed by mid-2019.

Aside from the above, one of the most significant completed telco transactions in 2018 was the acquisition of mobile operator Telenor’s assets in Central and Eastern Europe by the Czech PPF Group.

Telenor is a Norwegian multinational telco and one of the largest mobile operators in Scandinavia and Asia.

Having run mobile operations in the CEE region for 25 years, Telenor decided to sell its wholly-owned mobile operations in Hungary, Bulgaria, Montenegro and Serbia, as well as the Hungary-based technology service provider Telenor Common Operation Zrt. The buyer, PPF Group, is the largest private investment group in CEE with approximately EUR 35 billion in assets under its control. PPF Group invests in sectors including banking, consumer finance, real estate, mining and telecommunications.

As part of a multinational legal team (including attorneys from Bulgaria, Montenegro and Serbia), Schoenherr Hungary was selected to provide comprehensive corporate legal advice to Telenor ASA on the sale of its CEE assets to PPF Group for EUR 2.8 bln.

Schoenherr Hungary was responsible for the transactional support in the sale of Telenor’s Hungarian operations.

The deal was monumental as Telenor is one of the three big telco company in Hungary, the volume of the transaction was EUR 2.8 billion, and several prestigious law firms worked on the whole case.

The Hungarian team was headed

by Zita Albert (partner, Budapest, corporate/M&A), who has extensive experience advising on complex domestic and cross-border mergers and acquisitions, joint ventures and private equity transactions.

Telenor’s CEE operations have more than nine million customers and around 3,500 employees. The sale was in line with Telenor’s strategy of simplifying its business and focusing on portfolios in Asia and Scandinavia, which have the strongest potential for value creation. By acquiring Telenor’s CEE assets, the PPF Group is expanding its telecommunications portfolio to four additional countries, thus strengthening its market position. The transaction was subject to the approval of the relevant regulatory and competition authorities.

Transaction closing took place on July 30, after receiving the necessary regulatory approvals.

www.schoenherr.eu

NOTE: ALL ARTICLES MARKED INSIDE VIEW ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILITY

although that is still somewhat more than the 15% total in H1 2017.

In the first half of the year, the average value of deals with a disclosed deal value

Special Report | 21

22 | 3

Special Report

Continued from page 21 ‣ ‣ ‣ firm is a failure, and that the market will evaluate it accordingly,” he said.

www.bbj.hu

Budapest Business Journal | December 14, 2018 – January 17, 2019

“Many families have entered the stage when the first generation that founded the enterprise is about to give up position to the next generation. There are several good examples; however, in some cases, the family decides to sell the family firm, and this can be experienced in the Hungarian market as well,” he says. There is a third option, though:

“Hungary fits in the regional trends, however, due to the digital transformation, technology sector is on the rise.

Therefore this area will see an increasing number of deals in the coming years.”

Some of the largest deals of 2018 (excluding real estate)

Csaba Polacsek

Generational Shift

Deloitte’s Bíró agrees that many family enterprises face a change in ownership in the foreseeable future.

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if a family enterprise has reached a certain size, owners will often decide to join a global company in order to step up to the next level.

Succession will continue at firms that started operating at around the change of regime, says Polacsek from PwC. According to him, the weight of Hungarian buyers could grow in the future.

“We also expect increased activity among investors offering alternative financing, such as mezzanine investors,” he concluded.

The most significant transaction of this year was undoubtedly the acquisition of pet food manufacturer Partner in Pet Food by U.S.-based private equity fund Cinven. The seller was Pamplona Capital Management, with the estimated value of the transaction put at HUF 170 bln.

Also among the big deals is the sale of Hungarian IT security company Balabit IT to the

U.S.-based One Identity, for USD 100 mln (HUF 28 bln).

Another IT deal, where the buyer was Hungarian, was LogMeIn’s acquisition of the U.S.-based Jive Communication. The estimated value of that deal is USD 342 mln (HUF 97 bln). Deals where both the buyer and the seller were Hungarian include the sale of 18 Spar supermarkets to Appeninn Nyrt. for HUF 4.5 bln.

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Budapest Business Journal | December 14, 2018 – January 17, 2019

Expanding Insurance Sector Signals Economic Growth The Hungarian insurance sector saw a record year in 2017, shattering the glass ceiling of a historic figure that dates back a decade.

The expanding Hungarian economy means that people can spend more, own more, and therefore have more assets to insured. The growth of the insurance market therefore paints a rosy picture not only for the stakeholders active withit, but also for the entire national economy.

CHRISTIAN KESZTHELYI

Premium revenues earned by the Hungarian insurance sector in 2017 reached almost HUF 1 trillion: according to the Hungarian Insurers’ Yearbook 2018, a publication issued by MABISZ, the association for Hungarian insurers, the exact number was HUF 989.6 billion.

Such a figure is truly hard to grasp.

Considering the ongoing expansion to Hungary’s Paks nuclear plant, the insurance sector’s revenues account for approximately one-third of the giant energy investment, a truly spectacular amount in both cases. Furthermore, last year’s figure is a historic one, as it broke the previous record by

more than

HUF 50 bln,

recorded exactly a decade ago, just before the full effects of the financial crisis kicked in.

The growth of the insurance sector is good not only for the businesses in the sector but also the whole economy, Dániel Molnos, general secretary of MABISZ, points out. “There are things to fear and there are funds to spend to

secure what we want to protect,” he says, adding that the growth of the sector is very likely to signal that the last waves of the financial crisis passed.

Life Insurance Could do Better Examining last year’s data more closely, though, it seems that people are more likely to secure their assets than their own selves. “At least, similarly to the last few years, the non-life business grew more dynamically than the revenues generated by life insurance, and the former has also exceeded the latter in volume, at an increasing rate, since last year,” Molnos says.

The life insurance business did at least

“There are things to fear and there are funds to spend to secure what we want to protect.” grow by 5%, compared to the preceding year, but it still represents a modest slice of the overall pie.

Excluding accident, health and travel insurance, the number of life insurance contracts were up by 1% at the end of last year than the preceding year. Pension insurance contracts recorded an 11.6% increase, non-life insurance contracts saw a 4.1% increase, the number of general liability insurance contracts went up by 20.1%, and agricultural insurance contract numbers grew by 15.5% (chiefly boosted by government measures).

Despite the relatively small number of contracts, a significant 69.7% growth was seen in health insurance contracts.

Another indicator of a recuperating economy is that travel insurance is on the rise again, a clear indication that more people have money to spare on travelling. During the last year, more than HUF 12.5 bln revenues were generated by the travel insurance sector.

The fact that there has been a

further

17%

growth of the segment in the first quarter of 2018, compared to the same period a year earlier, forecasts even further travel for this year, the MABISZ yearbook shows.

In May 2018, the Insurance Confidence Index (ICI) — a gauge launched by MABISZ to uncovering the confidence of households — stood at 52.6 points on a scale of 100, having steadily grown from 44.6 points in 2015, when the index was first measured.

Allianz Tops Market According to data published by MABISZ, Allianz had the biggest market share in 2017,

boasting

14.63%

with a premium revenue of HUF 144.768 bln.

Allianz has been on a steady growth path in recent years: its market share was 14.21% with a premium revenue of HUF 130.533 bln in 2016, and 13.76% with a premium revenue of HUF 119.556 bln in 2015.

In terms of market share in 2017, Generali had 13.32% with a premium revenue of HUF 131.838 bln, Groupama had 10.87% with HUF 107.525 bln, Aegon had 10.61% with HUF 104.98 bln and NN had 9.27% at HUF 91.688 bln.

According to MABISZ’s yearbook, the association had 29 members, one being a mutual insurance association registered in Hungary, 21 being insurance limited companies registered in Hungary and seven operating as branch offices. Only

“The emphasis on the importance of self-care is clearly stressed in the strategy, which is a great pleasure to us… The prestige and acceptance of the insurance sector are increasing. We can and must rely on that.” three businesses, operating as private limited companies are not part of the association.

Last year’s success is expected to continue, not only because the economy is performing better, but also because some government efforts offer a silver lining.

The recently approved strategy for raising financial awareness with the intention of helping citizens become more aware and responsible, has received a warm welcome from the association.

“The emphasis on the importance of self-care is clearly stressed in the strategy, which is a great pleasure to us .… The prestige and acceptance of the insurance sector are increasing. We can and must rely on that,” Anett Pandurics, the president of the association says in the yearbook.

4

www.bbj.hu

Budapest Business Journal | December 14, 2018 – January 17, 2019

Focus | 25

Insurance companies Ranked by gross premium income in 2017

RANK

BREAKDOWN OF GROSS AMOUNT OF CLAIMS PAID IN 2017 (HUF MLN) COMPANY WEBSITE

GROSS PREMIUM INCOME IN 2017 (HUF MLN)

LIFE

NON-LIFE

TOTAL

PRE-TAX PROFIT IN 2017 (HUF MLN)

MARKET SHARE IN 2017 (%)

OWNERSHIP (%) HUNGARIAN NON-HUNGARIAN

TOP LOCAL EXECUTIVE CFO MARKETING DIRECTOR

ADDRESS PHONE FAX EMAIL

Péter Kisbenedek Ildikó Láng Zoltán Pásti

1087 Budapest, Könyves Kálmán körút 48–52.

(1) 301-6565 (1) 301-6100 ugyfelszolgalat@allianz.hu

1

ALLIANZ HUNGÁRIA BIZTOSÍTÓ ZRT.

144,752

27,333

49,301

76,634

19,745

14.70

– Allianz New Europe Holding GmbH (100)

2

GENERALI BIZTOSÍTÓ ZRT.

129,686

30,088

20,464

50,552

9,791

13.17

– Generali CEE Holding B.V. (100)

Mihály Erdős Gergely Horváth –

1066 Budapest, Teréz körút 42–44.

(1) 301-7100 (1) 452-3505 generali@generali.hu

3

AEGON MAGYARORSZÁG ÁLTALÁNOS BIZTOSÍTÓ ZRT.

105,766

25,675

29,896

55,571

13,687

10.70

– AEGON Hungary Holding B.V. (50)AEGON Hungary Holding II B.V. (50)

Péter Zatykó Gyula Horváth –

1091 Budapest, Üllői út 1.

(1) 477-4800 (1) 476-5710 ugyfelszolgalat@aegon.hu

4

GROUPAMA BIZTOSÍTÓ ZRT.

105,050

46,369

27,581

73,950

4,592

10.67

– Groupama S.A. (100)

Bertrand Woirhaye Mihály Bácsfalvi István Csonka

1145 Budapest, Erzsébet királyné útja 1/C (1) 467-3500 (1) 361-0091 info@groupamagarancia.hu

5

NN BIZTOSÍTÓ ZRT.

91,688

83,381

-

83,381

2,643

9.31

– NN Continental Europe Holdings B.V. (100)

Imre Sztanó Csilla Varga Szalainé –

1068 Budapest, Dózsa György út 84/B (40) 464-464 (1) 267-9093 nn@nn.hu

70,939

50,171

4,182

54,353

1,318

7.21

Magyar Posta Zrt. (33.07) Talanx International AG (66.93)

Anett Pandurics Ferenc Pap Péter Mester

1022 Budapest, Bég utca 3–5.

(1) 423-4200 (1) 423-4210 info@mpb.hu

64,469

19,848

10,366

30,214

820

6.55

– Uniqa International Beteiligungs- Verwaltungs GmbH (99.93)UNIQA International AG (0.07)

Krisztián Kurtisz Thomas Dockal –

1134 Budapest, Róbert Károly körút 70-74.

(1) 238-6000 (1) 238-6060 info@uniqa.hu

4.63

Erste Bank Zrt. (1.40) Vienna Insurance Group Wiener Städtische Versicherung AG (98.60)

Gábor Lehel Anett Vadas-Földvári –

1082 Budapest, Baross utca 1.

(1) 486-4200 (1) 486-4390 info@unionbiztosito.hu

4.73

– KBC Insurance N.V. (100)

Nik Vincke – –

1851 Budapest, Lechner Ödön fasor 9.

(1) 461-5200 (1) 461-5276 biztosito@kh.hu

2.62

– Signal IDUNA Allgemeine Versicherung AG (100)

Dénes Csata – –

1123 Budapest, Alkotás utca 50.

(40) 405-405 (1) 458-4260 info@signal.hu

2.50

Individuals (58), legal entities (39), other (3) –

Gabriella Kádár – –

1033 Budapest, Flórián tér 1.

(1) 510-0100 (1) 209-9007 info@cig.eu

2.32

Waberer’s International Zrt. (100) –

Bence Nyilasy Tünde Gede –

1211 Budapest, Szállító utca 4.

(1) 666-6200 (1) 666-6404 –

1.75

Erste Bank Hungary Zrt. (1,40) Vienna Insurance Group AG Wiener Versicherung Gruppe (98.60)

Gábor Lehel – –

1082 Budapest, Baross utca 1.

(1) 486-4200 (1) 486-4390 mailto:ugyfelszolgalat@ union.hu

1.38

Erste Bank Hungary Zrt. (1.40) Vienna Insurance Group AG (98.60)

Gábor Lehel – –

1082 Budapest, Baross utca 1.

(1) 484-1700 (1) 484-1799 mailto:ugyfelszolgalat@ union.hu

1.18

– Grazer Wechselseitige Versicherung AG (100)

Andras Hochmann – –

7632 Pécs, Kastély utca 2.

(1) 202-1211 (1) 355-5530 info@grawe.hu

6

www.allianz.hu

www.generali.hu

www.aegon.hu

www.groupama.hu

www.nn.hu

MAGYAR POSTA BIZTOSÍTÓ / MAGYAR POSTA ÉLETBIZTOSÍTÓ ZRT. www.postabiztosito.hu

7

UNIQA BIZTOSÍTÓ ZRT.

8

UNION VIENNA INSURANCE GROUP BIZTOSÍTÓ ZRT.

9

K&H BIZTOSÍTÓ ZRT.

10

SIGNAL IDUNA BIZTOSÍTÓ ZRT.

11

www.uniqa.hu

www.unionbiztosito.hu

www.kh.hu/biztositas

www.signal.hu

CIG PANNÓNIA ÁLTALÁNOS BIZTOSÍTÓ ZRT./CIG PANNÓNIA ÉLETBIZTOSÍTÓ NYRT.

45,570

45,569

25,793

24,641

7,081

46,369

9,160

11,487

7,273

18,867

5,508

392

14,546

65,236

14,668

11,879

630

3,181

247

2,633

www.cigpannonia.hu

12

WÁBERER HUNGÁRIA BIZTOSÍTÓ ZRT. www.wabererbiztosito.hu

13

VIENNA LIFE BIZTOSÍTÓ ZRT.

14

ERSTE VIENNA INSURANCE GROUP BIZTOSÍTÓ ZRT.

15

GRAWE ÉLETBIZTOSÍTÓ ZRT.

www.union.hu

www.union.hu

www.grawe.hu

22,874

17,248

13,572

11,575

-

7,372

18,468

6,482

9,535

1,500

-

-

9,535

8,872

18,468

6,482

3,838

413

680

1,748

5

www.bbj.hu

Budapest Business Journal | December 14, 2018 – January 17, 2019

Socialite Discover the story behind the Hungarian company handcrafting designer frames from upcycled vinyl records.

Eye Love Rock and Roll: Budapest’s Hippest Eyewear

28

Keeping Culinary Tradition Alive in the Fast Changing Tourism Sector

30

Tokaji Aszú: Not Just for Christmas

31

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Budapest Business Journal | December 14, 2018 – January 17, 2019

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www.bbj.hu

Budapest Business Journal | December 14, 2018 – January 17, 2019

Eye Love Rock and Roll: Budapest’s Hippest Eyewear The Vinylize showroom caught my eye while I was exploring the district across Rákóczi utca from the Buddha Bar one cold, clear Saturday afternoon not so long ago. It’s an intriguing neighborhood, neither touristy, hipster nor residential.

DAVID HOLZER

As a lifelong wearer of spectacles, I’m always looking for alternatives to eye wateringly expensive luxury brand eyewear or bland, shopping mall goggles. And those recycled wooden clunkers just don’t cut it.

The specs and sunglasses on display in the window of Vinylize were something else altogether.

I’m also an unrepentant rocker at heart and I couldn’t help but be thunderstruck by the AC/DC eyewear collection prominently displayed in the Vinylize window. What a fabulous eye-dea, I thought.

The ebullient young man presiding over Vinylize introduced himself as Zack Tipton, the brand’s founder. This is the story he went on to tell me.

Zack was born in Sun Valley, Idaho. Of Hungarian and Scottish ancestry, he grew up in Socialist Hungary, southern France and the Pacific Northwest of America.

In

1998,

when Zack was a student in Seattle, his vision began to deteriorate. He decided to make his own glasses.

Inspiration Strikes

Searching for the perfect material to make frames, Zack discovered a pile

AC/DC all over your face. It would make me smile every time.

Fittingly, given that Axl Rose has recently been guesting as AC/DC vocalist, Guns and Roses are the next band on Zack’s hitlist. He’s currently in negotiations with them.

If you love the idea of sporting spectacles or sunglasses made from vintage vinyl but don’t fancy AC/DC, rest assured that Vinylize can make a pair from just about any

12 inch

of his father’s old vinyl in the corner of the garage workshop where he was hard at work. He realized he could get three pairs of eyewear frames out of a single album. Inspiration struck him like a bolt of lightning. The year was 1999. Vinylize was born.

In 2000, while on holiday in Hungary, Zack presented his ideas to an eyewear factory named EMI. Formerly known as Granvisus, the factory had, at its peak, pumped out

400,000 frames

a year, supplying many Eastern Bloc countries with fashionable eyewear.

Since 1989, and the fall of socialism, the company – renamed EMI – had been unable to counter competition from the cheap Chinese frames that flooded the market and was on the ropes.

Zack moved to Hungary in 2001 and began an apprenticeship in eyewear at EMI. Working with the company’s few remaining employees, he soldiered on until a frame made from vinyl albums that met EU quality standards was produced in 2004. Along with his brother Zoltan, Zack set up Tipton Eyeworks. Travelling Europe on counterfeit Eurorail tickets, he made sure the eyewear was a hit in every major city en route. Today, Tipton Eyeworks glasses and sunglasses are sold all over the world, in the hippest stores. These include Paris, London, Berlin, New York and LA.

From 2007, all Tipton Eyeworks glasses have been handmade in Budapest by skilled craftsmen.

Zack’s ingenuity and the Tipton Eyeworks’ never surrender attitude to succeeding and surviving in an extremely competitive industry is, of course, heartwarming. The fact that this is happening in Hungary adds a whole other dimension of awesomeness.

But, as someone who unashamedly loves that spectacularly daft band, I was most curious as to how Zack had managed to bring the AC/DC Collection to life.

The Pink Floyd Incident

The vinyl used in Vinylize’s frames comes from distributors and pressing plants across Europe. “A couple of years ago,” Zack told me, “we got a bunch of blue vinyl without labels.

It turned out to be Pink Floyd albums.

We made a special Pink Floyd collection and it sold like hotcakes. A half year later we received an unpleasant letter from their lawyers. We settled up with the Floyd and then signed an exclusive deal with AC/DC.” The glasses in the AC/DC Collection are made from the classic 1980 album Back In Black, featuring such gems as “You Shook Me All Night Long” and “Let Me Put My Love Into You”. They’re not cheap, but they are handmade, limited edition, and ooze understated rock and roll cool. Imagine sitting in a boring meeting and knowing you’ve got

record. All you need to do is supply Vinylize with two copies of the disc. While this has to be the perfect present for the music obsessive in your life, you probably need to check the value of the album before you destroy it forever.

I say just about any vinyl because, apparently, U2 albums are too thin. Given the band’s reputation for heavyweight sincerity and what passes for gravitas in rock and roll, there’s something richly ironic in this.

Vinylize glasses are certainly stylish and the rock and roll connection is seriously smart. But I also admire Zack’s entrepreneurial spirit. Apart from facing down the legal big guns of musical heavyweights, he’s had to build a business in a country with traditionally high taxation, albeit the corporate tax rate is now the lowest in the EU at 9%. Finding the right kind of salespeople has also been a challenge.

But there are plenty of positive aspects to being based in Hungary for Zack, Vinylize and Tipton Eyeworks. “We’re getting more and more support from people who appreciate a locally made product,” he said, “especially one that’s achieved foreign success. Most of our customers are discerning Hungarians.”

If you have a discerning Hungarian in your life, or, indeed, a rock and roll obsessive who doesn’t want to grow up entirely and who’s hard to buy for, head down to the Vinylize showroom at Irányi utca or go to Vinylize.com.

They also do gift certificates.

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www.bbj.hu

Budapest Business Journal | December 14, 2018 – January 17, 2019

Keeping Culinary Tradition Alive in the Fast Changing Tourism Sector

battle. Some of the challenges – such as the near impossibility of finding new, skilled staff, and ever rising wages – are common to all forms of hospitality. Others are special to running a restaurant which has “hardly changed for 100 years”.

“This is a very old restaurant, built according to the needs of the 19th century.

At that time, nobody considered productivity, things like that,” says Niklai. And while its protected status is the basis for much “old world charm”, it also prohibits fitting air-conditioning equipment - a significant drawback on roasting summer days, only partially countered by renting terraces in the street and neighboring courtyard.

Given its clientele, social media is also more of a two-edged sword for Niklai than modern eateries – older customers are less likely to rush to Facebook or TripAdvisor than youth to boast of an “awesome” evening, but are equally willing to voice complaints.

This can result in a somewhat unfairly skewed set of customer reviews, he laments.

For the most part, however, Niklai appears to be quietly satisfied with his two-decade reign over this national treasure. He is especially grateful to his 300 or so core customers, many of whom fieds • Useful are lunchtime lassiregulars.

Rev eC iew Freto declare his greatest Asked • s challenge, udapest is t s B • n e i hin “People!

M People y is immediate: ri response t the i e o kin n ll u g m management.

I’m experienced in this field, but a m n co still, every day, I think about 20% of my time I spend with employees [.…] one has to learn to listen, to motivate, just to look at them.”

The effort appears to pay off. “I think 80% of the waiters have been here since day one.

This is a great asset: you cannot get waiters, or chefs [today]. Even in the kitchen, on average, people have been working here for more than ten years,” he says. “So maybe there is something I’m doing well.”

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For 364 nights each year – Christmas Eve is their only day off – Lajos Sárközi and his band play their mix of folk, classical and traditional Roma melodies at the Kárpátia.

“There are many talented Gypsy musicians. Twenty years ago most restaurants had them,” says

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a sum beyond the daily reach of most locals, but, as a one student noted, a bargain compared to a similar product in France.

Yet class dining, even in Budapest, is also a high-cost business: with 40 fulltime staff (ranging from dishwashers to a butcher), maintaining a positive bottom line at the Kárpátia is a complex, constant

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having bought the management rights in the heady 1990s decade of privatization sell-offs.

On this November day, he is being quizzed by foreign journalism students on the challenges of running a

Whatever, after a critical period in 2009 when the global crisis almost brought the operation to its knees, it is now profitable, particularly the main hall, where up to 120 guests can dine in gilded splendor each evening.

Accompanied by a five-piece gypsy band, and attended by long-serving staff, it is a Central European cultural-culinary experience; indeed, the antithesis of brash, Americana burger and fries.

Such attention, together with traditional Magyar drinks and dishes, commands a price: the average tab per head at dinner is

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ti • Prac

Ákos Niklai sits in one of his smaller dining rooms, surrounded by paneled walls adorned with classical artwork – each depicting a historical Magyar hero (if not always in a historical way) defending the homeland against a foreign oppressor.

“Hungary was occupied by the Turks, but I have to be careful when we have Turkish guests here. I should say occupied by the Ottomans, [although] someone has to explain to me the difference between the two,” he says, mindful of a Turkish student in his audience.

“Actually, we have many Turkish groups as well. They don’t mind the whole story of Hungary. Guests like it when we talk about the history.”

Niklai, a veteran of the Hungarian hospitality sector, has managed the Kárpátia restaurant for

classical eatery in the heady days of a tourism boom.

This fine-dining thing is all well and good, but with the cut-throat competition from internationally branded, fast-food outlets, is your model not outdated, one sceptic enquires?

“Fast food, it might be a challenge at lunchtime, [but] I don’t think it’s competition. There is a change in trends, no question, particularly for the young generation. But sometimes, when you guys are getting older, then you might like to come to a more traditional restaurant with your families, being served. In other words being served, not just queuing up in a McDonald’s for 25 minutes,” Niklai retorts.

Local Opin ions •P ho : What t h p o o to L e pat

KESTER EDDY

t I nte

Running a swish restaurant in Budapest in the midst of a tourism boom might seem like good business. Throw in the palatial environs of a listed, fin-de-siècle building on downtown Ferenciek tere, and surely, success is guaranteed? If only it were that simple, says the boss.

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ng a d i manager Ákos w But restaurant Niklai. n g E x pat M e di le s Ne Se sh e with changing tastes, and cheaper, rvic r F e • D nts • a ilyon Eve recorded music hand, numbers have dwindled. The Kárpátia, however, has persevered with tradition. “It was a good decision [to keep them],” he says, “they contribute to the old-world charm.”

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Budapest Business Journal | December 14, 2018 – January 17, 2019

Tokaji Aszú: it’s not Just for Christmas It’s a shame that most of us only think of cracking open a bottle of Tokaji Aszú on special occasions, such as the festive season. Not only is it considered by certain critics to be the best sweet wine in the world, but also by some as one of the finest wines of all. And yet, it can be impossible to get people to even sample the sublime stuff, as they go running for cover when the words “sweet wine” are mentioned.

Tokaji Aszú is made from a centuries old process that is unique, whereby the botrytized berries are picked one-by-one in several sweeps of the vineyard, and steeped in a base wine made of regular

ROBERT SMYTH

Sweet is perhaps not the best way to describe these botrytized beauties, the best of which are as layered as they are rich, with incredible length and complexity driven by the Furmint grape’s angular acidity that cuts through the residual sugar (up to around 150 grams per liter for a top of the range 6 puttonyos).

This gives endless length and prevents the wine from being cloying. Tokaj, also referred to as Tokaj-Hegyalja (Tokajfoothills), is sitting on such a rich reserve of awesome Aszú, that it is a shame not to partake when in Hungary.

Tokaji Aszú ticks all the terroir-related boxes for fine wine. It’s made for the most part from indigenous grapes with the base from the focused and linear Furmint, which is typically fleshed out by the fruity and honeyed richness of Hárslevelű, along with several others (although the opulently floral Sárgamuskotály or Yellow Muscat is an outsider).

The region’s soils are remarkably diverse due to the huge amount of volcanic activity millions of years ago, with the composition sometimes varying considerably in one vineyard.

The edgier style of wine from the volcanic-based vineyards makes a nice contrast to the softer, fruitier style coming from more loess-based soils around the town of Tokaj.

This vibrant, fresh and contemporary citrusy style represents the new improved face of the region’s largest producer, which has been seriously turned around after considerable investment.

This wine also shows how an ancient winemaking process can be rendered current and hip with the use of state-ofthe-art technology. “healthy” late-harvest grapes that have not been hit by the so-called “noble rot”.

To add a historical aspect, a lot of Aszú comes from the first vineyards to be officially classified in the world. Note that Szamorodni from Tokaj is made in the same way as other great sweet wines

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Climate Disrupter?

However, climate change appears to be disrupting the botrytizing process in some vintages. Add onto this the surge in demand and interest in dry wines, and Tokaji Aszú isn’t as plentiful as it once was. Given the amount of work that goes into it and its relatively rarity, it is still very reasonably priced.

The top eight wines, and nine out of the top ten, in the “100 best Hungarian Wines 2018” from Winelovers were all Aszú, with top spot going to Grand Tokaj for its 6 puttonyos 2013.

This vibrant, fresh and contemporary citrusy style represents the new improved face of the region’s largest producer, which has been seriously turned around after considerable investment. This wine also shows how an ancient winemaking process can be rendered current and hip with the use of state-ofthe-art technology.

It is amazing value at HUF 5,840 from wineloverswebshop. hu.

In another, very similarly-named Hungarian listing, “Top 100 Hungarian Wine”, top spot was also claimed by an Aszú: István Szepsy’s 6 puttonyos 2009 (HUF 33,500 from Bortársaság).

Just when you think Aszú can’t get any better, then along comes Szepsy, adding new nuances and fine details. In this particular ranking, red wines put in a strong showing with a good few making the top ten.

While Tokaj’s reputation was built on botrytized sweet wine, much attention these days has turned to the dry wines made in the region. The top dry white in the Winelovers’ ranking appeared in 17th place: Sanzon’s Classic 2015, Furmint with 8% Sárgamuskotály. It comes from two sets of grapes, one batch of which was picked in the middle of September with the second coming in early October, both from the Meszes vineyard in Olaszliszka.

Made by the extremely capable hands of Erika Rácz, who fermented the wine in stainless steel and then aged it in 500liter Kádár Hungary barrels on the fine lees for four months, this wine strikes an excellent balance between freshness, fruit, florality, complexity and subtle oak, at costs HUF 4,200 from wineloverswebshop. hu. Sánzon’s Rány 2015 (now sold out, but the 2016 will soon be available) claimed 23rd place.

Ninth position in the Winelovers list was claimed

by Kreinbacher’s Prestige Brut Magnum 2013 from Somló – a wine which shows Furmint’s ability to produce top quality traditional method sparkling wine.

And it’s a great choice to see in the New Year with!

BBJournal.19jan:Layout 1 12/5/18 4:49 PM Page 1

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WhiskyNet

like Sauternes (from Bordeaux), with the bunches comprising both regular and botrytized grapes picked together, and then pressed.

Incidentally, botrytis can be detected on the nose by an intense dried-apricot note. Tokaj has the conditions that allow the botrytis to develop, by virtue of the high amount of moisture in the air in fall, thanks to the region being influenced by the confluence of the Bodrog and Tisza rivers and a high water table. This noble rot shrivels the grape to a near raisin-like state and intensifies the sugar, acidity and flavors.

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PERGOLESI: LA SERVA PADRONA 7th January, 7 p.m.

GUITAR MUSIC IN ÓBUDA 10th January, 7 p.m.

BLACK AND WHITE – Adam Balogh (piano) 16th January, 7 p.m.

MOZART SONATAS Tamás Rónaszéki (violin), Imre Hargitai (piano) 27th January, 7 p.m.

HOT JAZZ BAND 31th January, 7 p.m.