Year 2004

The Central European paper industry did not enjoy an upturn in 2004. The forint exchange rate gained strongly at the beginning of the year, severely impacting export profitability. Paper prices fluctuated to a minor extent during the year, and the Company’s price rise plans remained unfulfilled. After a strong first half on the Hungarian corrugated products market, the rate of growth receded, and in the fourth quarter – for the first time in 10 years – growth fell to zero. The Group’s manufacturing activity was marked by falling prices and regionally variable sales volumes. Strong growth was achieved in Poland and the Corrugated Division in Budapest, but sales targets were not attained in Nyíregyháza or the two most recent subsidiaries, those in Bulgaria and Croatia.

Owing to the above factors, Group profits fell short of the plan, resulting in a diminution of financial reserves. Our main task for the future is to preserve future liquidity, to halt financial deterioration and provide a stable base for attaining the Group’s strategic objectives. The sale of the non-core Cellulózgyár Kft. at the end of 2004 – at a considerable profit – streamlined the Group’s activity profile in addition to improving its financial balance.

Environmental and production rationalisation projects were implemented in Dunapack Rt. to the value of HUF 823 million in 2004. Other capital projects were cut significantly back, investing HUF 0.5 billion instead of the HUF 1.5 billion planned. The EOS project, putting the administrative and technical support of management on new foundations, was completed in a year’s time, resulting in an integrated ERP system at all subsidiaries, with a total expenditure of over a billion forints.

The Group’s investment activity was very lively in the year. In line with strategic objectives, a 1.6 billion forint capital increase was implemented at our subsidiaries. (HUF 1.1 billion at Valoviti, 0.5 billion at Eurobox). The minority quota in the Romanian operation was bought back from IFC (HUF 0.8 billion), so Rambox is now also a 100% subsidiary.

Environmental protection continues to be a key component of corporate values. In 2004, expenditure on environmental protection reached HUF 642 million, and capital expenditure on this purpose totalled HUF 626 million.