Annual report 2000.

There was a shortfall in the volume of sack paper sales because of reduction of inhouse demand and the intensifying competition in Central Europe. The positive market response to the quality-raising project on No. 4 paper machine opened the way to the hoped-for price rise, but raw material price levels considerably higher than planned held the proŢtability of sack paper sales below target.

Counterbalancing the fall in demand on traditional markets, sales of paper for bags and sacs with handles to stores and fast-food chains were stabilised and production of 80 gm/m² Wellenstoff was commenced on No. 4 paper machine to ensure continuous utilisation.

The effect of economic growth was perceptible in demand for packaging materials, and corrugated sales volume increased by 17% over the preceding year. The year was characterised by a full order book and continuous market expansion.

There was a strengthening domestic demand for highly-processed printed and diecut products, especially in the household chemicals and electronics industries. Progress was also substantial in export sales (24%), due to market expansion in the former Yugoslav countries and in Ukraine and Romania mainly.

A crucial factor in sales is that paper price rises can only be passed on with some delay and to a limited extent. Thus the rise in volume was not matched by profit.

The above-plan increase in sack products was due to sales to Central European markets via domestic partners and the continued expansion in the seed market. The shortfall in export sales was the result of an unsuccessful Middle Eastern tender.

In the building materials and cement industry area, competition in 2000 forced major price reductions, and the paper price rise could only be passed on to other customers.

The Company´s bags-with-handles and small-bags markets were stable.

Materials Supply

Fibers - The procurement and use of Hungarian-origin fibres grew significantly by virtue of a subsidies system that remained stable throughout the year. Above-plan use of domestic paper waste (105%) and domestic procurement prices that remained below international levels gave a major cost-side boost to profitability of paper production.

Use of primary fibre continued to fall in 2000 and was lower than planned, which improved the competitiveness of sack papers.