The BUX increased up to 22, points by the end of June Versus year-end 2010 this was a gain of 6.56%.

Transcription

1 The CEE Stock Exchange Group and its Capital Markets 2011

2 After a solid gain of 16.39% in 2010, on 30 June 2011, the ATX closed at 2, points, down by -4.74% versus year-end The BUX increased up to 22, points by the end of June Versus year-end 2010 this was a gain of 6.56% ATX BUX PX SBITOP dec05 mar06 june06 sept06 dec06 mar07 june07 sept07 dec07 mar08 june08 sept08 dec08 mar09 june09 sept09 dec09 mar10 june10 sept10 dec10 mar11 june11 The PX reached 1, points by 30 June 2011, i.e. was up 0.05% versus year-end On 30 June 2011, the SBITOP was 12.7% lower than at year-end 2010 and closed at points.

3 Table of Contents CEE Stock Exchange Group The First Half of Four Stock Exchanges One Strong Alliance 4 Our Objectives and Joint Activities 5 One Data Feed, Nine Markets 6 Index Portfolio 7 Budapest Stock Exchange Hungary: Macroeconomic Outlook 8 Current Developments on the Capital Market 11 Key Figures of the Budapest Stock Exchange 13 The Largest Companies on the Budapest Stock Exchange 14 Ljubljana Stock Exchange Slovenia: Macroeconomic Outlook 16 Current Developments on the Capital Market 19 Key Figures of the Ljubljana Stock Exchange 21 The Largest Companies on the Ljubljana Stock Exchange 22 Prague Stock Exchange Czech Republic: Macroeconomic Outlook 24 Current Developments on the Capital Market 27 Key Figures of the Prague Stock Exchange 29 The Largest Companies on the Prague Stock Exchange 30 Vienna Stock Exchange Austria: Macroeconomic Outlook 32 Current Developments on the Capital Market 35 Key Figures of the Vienna Stock Exchange 37 The Largest Companies on the Vienna Stock Exchange 38 1

4 Petr Koblic (Prague), Michael Buhl and Heinrich Schaller (Vienna), György Mohai (Budapest) and Andrej Šketa (Ljubljana) 2

5 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna The First Half of 2011 Intensive work on several long-term projects In 2010, the CEE Stock Exchange Group (CEESEG), which comprises the exchanges of Budapest, Ljubljana, Prague and Vienna, successfully completed a number of major long-term projects. These included the establishment of the central holding company, CEESEG AG, the bundling of data vending operations for all Group members into the ADH data feed of the Vienna Stock Exchange, and the implementation of the Xetra trading system in use at the Vienna Stock Exchange since 1999 at the Ljubljana Stock Exchange. The first six months of 2011 were dedicated to preparations to further the Group's integration. One of the long-term projects we worked on in the first half of 2011 was cross membership which will make access for national and international trading members to the four local markets easier. New members will benefit from simpler and uniform trading conditions on the exchanges of CEESEG. A central element of this project is the Xetra implementation plan. The stock exchanges of Vienna and Ljubljana where Xetra is already in operation will be the first ones to commence with cross membership. Highlights from Budapest, Ljubljana, Prague and Vienna Numerous projects were successfully completed at each of the four member exchanges: After an excellent year in terms of listings in 2010, the Budapest Stock Exchange (BSE) saw three new listings in the first half of 2011: On 15 February, it launched trading in the ordinary shares of Plotinus Plc in the B Category of the Equities Section. Also in the first half of 2011, Visonka and Biomedical Computer Technologies joined the Budapest Stock Exchange. After implementing the Xetra trading system in December 2010, the Ljubljana Stock Exchange (LJSE) moved into the focus of international market participants and three new international trading members joined direct trading on the LJSE. The Slovene capital market is thus clearly profiting from its integration into the CEE Stock Exchange Group. Another highlight at the LJSE in the first half of 2011 was the 28 th Ljubljana Stock Exchange Conference that took place on 26 and 27 May 2011 in Portorož. In May 2011, two new bond issues were admitted to the Free Market of the Prague Stock Exchange (PSE): the municipal bond of the Capital City of Prague and the first corporate bond of CETELEM ČR, a.s. Also in May, the PSE successfully commenced trading in the new issue of New World Resources Plc after the company's reincorporation. The first day of listing of Austria Metall AG (AMAG) on the prime market of the Vienna Stock Exchange was on 8 April AMAG represents one of the largest public offerings on the Vienna Stock Exchange in terms of issuing volume and also marked the first IPO in Vienna since the outbreak of the financial and economic crisis. Additionally, IPO workshops for listing candidates are fully booked which reveals rising interest in a going public on the Vienna Stock Exchange. Current economic environment After years of crisis and volatility, it is quite surprising how resilient international capital markets have proven to the global developments in the first half of 2011, e.g. the nuclear desaster in Japan, the political upheavals in the Arab world that sent oil prices soaring, the ongoing sovereign debt crisis in the euro zone, the financial bailouts for Ireland and Portugal and the possible credit downgrading of the US. Neither was inflation, though slightly on the rise, much of an issue in the developed countries. In 1H 2011 the economy and, consequently, the financial markets continued their recovery quite unimpressed by all these global events. Especially the CEE equity markets achieved a more robust and stable performance than international equity markets. However, many long-term problems have not been solved yet and the critical issues for markets will remain the debt crisis as can be seen by the most recent developments on international capital markets in summer 2011, the sustainability of economic recovery and the magnitude of further inflationary tendencies in the coming months. 3

6 Four Stock Exchanges One Strong Alliance The CEE Stock Exchange Group comprises the four stock exchanges of Budapest, Ljubljana, Prague and Vienna. CEESEG is the largest group of exchanges in the Central and Eastern European region. The primary goal of the Group is to improve liquidity on the member stock exchanges by providing easier access to the local markets and products. The management board of the Vienna Stock Exchange presides over both companies, Wiener Börse AG (runs the Vienna Stock Exchange) and CEESEG AG. At a meeting of the supervisory board of CEESEG AG in March 2011, the unanimous decision was taken to prolong the contracts of the members of the management board, Michael Buhl and Heinrich Schaller, for a further period of office of five years, i.e., until June The holding company CEESEG AG The four stock exchanges are equal subsidiaries of the central holding company, CEESEG AG, which is responsible for the Group's strategic and financial management as well as for the administration of the subsidiaries. The business operations of the four regional markets are run by the member exchanges under their independent management. Therefore, the organizational structure of the CEE Stock Exchange Group combines the benefits of the home market principle listed companies continue to profit from wider recognition and heightened media interest in their own countries and the requirements of the internationalized capital markets. Holding company CEESEG AG* 50.45% 81.01% 92.74% 100% Budapest Stock Exchange Hungary Ljubljana Stock Exchange Slovenia Prague Stock Exchange Czech Republic Vienna Stock Exchange Austria 46.67% 11.90% 100% 33.33% 100% 100% 100% 50% 25.12% 20% 10% 5% KELER 74.5% KELER CCP CSD Prague PXE CCP CCC Energy Clearing Counterparty CCP.A EXAA CEGH APCS CISMO 33.33% 33.33% * Ownership structure: 52.59% Austrian banks, 47.41% issuers of the Vienna Stock Exchange 4

7 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Our Objectives and Joint Activities At the international level, CEESEG coordinates joint measures to increase the visibility of the four markets and to acquire professional market participants such as data vendors, index licensees, institutional investors and trading participants for the member stock exchanges. Hungary 2.8% Switzerland 3.5% Norway 4.1% Germany 4.3% France 4.3% Netherlands 2.5% USA 34.5% The four partner exchanges have already finalized a number of short-term and medium-term projects, such as the implementation of the Xetra trading system which has been in use at the Vienna Stock Exchange since 1999 at the Ljubljana Stock Exchange in December Budapest and Prague are also scheduled to change over to the Xetra system. Austria 10.1% Others 15.6%* UK 18.3% In the first half of 2011, we worked intensely on the implementation of several medium- to long-term projects which will advance the integration of the Group. The activities include the preparations to install Xetra at the stock exchanges of Budapest and Prague. In accordance with the Xetra implementation plan, a key element of our efforts is cross membership of national and international trading members. Cross membership involves the harmonization of all relevant membership contracts and the standardization of all trading rules (as far as legally possible). Furthermore, we are currently also evaluating the possibilities of setting up a common clearing system for all CEESEG members. Our goal is to harmonize the market segments, the general terms and conditions of business as well as clearing and settlement. Simplified access to the four stock exchanges will make it easier to acquire international trading participants and will also help to boost trading volumes and liquidity. Presence on all major financial markets * Among others, Poland (2.2%), the Czech Republic (1.4%), Slovenia (1.4%), Sweden (1.3%), Denmark (1.3%) Source: Ipreo, December 2010 The study highlights the importance of road shows to the major financial markets to achieve an international presence. Since 2003, the Vienna Stock Exchange has been organizing investor conferences jointly with banking partners and listed companies at all major financial centers of the world. The companies listed on the other CEESEG member exchanges have been participating in the road shows since the formation of the Group in In the first half of 2011, a total of five investor conferences took place in Tokyo, London, Paris, Stockholm and New York. 43 companies participated, and almost 250 meetings with approximately 170 investors were held. In the second half of 2011, the road show program will continue; it includes, among others, New York for a second time in this year, but also other major international centers such as Frankfurt. According to a study by the financial information provider, Ipreo, the top investors that own shares in the companies listed on the member exchanges of the CEE Stock Exchange Group are primarily international institutional investors from the US (34.5%), UK (18.3%), Austria (10.1%), France and Germany (4.3% each). 5

8 One Data Feed, Nine Markets The CEE Stock Exchange Group provides professionally processed real-time price data and market depth data from the regional financial markets via the ADH data feed of the Vienna Stock Exchange. In 2010, the bundling of data dissemination for all CEESEG members was successfully completed. Vendors now have easy access to the market data of all four member exchanges of the CEE Stock Exchange Group: Budapest, Ljubljana, Prague and Vienna. n One data feed for nine markets saves time and money because it requires only one technical connection n Less administrative work and lower costs through onestop-shopping n Standardized data format The price data of five additional exchanges from the region of Central and Eastern Europe which cooperate with the CEE Stock Exchange Group Banja Luka, Belgrade (to be included shortly), Bucharest, Macedonia and Sarajevo have also been integrated into the ADH data feed. Thus, vendors are offered an easy access to the market data of nine CEE stock exchanges via a single access point. Additionally, the data of three power exchanges are also included: EXAA Energy Exchange Austria, CEGH Gas Exchange of the Vienna Stock Exchange and POWER EXCHANGE CENTRAL EUROPE in Prague. Poland Germany Czech Republic Ukraine Slovakia Austria Hungary Moldova Slovenia Romania Croatia Bosnia and Herzegovina Serbia CEE Stock Exchange Group Italy Montenegro Kosovo Macedonia Bulgaria Data vending and index cooperation Index cooperation Memorandum of Understanding (MoU) 6

9 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Index Portfolio The CEE Stock Exchange Group is well-known worldwide as the expert for indices with a reference to Central and Eastern Europe and the CIS (Commonwealth of Independent States). At present, it calculates and disseminates some 60 indices that represent the national, regional and sector-specific developments in CEE and CIS. Within the CEE Stock Exchange Group, this task is carried out by the Vienna Stock Exchange, which has worked in the area of index licensing for many years and has gained a solid position as a global player based on its index expertise. Broad range of indices On the day of the official start of the CEE Stock Exchange Group two Group indices were launched: the CEETX, a tradable index composed of the 25 most actively traded stocks with the highest market capitalization of the member exchanges, and the CEESEG Composite Index made up of the stocks of the four leading indices of the member exchanges (ATX, BUX, PX and SBITOP) that tracks the development of the capital markets of the Group and also serves as a benchmark. The CEE Stock Exchange Group specializes in index calculation for the markets of Austria, Eastern and Southeast Europe as well as Russia. Overall, the CEE Stock Exchange Group covers 15 markets with its range of indices and is globally the most widely recognized index provider for the region. Apart from the national and regional indices, sector indices are calculated as well as theme and style indices (e.g. fundamental indices, short indices, total return indices, dividend point indices etc.). In-depth information The performance of the indices of CEESEG can be viewed at For professional market participants, the Internet platform also offers extensive information on the indices such as index adjustments, index committee decisions, watchlists and a trading calendar. n 60 indices from a single source n Globally recognized as an expert for CEE and CIS indices n Comprehensive know-how of regional capital markets n Attractive underlyings for structured products Underlyings for structured products with a reference to CEE A total of around 135 issuers use the indices calculated and disseminated by the CEE Stock Exchange Group as underlyings for certificates, warrants, ETFs (exchange-traded funds) and other structured products. Worldwide, a major part of all structured products with a CEE reference is based on these indices. 7

10 Hungary: Macroeconomic Outlook The recovery of the Hungarian economy after the crisis gathered momentum in the first quarter of 2011, following the phase of lower GDP growth in the previous year. However, the latest macroeconomic data released (both global and domestic) are pointing toward a slowdown, making it necessary to revise the recent growth forecast. Country at a glance Official Language Capital Area Hungarian Budapest 93,036 sqkm Population* 9,986,000 (2011) Nominal GDP* EUR 98,445.8m (2010) GDP per Capita in PPS (EU-27 = 100)* Currency Time Zone Internet Suffix 64 (2010) 1 Forint = 100 Fíller UTC+1 CET UTC+2 CEST (March to October).hu Country Code +36 * Source: Eurostat Economic outlook After real GDP increased by 1.2% in 2010, the economy is expected to grow 2.0% in The 2Q 2011 preliminary GDP figure (+1.5% y/y, 0.0% q/q) missed our expectations. It may be assumed that industrial production contributed negatively to growth on a quarterly basis, while construction may also have posted a negative figure. As for the outlook, the investments announced in the car manufacturing industry are a positive signal for coming quarters, while, in the second half of this year, the inflationadjusted yield (paid this summer to households that decided to return fully to the state pension pillar) may give a one-off boost to consumption. However, the worsening outlook in the exporting industry and the strong Swiss franc more than offset the positive factores mentioned. In light of the latest economic releases and deteriorated outlook, we now forecast 2.2% growth for Real GDP (growth y/y %) f 2012f In 2010, the trade surplus came in at 5.6% of GDP and net income outflow slightly increased compared to 2009, translating into a current account surplus of 2.0% of GDP. In the first few months of 2011, trade balance figures mostly exceeded forecasts. Even in the case of a considerable slowdown in the markets of Hungary's export partners, the trade balance may show a hefty surplus, as in this case, a significant slowing of import dynamics may also be expected. For the full year, the trade balance may be even better than in The current account is forecasted to show a surplus of 2.1% of GDP in Due to the funds from the European Union, the net financing position should be even higher this year, and should remain very strong in 2012 as well. 8

11 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Economic and fiscal data f 2012f Real GDP (growth y/y %) Fixed capital formation (growth y/y %) Private consumption (growth y/y %) Trade balance (% of GDP) Current account balance (% of GDP) CPI (average % y/y) Unemployment (%) General budget balance (% of GDP) Public debt (% of GDP) Foreign debt to GDP (%) Industrial production (y/y %) Retail sales (growth y/y %) LCY/EUR average LCY/USD average Source: Erste Group After unemployment peaked at 11.1% on average in 2010, we expect a gradual improvement on the labor market. Nevertheless, the improvement is not expected to be very fast, also due to the government's recent program (the so-called Széll Kálmán package) that is planned to stimulate the supply side of the labor market. Thus, the activity rate is expected to increase, while the decrease of the unemployment rate could be slower. For full-year 2011, we estimate the unemployment rate to hit 10.8% on average. For 2012, we expect a decline to 10.3%. Since the beginning of the year, the improved risk assessment of Hungary helped the forint exchange rate and thus has had a positive impact on inflation, whereas the cost shocks increased the headline CPI figure. After that, the last three inflation figures came in below expectations. However, the tension on international markets has increased recently. Global sentiment may remain fragile in the coming months, and therefore a rate cut in the very near future does not seem feasible to us. Thus, we stand by our forecast of an unchanged base rate for this year and anticipate a lower policy rate only in 2012 (from the current 6%). Fiscal outlook After the ESA deficit of the government reached 4.3% of GDP in 2010, we expect that there may be a strong surplus in Nevertheless, this year's budget figures are strongly influenced by one-off items. Thus, a considerable difference is expected between CF-based and ESA figures (due to the transfer of assets from private pension funds, the purchase of a stake in the oil and gas company MOL, the takeover of public transport companies' debts and cancellation of public-private partnership projects). The ESA figure may show a significant surplus, of 2.0% of GDP. However, in 2012, the cabinet needs to conduct the deficit cutting measures outlined in the Széll Kálmán plan and the Convergence Program. In addition, the recent signs of economic slowdown may require the government to carry out additional deficit decreasing measures in the magnitude of HUF 100bn (around 0.3% of GDP) as well. Equity market outlook The Hungarian stock market returned to normal mode in the first half of this year. Lower fluctuations and (mainly) range trading 9

12 were observed. At the same time, investors' market activity also declined. The newly introduced taxes a special banking tax, crisis taxes and the reform moves to cut costs did not help the performance of listed corporations. Budget balance & public debt (% of GDP) The ongoing reform steps defined in the Széll Kálmán plan are a very important driver for the Hungarian market. If the reforms are carried out successfully, the special taxes would be abolished, or in the case of banks reduced significantly from This would result in a jump in the profits of major companies listed on the BSE, while bond yields would continue to decline f 2012f Budget balance Public debt Current account balance (% of GDP) Inflation outlook & unemployment f 2012f CPI (average y/y %) Unemployment f 2012f These two factors would increase the valuation of the market, which might even be reflected in advance perhaps by one year (of course, this depends on foreign economic developments as well). The shares transferred from the nationalized private pension funds might cause some pressure on certain securities (especially smaller ones), but the state promised that it would sell the stock on the market carefully, if such selling were to become necessary at all. Comparing the i.e. P/E valuation of the Hungarian market to more developed ones, it can be seen that, in absolute terms, the Hungarian one is undervalued by some 10% to 20%. Comparing the present valuation level of the BUX to historic levels, we see that the BUX is undervalued by some 30%. This comparison for more developed markets leads to some 50% to 60% undervaluation. Considering this fact, it is not a surprise that the BUX is a laggard compared to i.e. the DAX or Dow Jones Industrial Average. Erste Group Research Hungarian Research Team 10

13 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Current Developments on the Capital Market Leading index Performance 1H 2011 (30 Dec June 2011) 5-year-performance (30 June June 2011) Equity market capitalization (30 June 2011) Number of listed companies Number of trading members Number of securities (30 June 2011) BUX +6.56% +6.01% EUR 22.35bn equity market 54 bond market 118 structured products 44 Legal framework EU Capital Market Legisla tion, Code of Conduct according to OECD standards, BSE rules The Budapest Stock Exchange once again proved its success in attracting new issuers to the market in the first half of It seems that Hungarian small and mid-sized companies are really interested and willing to raise capital through the stock exchange now. Continuing the positive trend of last year, there were three new listings in the first six months: Plotinus, Visonka, and Biomedical Computer Technologies. In total, the new equity listings and issues increased market capitalization by EUR 35 million. Activity in new corporate bond issues has become livelier as well. Three companies Alteo, Appeninn and Btel are planning to launch a corporate bond issuance program this year. As regards trading members, one new remote member, Goldman Sachs, joined trading in the debt securities section in January A look at market performance shows that the Hungarian official index, BUX, outperformed Europe and the region in general in BUX was up 6.56% by the end of the period compared to the beginning of Unlike the positive developments in new listings and issues on the stock exchange, the trading volumes declined in the first half of 2011 both on the cash and on the derivatives market. This is very likely a consequence of the global economic uncertainty and the consolidation measures of the Hungarian government. Trading volume on the cash market dropped 39.4% and the decline on the derivatives market was 35.9%. A share of 60.5% of the total turnover is generated on the cash market, while the share accounted for by the derivatives market increased slightly by 1.4 percentage points. The equity market concentration is still high: Five blue chips account for 97% of turnover. These blue chips are Egis, MOL, MTelekom, OTP, and Richter. However, the popularity of certificates is growing as a result of the educational activities of the Budapest Stock Exchange and the continuously widening product range. Certificates account for 1.6% of the trading volume in the equities section (includes equities, investment fund shares, compensation notes and certificates), while the figure was 1.0% for 1H

14 Even if trading activity has been on a decline, foreign investors are demonstrating sustainable interest in the domestic market. Their market share on the equity market in terms of turnover reached 46.4% on average in the first five months 2 of 2011 compared to 40.2% in This figure is also higher than before the onset of the crisis. The percentage of domestic retail investors dropped back to pre-crisis levels and accounted for 26.1% on average in the first five months. There has been no significant change in the market share of proprietary trading and institutional investors; however, both are characterized by a slight decline. Regarding equity market capitalization, the total amount owned by institutional investors decreased 3 but the market share of Hungarian institutions grew by 2 percentage points. 2 Statistics were only available for the first five months at the time this analysis was prepared compared to 2009 based on the IPREO study. 12

15 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Key Figures of the Budapest Stock Exchange Equity market capitalization 2006 to 1H 2011 In the first half of 2011, equity market capitalization increased by 8.4% compared to year-end The rise was driven mainly by the rally in OTP stocks and the listings of three new companies. Growth is even higher if one takes the 5% appreciation of the domestic currency versus the euro into account New share issues 2006 to 1H 2011 Three new companies, Plotinus, Visonka and Biomedical Computer Technologies chose the Budapest Stock Exchange for raising capital by a total of EUR 11.9 million. Their shares are now traded in the B equity category. No shares were delisted from the BSE in this period. Capital increases by BSE listed companies raised market capitalization by a total of EUR 23 million in the first half of , (in EUR bn / Source: FESE) 1H Domestic equity trading 2006 to 1H 2011 After an increase in 2010, the turnover on BSE's cash market dropped significantly in the first six months of this year due to the global economic uncertainty and the consolidation measures of the Hungarian government. The EUR billion figure for cash market trading is 39.4% lower than the previous year's figure. In the first half of 2011, the traded value of the popular and quickly developing product of certificates already exceeded 57.8% of the value of transactions concluded in (in EUR m / Source: Budapest Stock Exchange) Initial public offering Capital increase Secondary public offering Technical listing 1H 2011 Trading volume of national and international members 2006 to 1H 2011 In the first half of 2011, the activity of both national and international trading members decreased significantly. In terms of breakdown, domestic trading members continued to play a key role on both the cash market and the derivatives market. Their share decreased slightly accounting for 89.6% of total trading volume in the first half of H 2011 (in EUR bn, double count / Source: FESE) H (in % / Source: Budapest Stock Exchange) International National

16 The Largest Companies on the Budapest Stock Exchange The BUX index is made up of the most actively traded blue chips of the Budapest Stock Exchange. Although three companies have joined the BSE as new listings in 1H 2011 and investors can now trade in the stocks of 54 companies, BSE is still a highly concentrated equity market. The market capitalization of the top five companies exceeds 88% of total market capitalization. In terms of trading volume, the top five blue chip companies account for 97% of total trading volume. This market concentration can be explained in part by the fact that the largest blue chip companies listed on the BSE are not only the key players of the Hungarian economy, but also among the most liquid stocks of the CEE region. Business segment: Pharmaceutical Market capitalization: EUR m Free float: 43.33% ISIN Code: HU Bloomberg: EGIS HB Reuters: EGIS.BU IR Officer: László Csány Business segment: Pharmaceutical Market capitalization: EUR 2,540.45m Free float: 54.42% ISIN Code: HU Bloomberg: RICHT HB Reuters: GDRB.BU IR Officer: Katalin Ördög The BUX includes the following companies: n CIG Pannonia Life Insurance Plc n EGIS Plc n E-Star Plc n EST MEDIA Plc n FHB Mortgage Bank Co Plc n Fotex Holding SE n Gedeon Richter Plc n Magyar Telekom Plc n MOL Plc n Orco Property Group n OTP Bank Plc n PannErgy n RÁBA Automotive Group The following profiles focus on the five companies of the BUX with the highest market capitalization. EGIS Plc Egis is one of the leading generic pharmaceutical companies in Central and Eastern Europe with a high level of competence in the development, manufacture and marketing of branded generic drugs. The drugs are used in human therapies primarily related to cardiovascular diseases, and those of the central nervous system and the respiratory system. Its products are sold in 63 countries, predominantly in CEE and CIS where the company has established a strong marketing presence. The majority shareholder (51%) and strategic partner of Egis is the French research pharmaceutical company Servier. Gedeon Richter Plc Founded in 1901 by Gedeon Richter, the production facility was transformed into a limited liability company in Since 1997, it has been the largest domestic drug manufacturer. Its main activity is the manufacturing and distribution of active ingredients and generic pharmaceuticals. Richter has now grown into a multinational company of the Central and Eastern European region and its products are sold in nearly one hundred countries worldwide. 14

17 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Business segment: Telecommunications Market capitalization: EUR 2,312.32m Free float: 40.79% ISIN Code: HU Bloomberg: MTEL HB Reuters: MTEL.BU IR Officer: Szabolcs Czenthe Business segment: Oil and gas Market capitalization: EUR 8,263.58m Free float: 52.51% ISIN Code: HU Bloomberg: MOL HB Reuters: MOLB.BU IR Officer: Richárd Benke Business segment: Universal banking services Market capitalization: EUR 6,288.17m Free float: 74.12% ISIN Code: HU Bloomberg: OTP HB Reuters: OTPB.BU IR Officer: Sándor Pataki Magyar Telekom Plc Magyar Telekom is Hungary's principal provider of telecom services. It provides a full range of telecommunications and ICT services including fixed line and mobile telephony, data transmission and non-voice as well as IT and systems integration. Magyar Telekom is the majority owner of Makedonski Telekom, the leading fixed line and mobile operator in Macedonia and it holds a majority stake in Crnogorski Telekom, the leading telecommunications operator in Montenegro. MOL Plc MOL is a leading oil and gas company in Central Europe. MOL has exploration and production activities in 14 countries, operates five refineries, two petrochemical units and a modern retail network that relies on an optimized supply chain. MOL is active in gas transmission through FGSZ as independent operator and gas storage. MOL is committed to maintaining and improving the efficiency of its existing portfolio with the aim of ensuring high returns for shareholders. OTP Bank Plc Established in 1949, it remained the only retail bank until Today, it is the largest universal bank in Hungary and a major financial services provider in Central and Eastern Europe with majority holdings in Bulgaria, Russia, Ukraine, Croatia, Romania, Serbia, Slovakia and Montenegro. Its strategically important domestic subsidiaries include OTP Mortgage Bank (the largest Hungarian mortgage credit institute), Merkantil Group (leasing), OTP Real Estate Ltd., OTP Lakástakarékpénztár (savings and loans), OTP Factoring Ltd. and OTP Fund Management Ltd. 15

18 Slovenia: Macroeconomic Outlook Although economic growth in Slovenia is still export-driven and present government measures aimed at fiscal consolidation raise doubts if deficit targets will be met, the Slovene capital market may be viewed as a high opportunity financial market at still moderate valuations. Country at a glance Official Language Capital Area Slovene Ljubljana 20,273 sqkm Population* 2,050,189 (2011) Nominal GDP* EUR 35,973.8m (2010) GDP per Capita in PPS (EU-27=100)* Currency Time Zone Internet Suffix 87 (2010) 1 Euro = 100 Cent UTC+1 CET UTC+2 CEST (March to October) Country Code +386 * Source: Eurostat.si Economic outlook In the first quarter of 2011, the economy grew by 2.0% y/y, with export demand remaining the most important factor for GDP growth. Exports of goods and services grew by 10.6% in real terms and therefore slightly enhanced the growth dynamics compared to previous quarters. Import growth also accelerated (+11.1% compared to the first quarter of 2010). The government has prepared a set of measures to improve public finances, and expects the economy to grow by 2.2% this year, up from 1.2% in However, consolidation may result in somewhat weaker economic growth by restricting government expenditure on investments and consumption. 5.8 Real GDP (growth y/y %) f 2012f The composition of growth is currently not ideal. Exports clearly dominate while domestic demand and investments lag behind. Slovenia's main trading partner is Germany and the robust German recovery helped export developments in Slovenia. On the other hand, rising unemployment rates as well as the fact that households are postponing purchases are factors preventing domestic demand from supporting growth. Our outlook for household consumption remains cautious and we only expect a very moderate improvement in 2011 with a continued slow rise in 2012 towards 2% y/y. 16

19 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Economic and fiscal data f 2012f Real GDP (growth y/y %) Nominal GDP (EUR bn) Current account balance (% of GDP) CPI (average y/y %) Consumer prices (eop y/y %) Producer prices (average y/y %) Unemployment (%) General budget balance (% of GDP) Public debt (% of GDP) Industrial output (y/y %) Nominal industrial wages (y/y %) Official FX reserves (EUR bn) EUR/LCY (average)* USD/LCY (average)* EUR/USD (average) * Euro zone entry on 1 January 2007 Source: Thomson Reuters, wiiw, Raiffeisen Research Fiscal outlook With the recession, the entailing rise in unemployment and the accompanying negative effects, the budget deficit rose from 0.3% in 2008 to 5.5% in 2009 and to 6.0% in For 2011, the government is targeting a deficit of 5.5% of GDP, but the chances are that the deficit will be higher, possibly around 6%. The goal is to reduce the budget deficit to the Maastricht criteria of 3% of GDP by the end of But given the current developments, our assumptions for deficit figures are closer to 4.5% by year-end 2013 unless there is further fiscal consolidation. Public debt levels increased at the same time from 22.5% of GDP in 2008 to 38.5% in We expect public debt figures to continue moving towards 50% of GDP in 2013 while the government plans to keep public debt below 45% of GDP. In order to reach this goal it would, however, need to enforce fiscal consolidation something which has not been done in an adequate manner up to now in our view. Slovenia also still controls 44% of the Slovenian banking sector as the state retained control over its two largest banks. Given the capital needed, debt repayments and the necessity to inject capital, privatization could be on the agenda going ahead. Moody's downgraded Slovenia's three largest banks in June due to ongoing pressure and refinancing needs Budget balance & public debt (% of GDP) Budget balance Public debt f 2012f

20 The government has to take steps to consolidate public finances after the population rejected a pension reform plan in a referendum at the beginning of June. Slovenians voted against a gradual rise in the national retirement age, which the government said was necessary to ensure the long-term stability of public finances. In the same referendum, voters also rejected a law designed to combat undocumented labor and another on keeping part of Communistera secret service files closed to the public. Current account balance (% of GDP) In early May, the government lost its majority in parliament when a junior coalition party, the Democratic Party of Pensioners of Slovenia (DeSUS), left the coalition amid disagreement over pension reforms. In June, the second coalition partner, the Zares party, quit over a number of issues including early elections. Without Zares and DeSUS, Pahor's government now has support from just 33 MPs in the 90-seat parliament. The government is considering a special law to limit public spending and a revision of the 2011 budget plan to ensure stability. It is also planning spending cuts by trimming down the number of ministries, launching a massive reduction of expenditures and pushing through wage cuts for all public servants in an attempt to bring its budget deficit down. The current negative outlook on Slovenia's ratings reflects the possibility of a downgrade should the state fail to stabilize the debt burden. Equity market outlook f 2012f On CEE and SEE equity markets, the first half 2011 was influenced by the flare up of the European debt crisis again (chiefly Greece). Besides the wrangling between politicians and the ECB, the nerves of international investors were increasingly rattled, above all, because of the reactions of the Greek trade unions and the population as well as due to the internal political pressure on Prime Minister Papandreou. Generally speaking, we assume that the short-term solution found to the problem (new loans for Greece), should be sufficient to calm the equity markets again. Taking a longer-term view though, we expect the sovereign debt issue to remain extremely difficult to resolve and it will keep cropping up in some shape or form. However, we are confident for the second half 2011 on account of the emerging political solution and the improving global economy. Accordingly, we expect quite good performance for the equity markets in the region, which should be able to slightly outperform the established markets in With a market capitalization of EUR 6.09 billion at the end of June 2011, the Ljubljana Stock Exchange is small in international comparison but can be described as a high opportunity financial market, with a high risk-return profile. The growing confidence in the wake of the economic recovery is increasingly being reflected in more portfolio investments by non-resident investors who wish to position themselves in a market with good opportunities but also higher volatility. This resulted in higher trading volumes: Inflation outlook & unemployment f 2012f In 1H 2011, average daily turnover grew (from EUR 1.96 million in the year 2010) by 14.6% to EUR 2.25 million. Further support should also come from the still moderate valuation. At a P/E ratio of 12.5 (based on aggregated corporate earnings estimates for 2011) and a P/B ratio of 0.85, the SBITOP does not need to shy from any comparison with other international indices. In general, we expect to see positive developments on the Ljubljana Stock Exchange for the rest of the year, as economic recovery should spur increasing confidence among international investors and lead to higher flows of foreign capital into the country. 9.2 Martin Stelzeneder and Aaron Alber, Raiffeisen Research, Raiffeisen Bank International CPI (average y/y %) Unemployment

21 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Current Developments on the Capital Market Leading index Performance 1H 2011 (30 Dec June 2011) 5-year-performance (30 June June 2011) Equity market capitalization (30 June 2011) Number of listed companies Number of trading members Number of securities (30 June 2011) SBITOP % % EUR 6.09bn equity market 73 bond market 77 structured products 5 Legal framework EU Capital Market Legislation, Code of Conduct according to OECD standards, LJSE rules In the first half of 2011, the Ljubljana Stock Exchange (LJSE) continued to face the challenges of modest liquidity, falling stock prices and the resulting low market capitalization. The crisis that erupted in 2008 has transformed the overall business environment, and despite the improved results reported by companies in 2010, LJSE investors remain reserved. A further sign of this sentiment is reflected in the decline of the LJSE benchmark index, SBITOP, which dropped 12.71% in 1H The LJSE has long been investing efforts into stimulating market activity. After having migrated to the international trading system Xetra at the end of 2010, it admitted new remote trading members to LJSE membership. Four international trading members are now trading on the LJSE market as of 30 June 2011: ecetra Central European e-finance AG, Raiffeisen Centrobank AG, KBC Securities NV and Erste Group Bank AG. In 1H 2011, these trading members accounted for over 6% of the total trading volume generated by LJSE member firms. The overall LJSE trading volume has increased by 5%, whereby equity trades were up 21% and Prime Market transactions increased by as much as 31% over 1H The greatest surge was seen in the shares of foreign investors' dealings in LJSE Prime Market equities, which has expanded from 18% to 45% over the past four years. There were seven new bond listings in 1H 2011 and one equity listing (ALTA Skupina, d. d.). The LJSE also witnessed four capital increases, including that of Prime Market bank Nova KBM, d. d. According to company projections, we will see more activity in the area of capital increases in 2H 2011, and especially in the coming years. This year, the LJSE has been actively pursuing the strategy to promote the Slovenian capital market jointly with Prime Market companies. The crisis that hit the markets in 2008 has transformed corporate financial reality, and companies are still struggling to raise funds on the international markets. By taking part in various domestic and international events, we are increasing the visibility of the Slovene capital market and of our top listed companies. To consolidate our profile in the region and give new momentum to the campaign to encourage cooperation among the stock exchanges of Southeast Europe, the LJSE entered into another Memorandum of Partnership with the Belgrade SE, Skopje SE and Zagreb SE. 19

22 In 1H 2011, the LJSE hosted the following events: n In April, the LJSE and KDD held the 6 th Slovene Capital Markets Day in Ljubljana. Nine companies presented their stories of future growth and subsequently their management boards were available to investors for specific questions. The event was a great success, with a turnout of 150 investors and 76 one-on-one meetings by companies with 13 domestic and two foreign institutional investors. n On 3 May, the LJSE partnered with Wood & Co in holding a road show in Stockholm for Scandinavian investment funds looking to invest into the wider SEE region. With a large investor turnout, 3 Slovene companies met 11 institutional investors and held 22 meetings. n On 1 June, the LJSE hosted its second online investor conference webcast. The participating Prime Market companies were: retailer Mercator, energy distributer Petrol, appliance maker Gorenje, bank Nova KBM and insurer Zavarovalnica Triglav. The online event had a very good turnout, attracting twice as many listeners as the 2010 webcast. It was distributed live to some 80 investors, over one-third of which were non-slovene (most were German, English, American and Croatian). Over the past months since the live event, the total number of online visitors has nearly doubled, as additional visitors, who are mainly foreign investors, view the company presentations on demand. n On 26 to 27 May, the LJSE held its annual this year its 28 th Ljubljana Stock Exchange Conference, which is traditionally the get-together event for all capital market participants. The LJSE Conference has become the central financial event in Slovenia and is the meeting point for prominent figures from Slovenia's financial and business community. The discussions at the Conference before an audience of 250 participants included the topics of investment strategies and opportunities, pension systems and related trends in Europe, Slovenia's financial stability, corporate governance of the future, deleveraging companies, and much more. Looking Ahead The LJSE projects and activities planned for 2H 2011 will give the capital market strategy additional momentum and help improve LJSE services, thus encouraging development and better support for the future privatizations, IPOs and the raising of new capital. LJSE's key activities planned for 2H 2011 include: n Enhancing liquidity on the LJSE market through increased international visibility, international marketing and sales of products, data and indices, and by attracting new remote members to join the LJSE; n Improving LJSE services (trading hours prolonged to 5 p.m.); n Partnerships with trading members and listed companies (implementation of the capital market strategy, introduction of P accounts, the 3 rd pillar of the pension system, and support for privatizations and IPOs); n Further alignment and integration into the CEE Stock Exchange Group (C&S, cross membership). 20

23 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Key Figures of the Ljubljana Stock Exchange Equity market capitalization 2006 to 1H 2011 Total LJSE equity market capitalization was EUR 6.09 billion at the end of June 2011, having been driven down mainly by declining prices New share issues 2006 to 1H 2011 The adverse market situation was one of the key reasons for the low rate of capital increases in 1H 2011 (EUR 131 million). Aside from the listing of the financial group ALTA Skupina, new listings in 1H 2011 also included bonds with a total nominal value of EUR 3.07 billion. The LJSE also witnessed four capital increases in 1H 2011, including that of Prime Market bank Nova KBM, d. d ,019 2, H 2011 (in EUR bn / Source: FESE) Domestic equity trading 2006 to 1H 2011 The domestic equity trading volume recorded in 1H 2011 amounted to EUR 455 million, with the total LJSE trading volume (including bonds and investment funds) amounting to EUR 557 million. This translates into an average monthly trading volume of EUR 93 million. Total trading volume without blocks amounted to EUR 334 million. The larger share of trading volume was generated by equity trades (82%), while bonds and investment funds contributed a further 13% and 5%, respectively. The LJSE Prime Market currently lists eight Slovene blue chips, which accounted for 86% of the equity trading volume in 1H The most actively traded stock on the Prime Market in 1H 2011 was Krka, which stood for 42% of all equity trades; the other two largest contributors to equity trading were Mercator, which generated 18% of all equity trades, and Petrol, which contributed a further 9% Trading volume of national and international members 2006 to 1H 2011 The major share of LJSE trading volume in 1H 2011 was generated by domestic members, which executed some 94% of all trades (in June 2011, the LJSE had 22 domestic members and four international remote members) (in EUR m / Source: Ljubljana Stock Exchange) Initial public offering Capital increase Secondary public offering Technical listing * There were no IPOs, SPOs and capital increases in * H H 2011 (in % / Source: Ljubljana Stock Exchange) International National H 2011 (in EUR bn, double count / Source: FESE) 21

24 The Largest Companies on the Ljubljana Stock Exchange The SBITOP is the Ljubljana Stock Exchange blue chip index. Its basket currently includes the following companies: n Gorenje n Krka n Mercator n Nova KBM n Petrol n Telekom Slovenije The following profiles focus on the five companies most representative of the SBITOP. Business segment: Home appliances Market capitalization: EUR m Free float: 59.0% ISIN Code: SI Bloomberg: GRVG SV Reuters: GORE.LJ IR Officer: Bojana Rojc Business segment: Pharmaceutical Market capitalization: EUR 2,125.57m Free float: 70.0% ISIN Code: SI Bloomberg: KRKG SV Reuters: KRKG.LJ IR Officer: Peter Skubic Gorenje Krka The Gorenje Group is a leading European manufacturer of home appliances. It supplies technologically perfected, superiorly designed and energy-efficient home appliances under the brands Gorenje, Gorenje+, Atag, Asko, Pelgrim, Mora, Upo, Etna, Körting and Sidex to users in 70 countries around the globe. The Group's portfolio is rounded off by kitchen and bathroom furnishings and other home products. It is also active in the field of environmental protection and energy management. Krka is one of the world's leading generic pharmaceutical companies with over 50 years of experience in the industry. Krka has a strong presence in Southeast Europe and CEE. In recent years, Krka has been building its presence in Western Europe. Krka offers customers in over 70 countries a broad range of safe, high quality and effective prescription pharmaceuticals and self-medication products supplemented by animal health, cosmetic products and health and tourism services. 22

25 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Business segment: Retail Market capitalization: EUR m Free float: 55.0% ISIN Code: SI Bloomberg: MELR SV Reuters: MELR.LJ IR Officer: Dean Cerin ˇ Business segment: Banking Market capitalization: EUR m Free float: 49.0% ISIN Code: SI Bloomberg: KBMR SV Reuters: NKBM.LJ IR Officer: Darko Kovacic ˇ ˇ Business segment: Energy Market capitalization: EUR m Free float: 66.0% ISIN Code: SI Bloomberg: PETG SV Reuters: PETG.LJ IR Officer: Barbara Jama Živalicˇ Mercator Mercator Group is one of the largest retail chains in the region of Southeast Europe, the leading retail chain in Slovenia and Montenegro, and an increasingly important player in the markets of Serbia, Croatia, Bosnia and Herzegovina, Albania and Bulgaria. In all these growing markets, Mercator is aiming to become the first or second-largest fast-moving consumer goods (FMCG) retailer by operating retail units in the capitals and regional centers of each market. Mercator's vision is to be the consumers' first choice when shopping for fast-moving consumer goods and home products. Nova KBM Nova KBM is one of the largest Slovene financial groups. Banking is its core activity. Other financial services of the Group include insurance, investment funds and pension funds, leasing and real estate services. Nova KBM is a universal bank that offers customers the full range of banking products, with an especially strong position in retail banking. The Nova KBM Group has 13 subsidiaries in Austria, Croatia, Serbia and Slovenia and approximately 100,000 shareholders. Petrol Petrol is the largest Slovene energy company. The Petrol Group is present in ten countries and has a broad network of 442 service stations in Southeast Europe. It is the market leader in petroleum product sales in Slovenia, holding a 60% market share in service stations, with merchandise sales accounting for a significant portion of its revenues. The Group is also active in the fields of gas, electricity, environment care, and other energy sources, including renewable energy. By specializing in the full range of energy and environmental products and services, Petrol provides its customers with reliable, economical and environmentally-friendly services. 23

26 Czech Republic: Macroeconomic Outlook Restrictive austerity measures to decrease the fiscal deficit are still slowing down the economy in the Czech Republic. Growth forecasts are more optimistic for The essentially defensive PX can still be seen as a save harbor. Sound fundamentals, high dividend yields and the 2011e earnings growth should, among others, contribute to a gentle upward movement. Country at a glance Official Language Capital Czech Prague Area 78,866 sqkm (2009) Population* 10,532,770 (2011) Nominal GDP* EUR 145,049.4m (2010) GDP per Capita in PPS (EU-27 = 100)* Currency Time Zone Internet Suffix 80 (2010) 1 Czech Koruna = 100 Haler UTC+1 CET UTC+2 CEST (March to October) Country Code +420 * Source: Eurostat.cz Economic outlook Growth in 1Q 2011 was driven by exports, and also (in y/y terms) by gross fixed capital formation; the other components of aggregate demand declined. For the full year 2011, we expect government consumption to be negative at -1.0% and household consumption to grow marginally to 0.5%, while the growth drivers should be gross fixed capital formation (2.0%) and exports (we expect 11.0% export growth and just 9.8% import growth). The growth of the economy is moving slowly, with fiscal austerity causing deceleration. We are, however, more optimistic when it comes to We expect economic growth to be not only slightly faster, but also more balanced. Aside from exports, growth will also be driven by the acceleration of gross fixed capital formation and private consumption. Government consumption will continue to bog down the economy, but the degree of fiscal restriction will decrease. Real GDP (growth y/y %) f 2012f -4.0 The Czech Statistical Office is currently working on an extraordinary revision of the national accounts. The revision will improve the methods of accounting for imputed rents and shadow economy output, for example. Consequently, an increase in GDP (and hence of various ratios such as GDP per capita) is expected. The results of the revision will be published in September

27 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Economic and fiscal data f 2012f Real GDP (growth y/y %) Nominal GDP (EUR bn) Fixed capital formation (real y/y %) Private consumption (real y/y %) Trade balance (EUR m) 2,292 4,341 4,127 3,070 2,137 2,678 3,846 Current account balance (% of GDP) CPI (average y/y %) Consumer prices (eop y/y %) Unemployment (%) General budget balance (% of GDP) Public debt (% of GDP) Industrial output (y/y %) Official FX reserves (EUR bn) EUR/LCY (average) Source: Raiffeisen Research Fiscal outlook The Czech fiscal deficit reached 5.8% of GDP in the recession year of In 2010, the deficit was cut back to 4.7% of GDP, Budget balance & public debt (% of GDP) f 2012f Budget balance Public debt and the 2011 convergence program aims to decrease the fiscal deficit below the Maastricht threshold by According to government projections, the budget should be balanced by Public debt was stable at 30% of GDP before the recession. The developments since 2008 have shifted the ratio of public debt to GDP to 40%, and we expect the relative level of general government debt to grow slowly in 2012 and 2013 as well. The fiscal deficit after 2007 was caused not only by the recession but also by the tax cuts enacted in In 2008, when the economy was still growing, total tax revenues declined by 1.7% of GDP in comparison to the previous year; the further decline in tax revenues in 2009 by another 1.1% of GDP to 34.5% of GDP was caused by a combination of the effects of the recession and a temporary cut in social contributions (part of the fiscal stimulus program applied in 2009). In 2010, the Czech government had already started phasing out the fiscal stimulus, and the exit strategy was completed in According to our analysis, this was when fiscal restriction caused a deceleration of the GDP growth rate by 0.7 to 0.8 percentage points. Fiscal austerity will continue in the coming years, but, compared to 2011, to a lesser extent. The government drafted a series of tax and welfare reforms that are now in the legislative process in parliament. A pension reform 25

28 based on a voluntary opt-out of 3% of social contributions from the first pillar into the newly created pension funds (starting in 2013) will be supported by VAT hikes: The current VAT rates 20% and 10% will change to 20% and 14% in 2012, and to a uniform VAT rate of 17.5% in The 2012 VAT rate hike will push up CPI by about one percentage point. This will help to stabilize public finances in 2012 so that only a minor expenditure cut will be necessary to achieve the fiscal target of 3.5% of consolidated fiscal deficit Current account balance (% of GDP) f 2012f Further tax reforms are in the pipeline, including changes to personal income tax. Thus far, they are rather unclear; most of them will not be specified until later and will be applied as of The period of low inflation ( ) is over. Inflation has gradually increased to the Czech National Bank's target level of 2%, mainly due to the increase in food and oil prices. We estimate 2.2% inflation for 2011 slightly above the CNB's target. The effect of high food and oil prices has just peaked and will not contribute to inflation in the near future. At the same time, demanddriven inflation (core inflation), which is now negative, will increase around the end of The main reason for the absence of domestic inflationary pressures at present is slow wage growth in both the private and the public sector due to the 10% reduction of the public administration wage bill. This eliminates both cost-push inflation (reduces costs for firms) and demand-driven inflation (reduces household spending). However, nominal wage growth will accelerate in the future unless new austerity measures are introduced and will lead to inflationary pressure in Moreover, the expected VAT hikes (the lower VAT rate will be raised to 14%) will contribute to inflationary pressure in Equity market outlook The Czech PX has had to swallow price losses of roughly 2% until mid-july 2011, bringing it behind its peers Poland and Hungary. In contrast to its neighboring countries, the financial sector in the Czech Republic (weighted 27% in the index) with a loss of 8.2% has deteriorated in line with the international development of the sector (-6.0%). Defensive stocks like the telecommunication operator Telefonica O 2 and the electricity utility CEZ were among the best performers since the beginning of the year. The latter is profiting from the premature shut down of nuclear power plants in Germany Inflation outlook & unemployment f 2012f In our opinion, Czech equities should maintain their status as a safe harbor due to the relatively low interest rate environment coupled with an expected strong CZK development, reasonable stock valuation levels and relatively high dividend yields. All told, we expect a gentle upward movement for the PX, which is also attributable to 2011e earnings growth that looks rather moderate at nine percent. Nevertheless, the fundamentals are sound. P/E 2011e is still moderate at 12.0, while the main argument in favor of the essentially defensive PX is the traditionally high dividend yield of 6.2%. 8.1 Richard Malzer and Wolfgang Ernst, Raiffeisen Research, Raiffeisen Bank International CPI (average % y/y) Unemployment

29 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Current Developments on the Capital Market Leading index Performance 1H 2011 (30 Dec June 2011) 5-year-performance (30 June June 2011) Equity market capitalization (30 June 2011) Number of listed companies Number of trading members Number of securities (30 June 2011) PX +0.05% % EUR 35.02bn equity market 27 bond market 101 structured products 41 Legal framework EU Capital Market Legislation, Capital Market Undertaking Act, Prague Stock Exchange Rules and Regulations The development of the Prague Stock Exchange in the first half of 2011 as measured by the main PX index rose slightly by 0.05%. At 128 exchange sessions, 575,453 transactions with a total value of EUR 18.3 billion were concluded, which translates into an increase of more than 5% in trading volume compared to the second half of Stock market As of the end of the first half year, 27 issues of shares with a total market capitalization of EUR 57.6 billion were admitted to trading. The market capitalization of domestic issues reached EUR 35 billion and that of foreign issues was EUR 22.6 billion. In the first half-year 2011, the total volume was EUR 8.2 billion. The share of domestic issues amounted to 74.23%. The average daily trading volume was EUR 64.3 million. The most active exchange members on the stock market were Patria Finance, Wood & Company Financial Services, and Česká spořitelna. Trading in the individual segments was once again dominated by the prestigious SPAD system. The chart below shows the shares held by the individual trading segments: 78.9% 20.2% 0.9% Block Automatic Trades Trades SPAD SPAD The SPAD system is a trading segment with support for market liquidity based on the obligation of market makers to continually quote buy and sale prices. As of the end of the current period, the Prague Stock Exchange had entered into agreements on market maker activities with 15 exchange members. The trading volume in SPAD reached EUR 6.5 billion. The share of market makers in the trading volume was 97.1% compared to the total trading volume in SPAD. The average daily trading volume was EUR 50.7 million. Automatic Trades The automatic trades system is the oldest trading segment of the stock exchange. Almost 510,000 transactions with a volume of EUR 1.7 billion were executed on this segment in the first half-year The average daily trading volume was EUR 12.9 million. 27

30 Block Trades Block trades are concluded mainly between the exchange members and non-members. The trading volume exceeded EUR 76.1 million. Bond market As of the end of the first half-year, 101 issues of bonds with a nominal market capitalization of EUR 47.3 billion were admitted to trading. A number of 2,801 transactions were executed, with a total volume of EUR 10.1 billion, the major part within block trades. The most active members on the bond market were Česká spořitelna, Československá obchodní banka, and Komerční banka. Other products Other trades include trading in investment certificates, warrants, and futures. These products are usually traded in the system with the support of a specialist. The role of a specialist is to maintain sufficient liquidity in these products. The total trading volume amounted to EUR 6.6 million. The Prague Stock Exchange decided to implement support measures for the bond market with the participation of the largest bond traders. The stock exchange is currently completing a project for the trading in government bonds with the participation of market makers in the prestigious trading segment SPAD. The launch is planned for the third quarter of

31 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Key Figures of the Prague Stock Exchange Equity market capitalization 2006 to 1H 2011 At 30 June 2011, market capitalization amounted to EUR billion. If one takes the listings of foreign companies into account, market capitalization at half-year 2011 was EUR billion New share issues 2006 to 1H 2011 The PSE commenced trading in the new share issue of New World Ressources Plc (NWR) on 6 May, The shares were offered in exchange of shares of New World Resources N.V. in a ratio of one share for each existing share. The exchange offer was submitted in connection with the reincorporation to the UK. The original share issue of New World Resources N.V. was delisted on 3 June, , H 2011 (in EUR bn / Source: FESE) 223 Domestic equity trading 2006 to 1H 2011 Trading in domestic equities was up by 21.93% in the first halfyear 2011 as compared to 1H The trading volume of stocks, bonds and structured products (cash market) increased in 1H 2011 by 5.34% versus the previous half year H 2011 (in EUR m / Source: Prague Stock Exchange) Initial public offering Capital increase Secondary public offering H 2011 (in EUR bn, double count / Source: FESE) 29

32 The Largest Companies on the Prague Stock Exchange The PX is the official index of the Prague Stock Exchange. It is a capitalizationweighted price index made up of the most actively traded blue chips of the Prague Stock Exchange. In the first half-year 2011, 15 stocks were traded on the SPAD segment for securities with the highest liquidity on the market. The PX includes the following companies: n AAA Auto Group n Central European Media Enterprises n CEZ ˇ n Erste Group Bank n Fortuna Entertainment Group n KIT Digital n Komercní ˇ banka n New World Resources n Orco Property Group n PEGAS NONWOVENS n Philip Morris CR ˇ n Telefónica O 2 C.R. n UNIPETROL n VIENNA INSURANCE GROUP The following profiles focus on the five PX companies with the highest market capitalization. Business segment: Power engineering Market capitalization: EUR 19,071.07m Free float: 29.47% ISIN Code: CZ Bloomberg: CEZ CP Reuters: CEZP.PR IR Officer: Barbara Seidlová Warsaw Prague Bratislava Budapest Business segment: Banking Market capitalization: EUR 13,357.09m Free float: 64.6% ISIN Code: AT Bloomberg: ERBAG CP Reuters: ERST.PR IR Officer: Thomas Sommerauer CEZ ˇ Sarajevo Belgrade CEZ ˇ Group is a vertically integrated electric utility based in Tirana the Czech Republic with operations in a number of countries in Central and Southeast Europe and Turkey. The Group is active in the generation, distribution and supply of electricity and heat as well as in coal mining and gas sales. CEZ ˇ Group operates nuclear, coal and hydropower plants, which have low operating costs. It is currently investing in gas plants and renewable energy power-related sources operations to reduce its trading emissions. ERSTE GROUP BANK Erste Bank was founded in 1819 as the first Austrian savings bank. In 1997, Erste Group went public with a strategy to expand its retail business into CEE. Since then, Erste Group's customer base has grown through numerous acquisitions and organic growth to 17.4 million. 95% of all clients are citizens of the EU. EU membership gives the countries of the region a stable regulatory framework that supports their economic development. Today, Erste Group is one of the largest financial services providers in CEE in terms of clients and total assets. 30

33 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Business segment: Banking Market capitalization: EUR 6,385.72m Free float: 39.65% ISIN Code: CZ Bloomberg: KOMB CP Reuters: BKOM.PR IR Officer: Jakub Cerný ˇ Business segment: Mining, processing of minerals and ores Market capitalization: EUR 2,661.72m Free float: 36.2% ISIN Code: GB00B42CTW68 Bloomberg: NWR CP Reuters: NWRR.PR IR Officer: Agnes Blanco Querido and Radek N ěme ček Business segment: Telecommunications Market capitalization: EUR 5,774.99m Free float: 30.59% ISIN Code: CZ Bloomberg: SPTT CP Reuters: SPTT.PR IR Officer: Jakub Hampl KOMERCNÍ ˇ BANKA Komercní ˇ banka is one of the most efficient universal banks in Central Europe. It provides its clients with comprehensive services in retail, corporate and investment banking, using its wide network of 393 branches throughout the Czech Republic. Together with the bank, the KB Group is formed by Modrá pyramida building savings bank, KB Pension Fund, ESSOX and other businesses. The KB Group serves a portfolio of 2.7 million clients. A 60% share in Komercní ˇ banka is controlled by Société Générale, France. NEW WORLD RESOURCES NWR produces quality coking and thermal coal for the steel and energy sectors in Central Europe through its subsidiary OKD, a.s., the largest hard coal mining company in the Czech Republic. The coal is mined in the southern part of the Upper-Silesian coal basin, in the Ostrava-Karviná region. NWR's coke subsidiary, OKK Koksovny, a.s., is Europe's largest producer of foundry coke. NWR has two development projects in southern Poland, Debiensko and Morcinek, which form part of the company's regional growth strategy. TELEFÓNICA O 2 C.R. Telefónica O 2 Czech Republic is a leading integrated telecommunications operator on the Czech market. It operates nearly seven million mobile and fixed lines, making it one of the largest providers of fully convergent services worldwide. The company offers the most comprehensive portfolio of voice and data services in the Czech Republic; it is also a leading provider of ICT services in the country. Through its subsidiary Telefónica O 2 Slovakia, the company offers voice and data services in Slovakia. 31

34 Austria: Macroeconomic Outlook Austria is a stable country both in economic and political terms. The current relative strength of its key economic indicators versus the euro area-17 such as the above-average economic growth rate, the very low unemployment rate and the comparatively low indebtedness of the private and public sectors gives the region's equity markets an advantage over major established markets. Country at a glance Official Language Capital Area German Vienna 83,879 sqkm Population* 8,404,252 (2011) Nominal GDP* EUR 284,410.2m (2010) GDP per Capita in PPS (EU-27 = 100)* Currency Time Zone Internet Suffix 125 (2010) 1 Euro = 100 Cent UTC+1 CET UTC+2 CEST (March to October) Country Code +43 * Source: Eurostat.at Economic outlook Since the EU enlargement in 2004, Austria has been viewed as the main beneficiary of the EU expansion. The Austrian economy has been outperforming the euro area average since the introduction of the euro in We still expect the CEE region to be the growth engine for Europe over the long term due to its enormous catching-up potential. The dynamic export growth rates highlight the fact that Austria is an open economy. About one third of its exports go to Germany, while the CEE region accounts for roughly one fifth, Italy for 8%, the BRIC countries for 6%, USA for 5%, and France for 4%. The Japanese crisis affected the exporting sector only marginally given that Japan accounts for less than 1% of total exports. Real GDP (growth y/y %) f 2012f -3.9 On a positive note, private consumption increased also during the recession by more than 1% per year and is therefore a stable element of the Austrian economy. The sentiment indicators in the first half year are at high pre-crisis levels. Surveys by economic researchers of companies indicate substantial optimism with regard to business performance and production outlook, although we have seen a slight downwards trend in some sectors since the beginning of the year. If the forecasts for this year (GDP: +3.0%) and for 2012 (GDP: +1.8%) turn out to be correct, Austria should again outperform the average EU growth rate in both years. 32

35 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Economic and fiscal data f 2012f Real GDP (growth y/y %) Fixed capital formation (growth y/y %) Private consumption (growth y/y %) Exports fob (growth y/y %) Imports cif (growth y/y %) Current account balance (% of GDP) CPI (average % y/y) Unemployment (%) General budget balance (% of GDP) Public debt (% of GDP)* Source: WIFO (Austrian Institute of Economic Research), Statistics Austria, * OeNB The major share (2/3) of foreign trade is already settled in euro and therefore without currency risk. Since 2002, the Austrian current account has been positive, which confirms the international competitiveness of the country Budget balance & public debt (% of GDP) f 2012f Budget balance Public debt The Austrian labor market ranks among the top three of the euro 17 because of its very low unemployment rate. In May, the rate was 4.3%, which puts the country at number two in the euro- 17 area behind the Netherlands. At the same time, this means that the Austrian unemployment rate is less than half of that of the EU which is 9.9%. We expect the unemployment rate to continue declining this year and remaining stable in Among the bad news is certainly the comeback of high inflation, which in Austria at the moment (3.2% in May) exceeds the average euro area inflation rate (2.7% in May). This is mainly due to the drastic increase in energy and food prices. On top of this and very specific to Austria we saw an increase in some indirect taxes in the wake of the crisis such as those on tobacco and oil, which account for about 0.4 percentage points of the current inflation rate. We expect the inflation rate to decline in 2012 (2.6%). Fiscal outlook As a consequence of the global economic crisis in 2009, Austria's budget deficit and government debt exceeded the Maastricht criteria of 3% and 60% of GDP, respectively as it did in many other countries as well. Austria is still one of 15 countries with a stable triple A rating from the major rating agencies. However, the reduction of government debt and of the budget deficit remain the key challenges for economic policy in the coming years. We expect the budget deficit to meet the Maastricht target as early as in 2012 (forecast: -2.9% of GDP). As a member of the traditional hard currency block, Austria has written positive history in the monetary union, making it one of the economically successful core countries of the euro zone. Therefore, Austria is not experiencing the severe debt crisis seen in some euro zone countries as much of a threat. This assessment is based on the past eight years of positive current accounts, a sustainable rise in productivity over years, and a generally highly 33

36 competitive economy and industrial sector. Moreover, unit labor costs have developed moderately along with the increase in production, and inflation has been relatively low and in line with the ECB's (European Central Bank) target. The risk aversion triggered by the financial and economic crisis has led investors to hoard liquidity since 2009, and the risk/return rationale will become increasingly relevant in the light of the new stability mechanism from Government bonds with the best ratings should retain their function as safe havens, not least as the European debt crisis is not yet over. Current account balance (% of GDP) 4.9 in 2010 was relatively solid despite the aftermath of the crisis (which also applies to the euro zone). The markets covered by Erste Group Research (CEE8) 1 grew by a weighted aggregate of +2.3% in 2010 (euro zone +1.7%). After a long period of growth, weaker global demand (i.e. lower exports) and reduced investment growth triggered an abrupt need for consolidation. But the CEE countries should not be seen as a homogenous cluster of economies. They have grown moderately in line with the global economy in 2010, but the bandwidth for country-specific performance is significant. For 2011, Erste Group Research expects real GDP growth of +3.3% for the CEE8 again (versus +2.0% for the euro zone), and +3.8% for 2012 (versus +1.6% for the euro zone). This means the CEE region will fall short of achievements of the boom years prior to the crisis, but will still grow at a higher pace than the euro area Government debt in CEE is significantly lower than the EU/euro zone average. With an aggregate population of 52 million people, the CEE5 2 countries have only amassed less than three-quarters of the debt of Greece whose population is only 11 million. The CEE6 3 region has 90 million inhabitants and yet only slightly more than 60% of the debt of Spain (population: 47 million) and less than one quarter of the debt of Italy (population: 60 million) f 2012f Development in CEE and its impact on Austria However, the economic development of Central and Eastern Europe is of crucial relevance for the Vienna Stock Exchange. Some 85% of the most important companies (weighted by market capitalization) in the blue chip index, ATX, are heavily involved in CEE and generate the majority of their sales and earnings in the region. That said, the CEE economies have experienced some wide fluctuations in economic development, but overall their performance Inflation outlook & unemployment Equity market outlook In an average rather subdued year for equities, the ATX has been a relative underperformer in the first half of While international investors remain active, with trading volumes at below pre-crisis levels, they have generally remained underinvested as a result of the shaky equity environment. The high deficits and levels of government debt will cause further friction on financial markets, but the Central and Eastern European markets are set to benefit versus the major established markets. Furthermore, the ATX currently boasts a very attractive valuation compared to its international peers and is historically backed by robust doubledigit earnings growth rates. Austrian shares are clearly much more attractive than government bonds in terms of yields. Overall, the Erste Group Research team expects a moderate recovery of Austrian equities in the second half year of Erste Group Research f 2012f CPI (average % y/y) Unemployment 1 CEE8 = Croatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Ukraine 2 CEE5 = Czech Republic, Hungary, Croatia, Slovakia, Romania 3 CEE6 = Czech Republic, Hungary, Croatia, Poland, Slovakia, Romania 34

37 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Current Developments on the Capital Market Leading index Performance 1H 2011 (30 Dec June 2011) 5-year-performance (30 June June 2011) Equity market capitalization (30 June 2011) Number of listed companies Number of trading members Number of securities (30 June 2011) ATX -4.74% % EUR 90.91bn 108 equity market 114 bond market 3,686 structured products 5,712 Legal framework Stock Exchange Act, EU Capital Market Legislation, Code of Conduct according to OECD standards, General Terms and Conditions of the Vienna Stock Exchange 98 After solid performance in 2010 with a gain of %, the Vienna Stock Exchange's leading index ATX went on a sideways trend in the first half of 2011 and lost some ground in the end. At 30 June, it closed at 2, points, which puts it slightly down by -4.74% versus year-end In line with the moderate performance, market capitalization remained almost unchanged versus year-end 2010 (-3.22%), and also average monthly equity trading volumes decreased slightly from EUR 6.07 billion in 2010 to EUR 5.38 billion in the first six months of Constant debates on the introduction of a new capital gains tax on securities transactions are making investors nervous about investing in the domestic capital market. Nonetheless, listed blue chip companies are benefiting fully from the postcrisis economic recovery and reported solid earnings for 2010 and 1Q There were a number of positive events at the Vienna Stock Exchange in the first half of 2011: On 8 April 2011, the exchange saw the first IPO since Austria Metall AG (AMAG) joined the prime market with an issuing volume of EUR 411 million. The company is one of the largest public offerings on the Vienna Stock Exchange in terms of issuing volume. Interest in going public is generally increasing: The IPO workshops organized by the Vienna Stock Exchange are booked at record levels. Good news is also the amount of fresh capital raised by one Secondary Public Offering (EUR million) and five capital increases (EUR million). Also, the first six months of 2011 already recorded a large number of corporate bond issues: As of 30 June 2011, there were 15 corporate bond issues with an issuing volume of EUR 2.43 billion. The year 2011 marks the 20 th anniversary of the ATX. The leading index of the Vienna Stock Exchange has performed well since its inception. An investment of EUR 1,000 in an index-based fund on 1 January 1991 would have resulted in EUR 2, at yearend 2010 an increase of around 190%. Additionally, the market capitalization of the ATX-listed companies rose from EUR 8.4 billion to EUR 70.9 billion in the 20 years of the index' existence. In March 2011, real estate companies were added to the ATX for the first time. 35

38 With the objective of attracting additional capital to the Vienna Stock Exchange and enhancing the attractiveness and liquidity of the marketplace, the exchange ran a privatization initiative throughout the first half of The study The Privatization Potential of State-owned Companies in Austria conducted by the ECONOMICA Institute for Economic Research identified a privatization potential of up to almost EUR 24 billion. It would be possible to raise an IPO volume of EUR 19.9 billion and a SPO volume of EUR 3.9 billion through further privatizations even with a remaining state share of 25% plus one stock. Privatizations would not only create further impulses for the Austrian capital market but also improve the competitiveness of the companies themselves. In March 2011, the Vienna Stock Exchange enlarged its product range by dividend point indices and futures. The new products are based on two of the exchange's most popular indices, the ATX and the CECE EUR. In the area of data vending, the Vienna Stock Exchange welcomed the Belgrade Stock Exchange as a new member of the data alliance in the first half of 2011, raising the number of markets covered by its ADH data feed to a total of nine. Apart from these highlights, several achievements contributed to strengthening the Vienna Stock Exchange's international position this year, e.g. the connection of six new trading members four of them foreign investment firms to direct trading. These were Citigroup Global Markets Ltd (UK), Lang & Schwarz TradeCenter AG & Co. KG (Germany), UniCredit Bank AG Succursale di Milano (Italy), biw Bank für Investments und Wertpapiere AG (Germany) as well as its Austrian branch, and UniCredit Bank Austria AG (Austria). Foreign trading members currently account for more than two thirds of the entire equity trading volume on the Vienna Stock Exchange. 36

39 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Key Figures of the Vienna Stock Exchange Equity market capitalization 2006 to 1H 2011 The slightly negative performance of the leading index, ATX, in the first half of 2011 (-4.74%) also reflects the development of market capitalization: It decreased from EUR billion at year-end 2010 to EUR billion as of 30 June This translates into a loss of 3.22% New share issues 2006 to 1H 2011 In the first half of 2011, one IPO (EUR 0.41 billion), one SPO (EUR 0.54 billion) and five capital increases (EUR 0.85 billion) raised fresh capital amounting to a total of EUR 1.80 billion, already more than double the figure for 2010 (EUR 0.76 billion). Issuers of corporate bonds were also very active and used the capital market to raise funds (15 new listings with an issuing volume of EUR 2.4 billion) H (in EUR bn / Source: FESE) H 2011 Domestic equity trading 2006 to 1H 2011 Average monthly trading volumes in the first six months of 2011 amounted to EUR 5.38 billion, down from EUR 6.07 billion in (in EUR bn / Source: Wiener Börse AG) MTF Capital increase Initial public offering Secondary public offering Trading volume of national and international members 2006 to 1H From January to June 2011, six new trading participants four of them international firms were admitted to the Vienna Stock Exchange as direct trading members. As of 30 June 2011, 57 of the 98 trading members were international firms. At 73.9%, they account for more than two-thirds of total equity trading volume H (in EUR bn, double count / Source: FESE) H 2011 (in % / Source: Wiener Börse AG) International National 37

40 The Largest Companies on the Vienna Stock Exchange The ATX (Austrian Traded Index) is the leading index of the Vienna Stock Exchange. The two key criteria for inclusion in the index are free float market capitalization and stock exchange trading volumes. The ATX includes the following companies: n ANDRITZ AG n CA Immobilien Anlagen AG n conwert Immobilien Invest SE n Erste Group Bank AG n EVN AG n IMMOFINANZ AG n Intercell AG n OMV AG n Österreichische Post AG n Raiffeisen Bank International AG n RHI AG n Schoeller-Bleckmann AG n Semperit AG Holding n STRABAG SE n TELEKOM AUSTRIA GROUP n VERBUND AG n VIENNA INSURANCE GROUP AG n voestalpine AG n Wienerberger AG n Zumtobel AG Business segment: Machinery and plant engineering Market capitalization: EUR 3,692.00m Free float: 71% ISIN Code: AT Bloomberg: ANDR AV Reuters: ANDR.VI IR Officer: Michael Buchbauer Business segment: Banking Market capitalization: EUR 13,681.56m Free float: 64.6% ISIN Code: AT Bloomberg: EBS AV Reuters: ERST.VI IR Officer: Thomas Sommerauer The following profiles focus on the five ATX companies with the highest market capitalization. Andritz AG Erste Group Bank AG Andritz AG provides machinery, plant engineering and services for hydro-power plants, the pulp and paper industry, the metals industry and other specialized industries (solid/liquid separation, feed and biomass). In the past ten years, sales revenues of the Andritz GROUP have risen on average by 12% per year. All strategic measures of the Group are aimed at sustaining this long-time trend of profitable growth. Erste Group offers a comprehensive and transparent range of banking services to about 17 million private and corporate customers through more than 3,200 branches in 8 countries in Central and Eastern Europe. The strategic focus on traditional retail business with private customers and SMEs combining with a strong presence in growth markets allows for a sustainable and self-financed growth. 38

41 CEE Stock Exchange Group Budapest Ljubljana Prague Vienna Business segment: Oil and gas Market capitalization: EUR 9,859.09m Free float: 48.1% ISIN Code: AT Bloomberg: OMV AV Reuters: OMVV.VI IR Officer: Angelika Altendorfer- Zwerenz Business segment: Telecommunications Market capitalization: EUR 3,898.40m Free float: 76.6% ISIN Code: AT Bloomberg: TKA AV Reuters Code: TELA.VI IR Officer: Matthias Stieber Business segment: Steel and manufacturing Market capitalization: EUR 6,434.86m Free float: 64.1% ISIN Code: AT Bloomberg: VOE AV Reuters Code: VOES.VI IR Officer: Peter Fleischer OMV AG OMV the leading energy Group in Central and Southeastern Europe is active in the areas Exploration and Production (E&P), Refining and Marketing including petrochemicals (R&M) as well as Gas and Power (G&P). The investment activity is increasingly shifting to E&P and G&P as well as selectively to power generation. The integrated business model leverages cost and earnings synergies and imposes tight cost and capital discipline. TELEKOM AUSTRIA GROUP Telekom Austria Group is the leading telecommunications provider in the CEE region: It operates in eight countries with headquarters in Austria and has around 17,000 employees that serve some 22 million customers. Its extensive portfolio includes products and services in the areas of voice telephony, broadband internet, multimedia services, data and IT solutions, wholesale and payment solutions. voestalpine AG voestalpine is a globally active Group with a number of specialized and flexible companies that produce, process and further develop highquality steel products. The Group is represented by approximately 360 production and sales companies in more than 60 countries. 39