THE TRANSPARENCY AND DISCLOSURE PRACTICES OF HUNGARIAN STATE-OWNED ENTERPRISES Budapest, June 12, 2015.

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2 THE TRANSPARENCY AND DISCLOSURE PRACTICES OF HUNGARIAN STATE-OWNED ENTERPRISES Budapest, June 12, 2015

3 WHAT WAS THE PURPOSE OF THE STUDY? This study is a follow-up to the 2013 study The subjects of the study: 66 Hungarian state-owned enterprises We analyzed the companies from the viewpoint of transparent operations Methodology: examination of publicly accessible information from the companies’ websites and other public interest databases We set up three types of indices and compiled rankings: 1)Compliance With Law Index (TTI): an index defined during the previous study; shows the extent to which companies comply with legal disclosure requirements 2)Recommended Disclosure List Index (ALI): information that supports transparency and integrity-based corporate governance in other ways (e.g. OECD recommendations) 3)Aggregate Index: the weighted average of the two above indices

4 HISTORY Findings of the 2013 study: Polarized field in terms of transparency, weak average performance in compliance with the law: 2 companies scored more than 90 points in the TTI, while most fell into the 25- 50-point range. Strong rejection from executives: they are not very willing to speak on the topic. Institutions and tools that promote corporate integrity and transparency can be found in only a few places: mostly procurement rules and regulations and confidentiality agreements, while the least used solutions are ethical hotlines and having a compliance department. What happened between the two studies? Workgroup discussions: their goal was the review of the legal environment and the exchange of good practices. E-learning curriculum: www.vallalatiatlathatosag.hu; general teaching material that helps compliance with disclosure requirements and transparency.www.vallalatiatlathatosag.hu

5 ++++ improvement of more than 200%; +++ improvement of 50 to 200%; ++ improvement of 10 to 50%; + improvement of 0 to 10%; - decline of 0 to 50%; - - decline of more than 50% RESULTS: TTI RANKING RankCompany TTI (points) Change from 2013 1.HM Elektronikai, Logisztikai és Vagyonkezelő Zrt.100.00 ++++ 1.Magyar Fejlesztési Bank Zrt.100.00 ++ 3.Diákhitel Központ Zrt.94.12 ++ 3.Magyar Közút Nonprofit Zrt.94.12 ++ 3.Szerencsejáték Zrt.94.12 ++ 3.Nemzeti Útdíjfizetési Szolgáltató Zrt.94.12 ++ 3.Államadósság Kezelő Központ Zrt.94.12 ++ 3.Győr-Sopron-Ebenfurti Vasút Zrt.94.12 + 9.Vasúti Pályakapacitás-elosztó Kft.91.76 ++ 10.Magyar Exporthitel Biztosító Zrt.91.18 +++ 10.Magyar Export-Import Bank Zrt.91.18 +++ 57.Vértesi Erdészeti és Faipari Zrt.33.82 ++ 58.Egererdő Erdészeti Zrt.31.37 - 59.Kincsem Nemzeti Lóverseny és Lovas Stratégiai Kft.29.90 - 60.Dalerd Délalföldi Erdészeti Zrt.28.73 - 61.HM Kaszó Erdőgazdaság Zrt.20.59 - 62.Bábolna Nemzeti Ménesbirtok Kft.19.61 ++ 62.Magyar Lóversenyfogadást Szervező Kft.19.61 - 64.Magyar Porcelánmanufaktúra Kft.15.69 ++ 65.Herendi Porcelánmanufaktúra Zrt.14.71 - 66.Mezőhegyesi Állami Ménes Lótenyésztő- és Értékesítő Kft.13.73 - Average score: 61

6 Companies achieved an improvement of more than 30% compared to 2013, scoring on average 61 points out of 100, compared to the previous 46. Companies achieved/surpassed the set goal of a minimum 20% improvement. RESULTS: TTI

7 RESULTS: TTI WEBSITE ITEMS

8 RESULTS: TTI SECTOR ANALYSIS The different performance of the various sectors depends on several factors: the companies have different characteristics, while the attitude of the chief executive, the measures taken by the entity exercising ownership rights and the practices at other companies in the sector all vary. There are large differences between companies within a certain sector (e.g. services and Defense Ministry companies).

9 RESULTS: ALI RANKING RankCompanyALI (points) 1.Szerencsejáték Zrt.76.92 2.Nemzeti Útdíjfizetési Szolgáltató Zrt.66.67 3.Magyar Államvasutak Zrt.65.38 3.Magyar Villamos Művek Zrt.65.38 5.Győr-Sopron-Ebenfurti Vasút Zrt.64.10 6.Diákhitel Központ Zrt.60.26 7.Magyar Fejlesztési Bank Zrt.57.69 7.Magyar Posta Zrt.57.69 9.Dunántúli Regionális Vízmű Zrt.56.41 9.Dunamenti Regionális Vízmű Zrt.56.41 56. Bakonyerdő Erdészeti és Faipari Zrt.10.26 56. Dalerd Délalföldi Erdészeti Zrt.10.26 58. Bábolna Nemzeti Ménesbirtok Kft.7.69 58. ExVÁ Robbanásbiztos Berendezések Vizsgáló Állomása Kft. 7.69 58. Kisalföldi Erdőgazdasági Zrt.7.69 58. TAEG Tanulmányi Erdőgazdaság Zrt.7.69 58. Zalaerdő Erdészeti Zrt.7.69 63. Egererdő Erdészeti Zrt.6.41 64. Concordia Közraktár Kereskedelmi Zrt.3.85 64. Vértesi Erdészeti és Faipari Zrt.3.85 66. Magyar Porcelánmanufaktúra Kft.0.00 Average score: 29

10 RESULTS: ALI WEBSITE ITEMS

11 Companies met the requirements of the ALI to a much lesser extent, which was expected due to its optional nature. RESULTS: ALI In the sector analysis, transport/forwarding is ahead of the representatives of the public works, waterworks and financial sectors. Similar to the TTI, there are great differences between companies within sectors here as well.

12 Those who participated in workgroup discussions achieved a significantly larger improvement in their TTI score and performed better in the ALI as well. This shows the importance of information exchange and that openness yields returns. TRANSPARENCY AND COOPERATION All of the companies who fell into the top 10% of performers took part in workgroup discussions.

13 A comprehensive view of the current disclosure practices of state-owned enterprises and their transparency. A total of 7 companies scored more than 75 points, 19 firms had a mediocre score, 30 performed quite poorly, and 10 companies scored less than 25 points. There was an improvement in terms of compliance with the law, but at the same time measures that are not required by law but would support sensible and transparent corporate governance have not yet spread. AGGREGATE INDEX

14 A significant improvement can be seen in terms of compliance with the law, but this remains insufficient: complying with the law is a minimum requirement for every company, therefore the score should be 100. Compliance with the list of recommended disclosures is still far from the ideal level. As a first step, companies should establish mechanisms that promote the spread of transparency and integrity-based corporate governance. As part of a longer process, regular controls, education, and an exchange of good practices and experiences is necessary. SUMMARY – RECOMMENDATIONS State-owned enterprises manage public funds, therefore their transparency is especially important.

15 CHANGE IN ATTITUDE: acceptance of integrity and transparency as a value should be a part of the corporate culture. Active commitment by upper management and the owners is important. The Hungarian government should initiate a modification of relevant laws to ensure that provisions relating to access to and disclosure of public interest information unequivocally and indisputably apply to all publicly owned companies and entities that operate from public funds. TI is committed to the clean and transparent use of public funds, therefore it remains ready to assist state-owned enterprises with the methods that have worked so far. SUMMARY – RECOMMENDATIONS

16 THANK YOU FOR YOUR ATTENTION www.transparency.hu krisztina.papp@transparency.hu