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Zalakeramia RT (ZALD)

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Tuesday 16 November, 2004

Zalakeramia RT

3rd Quarter Results

Zalakeramia RT
16 November 2004

                                ZALAKERAMIA RT.

                 Quick Report for the First Nine Months of 2004



Below is the consolidated and unaudited financial statements for the first nine
months of 2004 which were prepared in accordance with the International
Financial Reporting Standards (IFRS).

Main events and most important features influencing the operations and financial
management of the Group in the first nine months of 2004 are as follows:


  • On September 24, 2004, the Altalanos Ertekforgalmi Bank Rt announced that
    it had disposed of its 50.11 % stake in Zalakeramia Rt through a stock
    exchange dealing. At the same time, Lasselsberger Ceramics Kft announced
    that it had acquired the ownership of 2,683,113 ordinary shares issued by
    Zalakeramia Rt and representing a 50.11 % control over the company, by
    executing the Share Purchase Agreement entered into with Altalanos
    Ertekforgalmi Bank Rt on July 21, 2004. Thereby, the direct control of
    Lasselsberger Ceramics Kft over Zalaekramia Rt increased to 89.7 %.

  • The Raiffeisen Zentralbank Osterreich AG (RZB), and the
    Raiffeisenlandesbank Niederosterreich-Wien AG, the Raiffeisenlandesbank
    Oberosterreich AG and the Investkredit Bank AG (Creditors) announced that
    RZB and the Creditors acquired conditionally a control of about 89.7 % over
    Zalakeramia Rt under the Share Pledge Agreement entered into between RZB as
    Creditor and Depositary and Lasselsberger Ceramics Kft ('Lasselsberger') as
    Borrower and Depositor on September 28, 2004. Under the Share Pledge
    Agreement, the actual control is subject to making a breach of contract by
    Lasselsberger during the term of the credit agreement, based on the relevant
    credit agreement between RZB and Lasselsberger, and exercising their rights
    provided in the Share Pledge Agreement by RZB and the Creditors.

  • On September 28, 2004 the officers delegated by Altalanos Ertekforgalmi
    Bank Rt resigned from their functions. That day, the Board of Directors of
    Zalakeramia Rt held a Board meeting where Mr. Peter Marton was appointed the
    chairman of the Board of Directors.




  • On June 18, 2004, Zalakeramia Rt entered into a sales contract for selling
    its 100 % business share in Jasz-Gold Ingatlanfejleszto Kft in the amount of
    HUF 352 million. the purchase price was fully paid on September 27, 2004
    therefore the right of ownership transferred to the buyer. It was
    consolidated in the period of the first nine months of 2004.



Main data for Q3 2004 of Zalakeramia Rt parent company (based on the financial
statements of the parent company prepared in accordance with the International
Accounting Standards):


  • Production of tiles amounted to 4,733 th sq.mtrs and that of stove tiles
    it was 412 th tile units. In case of tiles, production exceeded the level of
    basis by 2 % and in the case of stove tiles, lag from the basis was 12.4 %.

  • 4,657 th sq.mtrs were sold of own-produced tiles and 88 th sq.mtrs of
    purchased tile thus total sales of tiles amounted to 4,744 th sq.mtrs being
    2.1 % lower than the figure for Q3 2003.

  • Sales revenue was 2 % behind the basis level representing the realization
    of HUF 6,587 million sales revenue.

  • Gross margin was HUF 1,956 million being 9.4 % lower than the figure for
    Q3 2003.

  • Gross margin percentage amounted to 29.7 % in Q3 2004 being 2.4 % points
    lower than in Q3 2003.

  • General expenses exceeded by HUF 57 million the figure of the basis level.

  • Relating to the long term credit the Company recognised HUF 203 million
    foreign exchange gains in Q3 2004 as a result of the strengthening of Forint
    against Euro. The amount of interest expenses was HUF 84 million as against
    the HUF 161 million in the basis period. Reduction of the interest expenses
    is the result of a decrease in the credit facility.

  • Profit before tax of the parent company is HUF 1,280 million containing
    dividend income from the subsidiaries in the amount of HUF 759 million.
    Profit after tax of the Company is HUF 1,272 million.

Main data for Q3 2004 of S.C. CESAROM S.A. subsidiary (based on the financial
statements of the subsidiary prepared in accordance with the International
Accounting Standards):


  • In the first nine months of 2004 production of tiles amounted to 3,568 th
    sq.mtrs which is nearly the same as the quantity produced in the basis
    period (3,545 th sq.mtrs). 410 th pcs of sanitary ware were produced and
    this exceeded the basis figure by 8.4 %

  • The company sold 2,939 th sq.mtrs of own-produced tiles, 200 th sq.mtrs of
    the parent company's tiles and 111 th sq.mtrs of other purchased tiles. It
    means that the company sold 3,250 th sq.mtrs being 19.1 % lower than in Q3
    2003.

  • On drawing up the IFRS statements of the Romanian subsidiary the figures
    had been inflated up to the first half year of 2004 but not in the third
    quarter as the accounting method specified for the hyperinflationary
    economies has been terminated based on the agreement of the audit companies
    in Romania.


         On converting into Forint the following exchange rates were used:

December 31, 2003                    156.250 ROL/HUF
March 31, 2004                       161.290 ROL/HUF
June 30, 2004                        161.290 ROL/HUF
September 30, 2004                   166.666 ROL/HUF









  • Sales revenue, calculated in ROL, decreased 4.7 % compared to the basis
    period and calculated in Forint it remained 17.2 % below the basis level.

  • Gross margin was HUF 1,370 million in the current period and gross margin
    percentage was 29.4 %.

  • Profit before tax of the Romanian subsidiary is HUF 629 million and its
    profit after tax is HUF 344 million.

Main data for Q3 2004 of our Inker d.d. subsidiary (based on the financial
statements of the subsidiary prepared in accordance with the International
Accounting Standards):


  • Sales revenue of the subsidiary in terms of Forint was HUF 3,203 million
    exceeding the basis level by 4.6 %. In terms of the Croatian national
    currency, the sales revenue increased 2.1 %.

  • In the sanitary ware business produced quantity increased 7.6 % compared
    to the basis period exceeding 300 th pcs. The produced quantity of the
    porcelain tableware amounted to 7.8 million pcs which lags behind the basic
    period's figures by 9.5 %.

  • Inker d.d sold 311 th pcs of sanitary ware which exceeded the basis period
    by 12.0 %. Slightly less than 8 million pcs were sold of porcelain tableware
    which is 6.3 % lower than the figure of the basis period.

  • Gross margin exceeded the corresponding figure of the previous year by 5.6
    % representing the realization of HUF 609 million gross margin.


        Gross margin percentage was 19.0 % being slightly - by 0.2 % points -
        higher than the figure in Q3 2003.


  • Ratio of selling, general and administrative expenses to sales revenue was
    12.3 %.

  • Profit after tax of the subsidiary in Croatia was HUF 177 million.




 I. Analysis of the consolidated and unaudited profit and loss statement

 Sales revenue 
Consolidated sales revenue of the Group is shown below: 
      th HUF 

                                                                                                               
           Company                            Q3 2004                                  Q3 2003                 
                                Domestic       Export        Total       Domestic       Export        Total    
           Zalakeramia Rt.       5 509 106      849 426     6 358 532     5 216 147    1 032 368     6 248 515 
           Inker d.d.            1 465 084    1 726 922     3 192 006     1 333 432    1 725 772     3 059 204 
           S.C.Cesarom S.A.      4 059 449      553 923     4 613 372     4 978 345      601 383     5 579 728 
           Inker Trgovina          140 399                    140 399       118 083                    118 083 
           Total:               11 174 038    3 130 271    14 304 309    11 646 007    3 359 523    15 005 530 
 



                                   


Group sales revenue was 4.7 % lower than the corresponding sales revenue in
2003.

Zalakeramia Rt could achieve HUF 110 million and Inker d.d HUF 133 million extra
sales revenue compared to the basis period however the sales revenue of S.C.
Cesarom S.A. reduced as compared to Q3 2003.

Export sales revenue shows also a reduction the rate of which is 6.8 % and
export represents 21.9 % within total sales.

Tiles

In the first nine months of 2004, Zalakeramia Group sold total 7,685 th sq.mtrs
of own-produced tiles and 199 th sq.mtrs of purchased tiles which is 8.0 % below
the sales figures of the basis period. The parent company's sales outside the
Group - to third parties - was the same as in the basis period however the sales
of tiles of the Romanian subsidiary was more than 750 th sq.mtrs lower than the
basis.

In the case of Zalakeramia Rt a shift in proportion occurred in favour of
wholesale trade. The sales revenue of the retail activities exceeded only
slightly the basis figure while wholesale trade expanded by 7.2 %. Sales of
own-produced tiles increased 6.6 % compared to the basis which was mainly the
result of the increasing sales of frost-resistant tiles.

Domestic tiles sales processes are characterised by the following tendencies:


  • production of the domestic manufacturers has increased over the past
    period of 2004 and their domestic sales have moderately increased,

  • not only the market but also the rate of growth of import declined. Within
    this, the import of glazed products slightly increased however the import of
    unglazed products decreased nearly 10 %,

  • it should be outlined that the share of the main supplier, Italy,
    significantly declined again while the share of Spain increased to a smaller
    extent than that,

  • Growth of import was mainly the result of the increase of the Czech,
    Chinese, Slovakian and Polish supplies,

  • of late years, it was the first time that the growth of sales of
    own-produced tiles exceeded the growth of import sales,

  • change in the composition of demand within floor tiles has continued and
    the market of gres tiles has further expanded,

  • the public demand coming more and more into the limelight in the tile
    market, further increased price sensitivity in the market while strong price
    increase tendencies dominated,

  • the structure of investments attaching to construction has modified, civil
    engineering requiring a minimum quantity of tiles, has started up (road
    construction, road reconstruction),

  • house building run up in the previous year, has not continued to increase
    however the proportion of homes with smaller living space and requiring less
    tiles has increased and these together had an adverse effect on the demand
    for wall tiles,

  • the increased home modernization and reconstruction has increased the
    public floor tile demand,

  • office and shopping centre constructions have declined,

  • increase in sales of wall tiles has considerably moderated.





In the life of Zalaekramia Rt the past period of year 2004 was characterised by
the renewal of the product structure representing the stopping of the production
of outdated products and their withdrawal from the market on the one hand, and
development of large number of new products and their market launch, on the
other. The development means not only new design but also the establishment of a
new size (20x30 cm) which is to replace mainly 20x25 cm tiles - not so popular
size already - on the market. Developments continue throughout the whole year
and newer and newer tiles appear almost each week. Their reception on the market
is favourable and, among others, it is due to the launch of new products that
sales of the chains of stores got new dynamism. It is especially important
because 30 to 35 % of tiles are sold through this sales channel.

Tile export for Q3 2004 of the parent company was about 290 th sq.mtrs behind
the figure of the basis period and the sold quantity amounted to 902 th sq.mtrs.
These export sales are behind both the expectations and estimation which is the
result of the market difficulties, slack of this line of business and enormous
price competition.

We have lost some of our export markets due to the more and more considerable
spreading of very cheap tiles from China. In Germany the small size (15x15,
15x20 cm) wall tiles can be obtained at a price of EUR 2 per sq.mtrs delivered
to Hamburg. None of the European manufacturers is able to compete with it.

In the corresponding period of the previous year about 47 th sq.mtrs of tiles
were sold in France, 34 th sq.mtrs in Germany and 50 th sq.mtrs in the Ukraine
which failed this year due to loss of market and partner. In Romania sales were
lower by 100 th sq.mtrs due also to the difficulties on the market. 127 th
sq.mtrs were sold here however still in the first half year.

I the corresponding period of last year 200 th sq.mtrs were sold in Russia and
only the half of it this year. In the case of new customers still the prices and
inadequacy of product presentation mean the biggest problem as a strong price
competition has emerged on this market as well. New Russian manufacturers
appeared with good quality products and border tiles having modern designs. The
Italians and Spanish provide very intense marketing promotion in order to
represent and sell their own products in the best possible way. It is very
difficult to compete with all these and increase our sales.

The Company has made and makes major efforts to maintain and strengthen its
market position in all markets. A lot of newly developed tile families have been
launched in the export markets however to have them accepted and present them
needs a lot of time and marketing expenditures.

We could sell the most tiles, 22 % of total export, in Austria, further on.
Sales to the Czech Republic stays on the second place with its 16 % and Romania
is on the third with 14 %. On the Croatian market sales are made through our
self-owned Inker-Trgovina d.o.o. and three other direct customers which amounts
to 13 % in the total quantity of export sales.

At S.C. Cesarom S.A. all the tiles are sold in the Romanian market which
represented the sales of 3,250 th sq.mtrs of tiles in Q3 2004. Unfortunately,
sales of the third quarter, considered to be the season, were lower than the
sales of the basis which resulted in the fact that the Romanian subsidiary'
sales were 750 th sq.mtrs lower than the sales in the Q3 2003. Imported tile
products are gaining more and more ground in Romania and the sellers try to push
out the domestic manufacturers from the market with longer payment dates and
lower prices.


Sanitary ware 

                                                                                         
                                                        Production (pcs)    Sales (pcs)  
                                  Inker d.d.                 304,189          311,453    
                                  S.C. Cesarom S. A.         410,382          421,917    

Volume of production increased by 12.1 % as compared to the basis period at the
Croatian subsidiary. With regard to product structure, production of higher
weight and higher standard products has been realized. Regarding the product
structure, the breakdown of production volume of sanitary ware was as follows:
46 % toilet bowls, 36 % wash basins and 18 % other sanitary ware. Sanitary ware
production of the Romanian subsidiary also increased the rate of which was 8.4
%.

Sold quantity shows an increase at both subsidiaries as compared to the first
nine months of 2003 (Inker: 12.1 %, Cesarom: 2.9 %).

At Inker d.d, sold quantity increased 14.5 % in the domestic market and 9.7 % in
the export markets. The growth of the quantity of domestic sales could be
achieved so that the sales of each sanitary ware product family were striven to
be increased through different discounts - average 7 % - both before the
commencement of the season in April and before the end of the season in
September.

With respect to sanitary ware export, though significant fluctuations show among
the months we could achieve such a result in the first nine months of 2004 that
the indicators by both volume and value are better than in the corresponding
period of 2003 (quantity 10 %, sales revenue 8 %). Discounted sales of Julija
Nova product family in the Bosnian market should be outlined where the sales
could be increased besides a 10 % discount.

At Cesarom S.A. sold quantity increased 18.8 % in Romania however export
decreased 5 %. In the latter segment, a dominant role is played by Austria,
Hungary and France, these three countries represent over 85 % of the export
sales.

Porcelain ware

In 2004, total quantity of produced porcelain tableware was 9.5 % below the
basis level and exceeded 7.8 million pcs. Average weight of the porcelain ware
is 0.24 kg/piece which slightly increased as compared to the corresponding
period of 2003. As regards the structure of production the percentage of white
and decorated goods is 56.5 % to 43.5 %.

Sold quantity approached 8 million pcs being 6.3 % lower than the quantity of
porcelain ware sold in the first nine months of 2003. Though the quantity sold
in the domestic market exceeded minimally - by 1 % - the basis level but in the
export representing a larger portion within total sales, a 9.2 % decrease
occurred. Within export, the most considerable decrease occurred in the Italian
markets representing a 20 % decrease compared to the corresponding period of
last year. The reason of the decrease was the unfavourable tendency of tourism
season, the decrease in demand for traditional products and the fact that the
very low priced Chinese porcelain products and also Turkish and Polish products
the prices of which are 20 to 25 % lower than that of the products of Inker,
appeared in the Italian market. Besides the Turkish and Polish products, the
domestic Italian producers are becoming stronger and stronger. The reduction in
the Italian market could partly be offset by the sales in new markets but the
market launch also needs some time. Considering that Italy is the largest export
market, it is very difficult to substitute the lost turnover within a short
period.

Stove tile

397 thousand tile units were sold of stove tiles representing a 11.5 % decline
compared to the basis. HUF 209 million sales revenue originated from the sales
of stove tiles being 8.2 % lower than the basis level.

Gross margin 
      th HUF      

                                                                                         
                                 Company              Q3 2004      Q3 2003      Index %  
                                 Zalakeramia Rt.       1 986 457    2 046 275       97.1 
                                 Inker d.d.              597 863      566 346      105.6 
                                 S.C. Cesarom S.A.     1 581 525    2 155 905       73.4 
                                 Inker Trgovina           32 282       28 858      111.9 
                                 Total:                4 198 127    4 797 384       87.5 



In the first nine months of 2004 the gross margin of Zalakeramia Group reduced
by 12.5 % or nearly HUF 600 million. The drastic decline in gross margin of the
Group was definitely caused by the underperformance of the Romanian subsidiary
compared to the basis because a significant loss of sales occurred as compared
to the basis.

Selling, general and administrative expenses 
      th HUF 

                                                                                         
                                 Company               Q3 2004      Q3 2003     Index %  
                                 Zalakeramia Rt.       1 247 798    1 190 730      104,8 
                                 Inker d.d.              399 386      366 979      108,8 
                                 S.C. Cesarom S.A.       783 810      889 941       88,1 
                                 Total:                2 430 994    2 447 650       99,3 
                                 Inker Trgovina           22 132       22 192       99,7 
                                 Jasz-Gold Kft.*           7 354       12 051       61,0 
                                 Lakopark Kft.                            162            
                                 Keramialand Kft           5 639        4 875      115,7 
                                 Grand total:          2 466 119    2 486 930       99,2 
* Previously called Jaszberenyi uti Kft. 


On the Group level, selling, general and administrative expenses show a minimum
decrease in total.

Expenses relating to property valuations, extraordinary audit and changes in the
management occurring in the second quarter, are included in the selling, general
and administrative expenses of the parent company the total cost impact of which
amounted to HUF 100 million. The performance of S.C. Cesarom S.A. is slightly
improved by the fact that it could make over HUF 106 million savings in the
indirect costs.



Other operating income and other operating expenses

Other operating income shows a 52.8 % increase. The increase was caused by the
release of provisions - after the disposal of Jasz-Gold Kft - of HUF 139,214 th
made for the recultivation expenses.

Other operating expenses increased minimally, by 5.0 %.

Exchange rate gains/exchange rate expenses

Exchange rate loss/exchange rate gains are shown in a separate line in a grossed
up manner the balance of which is gains of HUF 177,254 th in the first half of
2004.


   figures in HUF thousands                                                         2004                 2003      
                                                                                  First nine months              
         Exchange rate gains:                                                                293.532    921.396  
         of this:                                                                                                
         F/x gains on long term loan:                                                        203.260     170.352 
         Consolidated f/x rate gains on the disposal of Lakopark Kft                               -     561.805 
         F/x rate gains on the settlement of receivables from the                                  -      85.387 
         disposal of Hussar Holding AG                                                                           
         Other f/x rate gains on receivables/liabilities:                                     90.272     103.852 
         Exchange rate expenses                                                              116.278     786.505 
         of this:                                                                                                
         F/x losses on syndicated credit facility                                                  -     623.221 
         F/X losses on the settlement of liabilities against Hussar Holding AG                     -      13.651 
         F/x loss on financial investments:                                                    3.730             
         Loss of value of investments:                                                           835             
         Other f/x losses on receivables/liabilities:                                        111.713     149.633 




Result of financial activities

Interest income, interest expense

Amount of interest income amounted to HUF 63 million exceeding by HUF 25 million
the figure of the basis period. Considering our better financial position in
2004, higher interest income could be realized on our bank deposits.



The amount of interest expenses decreased more than 50 %. Mainly it was caused
by the decrease in long term loan of the parent company on which HUF 84 million
interest expenses incurred in the first nine months of 2004 as against the
amount of over HUF 160 million in the basis period. At the parent company
interest expenses did not arise in connection to it due to the stopping of
factoring which amounted to HUF 7 million in the basis period.

Net monetary position

In the period under review the value of monetary assets slightly exceeded that
of the monetary liabilities therefore the Company generated HUF 9 million losses
on net monetary position.

 Corporate tax liability

This line includes the corporate tax liability on the profit originated at our
S.C. Cesarom S.A. subsidiary in Q3 2004 (calculated in accordance with the
Romanian Accounting Standards) and payable in accordance with the Romanian tax
laws in the amount of HUF 252 million, the dividend tax of the Group in the
amount of HUF 39 million and corporate tax at Jasz-Gold Kft in the amount of HUF
7 million. The decline in this line was caused by the decrease in corporate tax
liability at the Romanian subsidiary the rate of which was HUF 22 million.

Deferred tax liabilities

Deferred tax in the profit and loss statement includes the amounts of deferred
tax shown for S.C. Cesarom S.A. and Zalakeramia Rt. The amount of deferred tax
was HUF 8 million at Zalakeramia Rt and HUF 33 million at S.C. Cesarom S.A. In
the basis period, HUF 172 million deferred tax incurred at Zalakeramia Rt and
HUF 128 million at the Romanian subsidiary.

Net profit after tax and minority interest

With all these items taken into consideration, the consolidated and unaudited
profit of the Group amounted to HUF 1,371 thousand in the first nine months of
2004 exceeding by 9 % the corresponding figure of the basis period.










 I. Analysis of consolidated unaudited balance sheet



    The balance sheet total of the Group has decreased by 2.9 %.

    Assets

    Current assets

    Rate of increase in current assets is 4.0 %.

    Cash and cash equivalents have increased by 48.4 %.

    This line includes an income from the disposal of Jasz-Gold Kft in the
    amount of HUF 352.

    Trade accounts receivable remained on the basis level.

    The value of inventory amounted to HUF 6,128 million which increased by 5.2
    % compared to the basis period.

    The figure of other current assets for Q3 of 2004 includes the receivables -
    in the amount of HUF 300 million - of the parent company originating from
    the disposal of Lakopark Kft. These receivables of Zalakeramia Rt have been
    received therefore it is not included in other current assets in the period
    under review.

    Fixed assets and others

    Fixed assets and others reduced 7.8 %.

    Tangible assets, net decreased by 7.8 %. The decrease is the result of the
    difference between the investments realized in the Group and the recognised
    amortisation.

    Intangible assets, net was 3.5 % lower than in the basis period because the
    rate of investments was behind the rate of amortisation accounted for in
    this line.

    Deferred tax line includes deferred tax of Zalakeramia Rt. The amount of
    this line reduced by 5.9 % as a consequence of deferred tax recognised on
    the basis of the parent company's profit for last year in accordance with
    the Hungarian Accounting Standards.

    Financial investments line includes the house building loans granted to
    employees and long term receivables given for other purposes, as well as
    other shares.

    Liabilities and shareholders' equity

    Current liabilities decreased 9.8 %.

    Accounts payable and accrued expenses reduced by 5 % (or HUF 121 th). This
    reduction was caused by the decrease in suppliers.

    The amount of provisions reduced by 45.7 %. The reduction was caused by the
    release of provisions detailed under section profit and loss statement.

    Short term liabilities remained on the basis level.

    Current portion of long term liabilities

    This line includes the current portion of the parent company's long term
    loans in the amount of EUR 2,842 th or HUF 702 million. In the basis period,
    the amount of the current portion was EUR 3,042 th.

    This line includes also the current portion of long term liabilities of
    Inker d.d. in the amount of HUF 44 th which is almost the same as the basis
    figure (HUF 41 million). In the period under review, current portion of long
    term liabilities includes the current portion of leasing fees for cars
    leased by the parent company, in the amount of HUF 15 million.



    Long term liabilities

    Long term liabilities

    The amount of long term liabilities decreased by 29.7 % as a result of
    principal repayments. This line includes Zalakeramia Rt's long term credit
    in the amount of HUF 2,106 million (EUR 8,526 th), long term liability of
    Inker d.d. in the amount of HUF 47 million and long term portion of leasing
    fees for cars leased by the parent company, in the amount of HUF 48 million.

    Deferred tax

    S.C. Cesarom S.A. indexed the value of tangible assets in IFRS financial
    reports according to rules regarding inflationary economies up to June 30,
    2004. The deferred tax payment liability stated in the balance sheet covers
    the tax calculated according to IFRS on the difference between the revalued
    and the Romanian book value forming the taxation base.

    Minority interest has decreased by 8.3 % compared to the basis period. The
    decrease was the result of the conversion into Forint.

    Owners' equity has increased by 4.7 % compared to the basis period.

    Issued capital and share premium reserves remained unchanged compared to the
    basis period.

    Retained earnings has increased by the profit of the previous year.

    Translation adjustment is the balance of exchange rate differences
    generating on translating into Forint during the consolidation. Difference
    here is caused by the changes of the cross-rates of foreign currencies.





II. Cash Flow

    In the first nine months of 2004, our cash and cash equivalents have
    increased as compared to the basis period based on those described above in
    the analysis of the balance sheet however a decrease of HUF 72 million
    occurred compared to the opening cash as of 1st January. Two major factors
    should be underlined: on the one part, the increase of trade accounts
    receivable - resulting from the turnover - as compared to the end of the
    year and the change in credit facility which reduced by over HUF 700 million
    compared to the beginning of the year, on the other. Taking all these into
    consideration, the closing funds of the Group exceeded HUF 1,870 million.





III. Selected financial ratios


                                                                                     Q3 2004     Q3 2003   
                                                                                                         
                Operating profit                                                    1 595 125   2 109 258
                Amortisation                                                        1 232 304   1 232 539
                EBITDA                                                              2 827 429   3 341 797
                EBITDA/paid interests                                                    40.7        21.8
                Acid test ratio ((current assets-inventory)/current liabilities)          1.9         1.7
                PROFITABILITY TO SALES                                                                   
                Gross margin                                                            29.3%       32.0%
                Operating profit                                                        11.2%       14.1%
                Profit/loss before tax                                                  12.1%       12.6%
                Profit/loss after tax                                                    9.7%        8.5%
                Balance sheet profit/loss                                                9.6%        8.4%
                OTHER PROFITABILITY RATIOS                                                               
                ROE                                                                      6.5%        6.2%
                ROA                                                                      4.9%        4.4%
                PECUNIARY STATUS                                                                         
                Percentage of fixed assets in total assets                              55.0%       57.9%
                Percentage of liabilities in total liabilities & owners' equity         22.1%       27.5%
                Owners' equity/balance sheet total                                      75.9%       70.4%
                Owners' equity/fixed assets                                              1.38        1.22
                Capitalization ratio (owners' equity/(fixed assets+inventory))           0.99        0.90
                Efficiency of stocks (sales revenue/stocks)                            233.4%      257.7%
                FINANCIAL STATUS                                                                         
                Debt-to-equity ratio (debts/owners' equity)                             29.1%       39.0%
                Liquidity ratio I (current assets/current liabilities)                   3.74        3.24
                Quick ratio ((current assets-stocks)/current liabilities                 1.92        1.68
 


                                                                       
                                               ZALAKERAMIA Rt.                                     
                                    Consolidated Balance Sheet, Unaudited                          
                      figures in HUF thousands                 30/09/2004    30/09/2003     Index  
                      ASSETS                                                                       
                      CURRENT ASSETS                                                               
                      Cash and cash equivalents                  1 870 392     1 260 082    148.4% 
                      Trade accounts receivable                  4 257 266     4 339 878     98.1% 
                      Inventory                                  6 128 070     5 823 548    105.2% 
                      Short term investments                             0           297      0.0% 
                      Investments in associates                                                    
                      Other current assets                         305 658       653 342     46.8% 
                      Total current assets                      12 561 386    12 077 147    104.0% 
                      FIXED ASSETS AND OTHERS                                                      
                      Tangible assets, net                      15 163 334    16 451 573     92.2% 
                      Intangible assets, net                        23 135        23 984     96.5% 
                      Deferred tax                                 112 596       119 662     94.1% 
                      Investments                                   36 855        44 132     83.5% 
                      Total fixed assets and others             15 335 920    16 639 351     92.2% 
                      TOTAL ASSETS                              27 897 306    28 716 498     97.1% 
                      LIABILITIES AND OWNERS EQUITY                                                
                      CURRENT LIABILITIES                                                          
                      Accounts payable and accrued expenses      2 321 983     2 443 367     95.0% 
                      Provisions                                   167 441       308 123     54.3% 
                      Short term loans                             107 075       112 401     95.3% 
                      Current portion of long term debts           761 498       859 902     88.6% 
                      Total current liabilities                  3 357 997     3 723 793     90.2% 
                      LONG TERM LIABILITIES                                                        
                      Long term loans                            2 203 384     3 134 444     70.3% 
                      Deferred tax                                 606 168     1 028 629     58.9% 
                      Total long term liabilities                2 809 552     4 163 073     67.5% 
                      Minority interest                            557 197       607 738     91.7% 
                      OWNERS' EQUITY                                                               
                      Issued capital                             5 354 463     5 354 463    100.0% 
                      Treasury shares                                    0                    -    
                      Share premium reserve                      9 420 101     9 420 101    100.0% 
                      Retained earnings                          5 508 739     4 434 013    124.2% 
                      Translation adjustment                       889 257     1 013 317     87.8% 
                      Total owners' equity                      21 172 560    20 221 894    104.7% 
                      TOTAL LIABILITIES AND                                                        
                      OWNERS' EQUITY                            27 897 306    28 716 498     97.1% 
                                                                                                             
                                                ZALAKERAMIA Rt.                                              
                             Consolidated Statement of Profit and Loss, Unaudited                            
             figures in HUF thousands                                                                        
                                                                      30/09/2004      30/09/2003      Index  
             Sales revenue                                              14 304 309      15 005 530     95.3% 
             Cost of sales                                            (10 106 182)    (10 208 146)     99.0% 
             GROSS MARGIN                                                4 198 127       4 797 384     87.5% 
             Selling, general and administrative expenses              (2 466 119)     (2 486 930)     99.2% 
             Other operating income                                        237 226         155 266    152.8% 
             Other operating expenses                                    (374 109)       (356 462)    105.0% 
             OPERATING PROFIT                                            1 595 125       2 109 258     75.6% 
             Exchange difference expense/income,net                        177 254         134 892    131.4% 
             Interest income                                                62 503          37 235    167.9% 
             Interest expense                                             (98 314)       (202 282)     48.6% 
             Permanent diminution in affiliates                                                         -    
             Net Monetary Position                                         (9 264)       (185 731)      5.0% 
             NET PROFIT BEFORE TAX                                       1 727 304       1 893 372    91.2%  
             Corporate tax                                               (298 944)       (317 563)     94.1% 
             Deferred tax                                                 (41 697)       (300 858)     13.9% 
                                                                                                             
             NET PROFIT AFTER TAX                                        1 386 663       1 274 951   108.8%  
             Result of interests in associated companies                         0                      -    
             Interim dividend                                                    0                           
             Minority interest                                            (15 565)        (16 502)     94.3% 
                                                                                                             
             NET PROFIT AFTER TAX AND                                    1 371 098       1 258 449   109.0%  
             MINORITY INTEREST                                                                               
                                                                                           
                                                     ZALAKERAMIA Rt.                       
                                       Consolidated Cash Flow Statement, Unaudited         
                               All figures in HUF thousands                                
                                                                               30/09/2004  
                               Opening cash and cash equivalents                 1 942 687 
                               Net profit                                        1 371 098 
                               Depreciation                                      1 232 304 
                               Loss of value of investments                                
                               Decrease/increase in inventory                      150 646 
                               Decrease/increase in trade receivables          (1 367 500) 
                               Decrease/increase in short term investments               0 
                               Decrease/increase in liabilities                    150 902 
                               Decrease/increase in minority interest             (34 749) 
                               Environmental provisions                          (162 379) 
                               Unrealised exchange rate differences              (646 647) 
                               Deferred tax                                          3 510 
                               Cash provided by operations                         697 185 
                               Addition to/disposal of investments                (70 254) 
                               Decrease/increase in financial investments            5 441 
                                                                                           
                               Cash used in investing activities                  (64 813) 
                               Decrease/increase in capital                                
                               Dividend payment                                            
                               Decrease/increase in loans                        (704 668) 
                               Cash used for financing activities                (704 668) 
                                                                                           
                               Free Cash Flow                                     (72 296) 
                                                                                           
                               Closing cash and cash equivalents                 1 870 391 
 
There are no material off-balance sheet items. 
 
Data relating to share structure and shareholders 
Owners structure, rate of shareholding and voting percentage

                                                                                                                        
                                                                  Total share capital=Listed series                     
                Shareholders                              Beginning of year                       End of period         
                                                           (on January 1)                       (on September 30)       
                                                           %*                    Pcs             %*              Pcs    
  Hungarian institutional/corporation                                  58.75   3,145,531               89.70   4,803,131
  Foreign institutional/corporation**                                  34.27   1,834,812                3.86     206,658
  Hungarian individuals                                                 0.22      11,740                0.16       8,696
  Foreign individuals                                                   0.03       1,521                0.00          21
  Employees, senior officers                                            0.00           2                0.00           4
  Treasury                                                              0.00           0                0.00           0
  Shareholders belonging to state finances                              0.10       5,742                0.11       5,742
  International Development Institutions                                0.00           0                0.00           0
  Other                                                                 6.63     355,115                6.17     330,211
  T O T A L                                                           100.00   5,354,463              100.00   5,354,463

* Ownership stake equals to voting percentage
** Proxyholders

Number of treasury shares (pcs) in the year under review 

                                                                                                   
                                       1 January   31 March   30 June   30 September   31 December 
                        Company                 0          0         0              0              
                        Subsidiaries            0          0         0              0              
                        Total                   0          0         0              0              
 
List of shareholders holding more than 5 % stake (at the end of period) with regard to listed
series and total share capital

                                                                                                           
                       Shareholder           Quantity (pcs)   Share   Voting percentage (%)       Note     
                                                               (%)                                         
               Lasselsberger Ceramics Kft.      4,802,999     89.70           89.70           professional 
 

Number of full time employees (persons) 
     

                                                                                                       
                             End of basis period   Beginning of year u/review   End of period u/review 
                   Company          1.004                     1.006                       976          
                   Group            2.842                     2.862                      2.792         


Senior officers, strategic employees influencing the operations of the Company

                                                                                                                        
  Name                 Title                        Beginning of            End/termination of          Own shares held 
                                                    engagement              engagement                  (pcs)           
  Peter Marton         Chairman of Managing Board   2003.12.18.                 2008.12.17.                      1
  Dr. Andras Walter    Managing Board Member        2003.12.18.                 2008.12.17.                      1
  Daniel Romeyer       Managing Board Member        2003.12.18.                 2008.12.17.                      0      
  Ferencne Borsos      Supervisory Board Member     2003.07.11.                 2006.07.11.                      2
  Istvan Hanzel        CEO                          2003.04.15.                  indefinite                      0
  Sandor Hegyi         Deputy CEO                   2002.02.20.                  indefinite                      0
                       Production,Technical                                                                             
  Csaba Doszpoth       Deputy CEO                   2004.02.01.                 2009.01.31.                      0
                       Sales, Marketing                                                                                 
  Zoltan Hadnagy       Deputy CEO                   2004.06.18.                 2005.06.17.                      0
                       Finance                                                                                          
  TOTAL own shares (pcs):                                                                                              4

Zalaegerszeg, November 10, 2004

Marton Peter
Chairman & CEO

 

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