Economic impact study of the new 5000-people convention centre at the Millennium City Center, Budapest Dr. Andrea Sartori Senior Manager Travel, Leisure and Tourism Group CEE KPMG Consulting Travel, Leisure & Tourism Group CEE

Presentation objectives To present a major tourism project (i.e. new Budapest Convention Center) and the role of KPMG Consulting in such a project To present a major tourism project (i.e. new Budapest Convention Center) and the role of KPMG Consulting in such a project Showing the economic impact of the proposed development Showing the economic impact of the proposed development Questions & Answers Questions & Answers Travel, Leisure & Tourism Group CEE

Project background KPMG`s Client: Tourism Division of the Ministry of Economic Affairs KPMG`s Client: Tourism Division of the Ministry of Economic Affairs Project scope: determine the Ec. Impact of the new 5000-people Budapest Convention Center to be developed at Millennium City Center, Budapest Project scope: determine the Ec. Impact of the new 5000-people Budapest Convention Center to be developed at Millennium City Center, Budapest Project period: April-June 2000 (3 months project) Project period: April-June 2000 (3 months project) A project`s master plan was not ready at the time the study was performed by KPMG A project`s master plan was not ready at the time the study was performed by KPMG Travel, Leisure & Tourism Group CEE

Millennium City Center: background The Millennium City Center is a mixed-use development The Millennium City Center is a mixed-use development The MCC will be realized on the Danube waterfront, between the Petőfi and the Lágymányosi Bridge The MCC will be realized on the Danube waterfront, between the Petőfi and the Lágymányosi Bridge Site were the World Expo was originally planned Site were the World Expo was originally planned Land area: approx. 10 hct Land area: approx. 10 hct Travel, Leisure & Tourism Group CEE

The importance of synergies and critical mass Projects elements: 4 hotels4 hotels American style casinoAmerican style casino Cinema and other entertainmentCinema and other entertainment Two condominiumsTwo condominiums Office spaceOffice space RestaurantsRestaurants Exhibition centerExhibition center Hungarian National TheatreHungarian National Theatre Convention centerConvention center A place to work, live and play! Travel, Leisure & Tourism Group CEE

Background conference tourism industry: trends in Hungary Travel, Leisure & Tourism Group CEE

International associations meetings held in Hungary and number of participants Travel, Leisure & Tourism Group CEE

Prefered destinations for association meetings Travel, Leisure & Tourism Group CEE

Seasonality of MICE demand Travel, Leisure & Tourism Group CEE

Conference tourism in Budapest In 1999, Budapest hosted 51% of international association meetings held in Hungary (in 1998: 52.5%) In 1999, Budapest hosted 51% of international association meetings held in Hungary (in 1998: 52.5%) In 1999, 91% of meetings had less than 600 participants In 1999, 91% of meetings had less than 600 participants Average duration of meetings held in Budapest is shorter than international averages Average duration of meetings held in Budapest is shorter than international averages International association meetings/conferences3.5 days International association meetings/conferences3.5 days National association meetings/conferences1.7 days National association meetings/conferences1.7 days Corporate meetings and incentive2.5 days Corporate meetings and incentive2.5 days The majority of meetings tourists to Hungary arrive from Europe, mainly from Germany The majority of meetings tourists to Hungary arrive from Europe, mainly from Germany Travel, Leisure & Tourism Group CEE

Association meetings lost due to lack of capacity Travel, Leisure & Tourism Group CEE

Financing convention centres: international experience Travel, Leisure & Tourism Group CEE

Financing the development Experience shows that most international convention centres receive financial support from the public sector in their initial development Experience shows that most international convention centres receive financial support from the public sector in their initial development In a 1993 survey, it was found that 23 international convention centres which collectively planned to spend USD 533 million on expansions and upgrading, were expected to source for this capital expenditure as follows: In a 1993 survey, it was found that 23 international convention centres which collectively planned to spend USD 533 million on expansions and upgrading, were expected to source for this capital expenditure as follows:  From the capital market25%  From the public sector46%  Own funds28%  Other1% Travel, Leisure & Tourism Group CEE

Conference trade is a thin margin business Source: Horwath Axe Consultant Paris, 1995 Travel, Leisure & Tourism Group CEE

Economic impact of proposed convention centre Travel, Leisure & Tourism Group CEE

Understanding the impact of the convention center Type of impacts Direct ec. effects Indirect ec. effects Wider benefits Timing of impact During construction During operation Travel, Leisure & Tourism Group CEE

Assumptions of the economic model (5th year stabilisation of business) Conservative Optimistic Nat. delegates paying only registr. fee70,000 (40%) 84,375 (37.5%) Nat. delegates staying in hotel 70,000 (40%) (37.5%) International delegates35,000 (20%) 56,250 (37.5%) ________________________________________________________________ Total delegates per annum 175, ,000 ________________________________________________________________ Travel, Leisure & Tourism Group CEE

Assumptions of the economic model (Average Expenditure) Conservative & optimistic - Conservative & optimistic Average Spending per delegate - Nat. delegates paying only registration feeU$ 43 - Nat. delegates with accommodationnU$ 90 - International delegates with partnerU$ 200 Percentages of partners (conserv. vs. optim.) 20% 25% Days spent in Bp by partners (conserv. vs. optim.) 7,000 14,063 Travel, Leisure & Tourism Group CEE

Total estimated construction costU$ 29.3 ml. Jobs created during construction771 per year Total taxes (per year)U$ 2.8 ml. Consisting of : Indirect taxesU$ 1.9 ml. Labour taxesU$ 0.7 ml. Corporate taxesU$ 0.2 ml. Economic impact during construction phase (2 years) Travel, Leisure & Tourism Group CEE

Economic impact during operational phase (fifth year) Travel, Leisure & Tourism Group CEE

Share of direct economic impact (based on conservative scenario) Travel, Leisure & Tourism Group CEE

Financing by the public sector (Optimistic scenario excluding construction) Travel, Leisure & Tourism Group CEE

Wider benefits (non measurable benefits) Delivery of social and cultural benefits to the community Small, Medium and Micro Enterprises development Facilitation of the interchange of knowledge, technology and know-how Promoting Budapest and Hungary’s image   Promotion of tourism through word-of-mouth recommenda- tions and repeat visits by delegates and their families   Promotion of Hungary as a tourism destination   Potentially favourable impression on foreign investor perception Travel, Leisure & Tourism Group CEE

Q & A Travel, Leisure & Tourism Group CEE

KPMG experience in Travel, Leisure and Tourism industries Our experience broadly falls in the following categories: National, regional and urban tourism strategy National, regional and urban tourism strategy Marketing strategy Marketing strategy Economic impact assessment Economic impact assessment Tourism investment promotion Tourism investment promotion Project conceptualisation Project conceptualisation Market and financial feasibility study Market and financial feasibility study Business performance improvement and operational review Business performance improvement and operational review E-Business (strategy, internet readiness, E-engineering business, infrastructure) E-Business (strategy, internet readiness, E-engineering business, infrastructure) Travel, Leisure & Tourism Group CEE