Hungarian companies haven’t been shy in getting their message out to international investors in the last few years and some, at least, have obviously been doing things right on the IR front. One indicator of the desire to make themselves more attractive to international investors is the amount of ADR and GDR programs which have been established. Out of all the markets in the region, Hungary is second only to Russia in numbers of DR programs.
Whether those programs are backed up by good investor relations is another matter, of course. The market has suffered in recent months as international investors became wary of the region as a whole but some companies have weathered the storm better than others, largely by holding investors’ hands during the tough times.
Time lag
In some respects, Hungarian companies have an advantage over competitors in other European emerging markets. Quarterly reports (referred to as ‘flash’ reports) are the norm and almost all the larger companies put out two sets of accounts – one according to International Accounting Standards (IAS), one in line with Hungarian accounting policies. There are quite significant differences, particularly in the treatment of stocks and extraordinary items, so IAS is generally used, particularly for comparison with companies in other countries.
However, only a select few of the companies, such as Mol, the oil giant (and winner of this magazine’s UK award for best emerging markets IR), put out their IAS accounts at the same time as the Hungarian accounts. More usually, there’s a two or three month delay while analysts have to recreate the accounting treatment from the hints given in the final results statement. These hints vary from not very helpful at all, to an almost exact calculation.
Annual and ‘flash’ reports are of varying quality, but most make some attempt to convey the realities of the business as well as the balance sheet. Danubius shows the occupancy of its hotels, as well as of other major Hungarian hotel chains, but it doesn’t show the total number of rooms. In fact Danubius has one of the lengthiest and most informative quarterly reports to be found in any emerging market, with a full breakdown of costs, revenues, employees and margins for each of the group’s hotels and each major brand within the group.
Danubius also launched a web site in May this year, which carries the latest financial report as well as an online hotel reservation system. All the reports are in Excel format, so that analysts can import data direct to their own spreadsheets. Gaspar Molnar, the investor contact at Danubius, says the web site was created to handle announcements and report delivery more proficiently. ‘It’s more efficient, and faster than the post. You don’t have to wait days or weeks to get the results.’
Niche success
Hungary has a number of excellent niche businesses, especially in the chemicals and pharmaceuticals sector. One of the best known, Richter Gedeon, scores very highly for investor relations. John Barnett, an analyst at RSI in Budapest, considers Richter Gedeon one of the best. ‘When we had a client meeting with them, there wasn’t a single question left to ask after they’d done the presentation,’ he says. ‘Richter is worth a 20 percent premium on its share price just for its investor relations.’ That’s good news for Michael Stevens, a British management consultant who handles Richter’s IR. Unlike some other Hungarian companies, he’s quick to respond to inquiries and works hard to keep the financial community in the picture.
The UK IR connection is mirrored at Zalakeramia, an acquisitive tile manufacturer that is rapidly turning into a major regional player. About half the board of directors are western managers, spending a significant part of their time in London. Peter Gwilliam, the finance director, is easy to get hold of and investor-friendly. Access to other members of the management team is also kept open, so investors can assess the strength of management rather than just a single director.
Gwilliam believes the London office is a key strength. ‘Most of our investors are UK and US institutional investors, so we can maintain contact with them more easily in London.’ Zalakeramia has always been an acquisitive company, and realized early on that good IR was vital to its expansion plans. ‘We made a conscious effort about three years ago to build up a wider experience with investors generally because we were expanding, and knew we would go back to the market for further capital,’ says Gwilliam.
Problems, problems
Still, it wouldn’t be fair to pretend that all was fine and dandy on the Hungarian IR front. Like most emerging markets it has its fair share of financial communication obstacles which it has to struggle through. One perennial complaint in Budapest is that news doesn’t always come out cleanly. One example cited by fund managers and analysts is chemicals concern TVK: a few people mention that it is ‘leaky’ – there are often strong market rumors two or three days before the results. However, there has not been any sign of major insider trading, despite the fact that many Hungarian companies have single large or majority shareholders.
It may well be that some of the problem comes from the fact that several companies are keen communicators on some subjects, but then become reluctant to talk about other areas. Matav, the telephone company floated last year, keeps up to best practice by having a multinational teleconference on the day of its results, timed to coincide with the start of the day in New York. That ensures that everyone hears the same story, and at the same time. Other companies are not so well-organized. Of course, it does help to be a telecoms provider if you’re planing a conference call.
Matav is praised for its openness and professionalism. However, there are certainly some areas that Matav considers off limits; for instance, it won’t discuss ‘churn’ – the number of mobile subscribers disconnecting each year – on grounds of commercial sensitivity. The fact that Moscow cellular operator Vimpelcom announces its churn figures in annual accounts might indicate Matav is playing its cards a little close to its vest.
Some other newly privatized companies, on the other hand, seem not to care at all. Several analysts (wishing to remain anonymous) mention engineering company Raba as not taking IR seriously. Its biggest mistake appears to be restricting access to a single contact – who doesn’t seem to speak English. The group also provides the bare minimum of information required by the Budapest stock exchange. ‘Raba’s management is still living in the old days,’ says one fund manager.
Another company with a similar attitude is Fotex, a major retailer. It has always seen itself as a private company with a few outside shareholders, and is majority owned by its chairman. Fotex has a GDR, but one that only trades OTC which means, in practice, that it rarely trades at all. Analysts report that though the chairman wants to do all the meetings himself, he frequently double-books and cancels at short notice.
Fotex’s relatively poor treatment of its shareholders is somewhat reminiscent of many companies in the Czech Republic, where firms are often tightly controlled by a single shareholder. However, though this situation does occur in Hungary – for instance, Danubius also has a single large shareholder in its own management – it generally does not seem to have led to worse investor relations on the part of the companies concerned. Fotex is seen by most investors as an exception to the rule.
