IR awards: Best in the east

‘I am very satisfied with IR in the region. Larger companies here are as good at IR as companies anywhere.’

‘IR is really not of high importance in the region as most companies are still majority-owned by the state.’

These are contrasting views from two fund managers, based respectively in Austria and Switzerland, on IR from Central and Eastern European corporates. So what is the true state of investor relations among companies in the region today?

There are currently ten countries in Central and Eastern Europe negotiating to enter the EU. The first wave of candidate countries is expected to join in 2004. These are the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia.

For the first time, Investor Relations magazine is hosting an awards event for companies domiciled in those Central and Eastern European countries that are in the first wave of candidates for EU entry. To discover which companies should be singled out for awards, the magazine joined forces with the Partners for Financial Stability program (PFS is a cooperative program of the East-West Management Institute and USAID) to commission a survey. This took the form of a series of in-depth interviews with members of the investment community who either invest in, or cover, companies in the region. The goals of the research were as follows:

– to assess the current state of IR in the region
– to ascertain what effects, if any, approaching EU membership is having on the companies’ IR efforts
– to determine the winning companies.

Regional IR

Hungary is the most advanced and economically developed of the countries covered by the research and its leading companies are widely regarded as being among the finest exponents of IR in the region. Hungary’s approach to attracting foreign investment began with its privatization program in the late 1980s, ahead of other countries in the region. Now its blue-chip companies – Egis, Matav, MOL, OTP Bank and Richter – all have secondary listings in the US or the UK.

However, others in the region are not far behind. ‘Hungary has always led the way in the region and a few years ago it was markedly better at IR than any of the others,’ says Frances Cloud, an analyst at Nomura Securities. ‘But now others are catching up.’

Cloud is thinking, in particular, of a number of companies in the highly competitive pharmaceuticals industry, such as Lek and Krka in Slovenia and Pliva in Croatia. Respondents rate these companies’ IR programs above that of Hungary’s Richter, for example. Indeed, many believe that Pliva has the most sophisticated and, more specifically, proactive IR in the region: ‘Pliva is the only company in the region with an IR team that can beat the drum in a world-class fashion,’ asserts Bram Buring, a pharmaceuticals analyst in Hungary.

While Poland’s privatization program began after Hungary’s and got off to a faltering start, several of its larger companies, particularly in the banking and technology sectors – including Agora, Bank Pekao and Computerland – are considered to have vigorous and consistent IR operations. Some commentators believe stricter Polish disclosure rules have produced the highest levels of IR in the region. For example, all listed companies in Poland are required to produce quarterly reports. Also, the stock exchange is now planning to standardize and implement further corporate governance rules, which will also apply to all listed companies.

On the other hand, many Polish companies are 100 percent domestically owned, so have no need to develop the expertise needed for communicating with foreign investors. While Poland has the largest economy of any of the EU accession countries in the region, it also has a more cumbersome corporate approach than Hungary, and in general is less sophisticated than some other countries in the region in communicating in languages other than its own.

Slovenia, on the other hand, lifted restrictions in 2001, making it easier for foreign investors to return to Slovenian companies. This in turn encouraged companies to improve their IR operations. As one UK analyst described this, ‘Slovenia has woken up from a long sleep.’ In fact, many say Slovenia is the best prepared country in the region for EU accession and that membership will serve to increase interest from foreign investors. A fund manager in the region is optimistic: ‘Once in the EU, there should be more foreign investment interest, so the bridges will be shorter to cross.’ Others pointed out, however, that Slovenian IR efforts have yet to address the typically poor standard of their English-language communications.

Among the Visegrad countries, the Czech Republic is ranked behind Hungary and Poland in terms of IR performance, but still way ahead of Slovakia, whose companies have not attracted any significant foreign investment. There is little apparent interest in Slovakian stock among the foreign investment community. One Swiss fund manager is both forthright and dismissive: ‘Slovakia has nothing to invest in.’

By contrast, respondents rate the Czech Republic’s larger companies with foreign partners – such as Ceska Sporitelna and Komercni Banka – as good IR performers. Analysts believe that EU membership and subsequent privatization of the remaining state-owned Czech companies will lead to increased foreign interest and so an improvement in IR strategy.

According to survey respondents, Estonia has by far the most developed investor relations of the Baltic states. Its larger companies have successfully adopted IR strategies and one of its major banks, Hansabank, is respected by many for its consistently high level of IR expertise.

The EU & beyond

The consensus of opinion among the investment community is that EU accession has not been a significant driver of improvement in corporate IR. Most say the changes and advances in IR were already established before membership became an immediate issue. Others are not so sure. For Frances Cloud, the effect of membership on IR is unclear: ‘There is a definite desire to attract foreign investment across Central and Eastern Europe, but whether the EU is bound up in that, it is hard to say.’

In fact, the driving force for better IR may come more from a corporate desire to develop capital markets and increase investment than from any macro-political developments going on at the supranational level. In the process, some Central and Eastern European companies have had to conform to the requirements of foreign stock exchanges and international accounting standards. An analyst in the Czech Republic puts the issue of EU membership into a broader context: ‘The EU is all part of a larger transformation process that companies in this region are going through.’

But if EU accession is not the only, or even the prime, spur to change, respondents do accept that in future, once membership is attained, it will have a positive impact on joining countries’ corporate IR. This will also have a domino effect on those countries lower down the list of joiners.

More interesting, perhaps, is the impression among members of the investment community that the improvement in IR extends beyond the EU candidate countries and is in fact widespread. Russia has seen the most dramatic progress in the past year. Companies that used not to engage in IR activities at all are now proactively seeking foreign investment and have quickly developed an understanding of the benefits of transparency and shareholder value. As one analyst at UBS in Switzerland puts it, ‘The IR situation in most of these countries is not really changing but in Russia there is an IR revolution.’

Foreign investment driver

There is a widely held belief that the impetus for change and improvement in IR practice comes not from the companies themselves but from the foreign investment community, with analysts and investors calling for better standards in the quantity and quality of information provided. ‘US and other western investors had started to feel out of the loop and piled the pressure on for better and more information,’ explains an analyst at Morgan Stanley. She adds that companies responded by putting considerable effort into their corporate communications.

Other analysts have a similar view of the way foreign demand for heightened levels of disclosure and transparency helped focus IR departments and upgrade their output. ‘Increasing pressure from foreign investors for more quality information has definitely resulted in better IR practice,’ comments a Switzerland-based fund manager, Markus Winkler at Charlemagne Capital.

Quality of IR

Since the early privatizations, and more specifically in the last five years, respondents confirm that IR across the region has emerged and improved significantly. As one London-based analyst comments, ‘IR in the region has improved enormously, but it’s not that long ago that it was non-existent.’

Bigger companies have addressed IR issues and have gradually become more open and transparent. The benefits of IR are now understood and at many companies IR is now a separate resource with a dedicated IRO in place. The quality of IROs, just as in other parts of the world and especially in the less sophisticated markets, still varies from excellent to poor. ‘The caliber of IROs at these companies ranges considerably. Some are very knowledgeable, but these are still in the minority, and many appear not to understand the business they are in,’ laments Gabriel Csendes, a UBS analyst in Switzerland.

Information is now more forthcoming and, in general, analysts and portfolio managers covering the region say it is of a higher quality and more detailed than before. For instance, press releases are more timely and relevant and are now released simultaneously in English and the local language. Technology too has played its part in IR progress. Companies now have corporate web sites and most of these are now in languages other than – or in addition to – the domestic one.

As many respondents point out, IR practice in the region still has a long way to go, especially when compared to its Western European and US counterparts. ‘In this region, IR varies tremendously from country to country, from sector to sector and from company to company,’ sums up a Netherlands-based fund manager.

More particularly, it differs markedly between the big companies with international listings and the smaller domestic ones. The first group now tend to spend more time with investors; and many are actively involved in roadshow programs, regularly visiting Western Europe and the US. As one fund manager comments: ‘Those companies operating in international markets are at a different level – in IR terms – from those that are not.’

Click here to see the winners

Research facts & figures
The research was undertaken by Mary Maude Research in London

The in-depth interviews were conducted in August 2002.

A total of 35 respondents based inside and outside the region participated in the research.

Some respondents cover the entire area while others follow one or more countries or sectors.

Company rankings (by total number of points scored)