Ben Aris in Stockholm -
Even in a time of crisis and economic malaise, people continue to turn up for work, make products and go shopping at the weekend for things their families need. The headlines may be depressing, but on the night of November 5 in Stockholm, East Capital, the largest fund specialising in Emerging Europe, celebrated for the 11th year the companies that continue to do better than anyone else.
Emerging markets are volatile by nature and part of becoming a successful company in this environment is how management cope with rocky conditions. The fund managers at East Capital, which has several billion euros under management, spend most of their time travelling around the region to visit companies and see with their own eyes what makes the firms that it invests in tick. At the end of each year, it then gives out awards in categories: Best Growth, Best IPO, Discovery of the Year, and more recently Best Corporate Governance.
“These awards recognise noteworthy achievements of companies that are part of East Capital’s investment universe. Our consistent research and extensive company visits in emerging and frontier markets enable us to identify companies each year that have achieved impressive results and demonstrated exciting potential. We are delighted to be honouring those companies today," said Peter Elam Hakansson, the founder and chairman of East Capital, at the black tie event, the East Capital Awards 2014, held at Stockholm's Grand Hotel.
The Best Growth award was won by Russian construction company LSR Group, one of the largest real estate developers in Russia. A vertically integrated company that as well as building billion-dollar residential projects in Moscow, St Petersburg and Yekaterinburg, the firm also produces construction materials and other construction-related businesses, which gives it a hedge against the vacillations of the Russian real estate market.
And despite the economic downturn in Russia, the company has been doing extremely well: sales grew by an impressive 69% in 2013, and especially appealing for portfolio investors the company doubled its dividends, paying out a whopping 80% of net income, implying a dividend yield of 6.7%.
"We have finished our extensive capital investment programme and fully modernised all our production," Molchanov told bne at the party. "Sales are still strong and we can finance all our operations out of retained earnings, so why not return some of the profit to shareholders?"
IPOs have become something of an endangered species in recent years, but Romania's Romgaz was one of the exceptions in 2013.
The IPO of Romgaz at the end of 2013 was a landmark event for the Romanian market, which is rapidly gaining a reputation as one of the most attractive investment destinations in Central and Eastern Europe, thanks to its EU accession, ongoing reform programme and economic growth.
The deal raised $520mn for the company with dual listings in London and Bucharest, and was the largest in Romanian history, as well as the first ever Romanian GDR listed in London. The IPO brings the company cash to modernise, but will also spur development of the Romanian economy by introducing the country to a new class of institutional investors in the international capital markets. The deal, run by the consortium of domestic and international investment banks, was more than four-times oversubscribed, with the stock jumping 15% on the first day of trading.
Discovery of the Year
Discovery of the Year, as the name suggests, is a new company that joins the East Capital family of investments for the first time. This year's winner, Folli Follie, an "affordable luxury retailer", comes from Greece, which until recently counted amongst the developed markets and outside East Capital's traditional stomping ground – but not anymore.
Over the past year East Capital has made some of its most profitable investments in Greece, including into Greek debt, Jacob Grapengiesser, a partner and fund manager, told bne.
Set up in the 1990s, FF, as the company is commonly known, floated on the Athens stock exchange in 1998 with $10m of turnover, but expects to top $1bn of revenues this year, CEO George Koutsolioutsos told bne during the ceremony.
In the last decade the company has made several acquisitions including Links of London and also inherited several retail outlets in the Balkans where it is now rapidly expanding. "More recently FF acquired the exclusive wholesale and retail distribution rights for Juicy Couture in continental Europe, UK, Ireland and Cyprus.
In addition, the Group is active in the beauty & cosmetics sector, while it also continues to have a key role in the global travel retail sector through a strategic alliance with Dufry. Altogether, the company is now operating in 28 countries globally.
Best Corporate Governance
The award for best corporate governance is a recent addition to the award categories and this year went to Turkey's AK Bank.
Corporate governance has always been an issue for investors in Emerging Europe. But as companies in the region have developed, their interest in corporate governance increased because the owners realise that adopting international best practices materially improves their stock's performance.
"Akbank has impressed year after year with their clear and consistent aim to create value for all shareholders," Hakansson told the assembled investors. "This includes a strong respect for the rights of minority shareholders, a stable dividend policy, and a transparent and open approach to communicating with external stakeholders on all relevant and material issues."
The bank's focus on building up its reputation as a solid and reliable institution has contributed directly to its business where it has emerged as one of Turkey's leading commercial banks serving more than 13mn customers.
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