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| Best managed companies in CEE 2012: Results index |
The 2012 survey of best-managed companies in Central and Eastern Europe was a positive one for Russia, with the winners of each individual category being Russian. This might not be too surprising given the size of Russia compared with its regional competitors, but it is promising news for a country that has not always been lauded for the standards of governance at its large corporations.
It certainly stands as an improvement on last year’s survey, where only one of the categories was won by a Russian company.
The big winner this year was Russian food retailer Magnit, taking the prize of overall best-managed company along with the most convincing and coherent strategy, and the highest standard of corporate governance. By taking these prizes, Magnit has proved there is more to look at in Russia than natural-resource companies.
Magnit is Russia’s second-largest and fastest-growing food retailer by revenue. The company looks set to become the largest food retailer within three years, having increased turnover by between 30% and 50% for the past seven years. It has also managed to be the most profitable food retailer in the country, even while pushing for large growth in its number of stores.
Magnit’s strategy is reliant on the sheer number of stores it operates – more than 5,000 – and part of its success has stemmed from it being able to maintain profitability in regions where competitors struggle because of the efficiency of its distribution systems.
“Our model allows us to be more flexible and aggressive,” says Khachatur Pombukhchan, Magnit’s CFO. “While our rivals may only expand into cities with populations of 300,000 or more, we can thrive in places with populations of 50,000.”
Pombukhchan believes analysts are convinced by Magnit’s strategy because of the company’s dedication to ascertaining both what its customers want and what they can spend, as well as taking a flexible approach to its customers’ desires.
Magnit takes a wide variety of considerations into account when looking at the budgets of prospective customers, factoring in the macroeconomic climate and commodity prices. “When we strategize, we focus on the real economic situation of the country,” says Pombukhchan. “We look at our customers’ budgets and how they might be impacted by the macroeconomic situation and commodity prices.”
Last year was good for Magnit, with a record number of stores being opened across Russia and a successful share placement in the closing months of the year. Pombukhchan has big hopes for Magnit this year, with the company aiming for another record in store openings and preparing the groundwork for expansion. “In the next year, we want to lay the foundations for future expansion – we’re looking for new growth areas, and want to know what’s going to be driving growth five years down the line.”
Magnit’s level of transparency impressed those surveyed. Analysts were pleased at the transparency of its accounts, and at the level of contact that Magnit has with analysts, including regular roadshows. “Honesty is the best policy,” says Pombukhchan. “We don’t just try to tell analysts what they want to hear. We give detailed information. This isn’t an approach that analysts are used to seeing, especially in Russia.”
In terms of corporate governance, Magnit can boast that its top management is stable. Ivan Nikolaev, analyst at Russian investment bank Aton, says: “The senior management team has been in place for more than 10 years, meaning there’s a very stable management structure.”
Analysts were also impressed with Russia’s largest bank, Sberbank, naming it as the company with the most transparent accounts and most improved company. Sberbank has undergone a change of culture since its management reshuffle in 2007. While the bank formerly had a reputation for being similar to a Soviet-era ministry, the past five years have seen a great deal of improvement.
“The new management has done a great modernizing job,” says Ivan Kachkovski, analyst at Aton. “While Sberbank is still rather bureaucratic, it has improved dramatically. An institution the size of Sberbank cannot be reformed overnight.”
Sberbank is in an unusual position among Russian banks, being the closest thing to a household name, and boasting a vast branch network and deposit base, along with a great deal of trust from the Russian public.
However, Sberbank’s size has hampered the modernization effort – the number of branches and long-entrenched staff not being conducive to a rapid cultural or procedural overhaul at the bank.
Comparisons to a government ministry were not alleviated by the appointment of former minister of economics and trade German Gref to the post of CEO. However, the perception among analysts is that Gref has been a modernizing influence, bringing in a bright, young team.
In some ways, Sberbank is at the opposite end of the spectrum to Magnit: while both are successful companies, Magnit is privately owned and relatively free from state influence or benefit, whereas Sberbank remains majority state-owned, with all the advantages and disadvantages that entails.
In an uncertain climate for financial institutions, Sberbank’s state ownership has contributed to a lower cost of funding for the bank by offering an implicit safety net. Analysts also seem to believe that state meddling is less likely in a financial institution than in, say, an energy company – and Sberbank is seen as being particularly insulated from the problems facing state-owned companies.
“Being state-owned is a double-edged sword,” says Kachkovski. “While it has benefits, the social and political obligations it entails can be problematic – but this hasn’t been a very big issue at Sberbank. Its sheer size gives it a certain amount of defence against these obligations.”
A part-privatization of Sberbank was scheduled for September 2011 but was postponed after the unfavourable global market conditions cut $1.5 billion from the value of the 7.58% stake being offered.
It is unclear when the sale of the stake will take place. On April 16, deputy prime minister Igor Shuvalov revealed that there were divisions in the government as to whether it should be this year or not. At any rate, the sale would still leave the state with just over a 50% stake in Sberbank.
Completing Russia’s clean sweep of the awards were VTB, deemed to possess the most accessible senior management, and car producer Severstal-Auto, whose website was thought to be the most useful and informative.
