Corporate Image In Ukraine

©2008 Prepared by Mmd Corporate, Public Affairs & Public Relations Consultants , all rights reserved11

How Corporate Image in Ukraine, in times of crisis, can help or hinder global reputation for multi-nationals

By Marcus Stober

Vice President & Country Manager, Mmd Ukraine

European Business Association

Roundtable - November 27th, Kiev


Wider Global Reach Through:

©2008 Prepared by Mmd Corporate, Public Affairs & Public Relations Consultants , all rights reserved

Communication in times of crisis: and how it can affect the reputation of a global company

Consequences of the crisis Communication tactics in times of crisis A recent case study Conclusion/discussion

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East Capital: been there before…

Today: Leading independent financial investor in CIS 2.3 bln EUR under management

It was not always so: Launched in 1997 First Russia open-ended fund in May 1998 Ruble crash in August High exposure to private investors

Basic story: 1500% since 1998

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Some common predictions about the economy

• IMF conditions will slow growth in real economy

• US and most of EU countries will experience a recession next year

• EUI: expects GDP growth to fall from 7.7% in 2007 to 5.3% in 2008

• ..and then sink to a range of +1.5% at best to a possible worst case of -2.5%.

• EBRD expects Ukrainian GDP growth to slow to 1% y-o-y in 2009

Ukraine will bounce back only with a general recovery in the US and the EU, which is excepted to hit bottom only in Q2 2009


and the business outlook

• Companies are now in a “wait and see” mode and plan for all eventuality

• There is a need to manage expectations downwards of global headquarters

• Companies in the following sectors are worst hit: construction, mining, steel/metals/real estate, retail

• Lay-offs amongst multinationals to be expected in Ukraine although not across the board until Q2 2009

• Foreign business in Ukraine that have been able to overlook, in good years, ‘a general bad business environment’ will now be more exposed than ever

External and internal pressure to send the right signals in a tougher market environment


Orthodoxy says in Crisis PR tell the truth; tell it fast and enhance your corporate reputation for:

- transparency - ‘having a good grip on your business’ - leading, not following, events.

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I would like to add a couple of points...

Be a leader Be visible Be humane: especially when being forced to lay off or when

staff is under pressure - it pays off in the long run in terms of corporate & personal reputation!

Never forget the basic story of why you’re here and the long term prospects of this market

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The post-Soviet crisis management model

Traditionally, in UKR and other post-Soviet countries, immediate reaction to external events is to keep silence

When facing an inconvenient truth/-lie’s and half truths are common

Operate below the radar until the problems goes away Don’t pick up the phone have been the order of the day Telling bad news they see as weakness and loss of face.

In contrast, typically, in post-Soviet countries, people say

“you know when your bank is about to collapse when they make adverts proclaiming their financial strength…”

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Why care?

Companies with western parents: Poor communications behavior undermines corporate reputation and, worse, suggests that the global parent only has a weak control over its Ukrainian end

For Ukrainian firms which have, or want to have, IPOs or outside international stockholders or bondholders, it does matter a lot.

Investors crave transparency and in our new risk-adverse & frightened market, Ukrainian firms that try to hide bad news will just not be considered investible.

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“In the current crisis things are going so badly, so fast, we have nothing to say, so why should we?”

True, say nothing if you have nothing to say (but this does tend to suggest, in the eye of the investor/beholder, that this is a weak management team in place)

What to do: Instead copy what SAP did in its last global, quarterly results: ‘the markets are tumbling

so far and fast we cannot offer guidance for Q4 or 09. But here, at least, are the factors that analysts and investors should consider as benchmarks…’

Also, don’t let your claims of financial strength be the story (which locally no-one will believe – will actually think the opposite indeed), but demonstrate it through proactive newsflow about actually doing stuff; your business carrying on (deals; processes; innovation; hires, if any; new products; management comment on business stories in the Ukrainian business press. In short:

Visibility & continuity = reassuring your publics of your financial viability

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An Mmd case study: a crisis avoided?

Background: a company in the agriculture sector negotiates the acquisition of an asset in Ukraine. The company is two weeks away from ½-yearly results announcement when the story leaks to media about an acquisition

Fears that, in view the current market environment, this could spell problems as investors & financiers might question the solvency of the deal and a news hook might develop into:

The Company is struggling to refinance – risk of insolvency Management has a ‘black hole’ in its finances it is trying to deal with

Initial reaction by client: Story not negative, no communication required until the deal is finalized, why stir up interest for this story when sensitivities about insolvency are so high

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Basic story…

The acquisition should be viewed positively by the market for three reasons:

it would increase economies of scale that the company could make (e.g. transport costs of raw material to plant);

gives the company greater relative market share and allows more order in the marketplace, in terms of capacity (and consequently of pricing); and

is consistent with the strategy management has presented to the market (increased assets at fair value or better).

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Mmd advice Be proactive

Holding statement: for the media and market

“The Management of the Company confirms it is in detailed negotiations to acquire the [target....]”

“… additional information will be provided when deal is finalized…”

Meanwhile take the opportunity to invite for results announcement and analyst tour

Be truthful

The market of course wants to know how the company would fund the acquisition rumoured in the market; and it will press the Company for as much information as soon as possible, but with a proactive strategy management to show it has control

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Results

Media pressure on company lost momentum as credibility for CFO in the company strengthened

Higher media presence for the company Increased understanding for basic company strategy helped to strengthen

its reputation in the market

If no information would have been provided the questions over financing of acquisition would have been built up until a real credibility gap for senior management would have appeared with possible long term impact in terms of dealing with both their banks and equity investors

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In conclusion

In this crisis, credibility is key:

For Ukrainian firms, the manage their communications during crisis in a way that, for the survivors, enhances management’s international reputation for trustworthiness (this will directly impact future funding costs; reduce risk premiums and make a return to capital markets’ funding easier)

For multi-nationals, a need to remind HQs, investors and the market about the basic idea of the investment in emerging markets and long-term value creation

The priority must therefore be to defend your basic business narrative (your corporate story in Ukraine); explain why you are here and how you will manage through the economic situation

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Please remember:

In the long-run, only one message survives:

1500%

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5 Mala Zhytomyrska Str. Office 5 01001, Kyiv Ukraine

Tel: +380.44.537.31.28Mob: +380.67.534.12.36Fax: +380.44.279.48.31

Marcus Stober. Vice President & Ukraine Country [email protected]

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