Limestone in collaboration with Northern Star have published the third annual Sustainability Yearbook 2011. The Yearbook presents a comprehensive overview of key issues and implementation of integrated ESG research in Eastern Europe, Russia and emerging frontier markets. The Sustainability Yearbook 2011 includes insight into the following topics: • Northern Star - roadmap to building an emerging markets multi-boutique platform with a dedicated focus on sustainability and responsible investing • Limestone New Europe fund - three years of sustainable investing in Eastern Europe • Fully integrated ESG research - Best Risk Management Tool for Emerging Markets • Country focus – Serbia, the last European frontier • Company specific summaries of sustainability opportunties and risks in the region

1. Sustainability
Yearbook 2011
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2. Printed on CyclusPrint Recycled
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3. Interaction
Transparency
Knowledge
Value
Northern Star
Northern Star is a global multi-boutique asset manager specializing in active investment management and strategic
partnerships with clients. Established in Helsinki by a senior team of financial industry professionals, Northern
Star is striving to become a leading international investment management business with scale and institutional
credibility. Leveraging its partnership with Limestone, Northern Star is pioneering in introducing responsible
investing in worldwide emerging and frontier markets.
Limestone Investment Management
Limestone is a specialist Emerging European equity fund manager based in Tallinn. The company was founded in
2007 and is managed by its owners. We focus exclusively on delivering outstanding investment performance to
our clients. Our home region and investment universe, Central and Eastern Europe, is one of the most dynamic
investment markets in the world. Limestone is one of the very first New Europe based investment managers that
integrates the concepts of socially responsible investment and sustainable development into fundamental research
process as essential factors for long term performance and risk management.
Limestone is a signatory to the United Nations Principles for
Responsible Investment (UN PRI) and European SRI Transparency Code
The European SRI Transparency logo signifies that the Limestone commits to provide accurate, adequate and timely information to enable stakeholders, in
particular consumers, to understand the Sustainable Responsible Investment (SRI) policies and practices relating to the fund. Detailed information about the
European SRI Transparency Code can be found on www.eurosif.org, and information of the SRI policies and practices of the Limestone SRI Fund can be found
at Limestone website. The Transparency Code are managed by Eurosif, an independent organisation. The European SRI Transparency Logo reflects the fund
manager’s commitment as detailed above and should not be taken as an endorsement of any particular company, organisation or individual
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4. Dear Reader
If there is one clear message to learn from the financial crisis that has rocked the world for the better part of last
four years, it is that change is needed. From the sudden understanding that borrowed welfare is not an asset but
liability, to the realisation that the sacred ratings that the entire financial system relies upon are nothing more than
more or less educated guesses, there are signs everywhere that the current Western financial model is not entirely
sustainable. Find-the-greater-fool in highest possible frequency has become an ever more popular game in stock
markets, places that were created to mediate capital between investors and entrepreneurs, diversifying the risks
and distributing the gains. We believe it is time to return to the very basics of investing, to do it in a way it was
meant to be.
Limestone took up the task of introducing sustainable investing practices in Eastern Europe four years ago.
Meanwhile, we found a like-minded partner in Northern Star and decided to create together something truly
unique: a global multi boutique investment house with common sustainable investment framework. Northern
Star Group brings together Limestone’s team with experience from emerging Europe and ambitious international
investment professionals with their own experiences from all over the world. This creates synergy that will lead
to a all new type of investment culture with sight and focus on long term gains arising from sustainable growth,
something that will always outperform eventually.
Limestone New Europe Fund has reached three year milestone, often considered by institutional investors the
minimum proof of meaningful performance history. Meanwhile, Northern Star Group has launched two new funds,
dedicated to deliver the best there is from other emerging regions of the world. A concept, contrarian to the
mainstream world-view, of looking at the emerging world as a collection of investment themes driven by long
term demographic and social shifts, as opposed to a political map of separate countries, is the underlying idea of
Globetrotter Fund. Northern Star Russia was created to answer to the demand for a more sophisticated view on
Russia than presented by the usual index driven mega funds playing the ever more virtual commodities-game.
While GDP in most rich economies is still below its level at the end of 2007, emerging economies’ output has
jumped by almost one fifth over the same period. The rich world’s woes have clearly hastened the shift in global
economic power towards the emerging markets. The long-term outlook for emerging economies remains bright,
with less debt, more growth and huge potential to lift productivity. Investment flows will follow. Northern Star was
created to accommodate that shift in a pioneering way. Building on long experience from global capital markets and
grass root level ground work practice, Northern Star and Limestone team has something novel to offer.
We sincerely hope that this book will achieve its primary goal and convince you that it is not only possible to do
things differently but it is also necessary in order to survive and prosper in these turbulent times. The world is full
of opportunities.
Tomi Långström Alvar Roosimaa
CEO, Northern Star CIO, Limestone
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5. Contents
Northern Star Group: Nourishing the Best of Boutique Culture 6
Responsible Investing Makes Sense From Day One 8
Nothing Sacrificed and Whole Lot Gained 8
Leveraging Limestone’s Three Year Success Track 8
Best Risk Management Tool for Emerging Markets 8
Integrated Research as Yin and Yang of Successful Investing 9
Limestone New Europe Fund 10
Update And Outlook 11
Globetrotter – Unlocking the Undiscovered World 14
What Are Frontier Markets? 14
Clear Investing Principles: Key to Success 16
Investment Themes in Focus 17
In Russia, Governance Is Everything 19
Integrated Research the Only Way Forward 21
Country Focus: Serbia, the Last European Frontier 25
Development and Challenges 27
Capital Markets and Corporate Governance 28
Companies in Focus 29
Why Governance Matters: From Investing To Litigation in A&D Pharma 32
Northern Star Group Responsible Investment Principles 34
Framework for ESG Evaluation 34
Evaluating Corporate Governance 36
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6. Northern Star Group:
Nourishing the Best of Boutique Culture
The post crisis investment community is looking for new and were embedded with poor internal governance to
solutions with better alignment of motivation between enter into anything complex or risky.
investors and managers and more straightforward value
and risk proposition. In the boom days when funds The recognition is universal that even when it is obvious
could pick and choose investors and assets piled up that small management controlled investment teams
without too much effort, these were easily overlooked have higher motivation and potential to outperform,
– unless things went horribly wrong. business risks often outweigh that prospect. People
who are good at trading or investing are not necessarily
Recent investment innovation has focused on themes good at running businesses. Growth is hard to achieve
like new asset classes and allocation techniques, new now without building a robust infrastructure with high
risk and return enhancing tools, theme investing, and quality internal controls.
new business models. Institutions that have gained the
most from that innovation had strong investment beliefs Northern Star has been created to tap this opportunity
which they were able to implement in a disciplined way, by creating a multi-boutique asset management house:
often benefiting from early mover advantage. a base where talented fund managers could operate and
share resources. A flight to quality and size often means
Institutions that lost the most were victims of their a flight to “boring”, or benchmark-hugging strategies –
herd instinct combined with low engagement with their entrepreneurs supported by institutional infrastructure
asset managers. Usually these were lacking also skills are the solution. By partnering up with Limestone,
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7. Northern Star got to an instant start with licensed that are an opportunity for investment managers with
Luxembourg based infrastructure, and a talented team analytical resources and investment infrastructure
that had been building institutional quality service for capable to collect and process non-standardized data,
the last three years. including non-financial information.
Creating something new is an opportunity to combine Asset managers with success have often had strong
all the newest and best innovations into one. In addition overlay of human judgement in risk models and
to modern business concept, Northern Star is focusing investment processes. The example of Limestone
on the integration of two other areas of investing that investment team being a pioneer in East Europe is
promise to be market share winners in the coming broadened up to be the core element of the whole
years: responsible investing and emerging markets. Northern Star group and its products and services.
Our multi-boutique business model is determined to
Non-financial risks demand strong human judgement, be decisively outward looking and more ideas seeking.
disciplined processes and high engagement with Special insights and foresight will be driven from
investment targets. Mere lip service, such as having learning-by-doing, learning by experimentation and
signed a global principle, can be a good start, but learning from others.
unfortunately too often leaves everything else
unchanged within the investment process. Responsible
investing is not so recent innovation, but is undergoing a Creating something new is an
transformation to adapt to real needs by real investors. opportunity to combine all the
There is still a rather small group of asset managers and
institutional investors who take it seriously. Ahead of
newest and best innovations
the crowd, Northern Star is being ESG implementation into one.
pioneer in new geographical areas and in new ways to
integrate ESG into traditional valuation methodology. We may not be able to change the world, but we will
seek to be better by putting into action such investment
Over the coming years, massive debt burdens will be beliefs which we believe to create an alignment of
a drag on rich countries’ growth. At the other end, the interest with our long term clients and ourselves. One
long-term outlook for emerging economies remains such belief is having integrated ESG as unique value
bright, with less debt, more favourable demography driver. Northern Star products are often classified as
and huge potential to lift productivity. Investing in high alpha seeking against indices. We believe that by
developing markets is traditionally considered to carry being benchmark agnostic against traditional indices
a higher degree of risk, and the main reason is the can actually lead into less risky portfolios when ESG is
information problem: company specific data is not fully integrated into investment process.
readily available. The pricing inefficiencies created by
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8. Responsible Investing
Makes Sense From
Day One
Northern Star has taken on a unique challenge to build that goal and, as with every new thing in an established
up an emerging markets multi-boutique platform with environment with sticky traditions, more threats and
a dedicated focus on sustainability and responsible immediate problems are on the visible surface than
investing. There are no readymade solutions towards quick wins.
Nothing Sacrificed and social and governance analysis before. The first three
Whole Lot Gained years have proven highly successful: fund’s long term
Mainstream investment community still views anything returns are at the top of CEE ex-Russia peer group
that has to do with social responsibility or sustainability without having to compromise on our standards. The
with a fair share of suspicion. Being pioneers in the area, track record has also been characterized by a constant
we have had to spend considerable amount of effort search for more effective ways of assessing the extra-
to demystify the concept of ESG research and social financial side of companies. The approach has earned
responsibility in investing. It is the one of the basic praise from several investors, encouraging Northern
traits of human nature, the present-bias, that needs to Star to strive for a group wide sustainable investment
be taken good care of in order for SRI to break out into policy development.
mainstream. Prevailing view of SRI investing is that it
requires for immediate sacrifices in the performance Best Risk Management Tool
and selection of opportunities, for the sake of doubtful for Emerging Markets
benefits in the unclear future. This should not be the All investment portfolios would benefit from managing
case. Our minimum exclusion and integrated research ESG risks, but it is in emerging markets where the
approach adds value from day one without any degree is most acute. Gathering and assessing
sacrifices. We hope that by increasing the size of our environmental, social and governance information,
business we reach more investors and help turn socially and limiting exposure to risks associated with extra
responsible investing concept from „frown upon“ into financial factors significantly reduces „tail risk“ – the
„smiled upon“. risk of unlikely events causing catastrophic damage.
The real challenge hereby is the significant information
Leveraging Limestone’s Three Year problem. This can only be tackled by building up an
Success Track inhouse research process that is capable of gathering
Limestone New Europe Socially Responsible Fund has the necessary information from outside the public data
since 2008 served as a real life experiment. Nobody had vendors’ services, and to integrate it into company
tried to do fundamentals driven all-cap active investing valuation methodology.
in Emerging Europe with integrated environmental,
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9. The Yin and Yang of
Investment Analysis
A dynamic, unified relationship exists between financial and extra financial
information. Omitting either part leads to insufficient knowledge about the
company and creates exposure to unforeseen risks.
Rational
Visible
Hard Facts
Weak financials diminish
Financial strength
opportunities for innovation
and sustainable development
YANG Balanced analysis can be
Financial results
achieved by evaluating both
parts. Tensions in both parts
can be creative and
YIN constraining
Corporate governance
Environmental and Poor corporate governance
social sustainability and management of
environmental and social
Managerial strength risks leads to fines, bad press,
loss of customers, and
valuable employees –
reflected in financials.
Intuitive
Invisible
Soft Facts
9

10. Limestone New Europe Fund
Limestone New Europe SRI Fund celebrated its third New Europe, and invest investors’ funds in their publicly
anniversary in August 2010. Launched in the wake of the traded stock at the best possible terms. The ultimate
worst financial crisis in modern history – a few weeks goal is to outperform any competitive peer and
before Lehman Brothers’ bankruptcy filing – the fund investable market proxy in any three year time period.
was the first equity fund managed from New Europe To achieve that goal the management team employs
to incorporate sustainability factors in its investment rigorous bottom up investment process, which is based
process. The fund has been equally successful in on an in-house developed research framework and
pioneering in corporate social responsibility in tools, including unique ESG factor integration serving
New Europe and producing strongly outperforming primarily as a risk management tool.
investment returns.
The fund has a simple and straightforward purpose:
to find the best companies with the highest upside in
Limestone New Europe Fund
STOXX EU Enlarged Total Return
140
120
100
80
60
40
20
July 08
Oct 08
Jan 09
April 09
July 09
Oct 09
Jan 10
April 10
July 10
Oct 10
jan 11
April 11
Source: Bloomberg
10

11. Update And Outlook
Looking back to last year, and reviewing year-old from Baa3 to Baa2 with a stable outlook. The increase
forecasts, it feels like deja vu. The final run-up to is a consequence of the continuing fiscal discipline, the
Limestone New Europe Fund’s three year milestone improved institutional stability as well as the relative
was again characterized by uncertainty about the flexibility of the financial system, the report reads.
sustainability of global recovery. Plenty of one off Bulgaria is effectively running a balanced budget and
threats and hurdles kept popping up, like US debt ceiling has very low levels of the public debt, something that
debate, earthquake in Japan and of course the Greeks is quite rare these days. In addition, Moody’s assessed
keeping the financial markets all over the world their
hostage, threatening to blow up Eurozone. No wonder
then that external factors were heavily prevailing over
While the world was holding its
local progress reports in setting the sentiment for breath during most of the spring
Central and Eastern European markets. and summer over Eurozone and
Looking beyond the generic risk-on and risk-off market
US debt, news from New Europe
view that dominated investment flows, New Europe has grew constantly more positive.
shown surprisingly strong recovery from the crisis. From
economic to political spectrum, all signs show healthy the public finance and the Bulgarian banking system
restructuring and quick return to convergence path with to remain out of the influence of the Greek debt
growth returning to long term double-the-EU-average crisis owing to the considerable liquidity and capital
already in 2011. While the world was holding its breath buffers. EBRD revised upward its forecast for Romanian
during most of the spring and summer over Eurozone economic growth, saying it expects harsh austerity
and US debt, news from New Europe grew constantly measures implemented under a multilateral financial
more positive. program will pay off. And again, EBRD also assessed
Greek influence and concluded that Greece’s seemingly
The European Council concluded that Croatia is ready to turn for the worse is unlikely to push Romanian economy
become the 28th member of the European Union and into recession. And Serbia, the last European “outcast”
accession treaty should be signed during 2011, which with size, made a giant leap towards EU accession when
will enable the country to become a full member state it caught the last missing war criminals and handed
in 2013. Moody’s raised the credit rating of Bulgaria them over to Hague court.
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12. COUNTRY, 2011E POPULATION GDP (PPP) NOMINAL GDP PER 2011F WAGE/MONTHS PUBLIC DEBT BUDGET DEFICIT MARKET CAP STOCKS MAIN INDEX FREEFLOAT RETURN FROM
MN PER CAPITA CAPITA 2012F %YOY € %GDP 2012F €MN ‘07 HIGH
Poland 38.2 70% 11.5 3.6% 904 54 -3.2% 418 118 WIG20 45% -39%
Czech Rep 10.5 91% 15.9 2.9% 1069 40 -3.8% 27 32.7 PX 40% -48%
Romania 21.5 44% 6.8 3.5% 472 35 -4.0% 82 13.4 BET 20% -55%
Bulgaria 7.4 47% 5.6 3.5% 353 16 -2.1% 98 5.0 SOFIX 25% -81%
Hungary 10.0 69% 11.5 2.8% 880 80 -3.6% 55 17.7 BUX 53% -38%
Croatia 4.3 65% 11.6 1.8% 1043 55 -4.8% 256 19.2 CROBEX 30% -63%
Serbia 7.3 40% 5.0 4.0% 493 42 -3.0% 90 8.7 BELEX15 20% -81%
Estonia 1.3 68% 12.3 3.7% 792 8 -1.8% 15 1.3 OMXT 30% -44%
Slovenia 2.0 103% 20.0 2.4% 1405 36 -5.0% 34 3.2 SBITOP 25% -38%
Lithuania 3.1 63% 9.7 3.8% 614 37 -4.5% 38 5.5 OMXV 30% -75%
New europe (10) 106 66% 11.0 3.2% 803 40 -3.6% 1113 207 DJ STOXX 42% -49%
Euro area (17) 332 100% 38.6 1.8% 2450 81 -4.0% 6 700 STOXX 600 79% -42%
share of... 32% 66% 28% 178% 33% 50% 3.1%
Source: GDP: World Bank , GDP Forecast: IMF World Economic Recent financial crisis and subsequent reforms have turned New Europe into a
Outlook April 2011, Budget Deficit: Eurostat
financially sound and very competitive region within the borderless European Union.
The above selection of news delibaretly focuses to room for future growth definitely is.
the Southern part of New Europe, the least liked by The importance of Eurozone stability for New Europe is
investors in the crisis aftermath and therefore the hard to overestimate. At the same time it is important
most neglected. Most markets in that region trade to understand the difference between the direct
not much higher than at the bottom of the crisis in impact on domestic economy of CEE countries and
Spring 2009. We see it as an extraordinary investment the potential damage that would come from another
opportunity, something alike the second half of 2009 wave of risk aversion and renewed general perception
downgrade, would Greek crisis escalate further. The
In the „periphery“ of Eastern former is relatively moderate and the effects have
already run their course. The latter, however, is what
Europe we find the cheapest moves financial markets and short term asset prices;
companies with the most to the “risk off ” trade that pushed prices lower in CEE is
the direct consequence of that.
benefit from both the short
term recovery and the longer Naturally, all depends on the scale of crisis escalation.
term convergence. A real renewed economic slowdown in the Eurozone
would cause stronger decline in CEE exports and growth
when the fund nearly doubled its unit price. Our strictly in whatever other areas of the local economies will not
fundamentals-driven portfolio has throughout 2011 be able to make up for that. In addition, investments
shifted more weight to the newest members of EU and into the CEE region largely come from the Eurozone, and
the next two hopefuls, together often characterized as would therefore be negatively affected in such a case,
the „periphery“ of Eastern Europe. This is where we too. Even though there are indications of a recovery
find the cheapest companies with the most to benefit that should shift in the coming months and years from
from both the short term recovery and the longer term export-driven growth to more balanced growth, the
convergence. With careful liquidity management and economic recovery will continue to rely on external
rigorous bottom up research we are certain that for our factors from the Eurozone. While CEE countries with a
portfolio the fundamental risk is not significantly higher larger domestic demand base may be able to counter
in the Balkans than it is in Warsaw or Prague. But the some negative external effects more efficiently than
12

13. smaller and less diversified economies in the future, not only mirror the chances stemming from continued
the overall region will continue to depend on economic convergence but also the risks of a slowdown in growth.
trends in the Eurozone, and especially Germany. CEE will
Itraxx CEEMEA
Itraxx Western Europe
350
300
250
200
150
100
50
Jan 10
Feb 10
March 10
April 10
May 10
June 10
July 10
Aug 10
Sept 10
Oct 10
Nov 10
Dec 10
Jan 11
Feb 11
March 11
Apirl 11
May 11
June 11
July 11
Source: Bloomberg For the first time ever, risk of CEEMEA, as measured by CDS spreads, has dropped below Western
European level. This would suggest that convergence of asset valuation levels should converge, too.
Considering that New Europe is a relatively small and near-emerging market growth rates. Limestone
investment region with open economies and strong New Europe Fund management team will continue
ties to Western Europe, it is unlikely to decouple from to do what we know best: finding the most attractive
general trends in global markets. What it offers, is a companies in the region and constructing a unique
large long term outperformance if and when European portfolio to deliver the outperformance.
economy recovers, with near-developed market risk
Working in equity markets from 1996 as equities trader
and portfolio manager, Alvar joined Suprema Fund
Head of Eastern European Equities
Management in 2000 as a fund manager. In 2003 Alvar
started in Hansa Investment Funds where he initiated
the set up of CEE investment management team and
a portfolio of funds including the Morningstar 5*
rated Hansa Eastern Europe Equity Fund. In 2007,
Alvar co-initiated the setup of Limestone Investment
Alvar Roosimaa
Management, an independent specialist Eastern Europe
equity funds investment manager, where most of the
team from previous employer eventually followed.
He was nominated the Fund Manager of The Year in
Estonia in 2005 and 2006. Alvar has a MSc in Finance
degree from London Business School.
13

14. Globetrotter – Unlocking the Undiscovered World
For those with the skill and patience to choose carefully as well as assessing the soft values and company’s
and a strong view on how the world will look like in the interaction with the environment around it.
coming years, global frontier markets provide excellent
opportunities. There are many unexplored markets with There are many, both objective and subjective, reasons
exceptional value and growth opportunities that the big for the inefficiencies to pop in these markets. There are
money has not found yet. Accessing these markets in some markets that have not been found yet because
earnest requires experience and takes a lot of ground they are very new or very small and investors just
work, research, and network building. That is what the haven’t noticed them yet. Some markets are restricted
Globetrotter fund was created to do. from foreign investors, which provide opportunities for
What Are Frontier Markets? The lack of investor base
Northern Star defines frontier markets as the most
inefficient emerging markets with historically low
overlap with global markets
correlation with major global markets. Mainstream systematically creates asset
research coverage from investment banks and brokers mispricing in frontier markets.
does not reach these markets and that, along with
other reasons, keeps the mass of foreign investors away. those who have the capability to dodge the restrictions.
This lack of investor base overlap with global markets Good examples of these are Chinese and Saudi Arabian
systematically creates asset mispricing and that gives local markets that Globetrotter has access to, thanks to
remarkable opportunities for investors who are capable the local network created over many years of activity
of conducting a deeper research on the grass-root level in the region. Then there are markets like Russia, and
14

15. Central Asian and Eastern European smaller countries these high-potential markets are in the beginning of or
that suffer from reputational downgrades that have already going through their fast growth phases where
little to do with real developments, thus offering the highest returns come from. Indexes consider
extraordinary opportunities for investors with deeper
local knowledge. Companies operating in the
high-potential markets are
Selected countries in Globetrotter
frontier market universe in the beginning of their fast
Quite often, frontier markets funds base their portfolio growth phases where the
construction on indexes and geographical borders. This
highest returns come from.
usually means that large countries and regions have
large weights and small ones have small weights, no adding the companies remarkably later, long after such
matter what the outlook. Stock-wise, biggest companies prosperous gains.
in the market that are added to indexes usually get
more attention. In the end of the day, everybody is Racing the index does not necessarily make anybody
doing pretty much the same thing and earning the same rich either. A fund can outperform a benchmark index
money because they let someone else decide where but still give a negative return. Who would win in
and how much to invest. this case? Working on one’s own speed, having only
the target performance in sight will create value for
That approach will not capture the true potential in investors and increase their wealth.
frontier markets. Some large countries are way too
expensive during some periods while small markets Parts of the world considered frontier are going through
could have tremendous potential. But higher risk the fast-growth-phase and large structural changes, but
profile that comes with big potential makes it seem to not equally in all sectors and all markets. That is where
be safer to keep away while it really only requires more the theme-investing comes in.
homework. Moreover, the companies operating in
Balance on Time required Ease of doing
Current to start a business Urban Mortality rate
Population, GDP growth, GDP growth, Account, % of business, days, (1=best, Railways, km, population, % under-5, of
Area km² mln, 2010 2011 est 2012 est GDP, 2011 est 2010 183=worst) 2010 of total, 2010 1000
Cambodia 181,035 14.3 6.5 6.5 -11.4 8 147 690 22.8 88
China 9,596,961 1,341.0 9.6 9.5 5.7 38 79 86,000 45.2 19
Congo, Dem Rep 2,344,858 62.6 6.5 6.0 -2.8 84 175 4,007 35.2 128
Egypt, Arab Rep 1,001,450 75.5 1.0 4.0 -2.7 7 94 5,083 42.8 21
Ghana 238,533 23.5 13.7 7.3 -6.8 12 67 947 51.5 69
India 3,287,263 1,182.1 8.2 7.8 -3.7 29 134 63,974 30.1 66
Indonesia 1,904,569 234.0 6.2 6.5 0.9 47 121 5,042 53.7 39
Iran, Islamic Rep 1,648,195 76.9 0.0 3.0 11.7 8 129 8,442 69.5 31
Iraq 438,317 30,399.6 9.6 12.6 -3.2 77 166 2,272 66.4 44
Kazakhstan 2,724,900 16.1 5.9 5.6 5.8 19 59 15,079 58.5 29
Kenya 580,367 37.5 5.7 6.5 -9.3 33 98 2,066 22.2 84
Kuwait 17,818 3.5 5.3 5.1 39.4 35 74 98.4 10
Liberia 111,369 3.8 5.9 9.8 -37.6 20 155 429 61.5 112
Malaysia 329,847 27.6 5.5 5.2 11.4 17 21 1,849 72.2 6
Mongolia 1,564,116 2.8 9.8 7.1 -13.3 13 73 1,908 57.5 29
Mozambique 799,380 21.4 7.5 7.8 -12.0 13 126 4,787 38.4 142
Nigeria 923,768 148.1 6.9 6.6 14.6 31 137 3,505 49.8 138
Qatar 11,586 1.5 20.0 7.1 36.1 12 50 95.8 11
Saudi Arabia 2,149,690 27.7 7.5 3.0 19.8 5 11 1,378 82.1 21
United Arab Emirates 83,600 8.9 3.3 3.8 10.4 15 40 78.1 7
Vietnam 331,210 86.9 6.3 6.8 -4.0 44 78 2,347 28.8 24
Source: IMF, World Bank, CIA, FAO
15

16. Clear Investing Principles:
Investing thematically captures Key to Success
the maximum growth in the Falling in love with companies is quite easy when doing
selected areas of economy as much work with them as frontier markets require.
Knowing them so well and seeing the opportunities
while not dragging the lagging they offer could lead to buying assets that are relatively
parts of it along. fairly priced. To prevent that, quite straightforward
investing principles have to be set in place.
The idea of investing thematically is to capture the
maximum growth in the selected areas of economy while The whole investment process of Globetrotter is based
not dragging the lagging parts of it along. The strategy is on fundamental and geopolitical analysis as well as
to identify those themes that benefit first and pick up the grass root level research while also adding soft values
future winning companies in each theme, wherever they like environmental, social and governance factors. All
operate in our universe or where they are listed. That the markets in frontiers’ universe are very different,
helps achieve real diversification benefits in the fund. there are no homogenous areas. All markets have
different political regimes and cultural characteristics.
While different parts of the frontier markets are in a They all have different risks involved. Before investing,
different phase of development, the themes to benefit all these aspects must be considered and measured
are also different. As changes take place, the winning accordingly. This is the one place where geographical
themes change, so modifications should also be done in borders actually do matter and are reckoned with.
the portfolio in order to stay ahead of the market.
In Globetrotter, the most important principle while
The benefitting themes are usually quite well protected building the portfolio is having at least 50 percent
during the times of market turbulence, because the upside for each theme and each company over the
big money has not reached them yet or does not care next 6 to 18 months. That is clear enough to prevent
about them. Only smaller number of focused investors making hasty investment decisions and together with
is involved in the beginning. inefficient market approach, will give enough downside
CASH
LOCAL CHINA MARKET
CHINA LUXURY GOODS
FSU BANKING
EE LAGGARDS
FOOD
ASIAN NEW TIGERS
CENTRAL ASIAN COMMODITY RESERVES
CEMENT
OIL SERVICES AND EXPLORATION
AFRICAN CONSUMER
MIDDLE EAST RECOVERY
SAUDI ARABIA OPENING GATES
16

17. protection during difficult times while providing an intention to punish companies that do not disclose their
excellent upside. ESG practices but rather engage with them, explain the
mutual benefits, and encourage them to open up. In
The most important principle frontier markets, the challenge is big – most companies
do not have a habit of disclosing their ESG information,
is to have at least 50 percent the reasons can be anything from cultural to the fear
upside for each theme and of competition or clients’ reaction. Among many good
causes the ESG integration serves, it is also a vital risk
company over the next 6 to 18
management tool against damaging event risks in an
months. environment where public information availability is
underdeveloped.
Clearly, nobody has a crystal ball in the office. Even if
all the fundamentals support the upside principle and
inefficient markets approach, the performance can turn
According to Risklab research,
out to be less than expected. But it can also turn out “tail risk”, the risk of unlikely
to be much better. There are themes that will probably events causing catastrophic
bring some disappointment but there are some that
will go through the roof. Following the principles makes
damage, can be reduced nearly
it less probable to get stuck in themes and companies 40 percent in an emerging
that could probably end up being on the losers’ side. markets portfolio that has
In accordance with the Northern Star group wide
limited its exposure to ESG
principles, no investment is done without thorough ESG risks.
considerations. Discussions of sustainability issues form
an integral part of management and analyst meetings
and play important role in assessing the long term Investment Themes in Focus
business prospects of most companies. In choosing its To give example of some out of more than ten
investment themes, Globetrotter prefers developments investment themes in the portfolio, food and cement, as
that support local societies and improve people’s living basic crucial necessities in frontier markets, make good
conditions. ESG factors are integrated to financial cases. Food, one of the latest additions to Globetrotter,
models in the calculation of the target price. There is no is a crucial issue everywhere, but especially so in the
17

18. developing world, where population growth is strong Cement theme has its main focus on emerging Asia and
and urbanization pace rapid. Africa. These regions are stepping in the era of big social
and structural changes in the coming years. In China,
There are 925 million undernourished people in the social housing construction plan foresees building 36
world, according to Food and Agriculture Organization million housing units in the next five years, and local
of the United Nations (FAO) estimate for this year, cement producers are due a prosperous period.
with most of them, 62 percent, living Asia and Pacific,
followed by Sub-Saharan Africa with 26 percent of Even bigger changes are expected in Africa where
world’s hungry people. Along with the very poor, very infrastructure development is picking rapidly. Nigeria
hungry people, come the “newly rich people” or those has a housing deficit of 17 million homes and poor state
who have the benefit of increasing personal income of infrastructure, both which the country’s Vision 2020
together with the development of the broad economy. plan intends to relief. Currently, Nigeria has one of the
Higher disposable income reflects on the kitchen-table lowest annual cement consumptions per capita in Africa
quite fast – products with higher quality or even more of 57 kg. That compares to South-Africa’s 210 kg and
shiny labels have high attraction factor. These people Gabon’s 330 kg consumption per capita. The country is
live, additionally to the regions mentioned above, also currently in cement deficit that is expected to end by
in Middle East and Eastern Europe with the last one 2013 when only local production will be sold. That also
having recorded the most rapid growth in per capita means better returns for the producers.
consumption of basic foods in recent years.
All of the companies we have chosen to our Cement
Approaching the companies through the eyes of theme have very modern technologies and waste
responsible investing, we look for evidence that the management to reduce environmental effects. They
production is clean, traceable and sustainable, that are big employers and take initiative in the local social
the companies create new jobs and give their share in projects.
improving living conditions of local people or customers.
They also have to preserve local environment and take
steps to reduce their negative influence.
Ari-Pekka is one of the most experienced frontier
market investors in the Nordic investment industry.
With over 23 years of total experience in equity markets
Head of Frontier Market Equities
and portfolio management, he first started investing in
emerging markets in early 1990’s. A-P has managed
funds of various size and style, including 1.5 billion euro
emerging/frontier market equity portfolio in Finnish
Varma. Prior to Varma, from where he left to co-found
Ari-Pekka Hilden
Northern Star, A-P worked as the Head of Equities for
institutions like LGPI and SEB Private Bank Luxembourg.
AP has acted as a seed and anchor investor for numerous
emerging market funds, including the first China A share
Fund, and funds in Iraq, Iran, Vietnam and Cambodia.
18

19. In Russia, Governance Is Everything
Russia, always the land of plenty and full of promise, the bottom ten companies increased shareholder value
has yet never really fully delivered. Blame it on difficult by mere 583 percent and 145 percent, respectively.
history or bad luck, the Russian market has retained The RTS index rose 613 and 190 percent during
its reputation of being risky and opaque. And yet, for these periods. Statistics prove clearly that selection
skilful investors, there have been periods over the last from corporate governance viewpoint makes a large
decade when substantial outperformance could have difference in performance.
been extracted. Northern Star, in the search for the
right model in Russia, has turned its main attention
to corporate governance of Russian companies, as a
A straightforward strategy
natural source of much needed portfolio risk reduction. for investors with a long term
investment horizon in Russia:
It is generally accepted that governance issues are
one of the most important factors differentiating great
concentrate on firms with solid
companies from poor ones but also one of the biggest corporate governance
hurdles that investors must overcome in Russia. A
recent study by Aton, a Russian investment bank, shows Unfortunately, there are a number of companies in
strong relationship between the quality of corporate Russia that have no understanding of trust between
governance and company market performance. When shareholders and companies. They are having hard
100 leading companies were ranked according to their times to comply even with the very minimum legal
corporate governance scores weighted by market requirements enforced by the exchange. Good thing is
capitalization, the top ten companies delivered a that the regulations are improving, slowly but surely.
growth of over 2,700 percent starting from 2002 up to For example, insider trading became criminal offence in
2Q 2011, and over 400 percent since 2009. Conversely, January 2011 and according to new reform, dividends
19

20. must be paid in 60 days instead of 6 months allowed and what is prohibited: anything can potentially used
earlier. It is unfortunate that often companies that against you. And what is most important, the general
underperform in terms of governance make public understanding of the potential benefits of improving
spotlights, and that creates a biased image of the whole the image of the company is just not yet entrenched
market. the business-community. Old habits die hard, especially
when the top down environment in the form of rule of
When investing in Russia, it is vital to know the controlling law is hardly supportive.
shareholders’ background and their ambition with
regard to the company. Cases of speculators who wrap
up poor businesses in attractive packages in order to A closer look reveals, however, that there are amazingly
make a quick sale are not uncommon. At the same time, many Russian companies that aspire to become a
there are plenty of new generation entrepreneurs truly modern company by means of governance and investor
interested in long-term value creation. Making a clear relations. They have moved out of the “comfort” zone
distinction is crucial but definitely not an easy task. and working in the name of gaining foreign interest and
The main obstacle to make things easier is the still poor having an international investor base. In many cases,
information disclosure habit in Russia. Among the main they just do not know how to communicate their efforts
reasons behind that is the Russian legal and financial to the public. This is where dedicated research and
infrastructure that is still underdeveloped. Also, tax engagement based analysis can make a big difference.
legislation is deficient, which makes companies afraid of Management meetings and thorough homework will
disclosing information as it is not clear what is allowed help to find the true gems in the market.
A veteran of the Russian financial markets, Maxim
was advising Pohjola Asset Management’s OP 650m
EUR OP Russia Fund prior to joining Northern Star in
2011. During his tenure with Pohjola from 2008, OP
Fund was firmly at the top of peer group rankings.
Head of Russian Equities
Previously, Maxim was Director of International Equity
Sales at Deutsche Bank, Moscow. Having more than 20
years of experience in Russian and emerging market
Maxim Achkasov
equities from New York, London, Moscow and Helsinki,
Maxim deep knowledge of the Russian equity markets
and boasts a unique network of connections in local
business community.
20

21. Integrated Research the Only Way Forward
Research is the cornerstone of Limestone, and the
whole Northern Star Group’s, investment process. Development opportunities
While necessarily effective in its traditional fundamental in this field are endless,
focus, the true uniqueness in the approach lies in
the continuing development of the integration of
providing further prospects
environmental, social and governance (ESG) research to for streamlining of the
fundamental valuation. methods and practices we use
Since the last Yearbook, we have developed further
in investment decisions that
the concept of including ESG assessment to company take into consideration ESG
valuations and have been able to reach remarkable aspects.
results. Our approach to responsible investing is
obviously integration, defined as an inclusion of In previous Yearbooks we have described the grading
ESG considerations to traditional financial analysis. mechanism that is implemented in calculation of cost of
Theoretically, integration should belong under the broad capital, which has been developed in order to provide
SRI umbrella that is regarded to lead to mainstreaming distinct tools for our research analysts for uniform
of the process. Emerging markets are not broad based assessment of ESG factors. In addition to in-house
enough to enable thematic approach that is regarded work, we have been communicating our message and
more fashionable in the developed world. Therefore, have become even more visible in the SRI community.
already before the launch of Limestone New Europe Our presentations in several high profile responsible
Fund, it was obvious to us that while traditional approach investment conferences and investor events have
provides a starting point for ESG implementation to received a lot of positive feedback. It is understandable
fundamental analysis, it did not offer any readymade that our structured and scalable solution to integration
solutions. raises widespread interest among industry professionals
21

22. who have mostly seen and been sold traditional ratings- universe was graded slightly below average, and the
based qualitative assessment methodology that has fund portfolio constituents were doing significantly
little to do with investment analysis. better. Altogether, the grades give a snapshot of the
management quality and awareness of environmental
Our methodology in the nutshell is the following: an and social issues, as there can’t be perfect environmental
ESG matrix is developed, where the analyst can rate management and a total disregard of social issues
each company by these three factors that combined within one company.
There are better and worse Having built that assessment mechanism, without
additional tools, every individual result would depend
companies in the investment only on single analyst’s subjective view, which would
universe and their respective not ensure the comparability of results that is needed
risk levels are taken into for portfolio construction purposes. Thus, although
the analyst responsible for assessing companies knows
account in assignment of more than anybody else on the subject and is most
target price through cost of qualified for granting the grades, supporting tools for
equity calculation. reaching a certain degree of uniformity in final grades
are required.
will create an overall ESG score of the company. To
make the building blocks simple, a rating score from For building the tools, the starting point would be the
1-5 is applied, where the score of 3 will not ignite any assessment of information, analytical equipment and
changes to the cost of equity and each notch below or concepts that we had at hand. One of the key building
above respectively adds or subtracts basis points from blocks we derive from screening of the investment
cost of equity. In the selected scale of adjustment, the universe is sector based risk level assessment. Obviously,
cost of equity can vary by 240 bps on scores from one oil companies have higher environmental risk than
to five. Screening of the investment universe and fund banks, whereas social risk is higher in construction
portfolio at one point indicated that the average score in and retail than in technology, for example. Therefore,
the universe was 2.85 and that of the portfolio was 3.9. mapping of risk on Environmental and Social scale
Therefore, although 3 different analysts were granting for each company in the universe serves as the core
the grades independently, the average company in the concept in construction of risk assessment tools.
LOW
Media IT Services
Telco Finance
Real Estate Tourism & Leisure
Social Risk
Automotive
Pharma
Utilities Food
Construction Retail
Oil & Gas
Metals & Mining
HIGH Environmental Risk LOW
Source: Limestone
22

23. The risk profile of different sectors information available and are therefore most qualified
Position of sectors in Environmental and Social scale for such task. Quality of governance and approach of
is arbitrary and in real life the differences between executive management towards ESG issues are the
risk levels are narrower than can be deducted from prevailing criteria affecting all relevant metrics. In
the graph above. Inherent company risk level provides addition to implementation of relevant policies and
only the first step for assigning ESG grades and availability of documentation on governance, social
adjustment to cost of equity. When the starting point, and environmental aspects are analysed. In addition,
or base risk as we call it, is set, the risk evaluation will community support, stakeholder relations and charity
be adjusted. Information required for evaluation is work are also taken into consideration. Description of
gathered by sector analysts that have the widest set of the methodology is depicted on the following graph:
Factors In-House
Research
Environmental Risk
Risk Based Grade Modified Grade Cost of Equity
Social Risk
Risk Based Grade
In New Europe and emerging markets in general the key can also be downgraded, i.e. the risk level can also be
risk factor is management quality or governance in more increased from the base level when our analyst has proof
broad terms. Therefore, assessment of management that e.g. social aspects of the business are disregarded
quality is the decisive factor behind ESG risk assessment or there is evidence of inferior management quality.
in every step and analysts will pay significant attention Also here governance is decisive. For adjustment of
to it throughout the process. It is the dominant factor risk level, based on additional information gathered
and in every step of evaluation governance is the silver and processed by analysts, we introduced a descriptive
lining that at the end will be decisive. The base risk tool Risk Adjustment Levers or RAL, as illustrated on the
can move to both positive and negative side, meaning picture below.
that e.g. initially low risk profile of financial companies
HIGH LOW
Environmental Risk
Social Risk
HIGH LOW
GOVERNANCE
HIGH LOW
Management Quality
23

24. Risk Adjustment Levers This happens when we have proof of irresponsible
The underlying principle in RAL is that every company development, e.g. there might be labour relations’
is put on respective scale from environmental and issues in certain telecom companies that usually should
social perspective, based on a pre-assessed sector risk. be of low risk, or predatory lending practices in banks
Separate issue is managment quality that is given its that by default have low sector ESG risk. That will lead
respective position on the weak-versus-strong scale. to increase in cost of capital and lower fair value target.
Unlike environmental and social evaluation, there is no
pre-set base, and evaluation is already based on available There is no doubt in our minds
detailed information, not just sector risk. So, the levers
are moved towards positive or negative side of the axes
that ESG integration is really
according of the results of research. Final position of the only way forward.
the company on these three measures will serve as the
foundation in assigning of grades and adjustment to Through adaptation of risk adjustment levers we have
cost of equity. Accordingly, position at the high risk area provided our investment team an additional tool to
by environmental and social risk indicates grades 1-2 on better grasp risk profiles of the companies and to
our ESG matrics for these items, 3 is average and 4 and further enhance the integration of ESG principles into
5 indicate already superior performance and lowering financial modelling and investment decisionmaking.
risk position. Practical application has proven that However, the road does not stop here and we expect
we have very few companies with grades in extreme the work on research process to continue. The goal
positions like 1 or 5. is to get the environmental, social and governance
research completely out from the „soft values“ closet
In essence, each company’s starting position is and make them a natural and fully accepted part of
determined by the industry risk profile, and then the everyday decisionmaking. Now, with the Limestone
analyst starts to look for justifications for moving the New Europe SRI Fund having 3 years of excellent track
levers in either way, preferrably towards lower risk. record to present, we have even more confidence in the
It is not uncommon that companies will be given the righteousness of our path.
final grade that is less than their starting position.
Rein is heading the research process at Limestone and
Northern Star Group. Before co-founding Limestone in
2007, Rein run the research team in Hansa Investment
Management, the largest investment manager in
the Baltic region, and managed Hansa Central Asia
Equity Fund, the first dedicated UCITS fund investing
in the region. Started as an equity analyst at Suprema
Securities in 1997, Rein later held the positions of Senior
Rein Ojavere, CFA
Head of Research
Analyst, Associate Director and Director until 2006. He
participated in a number of landmark M&A deals and
IPO’s in the Baltic region with main responsibility areas
of valuation and structuring. Rein is a CFA Charterholder
and holds MSc in Economics and Business Administration
degree from University of Tartu.
24

25. Serbia
25

26. Country Focus: Serbia, the Last European Frontier
Republic of Serbia is a landlocked country in the few. Agricultural products such as wheat, maize, sugar
south-eastern Europe, covering the southern part beets, sunflower, raspberries, beef, pork and milk are
of the Carpathian basin. Serbia has borders with produced.
seven countries: Bosnia & Herzegovina, Croatia and
Montenegro to the west, Kosovo and Macedonia to the The capital of Serbia, Belgrade, has a population of
south, Bulgaria and Romania to the east and Hungary to close to 1.5 million out of 7.3 million in the country.
the north. Covered with rich fertile plains in the north, Serbian national identity began emerging in the 8th
limestone ranges and basins in the east, and ancient century, with the ruling of prince Višeslav. The country’s
mountains and hills in the south-east, the total territory territories expanded until being defeated by the Turks
of 77,474 square kilometres ranks Serbia the 117th in in 1389. In the next century, Ottoman Empire exerted
the world. complete control over all Serb lands for nearly 4
centuries. Serbia formally gained independence in
Serbia offers a range of natural minerals. As of 1878 at the Congress of Berlin which was regained in
January 2010, it has proved reserves of oil and gas 2006 after a number of political and military struggles.
of 78 million barrels and 50 billion cubic meters, In 2009, Serbia submitted its application for European
respectively. Additionally, the surface holds coal, iron Union membership.
ore, copper, zinc, gold and silver reservoirs, to name a
26

27. 2005 2006 2007 2008 2009 2010 2011F 2012F
Nominal GDP (EUR bn) 20.4 23.6 29.1 33.4 30.0 29.5 34.3 36.4
Real GDP (% YoY) 5.6 5.2 6.9 5.5 -3.1 1.8 3.0 3.8
Industrial production (% YoY) 0.7 4.7 3.7 4.5 -12.1 2.9 4.8 6.0
Unemployment rate 20.8 20.9 9.7 13.7 16.1 19.2 19.0 18.5
CPI, year end (%) 171.0 6.0 11.0 8.6 6.6 10.3 8.5 5.7
Monthly average gross wages (EUR) 307.7 377.2 484.4 561.1 470.3 460.5 502.4 532.0
Gross nominal wages (% YoY) 24.1 24.4 22.0 17.9 8.8 7.5 8.0 9.0
Foreign direct investment (% of GDP) 5.9 14.4 8.6 6.0 4.7 3.4 4.0 7.0
Budget balance (% of GDP) 0.7 -1.5 -1.9 -2.6 -4.3 -4.5 -4.1 -3.5
Public debt (% of GDP) 31.0 27.0 34.0 43.0 42.0 43.0
Trade balance (% of GDP) -20.3 -20.5 -22.8 -22.6 -17.0 -16.2 -15.6 -15.4
10-year interest rate (avg) 5.6 5.5 5.6 6.4 5.7 3.9 5.5 5.5
Source: Erste, Raiffeisen, IMF
Development and Challenges of sustainable future growth. World Bank in its report
Following the democratic changes in 2000, Serbian has praised Serbia for some reform achievements
economy witnessed relatively high annual economic as already having very positive effect on the private
growth rates of 5.7 percent on average from 2000 to businesses operating environment. Last building blocks
2008. The average growth in Western Balkan region was soon to be put in place, not least because the promise
5 percent. That supported one of the highest levels of of eventual EU membership, we share the opinion that
foreign direct investment inflows in Serbia during that Serbia will be one of the greatest European success
period. Due to severe impact of the financial crisis, stories in the coming years.
the Serbian market has been largely abandoned by
international investors in the past three years. Together In the “Ease of doing business” business climate
with the positive signs of recovery, interest is, though, rankings from IMF, Serbia still ranked just 89th of 183
returning. in the world (Poland at 70, Croatia at 84, Greece at 109,
and Russia at 123) in 2010. Companies operating in the
The biggest challenges for the Serbian transition country have brought up issues of political instability,
process for becoming an open-market economy and practices of informal sector and limited access to
a modern European state seem to be behind by now. finance. Dedicated efforts to tackle the issues hindering
The painful and violent break up process of Yugoslavia a better ranking were started in 2009 and are at their
in 90’s, climaxed by extensive NATO bombing of Serbia final stages of implementation.
in 1999, set the country lagging its regional peers. Over
the last few years Serbia has made great efforts to shrug Another tool to strengthen and accelerate the
off the legacy of that unfortunate period, including the transition is the EU integration process. It provides a
much publicized catching and extraditing alleged war unique incentive for political and economic reform and
criminals. aims to bring the country up to European standards in
all areas covered by EU treaties. Following free travel
The business infrastructure modernization is still in arrangements from 2010, accession talks have begun
early stages. Governance regulations and enterprise in 2011 and an official opinion regarding Serbia’s
restructuring laws, and competition policies are already membership is expected by 2012. Based on our hands
recognized at the highest levels as the important pillars on experience from the region, this kind of run up
27

28. period to EU membership could be very rewarding for Corporate social responsibility (CSR) approach is
investors willing to take on some liquidity risk. relatively new to Serbia. Although awareness of this
exists, it is mostly on the level of concept-formation
rather than on the level of locally realized practice. Yet
Serbia is the last country
it does not encompass all of the companies.
in Europe with critical scale
for financial investors to go In order to promote the emerging interest in CSR in
Serbia, many projects have been put together. In 2004,
through the accession process. Responsible Business Initiative was introduced and in
2008, Business Leaders Forum was established. While
Capital Markets and the first one was founded to inspire, institutionalize
Corporate Governance and put into practice the concept of corporate social
Belgrade stock exchange is considered one of the oldest responsibility, the forum actually gathers Serbia’s
exchanges in Europe, having been founded in 1894 socially responsible companies to one network. These
to promote, facilitate and regulate trading in various companies have a shared goal of promoting CSR and
commodities. In the beginning of 20th century, the most operating in a sustainable way to benefit the interests
wanted and stable securities listed on the exchange of the whole community. On one hand, the forum is
were government securities. The rule to observe was “if designed to encourage Serbian companies and their
you want to eat well, invest in shares. But if you want to employees to contribute to social and environmental
sleep well, invest in government bonds”, according to causes as part of their everyday operations. On the
the exchange’s homepage. In 1953 the stock exchange other side, it also has a task of connecting business
was closed to be reborn again in 1989 as Yugoslav leaders to government representatives to identify social
Capital Market that changed its name to Belgrade Stock and economic problems and find appropriate solutions.
Exchange three years later. The BELEX trading system It’s a start.
was launched in 2001.
We have met many managers
There is a corporate governance code in place for listed
companies or others who wish to get acquainted with
during our company meetings
and implement corporate governance principles. It in Serbia who are very well
depicts a set of rules and principles expressed through aware of the values of CSR
recommendations which should be implemented.
The code was adopted in 2008. On stock market’s
and are pursuing the practices
home page, there is Corporate Governance Scorecard in their companies for all the
introduced for companies to fill and evaluate their right reasons.
corporate governance practices on different aspects
of the issue. That helps them improve their knowledge
about corporate governance factors and also see where
their efforts are still lacking.
28

29. Companies in Focus
Tigar compact and well-equipped industrial complex, Tigar 3,
A company established in 1935 in the southern Serbian which enjoys a surface area of some 22 hectares, and
town of Pirot, has transformed itself from the simple encompasses cutting-edge industrial capacities in one
car tire manufacturer for the entire Yugoslavia into of the region’s largest industrial zones. Tigar operates
world class rubber footwear and technical rubber now in attractive sector, as market share of rubber
specialist. Being historically the largest producer of car boots on global scale is increasing, as leather boots are
tires, the management realised in the early stage that significantly more expensive. Also competitive situation
in highly competitive international environment with is favourable, as there is only one competitor left in
ever expanding R&D budgets of major competitors, Europe and there is some competition from China.
there is no place for a small independent tire producer. During the years Tigar has acquired several brands
Therefore, more than 10 years ago the Company started and has developed its own brands and introduced
to look for strategic partner and in 2001 Tigar formed specialised footwear retail chain in Serbia. Overall, the
a joint-venture with Michelin that was financially revenues from rubber footwear sales are expected to
supported by EBRD and IFC. By 2009 the Company more than double in 2011.
exited the tire business and focused on production of
rubber footwear and technical rubber products. Tigar also owns and operates the only national chain
of car service stations and distributes tires, batteries
With an investment of over 23 million Euros in and motor oils in Serbia. This forms a unique asset with
development, reengineering and upgrading of high potential for disposal to strategic investors that are
manufacturing facilities, the company has created a expanding their operations in the CEE region, where
29

30. Serbia is the natural next market to enter. In addition to enables AIK Banka to be present in all important regions
excellent competitive position, the Serbian market will of the country. As a typical wholesale bank, AIK provides
also witness high growth, as only from 2011 all cars are various banking services across all main business
obliged to use winter tires. segments. Its retail banking services include various
accounts, credits, and deposits while corporate banking
Tigar has made good progress in the field of CSR. It offers short term credit, credits for both export financing
has implemented ISO and OHSAS certificates, as well and development financing, as well as corporate
as established modern, highly efficient production depositing products. Great variety of payment cards,
facilities with low level of energy use and minimum safe-depositing, money transfer, and electronic banking
waste. In 2010 the Company commissioned the plant services are also on the offer. The bank has also built a
for production of recycled-rubber products. Corporate reputation of a strong dealer-broker company on local
Governance practices are of high standard, developed capital markets. Among other Serbian banks, AIK Banka
in cooperation with IFC, and they are exceeding the especially differentiates from the rest of the group by
requirements of local stock exchange. Tigar is also its exceptional capitalization level with CAR above 30%,
considered to have one of the most professional investor together with excellent operational efficiency: cost to
relation services in Serbia, which Limestone team has income ratio is well below 30%.
experienced several times in company meetings during
our trips to Serbia. Such a strong market position combined with
remarkable development potential of the country itself,
adds further responsibilty for AIK Banka in order to
step up as a pioneer in shaping sustainable values in
local society. Although there is a long way to go, the
awareness is there, as Limestone team concluded after
meeting the newly appointed Chairman in Belgrade
in spring 2011. Strength of the capital base, massive
earnings potential and extremely low valuation make
AIK an exellent case for any investor who is looking to
get exposure to Serbian development.
Energoprojekt
Energoprojekt is the largest engineering and
construction group in Serbia. Through its network
of regional branches, subsidiaries, joint ventures
and other corporate entities, Energoprojekt controls
projects in 24 countries across four continents. From
AIK Banka the Yugoslav days, Energoprojekt has retained its
Founded in 1976 as the internal bank for the Agro- position as one of the major design, engineering and
industrial Combine of Nis, AiK Banka has emerged construction companies in the South-eastern Europe.
into one of the leading wholesale banks in Serbia. AIK With a solid reputation, and revenues of approximately
Banka obtained the license from the National Bank of €200 million per annum and annual contracts in excess
Yugoslavia in August 1993 and was restructured as a of €400 million, Energoprojekt presents a very good
joint-stock company in June 1995. From October 2005 platform for regional expansion. The investments in
company`s shares are listed on the Belgrade Stock infrastructure and energy projects in Serbia and South-
Exchange and in September 2006, Greece’s ATE Bank Eastern Europe are expected to exceed €3bn over the
became the major shareholder in the Bank by acquiring next several years, from which the company will get its
20 percent stake. Current network of 66 branches fair share. From July, 2007, Energoprojekt is listed on
30