Board Comm uni cation Style Lingo Study Fall 2006

1. Systematic Investment Styles Corporate & Financial Analysis Asset Management Competitive Edge Services Board Communication Style Lingo Study Fall 2006 Developed by CE Services: P.Weckherlin, J.Grigorjeva, J.Moskaljuk, D.Baulin Banku Augstskola: T.Volkova, J.Voitovs, G.Vārpa, K.Šurna

2. Who we are Competitive Edge Group is a specialized Swiss based niche player providing custom tailored Excellence investment solutions (Discretionary and Advisory) for private and institutional investors is an independent partner for banks, pension funds, and other institutional and private investors in asset management has an analytical, disciplined, systematic, and conceptual approach was founded in 2001 by Philipp Weckherlin and Markus P. Hepp CE Asset Management 6 staff AuM ca. 1bn CHF (600 mn EUR) CE Services 7 financial analysts Riga as an outsourced research centre Major clients include:

3. Project description • Project objective: • Better understand (on a global scale) content, focus, and priorities of Board of Directors (BoD) • Communication with shareholders. • Project base: • Chairman’s letter to shareholders in latest annual report. • 495 US companies (S&P 500); • 527 European companies (Stoxx 600); • 137 Japanese companies (Nikkei 225); • 12 Baltic companies (Baltix); • 121 keywords; • 6 clusters: Management Lingo, Investor Lingo, Financials, Emerging Markets, Management Dynamics, Judgemental. • Project hypothesis: Annual report (in paper form as well as electronically) is the only continuously • publicly available corporate document. The annual report therefore is most important platform for • Board ofDirectors/Chairmen to systematically address shareholder issues.However, investor • themes don’t enjoy akey priority and the potential for communication with investors is notfully exploited.

4. Top 25 overall terms: dominated by management terms 25 Most Common Terms • Management Lingo dominates over topics Investors are mainly interested in.

5. Top 25 terms by region Top 25 Most Common Terms According to Regions * • Japanese firms are addressing more issues than their US and European peers. • More extensive, detailed letters to shareholders by Japanese companies. *Terms are sorted by Europe.

6. Investor Lingo overall Investor Lingo • Only four key topics widely discussed. • Dividend is mentioned by 50%. • Dynamic issues (e.g. dividend policy) are hardly being mentioned.

7. Baltic companies

8. Baltic States – Investor Lingo Investor Lingo • Reluctant in communicating with investor. • But, most common issues such as dividend, share price, valuation are being addressed.

9. Baltic States – Management Lingo Management Lingo • Baltic companies concentrate on topics which address mainly industry professionals. • Concentrate on earnings, quality, and competition.

10. General Conclusions • Major attention was paid to the topics management professionals were interested in (Management Lingo). Shareholder issues did not enjoy highest priority (Investor Lingo). • Japanese Chairmen’s letters seemed to lead in almost all categories by addressing most relevant topics. Indeed, the Chairman’s letters published in Japanese annual reports were usually 2-3 pages long, while European/American letters were only 1-2 pages long. • The majority of the analyzed annual reports did not allow any self-critical notions. Negative (and positive) issues are hardly mentioned in the Chairman’s letters. • In the context of (potential) business, and outsourcing, of all emerging markets, China was mentioned most often, but only by 20% of the companies. • In the Baltic States communication with investors is just developing. Attention was paid mainly to the companies’ financial state, products, quality, but not shareholder issues. Some companies regarded the letter as a pure formality.