The pain in Spain

Spain is in the news like never before. The Spanish banking industry, in particular, has consumed every national and international editorial over the last few months, stoking concerns among investors eager to know what the latest European bailout will mean for the eurozone’s fourth-largest economy (after Germany, France and Italy).

For IROs at some of Spain’s largest companies, this increased international attention has forced them to become accustomed to – and comfortable with – the spotlight at an accelerated pace.

Santiago Muguruza is director of investor relations at BBVA. The Spanish bank recently ranked sixth in the best in country award for Spain at the IR Magazine Europe Awards 2012.

Muguruza sits in the division of the investor relations department that is responsible for generating the information and data for the rest of the team.

The relatively large size of BBVA’s IR department – comprising 18 people overall – is a consequence of an increasingly high demand for information over the last few years, Muguruza explains.

‘We used to have the feeling we weren’t able to address the issues right on time,’ he says. ‘But now, no matter how tough the circumstances may become, we are always ready to face any issue at the highest level of transparency.’

Reality bites

How do you begin talking to investors, however, when the Spanish banking system is about to be bailed out?

‘With common sense,’ the IR director replies, before pointing out how sometimes the numbers don’t always reflect the reality.

‘There have been recent occasions where foreign analysts visited Spain and felt really confused when they realized there was nobody lighting fires in the streets or carrying a gun.’

The Spanish economy – much like Ireland’s before it – has gone from being admired abroad for its energetic growth, epitomized by frantic property building all over the country, to a dust bowl haunted by empty properties and mass youth unemployment, albeit with nice beaches.

One way Spanish companies, both new and old, are managing this national reversal of fortune is to emphasize external operations at the expense of those closer to home. Elena Avila is head of IR at Amadeus, an IT company listed in 2010 that enjoys ‘the luxury’ of not being associated with its birthplace.

Amadeus is quoted on IBEX 35, Avila explains, making Spain its home address, but in most cases stakeholders don’t consider the company to be a Spanish firm.

What’s more, the eurozone bailout block formed by Portugal, Ireland, Italy, Greece and Spain – sometimes unflatteringly referred to as the PIIGS because of their similarly troubled economic environments – accounts for only 10 percent of Amadeus’ revenue.

Nevertheless, the company is not entirely insulated from the financial turmoil, ‘just like any other capital business,’ Avila adds.

The IR department at Amadeus, built from scratch in the middle of challenging financial times, has followed a proactive pattern under Avila’s leadership.

A year after going public in Spain, the company won the award for best investor relations for an IPO at the IR Magazine Europe Awards 2011.

This year Amadeus won best IR in sector (technology software & services), ranks fourth in the best in country award for Spain and debuts in the Euro Top 100 at 34 – the highest-placed new entrant.

At present, Amadeus is working on a contingency plan should Spain exit the eurozone. While the company doesn’t believe Spain will go back to the peseta, Avila says the company’s strategy is to cover any ‘possible outcome’.

Buying power

Ignacio Cuenca is head of investor relations at Iberdrola. The Spanish utilities company, winner of the best in country award for Spain at the 2012 Europe Awards and ranked 15th in the Euro Top 100 this year, has never pretended ‘not to be Spanish,’ assures Cuenca.

But from 2006 to 2008 the company did implement a change of strategy based on a realization that ‘the Spanish stint was wearing out’.

The purchase of UK utility Scottish Power marked the first phase of this transformation, which has subsequently resulted in a reduction in Iberdrola’s Spanish activities, going from 99 percent of EBITDA down to approximately 45 percent.

This global maneuvering has resulted in ‘a slight growth in the operating profit while maintaining the net income,’ Cuenca points out, being quick to confirm that the strategic realignment ‘hasn’t touched the dividend’.

Welcome reform

Naturally, investors in Europe are concerned about the sovereign debt and bank bailouts lying at the heart of the eurozone crisis. Yet in Spain, just like in other European countries, there are other important happenings at national level – both good and bad – that are causing heightened interest in the investment community.

The ‘good’ for Iberdrola is impending regulatory reform of the electric utility sector in Spain. The electricity industry is in a perfect storm, according to Cuenca. ‘This is a regulated industry and its policies are currently being transformed in Spain,’ he explains. ‘And the combination of these two issues is elevating expectations enormously.’

During the last two years, Iberdrola’s head of IR says the electricity sector in Spain has been ‘excessively punished by that regulatory uncertainty’.

Now, he adds, Iberdrola’s investors are enthusiastically rubbing their hands with expectations of impending reform. As IR magazine went to press, the new Spanish government was expected to have set out its plans by some time in July, at the latest.

‘It seems like we are about to see the light at the end of the tunnel and we will soon be able to know where we stand,’ Cuenca notes.

Beyond debt

When it comes to the ‘bad’, Spanish IROs rattled by the eurozone crisis and still shaking from the global financial crisis should spare a thought for Repsol, the Spanish oil & gas company, which recently suffered a company-level crisis to compound national and international uncertainty in the capital markets.

Three years ago, Maria Victoria Zingoni left Repsol’s overseas office in Argentina to lead the company’s IR function from Madrid. At the time, she couldn’t possibly have foreseen the day when her old office would permanently close down following the Argentinian government’s expropriation of YPF, Repsol’s local subsidiary.

As delicate a situation as this may be for the Argentinian national, Zingoni does not hesitate to align her interests with the under-siege Spanish company.

Since the noise from Argentina began in January, the top concern for Repsol’s investors has been whether the situation could actually end up in expropriation and how the measures taken by the Argentinian government would affect the company, Zingoni explains. The team therefore focused on how these developments would hit Repsol’s P&L.

Essentially, the company was preparing for the worst scenario, Zingoni says, but it didn’t believe it would actually come to expropriation in the end.

Zingoni has been on the frontline of the capital markets throughout the entire crisis. ‘In the last few months, we have been even keener to increase our level of transparency,’ she says.

‘We have been particularly keen to focus on our communication policy, transmit our message and heighten the visibility between investors and the management team.’

As part of this approach, the head of IR spent a few days in London meeting investors alongside CFO Miguel Martínez San Martín and CEO Antonio Brufau Niubó.

‘We organized a series of 30-minute meetings and asked for exceptional investor cooperation so we could achieve about 20 meetings a day,’ Zingoni explains.

Later, when Cristina de Kirchner, the president of Argentina, publicly announced the expropriation of YPF, the CFO and head of IR took the first plane back to London to explain the special characteristics of the Argentinian announcement to investors.

‘We did not wait for anyone to inquire; we aimed to be quicker and willing to provide the necessary information at all times,’ Zingoni says. ‘We were confident our priority at that point was to provide full feedback and respond to any investor uncertainty.

So if we needed to arrange a conference call with a shareholder from Hong Kong at five in the morning, we did it.’

Repsol finished second in the award for best in sector (oil & gas) at the IR Magazine Europe Awards 2012 and came third in the award for best in country for Spain.

Looking back at the YPF affair, Zingoni’s advice to IR professionals facing a crisis is, somewhat unsurprisingly: ‘Availability, availability and availability.’