Summer’s IR summit

Mastering market intelligence

‘There are various leading indicators depending on which industry you’re in. For example, there are relatively simple options-trading metrics that can tell you what’s going to happen with your stock. If you look at the volume of options trading one or two days before you announce your earnings, you can see how the market is going to react. Think beyond stock price in terms of market intelligence. Think options. Think credit default swaps. Think news sentiment.’

‘I’m not a great lover of heavy guidance. It has its place, but my starting point is that it’s our job as analysts to develop our own views of a company and its financial performance, and the market gains from having a diversity of views. I also worry that the guidance culture goes hand in hand with the quarterly reporting culture.’

‘One area IR professionals don’t get involved in is valuation. Many will say, That’s not my business. I once sat down across from a chief financial officer and he said, I’ll take whatever valuation I can get. But I think there are legitimate debates to be had on valuation, and investor relations should not be too reticent about getting involved.’

‘We don’t give guidance but we do go a long way to help the market understand what our key priorities are. We don’t give specific top-line or bottom-line numbers because we don’t want management to be trying to hit a short-term number, which in the past led to short-term decisions that damaged the business.’

‘Gathering analysts’ estimates and arriving at our own consensus numbers is instrumental in helping us understand what the market is expecting, and we collate it in a form that’s helpful to market participants.’

The impact of technology on communications

‘While we’ve been thinking about what we might do with social media, we’ve changed the way we communicate on our website – for example, with our ‘three-minute annual report’ and snapshot videos of investor relations as well as R&D heads. Quite a few things have changed as a result of talking about social media.’

‘By the end of 2012 there were 200 mn tablets in use, and that’s projected to be 350 mn by the end of 2013. There were 1.1 bn smartphones in use at the end of 2012, and that’s projected to be 1.9 bn by the end of this year. The way people are communicating and using and accessing information is changing dramatically.’

‘Of the things we do that are classed as social media, our chief executive’s blog is the one that is very clearly read by the investment community, with many shareholders and analysts following what he’s saying. We want it to be topical and interesting, but the real value people get out of it is they get to know the personality of the business. Our CEO will talk about corporate issues and interactions we have with government, management change and what’s happening with the culture of the business. So readers get a strong flavor of what our company stands for, how it’s developing, what our business can do and what it can achieve over time – because it isn’t just about the numbers.’

US market briefing

Latest US regulatory changes and market developments that European IROs should know about:

• New SEC chairman Mary Jo White and an expected focus on enforcement
• Decimalization tick size debate and its impact on trading of small-cap and illiquid securities
• The JOBS Act and general solicitation for unregistered 144A offerings by international companies

Quick tips to optimize a European IR program in the US market:

• You should care about your ADR. It’s not just US retail investors who invest in them, it’s institutions as well (the top 20 US institutions hold more than $30 bn in Level 1 ADRs, and that’s just what’s reported in 13Fs)
• Many ADR investors are small institutions outside of large cities, so make sure you travel beyond New York, San Francisco, Chicago, Boston, Los Angeles and Philadelphia
• Include your US ticker in your press releases, on your website, and so on, to help your news travel further

Opportunities and challenges of sustainability

‘For us, sustainability is a process, it’s a way of doing business, and not at all just something forced on us by the outside world. It’s a push strategy now, rather than a pull from the investment community.’

‘Nine out of 10 of the world’s largest institutions have signed the Principles of Responsible Investment (PRI), agreeing to incorporate ESG factors across all their investment decisions, but few are actually set up to do it. Now they’re being tested on how effectively and comprehensively they’re following the PRI, which is a big headache for a lot of institutions that signed up thinking it was aspirational and no one would ever check. The net result is that institutions are becoming a lot more serious about ESG than they have been in the past.’

‘One of the problems the sell side faces is how to get paid for ESG research. That’s beginning to change as more institutions think more commercially about how they’re going to pay for that research.’

‘Once a year we hold a sustainability roadshow. We make it a mix of meetings: certainly with the SRI analysts at big companies, going deep into the non-financial metrics or how we look at PRI, but also with generalist portfolio managers and analysts who want to add incrementally to their understanding of our company.’

‘In the debate over integrated reporting, the question has to be: how far do you want to go? Every time there’s a new template or new requirements, we lose companies that can’t keep up. There’s a push to go further and further but there’s a real risk we’ll lose a lot of companies by pushing too far, too soon. Some companies won’t even try because they feel they’ll never catch up.’

Spotlight on corporate access

‘Possible rules around corporate access are on a sort of hiatus at the moment and a lot of people are taking a wait-and-see approach. Some fund managers are now pre-emptively circumventing the brokers and organizing their own meetings with corporates. One fund manager, whose corporate governance guidelines apply worldwide, is bypassing the sell side all around the world.’

‘Many institutions say corporate access clearly fits within the parameters of research and they can defend that it meets all those requirements – for example, that it adds significant value, it has intellectual rigor and it has actual value in the modeling process. It’s part of due diligence. If corporate access is excluded, it could disadvantage asset managers. The largest have their own resources to organize their own meetings, but smaller ones don’t.’

‘Commissions have declined and the sell side’s role is being reduced. There are fewer sell-side analysts covering us, therefore we have to automatically focus more on the buy side. At the same time, the remaining sell-side companies are in a cost-cutting mode and it can be really hard to get good service from them.’

‘There really is an emerging trend with the buy side setting up its own corporate access teams. We see it with Fidelity and Capital, where they’re building it into their infrastructure and organizing their own field trips.’

‘From brokers you can get an up-to-date view of what is really happening to your stock in the short term. Sometimes they’re much closer to any type of portfolio changes, and that’s the kind of information we can’t get from anyone else.’

IR Magazine Think Tanks are invitation-only events for select groups of corporate IROs. Find out about upcoming think tanks in New York, Toronto, Chicago and London at www.irmagazine.com/events.