When Iris Welten joined Swiss specialty chemical maker Clariant in the summer of 2001 as head of corporate IR, she had her work cut out for her. For starters, like many European companies, Clariant had only a vague idea who its shareholders were. In fact, over 65 percent were unknown to the company’s management. Meanwhile, the financial community had a similarly limited view of Clariant’s strategy and corporate structure. According to a perception study, 34 out of 40 top chemical industry analysts and portfolio managers felt Clariant’s story was not effectively communicated.
‘Basically, Clariant was a black box to investors,’ says Welten. ‘We lacked a differentiator – a clear footprint showing why Clariant was likely to be a future leader in the specialty chemicals field.’
Faced with this challenge, Welten identified the company’s core IR goals. First, Clariant, which makes chemicals used in goods as diverse as shampoo and brake fluid, needed to make information about its products and applications more accessible to investors. Also, the details of the company’s structure and strategy had to be better outlined, highlighting where growth would come from. From these goals sprang other IR-specific targets that included improving reporting and transparency, increasing exposure to the financial community via targeting and roadshows, and building an understanding of the IR function internally.
The last was largely accomplished with a unique ‘internal roadshow’. Welten traveled to different countries to explain investor relations to management committees within the company. ‘Clariant’s corporate culture didn’t really understand IR,’ says Welten, who wrote her masters thesis on best practice IR after an internship at Citigate Dewe Rogerson, then went on to work in Deutsche Telekom’s New York IR department. ‘It was a big step in making our work easier. Now I have open doors throughout the company. If I need something, I can make a call and quickly get the information.’
One voice
In tandem, Clariant built a ‘multi-functional database’ on a simple, inexpensive Lotus Notes system. ‘Establishing a convincing investment case requires continuous input from people throughout the company,’ maintains Welten. ‘Usually this data is gathered ad hoc from phone conversations and e-mails. In our case, however, our country heads, finance people and so on can input their comments directly into the database. Besides being more efficient, it secures the data in one comprehensive and easy-to-use resource.’
Used extensively at quarterly report time, the database ensures the entire Clariant team speaks with a single voice. Information is shared with corporate communications, which helps integrate investor relations and public relations functions, notes Welten. ‘Questions and answers are prepared and loaded onto the database so that whenever anyone gets a call on a certain subject they can immediately pull up the information and provide consistent answers.’
Spreadsheets and industry trends along with shareholder identification, profiling and meeting history are also incorporated into the database, according to Welten. ‘If our chief executive wants to know whether he has met with a questioner before, what their concerns are and how much stock they own, he can gather all that information at the touch of a button.’
Clariant’s internal solution has garnered considerable interest from Welten’s IR peers. ‘It is really quite simple,’ she says with a hint of pride. ‘By not outsourcing the task, we have the advantage of our own operations people typing in the explanations for everything on a single database that internal staff can reach on their laptops even before we have the quarterly results.’
Rules of attraction
After setting up internal systems, Clariant’s IR team put a shareholder identification and targeting program in place. By September 2002, the IR department had identified 92 percent of the company’s shareholders.
Identifying the shareholder base gave Clariant a list of contacts to meet with on the road while providing a benchmark by which to measure IR efforts. ‘Knowing the investment style of your shareholders is crucial,’ says Welten. ‘It gives you feedback on whether you are in the portfolios of the right investors based on your valuation. It suggests whether you have the right amount of index investors when compared to peers. And it provides a starting point for your targeting based on future valuation assumptions.’
The shareholder ID process also helped build a new list of investor targets. The company used to rely on brokers to organize roadshows but Welten decided on a new approach. In planning roadshows, she still sends brokers a list of current holders but also provides a second list based on peer targeting and portfolios deemed underweight in the stock. Initially, however, some brokers weren’t keen on inviting Welten’s targets. So she demanded a full account of which investors had been contacted and their response to Clariant’s overtures.
‘This way, brokers are forced to use my data and not merely their own network,’ says Welten. ‘If they don’t do it, I don’t work with them for the next roadshow.’
Clearly, Welten brings a proactive approach to IR at Clariant. While the previous IR team focused on so-called multipliers such as the sell side and journalists, Welten’s priority is to directly target the buy side. Moreover, when Clariant does speak with the sell side, Welten ensures presentations are made to both analysts and sales teams. ‘The sales teams talk directly to the buy side,’ notes Welten. ‘Usually, a presentation to a broker’s sales team is only done during an offering. But we do it regularly on every roadshow.’
Targeting also helped the company broaden its shareholder base in the US, moving from around 8 percent in 2001 to over 30 percent today. Clariant’s achievement, incidentally, was done without listing an American Depositary Receipt (ADR). In Welten’s view, ‘ADRs are only important if you are looking for acquisition currency or have a large employee base in the US.’
Welten advises any European company looking to expand its shareholder base in the Americas to expect a considerably more demanding clientele. ‘US investors are much more number focused and performance driven than Europeans,’ she explains. ‘They want a CEO who knows the numbers at least as well as the CFO.’
Strategic IR
Now that Clariant has identified its shareholders and set up a strategic targeting program, the IR department has initiated a shareholder profiling campaign that surveys and analyzes the trading activity of the company’s top holders. ‘We are looking to find, for example, what sort of news will provoke trading,’ says Welten. ‘Comparing ourselves to our peers gives us a good idea of what drives share price. Then we interview major buyers and sellers to discover what they want and what would trigger a trade.’
Meanwhile, ongoing perception studies give a clear indication of where market misperceptions lie. Welten discovered, for example, that the market believed Clariant had a higher level of dependency on raw materials than its peers so they concluded its products could suffer greater price deterioration. ‘With this data, I could focus presentations on those misperceptions to correct them while highlighting our strengths,’ she says.
While Clariant was a growth play last year, today Welten believes more value investors are ready to step in. However, the transition to a new CEO has temporarily put targeting initiatives and roadshows on hold. In March 2003 Roland Lösser replaced Reinhard Handte as CEO. ‘We can’t communicate anything new about our strategy because everything is currently under review,’ Welten admits. ‘Many investors are holding back until they get a clear message from our CEO as to where he sees the company going.’ This has now happened; on August 5 Lösser outlined the company’s new strategy, goals and financial targets. Time will tell how it is received.
What is clear, though, is that Lösser takes IR seriously as a strategic function and is determined to win shareholders’ confidence through a policy of open communications. ‘It is important for the company,’ concludes Welten. ‘And it gives me motivation to fulfill the things that must be done. Of paramount importance is a strategic approach rather than trying to solve problems as they arise.’ Welten is now a member of the company’s ‘corporate service’ team, which is headed up Lösser. ‘We meet before management board meetings to give our input to management and we meet after management board meetings to get an update from management.’
For Clariant and for its investors, that method may be destined to prove just the right chemistry for success.
What the analysts say
Despite the company undoubtedly making great strides, all is not yet sweetness and light between Clariant and chemical industry analysts and investors. The fact that Clariant has yet to enunciate a new strategy weighs heavily on stock market sentiment.
Martin Voegtli, Bank Vontobel
‘There will be a shift in strategy but no-one knows what it will be and where it will lead. We have no financial targets so [we] must wait until interim results in August. That’s another risk.’
Anonymous portfolio manager, Germany
‘Currently there is no investment story at all. In the past the company had ambitious goals but didn’t deliver. I hope the new CEO is more realistic than the old one. IR must be clear, realistic, timely and aware of the issues investors are focused on.’
