Investor relations executives may have a tendency to regard portfolio managers and analysts as the enemy, but they do have a few things in common with them. One is their reliance on information, particularly comparative information. For an analyst or fund manager, that tends to mean relative data on a company’s peer group, just as it does for companies, who need to be in a position to pre-empt or address significant variations from other companies in their sector or those with similar investment profiles. For an IRO, anxious to know how well he or she is perceived by the financial community, the equivalent data can only come in the form of feedback from that audience – as it does in the research carried out for this magazine’s annual awards.
Five years on from the first Investor Relations Magazine Awards in the UK both the event and the research on which the awards are based have undoubtedly matured. And judging by the comments from the 500-plus fund managers and analysts who took part in the research this time around, the IR discipline has itself come a long way since 1990.
Evidence for this assertion comes as much from that section of the research which investigated the general effectiveness of the IR function as from the questions about individual companies’ efforts. Respondents were asked if – and how – investor relations departments had improved over the last three years and 60 per cent said they had indeed got better, mostly because of their provision of more information.
The anecdotal comments on this subject were nearly all positive as well. ‘They’ve moved on from public relations to investor relations,’ commented one analyst on the subject of IR personnel. ‘They are more informed, better resourced.’ Another respondent, this time a portfolio manager, noted that there was now more egalitarianism in companies’ disclosure, which is presumably a result of regulation having its effect. ‘In the past one felt companies were giving specific information to favoured investors,’ he said. ‘Now everyone gets equal treatment.’
Other evidence of the perceived improvement in IR departments came in references to an increase in the numbers of presentations and field trips, as well as positive comments about the calibre of IR staff. Of course, analysts are never satisfied: 40 per cent (against 26 per cent of fund managers) still felt companies should disclose more; and 17 per cent of all respondents said companies should initiate more of the contact and communications themselves, rather than reacting to questions.
On a number of questions, there was a marked distinction between the attitudes of fund managers and analysts, reflecting their different requirements. But the research also highlighted the fact that they tend to deal with different people at the companies they follow. Whereas analysts now talk mainly with either the IRO or the CFO, fund manager contacts are across a wider range of company personnel.
There is further variation of contact points among analysts, depending on the sectors they cover. For example, most health care and pharmaceutical analysts say their main contact is the IRO, while textile analysts deal most frequently with the finance director; and none of the textile analysts cited the IRO as their main contact. That is probably explained at least in part by the relative size of companies in these sectors, with textile companies tending to be smaller and therefore less likely to have dedicated IR executives than the big drug companies.
But it could also be a reflection of the variation in calibre of IR departments across the range of stock market sectors. When respondents were asked to rate the general effectiveness of investor relations departments, on a scale of one to ten – with one meaning poor, ten meaning excellent – the overall average score came out at six. Within that, the sectors scoring best – at 6.7 – were Support Services & Other Services & Businesses (the catch-all category for odds and sods which includes companies as diverse as Rentokil, Chubb Security and Johnson Cleaners); followed by Leisure and Hotels; and Food Products. At the other end of the scale, the lowest scorers were Distribution and Transport, awarded a score of 5.5.
The winner of the Grand Prix award for best investor relations overall came from one of the top-scoring sectors: food and drink manufacturer Cadbury Schweppes. Cadbury scored well across all the categories of IR activity, achieving first place in its sector in five of them – for its annual report, its results meetings & analysts briefings, its board communications, its corporate governance, and its IRO – and second place for its environmental reporting.
Mark Lynch of SBC Warburg’s food team – himself a member of the winning team in Extel’s recently announced Annual Survey of Investment Analysts – is not surprised that Cadbury took the top IR prize. ‘Chris Milburn (Cadbury’s IRO) is very personable and very knowledgeable about the company,’ Lynch says. ‘He’s always available and he understands just what brokers and institutions want to know. The press releases, interims, annual reports and so on are always very focused on what we need. And the company’s management also frees up a reasonable amount of time for investor relations. It’s partly a cultural thing: the company appreciates the importance of communications with the City,’ Lynch says.
With praise like that, one might wonder why Cadbury – and Chris Milburn – didn’t walk away with more of the awards. In fact, the only companies to receive more than one this year were BP and ICI. BP was voted best for its analysts meetings and for its crisis management, and it was also the second runner-up to the chocolates and fizzy drink maker in the Grand Prix stakes.
Like Cadbury, BP scored well across all categories of IR activity, featuring in the short-list in every case. Paul Spedding, who covers BP for Kleinwort Benson Securities, characterises BP’s investor relations as ‘user-friendly’. He notes that the IR people – Kevin Abbott, Peter Hall and Con Gregg – have easy contact with the operational managers. ‘That means you can get access to in-depth details when you need them, for instance, if there’s something in a press release you want to follow up on. The IR people are not shut off in an ivory tower.’
That’s partly a result of BP’s practice of appointing people to the IR function who have previously worked elsewhere within the company, usually on the operational side. Abbott was originally an engineer in the minerals division, who then moved to finance. Hall came to IR from BP Exploration. And Gregg came from the refining division. These backgrounds give them a technical understanding of BP’s operations, but since they are now housed in corporate headquarters, on the same floor as the executive directors and group communications and planning divisions, they are also in day-to-day contact with central management.
Spedding thinks BP’s award for analyst meetings was well-deserved. The presentations are very well-organised, with the documentation – including copies of the slides – being made available before the meeting starts. ‘And there’s space to write notes on the documents,’ notes Spedding. ‘That’s what I mean about the approach being user-friendly.’
As for BP’s award for best crisis management, that reveals the length of analyst and fund manager memories as much as the ability of the company to cope with a crisis. The trauma it coped with so efficiently began back in 1992 when weak performance led to the announcement of a $1 bn provision and a halving of the dividend. Chairman and chief executive Bob Horton was fired. ‘All hands were needed at the pumps,’ recalls Spedding. ‘But the company admitted it had a problem and explained clearly to the City how it was dealing with it.’
Since then, David Simon has turned the company round – the best possible way of managing the crisis, of course.
The second company which won two awards this year was yet another blue-chip FT-SE 100 stock, chemicals giant ICI. It scored the highest marks in the environmental reporting category and was deemed to have the best investor relations officer.
Vince Leheny is in charge of ICI’s IR but Ginny East worked with him until May, when she was transferred to the treasurer’s department. She has now been replaced by Barbara Wijngaard. Leheny and East – the research pre-dated Wijngaard’s arrival – described variously by respondents as ‘very professional’, ‘very experienced’, ‘very available and quick to respond’ and ‘on the ball’.
Peter Clark of Goldman Sachs notes that both Leheny and East know their company very well, having been there for some time, and are ‘always available’ – something that the research shows time and again to be one of the single most crucial requirements if impatient analysts are to be satisfied. ‘They can usually give you the answer themselves,’ says Clark. ‘But if they can’t, they always know how to get it quickly.’
On the environmental side, ICI was praised for the breadth and depth of its information and its comprehensive releases on environmental issues. But the green movement still has a long way to go before it can claim to have made an impact on the financial community. Most respondents said that companies’ environmental disclosures had no impact on their investment decisions or recommendations, although fund managers did tend to be more concerned with these issues than analysts: 39 per cent of investors said environmental disclosures were factors in their investment decisions, against 14 per cent of analysts.
Corporate governance standards, on the other hand, do have an impact on most respondents’ decisions to invest (or not). In all, 60 per cent said compliance with governance standards mattered: 54 per cent of analysts; 74 per cent of fund managers. RTZ won the award for corporate governance, which contributed to its being named as runner-up for the Grand Prix; and the willing company also appeared in the short lists for both its annual report and its results meetings.
Louise Hough covers RTZ for SBC Warburg and agrees that the company has an effective IR department, staffed by two full-time executives, George Naylor and Paul Galloway. ‘They are more active than most companies of comparable size,’ says Hough. ‘And they are extremely good in their relations with the City. Apart from the standard bi-annual presentations they arrange site visits for analysts and fund managers, as well as hosting dinners and smaller meetings. The company has had to be active partly because, as a mining company, it’s had environmentalists coming down on it and has had to deal with that.’
Andrew Mitchell of Smith New Court says, more broadly, that he would expect ‘most people to have a happy feeling that RTZ’s directors tend to act in shareholders’ interests’. He notes that RTZ certainly follows all the guidelines on governance, and that its IR team conveys well what the company is doing, which inspires confidence in it. ‘RTZ’s US filing also means we get an extra chunk of published material, which is useful,’ adds Mitchell.
Time and again this hunger for more information, delivered more quickly, comes through in the comments from respondents. It was a factor in the annual report award going to Delta, which was praised generally for providing a lot more information than most companies; and in particular for including a ten year financial data summary.
At Kingfisher, the retailing group which won the award for most improved investor relations, the key factor was the company’s new-found willingness to impart more relevant information. The change followed a round of management upheavals at the troubled company last year, following which Andrew Mills stepped into its IR breach to take on the uphill task of rebuilding the City’s confidence in the group.
Kingfisher’s former corporate affairs director Nigel Whittaker seems to be the target of most of the blame for the breakdown in communications with fund managers and analysts. He stands accused of ‘keeping the City at bay’ and refusing to talk to the financial community. ‘As a result, the investor relations manager couldn’t keep the City happy,’ said one analyst. That individual is now satisfied with both the new finance director and Mills, saying of the latter: ‘He is good at his job. He gets information to us quickly.’
Mills now reports to CEO Mulcahy. He still has a difficult story to tell, and this award was certainly not won on the back of a glowing share price performance, but the City seems satisfied that it now understands the problems and is getting sensible explanations about the plans for turning operating divisions round.
In other cases, the award winners are blessed with a good story: their job is just to ensure everyone hears it and understands what lies behind it. The best new issue trophy, for instance, went to venture capital company 3i, whose size alone – it’s now in the FT-SE 100 – sets it apart from most IPOs. That’s not to take any of the credit away from IR manager Charles Richardson and his colleagues, but it does mean that 3i had the kind of resources that would be like gold dust to a more typical new listing.
It’s because of this wide disparity in the resources available to different sized companies that the awards include a separate category for smaller company IR. That was won this year by Forth Ports, which was commended for having made the market aware of its performance. More generally, the research found that respondents with an interest in smaller companies attributed greater importance to the role of the CEO at these businesses than at bigger ones; finance directors, on the other hand, were ranked as less important to smaller companies.
The question of the role of board members in companies’ relations with investors indicated wide variations across sectors and significant evidence of room for improvement. One in five respondents want finance directors to make themselves more available; 29 per cent want CEOs to do so.
Coats Viyella is presumably managing to meet this need already, however, since it won the award for best board communications for the second year running. ‘Its board communications are based on a policy of being as open-minded as possible… which involves listening and changing – change through communication,’ said one fan of the textile company’s
By and large, the City seems to be happy with the current frequency of meetings with company managements. For analysts that means roughly three times a year; for fund managers, an average of 1.7 times a year. But there is a widespread feeling that CEOs, CFOs and other members of senior management tend to hide behind regulations rather than working within them, and that the presentational skills of many leave something to be desired.
On a more flippant note, City Research Associates asked interviewees to put aside concerns about public speaking prowess and disclosure for a moment and focus instead on personal self-interest. Which companies, they asked, produced the best promotional goodies to take away at the end of meetings? But the respondents mostly failed to bite. An overall majority claimed not to have received any, with fund managers worse off (only 49 per cent accepting gifts) than analysts (69 per cent).
Examples of presents which respondents did admit receiving included ‘a bag of smellies from the Body Shop’ and ‘a big box of chocolates’ from Thornton’s. And there was a special mention for ‘a very nice travel bag’ from Grand Metropolitan. Some noted that the nearest thing to freebies were field trips to factories and offices, with one analyst adding ruefully: ‘One-day visits abroad – up at 6 am, return at midnight – I don’t call that a treat.’
On the other hand, for the record, trips to sporting events are definitely welcome; and a ‘nice lunch’ still seems to be surprisingly well-received.
