Boots the Chemists has long been a permanent fixture of Britain’s high streets. The company of which it is now just a division, The Boots Company plc, is still headquartered in Nottingham where it started life; and the group combines high profits with a public profile generally more redolent of Robin Hood than of the Sheriff of Nottingham. In the City of London, it has recently acquired a similar reputation for hitting its targets.
The century-old $15 bn Boots Company hovers toward the high end of the FTSE 100, but its 22 percent-a-year returns over the last five years are better than a pep pill to its 120,000 shareholders. Keith Whitesides, the director of IR, notes with some satisfaction, ‘I have a fairly stable share register. There’s a substantial base of long-term investors who know and understand the business and, of course, all the shareholders can see the business at work on every high street in the UK on any day of the week. After all, it’s the sort of retail business that caters to you from cradle to grave.’
Strength in numbers
Whitesides’ own background is not in professional IR, nor even from the more traditional auditing or accounting side. Beginning as a lawyer with Boots 25 years ago, he moved into operational management in the UK and the US. He assisted in various strategic planning exercises which led to his exposure to IR. After all, he had to explain these decisions to the City. Indeed, it was his advocacy of the company’s value-based management (VBM) system to the City that persuaded the company he was the right person to interface with investors on a more permanent basis. Whitesides became IR director in 1996 and has carried on explaining the implications of VBM ever since.
The IR work is done by a six-strong department. Along with Whitesides, it includes two administrative and secretarial staff, Emma Blackwell and IR secretary Lynda Beet. Joe Leadley, the IR manager does the day-to-day administration, organizes the annual meetings, annual and interim results presentations, the City presentation and the individual meeting presentations. She has an IR officer working for her, Julie Hurst, who deals with the IT capability, links with City screens and so forth.
Unusually, the department also has an in-house analyst the position is currently held by Phil Branston. His IR role is to function in the same way as an external sell-side or institutional analyst. ‘It’s very useful and creative for career development, since it puts him at the heart of the organization,’ notes Whitesides. ‘It gives him access to senior management from day one and permission to look at everything we’re doing with objectivity, and analytically so that we can face the challenges before we have to meet them.’
Contact level
That level of contact is also maintained by Whitesides himself. ‘I’m directly linked into each of our business units, so we use their models, and I have daily contact with the most senior management throughout the organization.’ Every month he attends the executive directors’ meeting that prepares the business plan. Indeed, as a measure of the importance with which the company accredits IR, Whitesides’ position is the highest executive grade in the organization.
As is often the case, physical contiguity is important. Whitesides office is close to both the chairman’s and the finance director’s. Additionally, his office is right next door to that of the director of corporate affairs. ‘It’s a very close link. We each need to know what the other is doing,’ he explains.
Healthy prescription
A fund manager’s favorite, Boots has a concentrated shareholder base with 40 institutions holding just over 50 percent of the stock, and the top 80 holders accounting for 60 percent. On the face of it, Whitesides should be leaning back with his feet on the counter, but his prescription remains a lot of IR, actively and frequently applied. Moreover, he applies it with the egalitarianism that befits an organization that, in turn, benefits from the prescriptions of the UK’s National Health Service.
Institutions aside, the 120,000 small stockholders have their own twice-yearly magazine, The Shareholder. ‘It would be very easy to focus all attention on the institutions, but this ensures that the private investors aren’t neglected,’ Whitesides explains.
Eschewing all advertising, the magazine keeps retail holders informed about product development and annual and interim results, with tables showing total shareholder return compared with peer companies. Retail investors also have access to a low-cost share-dealing scheme, promoted at the company’s annual meetings by the brokers who run the service. They can also take part in a private investor lottery that selects 100 of them a year to be ‘analysts for a day’ visiting the company’s Nottingham headquarters, talking to management and seeing the production processes.
In the past, the company had a scrip-for-dividends deal similar to an American dividend reinvestment program, but Whitesides says that the firm felt it ‘was contrary to our principles, which were aimed at reducing the amount of shares issued.’ So the system was changed and now dividends can be used to buy stock. He claims that investors have actively taken up the new idea, although taxing of dividends at source makes the principle less attractive than in the US.
With a pleasantly loyal and concentrated group of institutional holders, the small shareholders are relatively high maintenance but, Whitesides says, ‘The cost is one we’re prepared to carry.’ These are ‘in the main, secure and long-term investors. And of course we never forget that they’re customers as well.’
Quick reaction
The institutions are not neglected while Whitesides is stroking the private investors. The investor relations department rule is that any call from an institutional investor is returned the same day, if only to acknowledge and promise the information. However, with no false modesty, Whitesides claims that it is rare that it can’t be dealt with immediately, ‘We have a very large knowledge base.’
He tracks his top hundred holders on a monthly basis. ‘Those that move in and out quickly, I don’t bother with. What can I do about it?’ he declares. ‘I’m more interested in institutions that don’t hold us. I invite them to come to meetings and presentations. I’d talk to an institution that tended to be selling or buying my stock in large quantities to find out why, or offer information. We expect people to take profits occasionally but longer-term holders will tend to come back. But then,’ he adds with investor relation’s most clinching argument, ‘the stock has had a good run over the years.’
It may have had a good run but executives don’t have a direct option to cash in on the market’s upswings. Boots stopped issuing stock options several years ago because, Whitesides explains, ‘We decided that the actual value of the options to the individual concerned was as much based on the state of the market as the performance of the company. If our philosophy is to manage the company for the benefit of shareholders, then executives shouldn’t depend on the state of the market when options are exercised.’
The top 250 managers are now on a performance management scheme that offers an annual cash bonus based on financial targets over one year, and a long-term scheme tied to performance over four years. Half of the long-term bonus is paid in shares that are not available until three years after the four-year cycle.
Long-term view
Thus inoculated against short-termism, senior management is exposed to the financial community by a high visibility IR program of face-to-face meetings. Whitesides concentrates on buy-side meetings to fill much of the senior management time made available to him and also joins in most of the meetings.
Lord James Blyth, Boots’ well-respected chairman, meets with the major 15-20 institutional holders annually, often accompanied by David Thompson, finance director and one of two joint group managing directors. Thompson runs up a further 25 one-on-ones separate to the chairman. The investor relations team, including IR manager Joe Leadley, hosts another 30.
For the annual results, the full team gets involved with presentations to around 100 institutions and sell-side analysts. Additionally, at least once a year, the finance director introduces the management of one of the business units for a presentation to the analysts and institutions.After the interim results, Thompson shares the rounds of key sell-side analysts with Steve Russell, the group’s other joint managing. Both are backed up by Whitesides in these meetings.
Some 20 sell-side analysts cover Boots, ten of whom write extensively about the company. ‘Of course, I speak to one or more of them at length every day,’ says Whitesides. This helps to back up the face-to-face approach that Boots prescribes for its IR. Lest analysts are not satiated with this level of meetings and contact, the IR department also hosts presentations in its corporate headquarters.
On the road, the company also manages two visits a year to Edinburgh and Glasgow, and every 18 months to Dublin. For the last two years, Whitesides, the chairman and finance director have added the US to their itinerary, with one-on-ones and larger lunch or breakfast meetings. For the present they are restricting their North American tour to Boston and New York but they do not rule out venturing further afield in future if justified.
Whitesides estimates that 5 percent of Boots’ stock is US-owned, and confesses to a personal ambition to build that up to 10 percent. That’s why the only teleconference calls Boots does are into the US to back up the London annual results meeting.
Since 1995, Boots has not had a business presence in the US, but it has been expanding elsewhere with pilot stores in Holland and Thailand and has others planned in Japan. Whitesides is beginning to see European investors coming on board but slowly. In November, for example, he hosted a dozen continental fund managers and walked them around a Boots store with a regional manager showing the product mix, retail distribution in the UK, and how a busy retail park works.
Judging by its City-savvy IR team, value-based management and attention to shareholders large and small the Boots message should be well received in other markets. Not only has the company acquired a reputation for hitting targets, its commitment to shareholder value should mean handsome returns for the masses just like Robin Hood.
