Twenty years ago, British Aerospace’s investor relations couldn’t have been easier. The chairman just phoned the British government, which owned the company that grew from the merger of the former Hawker Siddeley and British Aircraft Corporation.
In 1981, the government began to sell its stake, unloading it completely by 1985. Even then, as Britain’s premier defense company, it was still under restriction to prevent foreign ownership that might prejudice the country’s military independence.
That has now changed. The company took a 35 percent stake in Saab’s aircraft business; it invested in various other European interests, which include its partnership in the Airbus consortium; and it acquired Marconi, which will give the group more sales in North America than in its European homeland.
Andy Wrathall, the person responsible for investor relations at BAe, has had to invent the company’s IR approach as he went along. ‘It’s difficult to know when I actually started doing investor relations,’ he confesses. An engineer on the commercial aircraft side, he became a press officer when he was drafted into headquarters in 1985. Then, he says, ‘I began picking up the investor and analyst calls.’
In fact, Wrathall notes, ‘My title hasn’t changed since then. I’m still called public affairs executive. But they look after me very well.’ No doubt winning Best Investor Relations Officer in the UK at this magazine’s 1999 awards has helped matters a little on that front, too.
Wrathall still flies the IR department solo although, he says, ‘I’ve always been very well supported by my secretary, whom I drive mercilessly.’ And one detects an interest in the larger investor relations departments typical of certain US corporations. There is some discussion of ‘resourcing up’ some of BAe’s IR activities, ‘But we need to do what is appropriate rather than let this kind of activity become a sort of sub industry within the overall business,’ Wrathall cautions, invoking the company’s constant drive to streamline its headquarters.
Indeed, he reminisces that after the mergers there were four head office facilities, each regarded by their denizens as the head office. ‘Now, we’ve really made serious reductions, and that’s reflected in the financial performance, which is the important thing,’ Wrathall reports. But he adds, puckishly: ‘With the appropriate levels of resources to communicate it, of course.’
Not me, guv
He modestly lays no claim to having invented his own job, citing long-term cooperation between the communications and finance functions at the company. George Rose, the current finance director, his predecessor, Richard Lapthorne and current CEO, John Weston, have all had a strong eye to IR. Although lean, the head office is not necessarily mean. ‘I can get through to [senior management] very quickly, especially the finance director, from whom I get 95 percent of my day-to-day information flow.’
The climactic year of 1991 was almost an initiation test into the modern globalized environment for BAe. That year, the company missed its profits forecast, as the leased regional aircraft suddenly landed in flocks back on the company’s books; a rights issue was scorned by the City; and the stock price nose-dived from around £6 to £1.
‘It wasn’t a happy time, and it really did look quite bleak for a lot of people in the business. It got quite personal, and there was a real lesson in that, about what it means to disappoint investors and analysts,’ Wrathall recalls. ‘I think the new management team here really think of themselves as combat proven.’
‘It would probably be flattering myself to think that IR alone would have made a material difference to a very difficult situation,’ he admits. ‘Personally, I think the key thing is to make sure you are 100 percent close to management issues, just so that you’re not misleading anyone. I’d rather just go and quietly disappear off the scene than mislead anybody.’ Flowing from that is his conception of the IR role, ‘which is to have a good quality understanding of the business, rather than acting as a conduit between elements of the management team and the investment community.’
Recovering from the crash-dive, BAe has become something of a textbook example of change management; and its climb back is being followed by investors across the world. Although the shares are still only listed in London, an increasing number of foreign investors are climbing on board, and they now hold 30 percent of the stock.
Annual one-on-ones with investors now take the CEO to New York, Boston, Paris, Asia and the Middle East. ‘Continental Europe is getting interesting, since the size of the insurance companies in, for example France, is increasing rapidly, and they are coming on board.’ The original ceiling on foreign holdings was a mere 15 percent, but that has been progressively raised to its current 49.5 percent.
‘Gradually the foreign interest in the company was nudging up to the [original] limit, and it would have resulted in enforced selling which of course we did not want. That history has clouded our judgement so far, since the limit made us cautious about encouraging overseas ownership,’ he confesses. ‘With the Marconi deal increasing the stock on issue and the new 49.5 percent limit on foreign holdings there’s no need whatsoever for such residual caution and we can expect to see a more active engagement with overseas investors.’
In New York BAe has a level I ADR. One thing that may irritate some US sell-siders is that the company does not issue quarterly results. ‘Even six months is a relatively short accounting period compared with the cost-cycle of some of our products,’ Wrathall points out, by way of explanation. And instead of quarterlies, he offers ‘quite detailed cash flow analysis that shows the opening and closing balance on commercial aircraft, so that people can make up their own mind about the difference between short-term cash flows from aircraft shipments, and what they might regard as more significant cash movements.’ Some American analysts are still wedded to their quarterlies, but he thinks even they should be prepared to accept this perfectly adequate substitute.
Wrathall shares the responsibility for the annual report and accounts with the finance department, although he is mainly concerned with what the company’s investor audiences want out of it. ‘Over the years we’ve oscillated between spending a lot of money, and spending nothing at all. The results have sometimes been pretty ghastly,’ he accepts, but notes that there has been a little more investment in recent years. ‘However, it’s one thing to make the annual report look and feel nice, another to make it a meaningful document. I’m not sure I get good quality feedback on these things. Ask half a dozen agencies what they think, and they’ll all come up with bright solutions for what you should be doing, which of course, they would like to project-manage for you.’ Wrathall is still wrestling with this familiar dilemma, and one suspects he will be for some time.
In the mix
BAe’s wing-manufacturing role in the Airbus consortium has led to some unique IR problems for Wrathall and his colleagues. The consortium partners each have their own way of presenting accounts and conducting IR. That can be frustrating to try and work with, although Wrathall recognizes that it is probably inevitable.
But there are other equally frustrating problems with being in defense, including having to deal with the wrath of ethical investors. Wrathall himself cannot see that there should be problem. ‘Something like 82 percent of our sales are in defense and a large proportion are export, so it’s a clearly defined proposition for an investor. We don’t see that there’s any problem with that, but if an investor doesn’t want to invest in defense, then it’s quite straightforward. Not us.’
However, not everyone shares that robust view. ‘It tends to become a platform for interest groups,’ explains Wrathall. ‘And that has rather got in the way of the honest man in the street wanting to put an entirely reasonable question about the business. I manage to duck most of that, I’m pleased to say, since the company secretary’s office handles it,’ he notes. And he makes it plain that he has no desire to do any empire building in respect of that department.
Bringing in the buy-side
Recent times have seen a broadening of BAe’s IR approach. ‘A few years ago we reached the point where we had quite a good dialogue with the sell-side analyst community, but I think we were guilty of not trying very hard to establish more direct links with the buy-side, so we set out to redress that.’
Wrathall scrutinizes the share register closely and conducts a ‘fairly regular audit of major shareholders in terms of how they regard us.’ Like many IR officers, Wrathall would prefer long-term commitment from investors because of the long lead time nature of the business. However, he adds magnanimously, it’s a market and if anyone’s prepared to take an interest in us, we should respond appropriately.
At the moment Wrathall uses London-based agency Makinson Cowell, for tracking and register analysis. ‘We’re very happy with Bob Cowell who is the source of first class guidance,. He really understands the London market. The other guy we draw on a lot for one-on-ones is Bob Pringle at our brokers ABN Ambro. We tend to just use a few good quality people – those who really understand the market inside out, know the people and can help identify where the sharp edges to issues might be – rather than going to agencies.’
The recent emphasis on the holders does not mean the sell-side is now neglected, as the 30-plus analysts from London alone testify, in addition to those in Europe and the US. For both sides, ‘We are very one-on-one. There are industry conferences, some quite high profile, but in order to get the proper two-way dialogue it has to be done as a one-on-one.’ The top 30 or so holders will see John Weston and George Rose around once a year, ‘and then there’s a lot more in-fill that I’ll do myself.’
Wrathall’s site visits attract both the sell-side and buy-side, and of course watching the Eurofighter in production gives most of them an atavistic thrill. It also provides a good opportunity to put them in contact with the sector managers, which in turn also offers the chance to bring investor concerns to the operating side of the business.
The retail side holds less than 4 percent of the stock, an echo of privatization when 3 percent was made available for employees, and more recently a profit sharing scheme that provides a flat amount of stock for all employees if targets are met. However the company is not blind to the way the market is moving, and is preparing for the day when less sophisticated investors need attention. Ironically, that entails more sophisticated technology. At present BAe’s IR technology is still very much at the Alexander Graham Bell level with phone calls and personal meetings. The company web page does have the results and the annual report, but it doesn’t have an IR page, and eschews any mention of Wrathall whatever title he wields.
He agrees, ‘The opportunity to use IT is huge, and that’s the next move, to get a lot of information available for analysts. There’s a whole load to be done there.’
However, although Wrathall does not say it himself, it’s a moot point whether investor relations for a multibillion, multinational, multiproduct jumbo can carry on with only one pilot in the cockpit.
