Investor relations for UniCredito Italiano’s component companies used to be at once simple and difficult. For a start, the government owned most of them. On the other hand, governments have changed so often in Italy since the war that for government ministers the agenda was focused on political survival rather than care and maintenance of Italy’s public sector companies.
Since the country’s bout of privatization in 1993, however, investor relations as we know it has been slowly coming into its own. Antonella Massari, who heads investor relations for the massive financial group, is already an investor relations veteran who is kept on her toes, not only by the company’s increasingly demanding domestic investors, but also by its rapidly expanding international shareholder base which is both pan-European and transatlantic. Massari began her career as an academic economist based in Milan before moving to Credito Italiano’s research department where her chief responsibility was to develop and maintain the bank’s macroeconomic model of the Italian economy. At the time, there was some grave doubt about whether or not Italy could join the euro and the government’s statistics were sometimes reputed to be more operatic than operational in their inspiration. So, ‘It really was a decent job,’ comments Massari.
Six years ago, she moved into Credito Italiano’s planning department and shortly afterwards she accepted the part-time investor relations portfolio. ‘At that time, the work was a lot less demanding, not least because of a lack of interest we had from foreign investors,’ she recalls. But that changed rapidly when Alessandro Profumo became chief operating officer – also six years ago.
Salomon Bros analyst Emmanuele Minotti was there at the time to witness the inception and remarks that the new chief soon came to a crucial realization: that Italy was the fifth biggest economy in the world and, since the financial sector is the backbone of the economy and since other countries’ banks are successful, why shouldn’t Italy’s be a success as well?
Value check
Profumo came, saw and concurred that there was a lot of value in the bank and that it was the markets that could give them that value. His strategy involved a new management team, free of the old public sector habits. But, above all, ‘He was one of the first to realize how important it was to communicate with the financial community,’ explains Minotti. This was something new for Italy, and even for Europe – except for the UK – so after a year of training he set up the department, and took on Antonella for it.’
The position of investor relations was even more strongly consolidated when Profumo became chief executive in 1997. Today the investor relations team comes within Roberto Nicastro’s strategy, risk management and control department, ‘which sees all the different businesses of the group and gets all the figures.’
Nicastro is also actively involved and the positioning of investor relations in this department means that there is a direct investor relations input into the strategy and planning of the group. In 1998, Credito Italiano merged with three other local banks to form UniCredito Italiano which, with 2,700 branches and 35,000 staff, is a giant player. It is also a very investor-friendly one, in the sense that it is both a highly profitable stock for investors to own; and the company takes care to keep them informed.
In parallel with the company’s own recognition of the function of investor relations, there has been a discernibly growing acknowledgement of investor relations as a profession in the country’s business world, helped by the increasing involvement of foreign institutions in the Italian capital markets. The most eloquent testimony for that is the host of applications that arrived for the fifth post in Massari’s department; her staff currently comprises herself, Manuela Muller, Sandra Bolognesi and Francesca Sfondrini.
However, the profession is still not widespread beyond the larger, blue-chip Italian companies. As Massari says, ‘In the smaller companies, you will find that someone from the financial officer’s or accounting department still deals with investor relations,’ she comments. Meanwhile, Massari and others complain that the Milan-based Italian Investor Relations Association is too informal in its structure to be of much help.
In addition to equity investors, UniCredito’s investor relations team also takes care of the company’s relations with bond-holders. The staff are not segmented by the audiences that they deal with, although they have been trying to allocate individual responsibilities to some extent on a regional basis, between Italian, UK, US and the continental European investors.
In the last two years, they have focused rather strongly on building relations with European fund managers who, according to Massari, were fairly badly under-represented. Already, however, the euro has increased their interest as growing transparency and decreased currency instability make cross-border investments more palatable to the region’s nervous fund managers.
Public relic
As a relic of its former public ownership, 50 percent of UniCredito’s stock is held by ‘core’ shareholders, who between them represent the financial institutions who were major investors at privatization as well as foundations coming from the recent merger.
These foundations cannot vote more than 5 percent of the shares and between them control only 12 percent of the votes.
A further 12 percent is held by domestic institutional investors. Foreign investors hold 27-28 percent, of which 8 percent each is held in the US and UK; 9 percent lie elsewhere – mostly in the rest of Europe. Italian local retail investors make up 11 percent, but a separate shareholder relations department – rather than the investor relations department – deals with them.
Interestingly, among the retail holders are Massari and her colleagues. ‘I think we are perhaps the only investor relations department in Italy to have stock options,’ she claims. The options are performance-based on targets set by the chief executive, so she and her colleagues cannot rely on the performance of the markets alone to enhance their stake. UniCredito’s reports are in English and Italian, and its accounts are in lira and euros. Massari has found that US investors are quite happy with that. ‘Rather than dollar accounts they are much more interested in quarterly statements,’ which UniCredito will soon be giving them. Indeed, from the year 2000 Italian companies will all have to produce quarterlies (see Rapid Reporting, pages 77-79).
There are some clear differences in accounting systems, but in Massari’s experience, American investors are definitely more interested in strategy and the financial trends than in looking deeply into the figures. The group itself is not presently considering an American Depositary Receipt listing in New York, but it may well do so for its newly acquired Polish Bank, Pekao. ‘We think that an ADR in the US is going to be useful for it,’ explains Massari. ‘But for us it’s not so important.’
Not really fussy
Although the company targets longer-term investors, so that they can get to know each other better, ‘They are very difficult to find,’ she laments, so UniCredito is quite prepared to meet everyone. However, with the demands on the time of senior management, ‘We’d rather they met long-term investors. But of course, hedge funds…’
That said, in general, Massari claims to be happy with the current shareholder ownership although she confesses wistfully, ‘What we would like is to have more participation in our shareholder meetings, like companies in the rest of the world do. Unlike European investors, US investors generally participate in the shareholder meeting and vote there. This is very good for the management,’ she maintains. And it is one of the ways they can let us know whether they agree or disagree with what we are doing.’
To make sure that they have the opportunity to get involved, half-yearly meetings to announce results are held alternately in Milan and London. So far this has not happened in New York, but the company does of course take part in broker-arranged conferences in the US. And in the future, it will be holding quarterly meetings, the venue for which has yet to be decided.
In addition, UniCredito’s outward urge takes it to the various broker organized banking conferences. With the increasing profile of the company, it has attracted more and more invitations, which means careful screening is required by the investor relations department to decide which are the most important.
The brokers also help with what Massari calls ‘missionary trips’ that are intended to inculcate true faith in UniCredito as a buy in the regions where investors have yet to be converted. That brings the number of one-on-ones up to 300 a year.
And we also try to use them to improve relationships with brokers. We have a lot of brokers who recommend our stock so we have a lot of volunteers, who help with the logistics and so reduce the time it takes to prepare this kind of missionary trip.’
However, to prove that this does not breed dependence, Massari points out that her department arranges its own one-on-ones when the company makes presentations in London. ‘We are very flexible,’ she notes. Allying the novel profession of investor relations with deeper and older Italian cultural traditions, her department also arranges lunches for domestic investors with the general manager, as well as at-home days at the company’s headquarters for investors. Interestingly, while emulating Anglo-Saxon style shareholder capitalism with great success, UniCredito has noticed that it can also have its downside and has therefore prepared contingency plans for possible crises, which it uses for simulation exercises. ‘Fortunately, we haven’t had to use them yet,’ she smiles. But rather than just waiting for meltdown, the team has grasped the basic but sometimes forgotten investor relations dictum that timely information is the best prophylactic against crises. ‘When we have news to show, we try to find the best way to communicate,’ she says.
In traditional terms that means spending a lot of time on the phone with the two dozen or so sell-side analysts – as well as being careful not to neglect their buy-side colleagues. For the sell side, analyst coverage is mostly in London and Milan.
For the purposes of getting their attention, Massari has noticed that the blast fax is no longer the most effective. ‘Our analysts prefer e-mail; it’s definitely the way,’ she avers. Expanding on this theme, she adds that the new millennium will see improvements in the investor relations section of UniCredito’s web site: by this summer they hope to have video web-casts of management presentations on the site. Already the power point presentation is up there for browsers to check (www.credit.it/investitori/english/welcome.htm).
Internal view
As part of Profumo’s strategy for turning round the company, the investor relations department puts a lot of effort into internalizing the message. The department regularly prepares and distributes investor relations news and comments for senior management. This includes stock trends compared to competitors in Italy, the most recent conferences attended, and the meetings with the rating agencies, which are also part of the department’s remit. ‘It’s well appreciated,’ she says. ‘We know because we get calls if people don’t get it.’
The cultural change in the group’s management has been marked. ‘To begin with it was difficult to get some of the company management to meet with shareholders and analysts, very challenging, but now they see the upside, they like it.’
The approach is: We have a team, so let’s show it to the market because they know it is a plus. As a measure of investor relations’ penetration at UniCredito, Massari notes that now Profumo can delegate much more of his investor relations burden. ‘He is involved, but only for the most important meetings. Now Nicastro and other top managers also meet investors and analysts on a regular basis. This degree of management involvement is ‘very important because in Italy, you can find investor relations departments that are frustrated because the commitment is low. Now a lot of other companies copy us. For example, we are one of the few companies in Italy with a benchmark but we look to foreign companies for benchmarking, not domestic ones.’ In conclusion Massari claims, ‘We are one of the most active investor relations teams in Italy, not because we are better but because our company is one of the most committed to communications, and our management is quite aggressive about it.’
It is a verdict which might appear arrogant; except that in this case analysts and investors concur.
