British Telecom has come a long distance from when it was Britain’s telephone and telegraph monopoly – part of the countries Post Office monopoly. In the 1980s, along with BP, it was a flagship of the privatization efforts of Margaret Thatcher as she attempted to create a population of shareholders throughout Britain.
Today, almost 20 years later, BT still has 1.5 mn individual holders there, although they own only 20 percent of what is now an international telecoms giant.
But neither these retail shareholders, nor the institutions who own the other 80 percent, were ecstatic about the tumble in the share price in the first year of the new millennium. Still, as BT’s director of investor relations John Brougham points out, ‘The whole telecoms sector has come down this year.’ It has been an especially tough year for Brougham, as the whole senior management team suffered severe displeasure from the markets, to the extent that his immediate superior, CFO Robert Brace, left.
John Brougham joined BT in 1986 and moved into IR in 1996. He had joined as a divisional finance director within two years of privatization. Before then he was with ITT in Britain – when it was still involved in telecommunications.
Brougham points out that telecoms has a history of growth and he expects there to be more in the future. ‘The introduction of broadband services will result in telecoms taking an increasingly higher proportion of the overall GDP in the advanced economies. It’s essential to be well positioned now, and BT is positioned to be a winner in both fixed and wireless broadband,’ he explains.
As the incumbent telephone company in Britain, BT has to face off against a stream of new competitors. But in mainland Europe, BT is the new kid on the block, the new competitor, as it aggressively carves market share from incumbents who have recently had their own monopolies curtailed. ‘We have both sides of the equation here,’ says Brougham.
Positioning
The company’s investor relations operation, with eight staff, is well positioned to take advantage of the opportunities as well. Brougham confesses that the head of that investor relations function is quite a privileged position to hold in the company. ‘You’re right at the heart of what’s going on. You get a macro view and understanding of the business which you get in very few other roles in major corporations.’ As usual, the department reports to the CFO. ‘But you also have a lot of contact with the CEO, particularly briefings and giving feedback about what’s going on in the market.’
Similarly, although there are no formal links, ‘The IR department has to work hand in glove with corporate relations and the PR side, in particular the press office.’ Constant exchange ensures consistency of message and also constant updating on the news affecting the company. ‘So we effectively work as one.’
Sometimes, of course, there’s more news than one might wish for. The ancient Chinese had a curse, ‘May you live in interesting times,’ but the power of such a malediction is lost on Brougham, who thinks that it is an added attraction of the job that it doesn’t stand still. ‘From day to day you can’t predict precisely what’s going to happen in the marketplace, particularly in a sector like telecoms where the technology is changing, the markets are still opening up, still developing. You’re getting more and more players, new competitors around the world, as well as mergers and acquisitions,’ he concludes. ‘You don’t really have time to think about which bits are the interesting bits. You’re spending all your time keeping on top of it.’
Apart from Judith Noveck in New York, who handles American investors both individual and institutional, the other seven IR staff, all based in London, concentrate on institutions. BT’s shareholder services, part of the group legal department, deals with the mass of British retail holders, who make quite different demands of IR.
Similarly, as BT is one of the UK’s biggest companies, most domestic institutions hold its stock. However, Brougham cautions, ‘This does not mean that we don’t give a lot of attention to our domestic retail shareholders. We have to. It’s a competitive world and they could all sell down in BT and seek alternative stocks in all the other competitive sectors in the world.’
Breeding familiarity
BT’s IR department targets overseas as well as domestic institutions. In three years it has succeeded in building overseas holdings from 10 to 17 percent but the aim is to take that to over 20 percent. That growth, mostly in Western Europe, has been from holders purchasing the stock, not by acquisitions or mergers. As Brougham points out, after making acquisitions in those countries BT’s higher profile helps stock sales.
However, it isn’t just familiarity breeding stock sales. Brougham detects an increasing willingness by US investors over the last few years to look outside their country for potential stakes. That has been especially noticeable in telecoms, a sector that’s been growing significantly with the opening up of markets around the world. But that does not make it automatically easy. It means that BT is competing with other European telecoms companies for American investor interest.
Indeed, Brougham also points to intense competition between Europe’s telcos for the increasing number of equity investors there. ‘It’s very important to keep a profile and to ensure that your particular company is well understood for when they decide which European telecoms company to invest in. If you don’t have that profile and the visibility and the channels open, you’re unlikely to grow. In fact, you’d be looking at a decline.’
Currently BT does not produce accounts in euros, but Brougham has not found that to be a significant impediment to pan-European trading since the attractions of UK’s more developed equity market more than compensate for sterling isolationism.
The investor profile has also changed to reflect the transmutation of BT from an income to growth stock. The company has traditionally paid out a high dividend, and even now it’s estimated that around 25 percent of the stock is held by institutions and individuals who look for it to provide income. Recently, BT has become much more of a growth stock, however, which has been reflected in the profile of the funds investing. And, as Brougham points out, the increasing number of overseas holders are essentially growth oriented.
This has been helped by BT’s recent restructuring which, Brougham explains, will provide greater management focus and improved visibility for BT’s value to investors. The new businesses include BT Wireless, Open World for the internet operations, and Ignite, BT’s broadband IP infrastructure business which provides data services to corporate and wholesale markets.
At the time of the announcement of this new structure, BT said it would decide on listing options for the various operations by the end of 2000. Asked about the possibility of tracking stocks, Brougham replies, ‘There’s probably less history and enthusiasm for them on this side of the water than there has been in the US.’
Analyst coverage
Tracking the stock with assiduity are some two dozen analysts, mostly London-based even when they work for US brokers. But with telecoms generating increasing excitement, more brokers are building up their resources on the US side. Brougham expresses a sympathy based perhaps on his own experience, as the telecoms industry expands and begins to differentiate. ‘Analysts are quite stretched, covering everything that’s going in such a rapidly growing and fast changing sector.’
Like many IR professionals, he notes a significant increase in the number of dedicated buy-side research people, particularly in the major institutions. ‘They need that channel of expertise within the institution to keep up with developments,’ he explains.
To stay connected with the major shareholders is, of course, a primary purpose of IR, and BT is no exception. Chief executive Sir Peter Bonfield sees the top 30 – 40 shareholders at least once a year. He’s usually joined by Brougham and, before his departure, by finance director Robert Brace. Others investors come into BT headquarters for lunches. ‘There’s a lot of contact at the investor relations level, but it remains essential that the company’s major investors can meet directly with the chief executive.’
Apart from the IR department itself, Robert Brace has been the main public face of BT for the analysts, and Philip Hampton has stepped in to take his place. Unlike many British companies, BT reports four times a year and invites analysts and major investors along for the event. With the restructuring, the new businesses will also have direct presentations to investors at least once a year. Needless to say there is a lot of demand for direct meetings with management, which the IR department arranges – ‘wherever we can satisfy that without tying them down and stopping them from running the business.’
Outreach in America covers most financial centers including Toronto, Philadelphia, Boston, Chicago, New York, Denver, San Francisco, and Los Angeles. The web site offers American investors a ‘translation’ of British financial terms into their American equivalents, tactfully explaining that ‘turnover’ means ‘revenue’ and ‘profit’ means ‘income’ in the British ‘accounts’ which are, of course, the ‘financial statement’. In addition to Judith Noveck in mid-town Manhattan, the company also calls upon the services of G A Kraut, the New York-based IR consultancy.
‘We obviously track our shareholder base very carefully and we have monthly updates on that,’ Brougham says. BT’s broker in London, Cazenove, has a function similar to a specialist on the NYSE, keeping the company up-to-date with market intelligence and apprised of market reaction.
As one would expect of an electronic communications giant, an increasing amount of communication is done by e-mail, although as the UK’s leading telephone company, it gladdens its heart that so many analysts and investors still dial their way to the information they want. ‘You often need to get to speak to people very quickly, so I don’t think that the telephone contact will ever go away,’ Brougham comments. Even so, the electronic interface is growing .
When calls do come through and Brougham cannot answer quickly enough, someone else on the IR team will answer. And although some of the others specialize in, for example, wireless or Open World, it is not exclusive. ‘The team has to cover the entire waterfront,’ he decrees firmly.
Analysts generally give Brougham high marks – much higher, in fact, than management, which this year has faced some harsh attacks from investors. And in the end, good IR can only mitigate bad news from the markets, not wipe it out. Even if analysts and investors don’t shoot the messenger for bringing indifferent news, the positive assessments of Brougham are usually accompanied by a subtext of disappointment about the content of the message.
