Europe is a continent rich in heritage, long in history. But when it comes to European investor relations, the history books are decidedly thin. So thin, in fact, that it has only been in the past few years that IR can claim to have taken a foothold across Europe.
With this in mind, World Investor Link and Investor Relations magazine set out to uncover the latest trends and opinions in Europe’s growing IR community. A total of 200 respondents from 14 countries provided the answers.
First the good news. Budgets are on the rise and the standard of IR practice seems to be improving. The bad news? There remains a gulf between IR activities directed at institutional and retail investors, and identifying top shareholders is still a difficult task for many companies.
Continental drift
The survey features a large spread of companies, ranging from small caps right up to the global titans. About three-quarters of the companies that responded range from £100 mn to £10 bn in market cap, with continental Europe supplying a higher proportion of large caps.
Encouragingly, over half of respondents indicate that their IR budgets have grown over the past two years, with only 9 percent claiming their IR spend has fallen since 1999. Unsurprisingly, budget increases among continental European companies outstripped those of their UK counterparts, where IR developed earlier. Annual IR budgets vary widely – from under £50,000 (18 percent of respondents) to over £500,000 (10 percent). Surprisingly, the survey indicates that continental IR departments enjoy higher budgets than their neighbors in the
UK, though this may be due in part to the larger number of UK small cap respondents. However, a hefty 37 percent of continental IROs confess they don’t know their annual IR budget.
It’s a similar story when it comes to IR staffing levels. The largest number of respondents work alone (34 percent), with 28 percent working in a two-person department and another quarter in an IR office of three staff. Few companies in Europe employ more, with single-digit percentages boasting four, five or more than five IR specialists. Oddly, 5 percent of respondents claim they don’t know how many staff work in their department. They’re clearly spending too much time with senior management these days.
So has there been an upsurge in IR activity to match the growing IR budgets? The survey indicates so. On the continent, 69 percent of respondents answer that they have adopted quarterly reporting. This compares very favorably with the situation in the UK (21 percent). This result surprises Wolfgang Schnorr, deputy head of IR at Deutsche Bank and a ten-year veteran of the German IR scene. ‘From a legal point of view, we have to prepare half-yearly reports. But for Neuer Markt-listed companies it’s different. They must report quarterly,’ he says, adding, ‘It’s what today’s capital markets expect.’ But the high number of large-cap respondents in continental Europe could have influenced this result, as 58 percent of companies with a market cap of over £10 bn report quarterly.
IR professionals are also putting in the extra hours when it comes to meeting and greeting investors, with 75 percent of respondents participating in more than five one-on-one meetings with sell-side analysts in the past year. This figure falls to 57 percent for the buy side. ‘These findings are very positive in terms of how much work is being done by IROs,’ summarizes Lee Godfrey, COO of World Investor Link. ‘They seem to know their investors very well.’ Deutsche Bank’s Schnorr confirms this trend: ‘Sometimes we have five meetings a day,’ he reports.
Innovation central
European IR professionals are also keen to embrace new technologies. More than 35 percent describe the development of their IR web site as the most important innovation they will introduce in the coming year, followed by webcasting (16 percent), electronic communications (7 percent) and upgraded communications such as video webcasting (6 percent). ‘IROs want to spend more time reaching their audience and becoming more time efficient,’ adds Grant Woodall, director of product development and integration at World Investor Link.
Regulators may take heart from these figures, but they mask a stark contrast in approaches to institutional and retail investors. One-on-one meetings are seen as the most effective way to communicate with institutions, but the real story lies in retail investor communications. Half of all respondents see their web site as the most powerful tool for reaching retail investors, followed by direct mail (14 percent). In European IR, the postman still has his uses. Does the relative passivity of the preferred retail investor methods mean private investors are treated as second class citizens by IR departments? Despite FD, it seems so.
‘Companies’ retail communications are geared to a cost-based approach. It’s lower on their list of priorities,’ claims Jeremy King, director of private share ownership at Proshare, a UK-based retail share ownership promotion group. He takes issue with the assumption that the IR web site is the best medium for retail investor communications: ‘The web site is a good way to contact people who are interested in owning shares in the company, but it’s not so good for current shareholders.’ King advocates that companies get more involved in active communications with private investors, such as e-mail and attending exhibitions.
And when it comes to shareholder identification the picture is far from rosy. Over 10 percent of all respondents say they do not know the identity of their top 50 shareholders. This figure rises to a hefty 23 percent when continental companies are looked at in isolation.
Peter Swabey, manager of investor relations at Lloyds-TSB Registrars in the UK, explains that identifying shareholders can be tricky. ‘UK companies have Section 212 [of the Companies Act], under which they can demand shareholder information with menaces,’ explains Swabey. ‘If they fail to identify themselves to the company, it can withhold dividends and disenfranchise shareholders. Continental European companies don’t have too many ways of finding that information out.’ That’s because in most of continental Europe shares are held in bearer form – rendering the holders effectively anonymous.
Grant Woodall is more upbeat. ‘The 77 percent on the continent who know their top 50 shareholders have done well,’ he comments. ‘They’ve done a lot of digging,’ he comments.
On our way
Despite such difficulties, IR is clearly growing and IROs are largely happy with the regulatory regime that governs their activities. A sizeable 67 percent believe current disclosure regulations to be ‘about right as they are’. A quarter want even stricter rules, a figure that rises to 31 percent among continental European respondents.
So what lies ahead? IROs expect more focus on the web, more regulation and more disclosure. CEOs could get more involved, too. Half of all respondents estimate their CEO spends only 5-10 percent of their time on IR matters. Outside of Europe, North America is the overwhelming focus, despite relatively low US ownership levels (40 percent claim US investors own under 10 percent of their company).
Ultimately, there’s no doubt IR has arrived in continental Europe. Time was when the UK was an island of IR activity amid a morass of poor disclosure and investor apathy. IR may still have some way to go and rougher economic waters lie ahead, but Wolfgang Schnorr still marvels at the transformation he has witnessed over the past decade. ‘IR has completely changed. Before, few people were interested and now that’s changed from both sides – the investors and the companies. We’re much more important than before. We’re now involved in strategic issues and from our point of view, it’s a wonderful thing.’
