As a winner at this magazine’s Investor Relations Latin America Awards, Telmex clearly demonstrates that the techniques of communication are every bit as important as the technology. Read on for the vital statistics.
The leading telecommunications company in Mexico, Telmex has almost 13 mn telephone lines in service, 1.3 mn line equivalents for data transmission and 760,000 internet accounts. Privatized in December 1990, Telmex launched its ADR on the New York Stock Exchange the following May. While foreign investors can of course buy directly on the Mexican stock exchange, the Bolsa Mexicana de Valores, the Telmex ADR now accounts for 70 percent of the shares in issue – which in turn account for 60 percent of total equity. Controlling shareholders Carso Global Telecom and SBC Communications hold an aggregate 38 percent, which meets the legal requirement for domestic Mexican control of the telephone business.
Alejandro MartÃnez, investor relations manager, expresses satisfaction with the mainly institutional shareholder base, which he describes as ‘more growth and value-oriented.’ But he qualifies, ‘Of course some institutions are after income, so we have more dynamic processes that help keep the stock very liquid in the markets both in Mexico and New York.’ That is, of course, in contrast to many Mexican companieswhose small float and oleaginous liquidity give minority shareholders serious pause for thought.
It’s difficult to say precisely how many investors own Telmex shares in Mexico itself, but in the US there are more than 30,000 depositary receipt holders. Clearly, there is a substantial and identifiable retail base there. In Mexico, there are also many participants in investment funds – most of which hold Telmex in their portfolios as one of the country’s most important stocks.
As a widely held stock, and one of the most heavily traded shares on the NYSE, Telmex clearly feels obliged to maintain a high standard of investor relations. ‘Each quarter, we make a strong effort to communicate the company’s results and the most important highlights of the quarter,’ explains MartÃnez. ‘The support that we receive from the corporate communications department is very important since they maintain a constant relationship with the information channels that achieve more coverage for us. We have always tried to be shareholder-oriented and transparent.’
Telmex won the award for best communications with the retail market at the Investor Relations Magazine Latin America Awards 2000, but MartÃnez confesses that Telmex’s investor relations web page (www.telmex.com) needs honing. ‘I think we are at an impasse in which we have to reshape it, because it is an important tool and we have not taken advantage of its full potential. We have seen it as a place where you can access the annual and quarterly reports and background about the company, rather than as a proactive information source. So we are working to make it more efficient and investor friendly.’
Humble beginnings
Like so many in the profession, MartÃnez began his IR career in an oblique way. He was managing Telmex’s relationships with its regional boards, whose job is to help top management develop business relationships for the different regions of the country.
He took on IR when his predecessor moved into the international area. ‘I think I was passing in front of the door of the CEO’s office at the right time,’ MartÃnez wryly remembers. ‘It has been very, very interesting – a very strong learning experience.’
For the first six months he was trained on the job, working with the former IRO and benefiting from hands-on tutelage from the CEO and CFO. ‘Each one is a hell of a teacher. They are both extremely devoted to the shareholders.’ But now MartÃnez is in the position to reverse the information flow. ‘They want to know from us what the market trends are. Of course, they know them better than most, but they want to hear what the market is talking about, since sometimes the analysts and the fund managers have interesting points of view. So the IR role also includes serious input to the CEO and CFO.’ He concludes, ‘The challenge of IR in the future is not only telling the story of the company to the investors, but also helping the top executives outline the programs they need.’
For more direct interfacing with investors, CEO Jaime Chico Pardo addresses at least two investment conferences a year, CFO Adolfo Cerezo three or four; but both are often on hand to greet investors who visit Mexico, who are always made welcome. For quarterly earnings the CFO hosts a conference call, with the CEO joining him at least once a year and whenever there is an especially important report to unveil. Other senior management are brought in when needed.
Roadshows are not a priority, ‘unless we are involved in financial operations,’ but the CEO and CFO go to New York and Europe regularly where they meet investors for one-on-ones. ‘I always thought that Cancun would be a good place to hold an investor relations meeting,’ MartÃnez confesses wistfully. ‘But we are very cost conscious, so it’s Mexico City instead.’
Backing up the senior executives’ efforts, Telmex’s IR team has five more staff, as well as two designers who help with the annual reports and quarterlies, particularly for the web site. Mainstay Eduardo Ãlvarez specializes in dealing with analysts who follow the company. MartÃnez reports directly to the CFO, who is clearly an important contributor to Telmex’s IR efforts, as is the CEO.
In addition, Alfredo Corona is in charge of the economic financial details, such as establishing the IR model to give guidance to analysts; while Anna DomÃnguez is responsible for the elaboration and dissemination of releases and reports.
Despite the Nafta-driven convergence between the US and Mexico, MartÃnez says there are still cultural differences between the shareholders on either side of the RÃo Grande. ‘Americans have a more elaborate stock market culture. Nevertheless, the Mexican Bolsa has been making very important efforts to reach more Mexicans and continue developing the stock market culture,’ he points out. However, according to MartÃnez, on the institutional side, Mexican, US and European investors are all equally good, with talented people running the investment portfolios.
Eduardo Ãlvarez notes the strong coverage by local investment pros. After seven years in IR he has found the crucial difference is not nationality. ‘If the analysts live here, whether they are local or European, they are more exact in their opinions and points of view.’ When he began in IR, Ãlvarez says it was all very new. ‘It was a whole new field for Mexican companies. Overseas analysts were not very well informed about Mexican businesses and the Mexican economy. But by now, they know about the culture, idiosyncrasies and environment. Now there are no borders, the questions are the same and they are all online all the time.’
Just as the US-Mexican border is important, but far from impenetrable, so is the boundary with the corporate communications department. The two departments have a strong, and well-delineated relationship.
‘We have a policy that if there is a specific question relating to investor relations, we will meet with the media, but someone from the media department will be present. And sometimes there are specific financial questions they will refer to us.’
Anna DomÃnguez is bilingual. So are the rest of the staff, although MartÃnez jokingly says about himself: ‘Me speak English like Tarzan!’ He doesn’t really. And the output from the IR department, koshered for syntax and spelling by outside consultants, is Spanish and English. As befits a telecoms company, DomÃnguez reports that in Europe, the US and even in Asia, e-mail is the preferred medium of transmission. ‘Even the small retail investors have internet accounts. But they do want the annual report in hard copy. It’s a very useful tool.’
The fax, so beloved of analysts just a few years ago, is finished. ‘The only time I’ve been asked for one was when someone’s e-mail system was down,’ she says.
Confident in Ãlvarez’s abilities, MartÃnez does not attend all the meetings with the three dozen or so sell-side analysts covering Telmex, over half of whom are based north of the border, with another ten in Europe.
‘I try to attend all the meetings and to give our senior management the proper exposure there, but my primary objective is to satisfy the information needs of the buy side. So I must be in all the buy-side meetings.’
He’s happy many of Telmex’s institutional holders are long-term. ‘We want long-term relationships like those with some of our present investors, who make a serious investment for life. It’s comforting to have a strong base that’s been with you a long time. They know the company and trust in management; and of course management has had to do a lot, because it’s been so committed to delivering good results.’ Longevity doesn’t, of course, entitle institutions to special treatment. And, though Telmex is not legally subject to Reg FD, ‘We follow it anyway, because the CEO insists we follow the rules for the benefit of the market.’
Only a few years ago, much of Wall Street seemed to see all emerging markets as some sort of homogeneous mass. MartÃnez reports with some relief that today Telmex does not necessarily suffer just because Asia has the shivers. So, unlike many Latin American peers, he can concentrate on IR for the company rather than for the country.
‘Today American investors see Mexico as a partner, part of a regional bloc,’ comments MartÃnez. ‘But the Europeans have also always been receptive to Mexico and understand perfectly our present stage of development.’ The foundation for that partnership is trust in the management and the constant access and exposure that his IR department manages. ‘They can see that no matter how hard it can get, the company always has the opportunity to reach its goals. Telmex is very conservative in stating those goals and tries to deliver more good than bad surprises.’
MartÃnez goes on to recall some of his early lessons in IR: ‘As part of my basic training, the CEO told me: first, Never promise anything that you are not going to deliver; second, Never tell lies; and finally, Come to me with any important issues.’
He draws this conclusion: ‘Always tell what the company can deliver. Telmex has had good growth, but you can always find investors who are looking for more than you can deliver, and of course those investors are not the ones you need in your shareholder base. You have to keep the kind of investors who are expecting the kind of growth you can deliver, and you have to develop a very strong relationship with them.’
What the analysts say
José Linares, JP Morgan
‘Telmex does a terrific job relating to the market all the information that is publicly available. The company is diligent in providing information, both to the sell side and the buy side, to make an assessment of the prospects for the stock.’
Linares goes on, ‘With Reg FD, they provide fair disclosure, and are very diligent at getting the information out. Secondly, whenever we request meetings with upper management, they always make sure those meetings take place. Senior management is always in touch with both the buy side and sell side. The comparison is not with other Mexican companies, but on a global basis, and I would rate them at the very top.’
Janet Baez, ING Barings
‘One thing that really stands out is how much they have improved. Throughout the America Movil spin-off and changes on the regulatory front, they have been trying to be more transparent, and I think that certainly flowed through to their IR. So I feel a lot more comfortable in getting the necessary guidance and details than I did two years ago,’ say Baez.
‘Every time I have gone down to Mexico and asked for a meeting, their CFO has given me more than ample time. Every time,’ Baez stresses. ‘Usually there’s an IR person at the meeting, but in any case when I call them – even on short notice – to say that I’m coming down to Mexico City, they’re happy to accommodate me. And that’s not necessarily the case with other companies. Others provide access to senior management, but in their case it’s always a one-to-one shot. At Telmex they go out their way to make sure I get access to the right people.’
