In a competition of South American dances, Mexican rancheras and Brazilian samba would both be in the final, competing hard for first place. Well behind them, Argentina’s tango and Chile’s cuecas would be battling for the consolation prize of third position, while the remaining Latin countries would be watching closely and trying to copy what the others were doing.
We may not be on the dance floor, but it has parallels in the world of investor relations. Standard & Poor’s global transparency survey says Latin America is behind other emerging markets such as Asia. But within the region, according to S&P’s George Dallas, Brazil and Mexico, followed by Chile and Argentina, tend to do better than their Latin neighbors.
So it is the countries with the biggest economies that boast the best IR. Brazil and Mexico between them account for some 60 percent of the region’s GDP and their companies are undoubtedly outperforming their peers across the continent. Brazil’s Novo Mercado is a good example of how the country is progressing with stringent listing and transparency standards.
Analysts researching the Mexican market applaud the Brazilian initiative but argue that in Brazil only big companies are improving their IR, whereas in Mexico small and medium-sized companies are also doing a good job. Although it’s hard to say which country is doing better, the very existence of this rivalry between them is a forceful indicator of the importance now attached to good IR and corporate transparency.
Crisis lessons
After so many financial crises, Latin American companies have learned that opening a two-way dialogue with the financial community pays dividends in the long term. Only about ten years ago communication with corporate managers would have been inconceivable. Companies used to compare themselves with their peers and wonder, ‘If they’re not giving any information away, why should we?’
But this mentality has now changed, in response to demand from international investors for better access to information on the one hand, and to new domestic and international corporate governance guidelines on the other. Company executives are now much more accessible. Annual meetings with analysts and investors, international roadshows and participation in brokers’ conferences are now all par for the course among the largest companies in the four Latin countries leading the IR charge.
IR professionals have certainly been key catalysts for change. Companies with ADRs tend to have noticeably better IR departments, but other listed companies have beefed up their IR too. The IRO position has in many cases moved from being a PR role to one that reports directly to the CEO or CFO and is very close to top management.
Even in Argentina, currently mired in political and economic turmoil, companies are sticking to their IR guns. They say a good IR department is crucial for maintaining contact with the financial markets and keeping them informed about how the crisis is affecting their performance.
Viva la transparencia!
‘Nobody controls the future and our job is to adjust market expectations to reality.’ So says Rodrigo Treviño of Cemex, one of the world’s largest cement firms and – at least in the opinion of many buy and sell-side analysts – Mexico’s undisputed IR leader. Treviño is the company’s CFO and is responsible for IR. He and his team provide analysts with guidance on earnings estimates in order to help match their expectations to reality.
This approach is much appreciated by the Sociedad Mexicana de Analistas Financieros, the Mexican society of financial analysts, which rewarded Cemex with the prize for the best Mexican IR program last year. Brewer Grupo Modelo came second, while bottler Consorcio Arca and conglomerate Grupo Desc shared third place.
This recognition of Cemex’s IR is largely due to its policy of transparency. The company adheres to the principles of Reg FD – appropriately enough given its full ADR listing, though it’s not required by US securities rules. And, according to one analyst at Goldman Sachs, Cemex provides very detailed information about each of its complex business operations.
Treviño feels particularly proud of the way Cemex’s IR department handled the acquisition of North American cement company South Down in September 2000. The purchase price was $2.9 bn, a major financial undertaking by the Monterrey-based firm’s standards. ‘We knew the announcement could damage our share price,’ notes Treviño. ‘But one month after we let the market know our intentions, the share price behaved more favorably relative to capital market indices. This is a sign that we transmitted confidence and credibility.’ A year and a half on, he adds, ‘Without this acquisition we wouldn’t have had the good performance we had last year.’
As for future challenges, Treviño says Cemex’s first objective is to broaden its retail investor base. Mexico’s investment culture is unsophisticated compared to the US, and people tend to invest their long-term savings in government bonds. ‘However, we expect in time they will diversify their investments and go for equities.’
Another of Cemex’s goals is to reach out to the European market. At the moment, the firm has IR officers in Mexico, New York and Singapore, but it may soon add a European location to have better coverage from analysts based there.
The Goldman Sachs analyst stresses the quality of Cemex’s IR staff: ‘They explain all aspects of the company, they have good knowledge of the international institutional market, and they are very good at building relationships with analysts.’ He cites in particular the company’s annual site visit, when analysts and investors spend a whole day at Cemex’s headquarters talking with senior management. The IR department also organizes periodic roundtables with analysts to oil the wheels of direct dialogue.
As for technology, Cemex’s web site was voted the best Mexican site in a poll among analysts organized by Latinfinance.com, the finance site run by LatinFinance magazine. ‘Cemex’s site is very flexible,’ comments the Goldman analyst. ‘It’s in both languages, Spanish and English, and you can see the company’s efforts to position itself in investors’ minds as a global company.’
A clear spirit
The financial crisis Brazil suffered eight years ago eroded investors’ and analysts’ confidence in companies there. Confusion reigned during months of misleading information or just plain misinformation.
So Brazilian businesses had to do something to stop capital flight; and their only real option was to try to boost credibility.
Investor relations was crucial in this mission, first to stop shareholders taking their money out of the country, and second to attract new investors. In addition, the Brazilian government and the stock exchange issued regulations requiring companies to be more transparent and to stop releasing information selectively.
Banco Itaú, recently listed on the NYSE, played a major part in these changes and is nowadays deemed to have one of Brazil’s best IR programs. ‘Our first step was to contact rating agencies like Standard & Poor’s to obtain a more differentiated rating than the one we used to have,’ explains Alfredo Setubal, executive VP and IR director at Itaú. ‘At the same time, we started an active participant policy, creating very close relationships with the markets and organizing regular meetings with investors and analysts.’
Setubal denies exclusive responsibility for Itaú’s IR success, saying, ‘This is not the work of only one person or one team; you need to have a company project supporting this task.’ Humberto Casagrande, president of Abamec, the Brazilian association of capital markets analysts, concurs with that view:
‘It’s in the company spirit to be open to the public; this spirit is noticeable in all Itaú executives.’
Casagrande stresses the respect the company pays to private investors, providing them with the same information at the same time as institutional shareholders. Nevertheless, Casagrande says Ita̼ is not an isolated case. Other firms Рsuch as Bradesco, CSN and Unibanco Рare also characterized by their democratic treatment of retail investors, giving the same level of transparency and immediacy to them as to professional investors and analysts.
Difficult times in RÃo de la Plata
With Argentina in crisis, IROs have to field difficult questions. Where is the economy going? How are companies going to grow now? ‘These are very tough questions that we can’t answer since we face the same uncertainty ourselves,’ says Daniel Rennis, director of IR at Pérez Companc, one of Argentina’s largest oil companies. But Rennis is confident that Pérez Companc is solid; and although he and his colleagues know the country’s crisis will slow the company’s growth, they have no doubt it will start moving forward as soon as the situation starts to improve.
In the meantime, even analysts covering Argentinean equities are finding it hard to talk about companies’ prospects right now. Nevertheless, when asked which companies are doing a good job at IR in the current context, Merrill Lynch and Citibank both cite Pérez Companc and Telecom Argentina as the best.
‘Both have excellent disclosure, prepare good presentations and have regular meetings with analysts,’ says a Merrill Lynch analyst. Such recognition swells Rennis’s pride in his IR team: ‘It’s during difficult times that an IRO shows how much his or her work is worthwhile; during good times things are much easier.’ He says the only solution is to face the situation squarely, be very frank with investors, and tell them about everything the company is going through, in order to avoid building any false expectations.
The internet and teleconferences are useful communication tools during difficult times; apart from offering an efficient way of communicating, they cut costs. ‘Due to the crisis, the whole company has cut budgets,’ says Rennis. ‘And of course the IR department is no exception. We used to be four people here, now we are three.’ The department has also cut costs in areas like photocopying. Instead of color investor kits, it’s now back to black and white – a bit cheaper and less luxurious but with the same quality of information.
In Argentina there is no Regulation FD as in the US, and the regulations that do exist are not very strict. Still, large companies typically comply with international disclosure standards, partly because global investors demand it, and partly because Argentina’s powerful pension funds are now insisting on better transparency.
Women in the vanguard
Gisela Escobar is the woman that both analysts and investors point to as Chile’s IR leader. She heads an IR team of three people, all women, at the Santiago-based telecoms company, Telefónica CTC.
There are other large Chilean companies, such as Endesa and Enersis, that are also transparent and easy to access.
Christian Moreno, an equities analyst at Santander Investment, says companies with more mature IR practices guided by international standards tend to have better liquidity. On the other hand, the quality of smaller, local companies’ IR programs – where they exist at all – remains very patchy. ‘Some of them don’t even put out press releases,’ claims Moreno.
Such firms have a long way to go to catch up with firms like CTC. Escobar attributes her team’s success to the following: ‘Firstly, our good disposition and permanent effort to answer all the questions of analysts and investors. And, secondly, the very good access we provide to the company’s decision-making executives in order to offer insights into aspects of the firm’s business.’
Last year the company launched a new web site that is ‘much more friendly and easy-to-use than the old one,’ according to Escobar. On the site, buy and sell-side analysts can find all the information the company releases to the public. ‘We also keep our shareholders constantly up-to-date via e-mail – or by fax for those who are more traditional.’
Despite being lauded for the Chile’s best IR program, Escobar recognizes there is always room for improvement. ‘We are constantly working to provide better quality information and in the best possible format,’ she says, adding that in Chile, large companies follow good disclosure practices despite regulation that is less strict than in the US. ‘In Chile companies are aware they shouldn’t release privileged information because everybody has the right to receive the same information on a timely basis. And we generally use both languages – Spanish and English – to communicate with the public.’
Whether Chile’s other companies will improve enough to win the regional IR dance competition remains to be seen. But it is clear that companies based outside the big four – Mexico, Brazil, Argentina and Chile – really need to start following in the dance steps of this quartet if their ability to attract domestic and global capital is to match that of the region’s leaders.
