It wasn’t always this difficult. Back in the internet-boom days, analysts rated web start-ups by subscription levels and page hits, in the hope that one day some of them would become mighty profit-making machines. But only a handful ever did.
For the fiercely competitive internet service provider market, the going has been equally rough. With advertising revenues sinking, ISPs the world over have had to identify alternative sources of revenue – namely by persuading subscribers to fork out for additional services and features.
For T-Online, a subsidiary of Deutsche Telekom, and Europe’s largest ISP, the downturn was partially responsible for a 1999 management shake-up, which brought about the entrance of current CEO Thomas Holtrop. To his credit, T-Online has been in the black ever since.
Founded in late 1995, T-Online went public in April 2000, listing on the Neuer Market trading segment of the Frankfurt Stock Exchange. At the time, all of its main investors were based in Germany.
From scratch
Horst Thelen, head of IR at T-Online, has been with Deutsche Telekom Group ever since its 1996 IPO. After a brief spell in the group’s IR department, Thelen was asked to build up and head T-Online’s IR function in 2001. With the help of just one secretary, he faced the gargantuan task of expanding the company’s almost entirely domestic shareholder base into the international arena – in a web-hostile environment.
‘The CFO here, Rainer Beaujean, gave me a very free hand,’ Thelen recalls. ‘He asked, How do you want to set up your department? What do you need? So I had to think about structure and what I wanted to do with the department. All I knew was that I didn’t want to be under-resourced.’
Today, based in Darmstadt, near Frankfurt, Thelen runs a larger than average IR team. ‘We have seven people, and I think that’s a manageable size – but we don’t want to get bigger,’ he says. ‘We work very closely and we all multitask. There’s obviously a hierarchy in the department on paper, but in reality we work as a team and people know what they have to do.’
Matters have settled dramatically since the management shake-up, notes Thelen. After eleven quarters of exceeding analyst expectations, investors have finally become more confident about the way T-Online operates. ‘I’d say we’ve now come out of a new economy situation and into an old economy one,’ he explains. ‘Investors can talk to us very openly now, whatever their needs and wants.’
Reaching out
When it comes to approaching the investment community, T-Online is decidedly proactive and keeps close to both the buy and sell sides. Basically, says Thelen, a healthy rapport with the key funds is built on the back of openness in both good and bad times.
Today, with a business model that is evidently working, investors feel much closer to the company. ‘When I walk into meetings now I feel like I’m meeting old friends,’ Thelen observes. But it wasn’t always like that. ‘Previously, every single meeting was difficult. The management had just been changed, we had a new CEO and a new CFO – we ended those meetings with a bloody nose.’
This experience has earned the department an enduring relationship with the big investors. ‘I would say we now know 99 percent of our institutional investors,’ says Thelen. ‘And that’s not the same with other companies. I see lots of other IR departments just talking to [sell-side] analysts and missing the boat on the investor side.’
As a result, on top of its traditional relationships with institutions in Frankfurt and Munich, T-Online has rapidly harnessed important shareholder bases in San Francisco, New York and London – amongst other places – where share ownership has virtually doubled over the last few years.
On a mission
T-Online relies on one UK-based IR consultancy, Capital MS&L, and several of the big investment banks, depending on their regional strengths, to target potential buyers in Asia, Europe and North America. According to T-Online’s IR manager, Nadine Vierkoetter, who is charged with coordinating roadshows, investment banks in particular offer excellent institutional insight and contacts, and help tap into new areas of interest.
‘The banks contact me and tell me where any new demand is,’ she explains. ‘By using a variety of banks we broaden our exposure to the buy side. Some corporates do make the mistake of relying on a one-broker relationship.’
Investment bank analysts have in-depth local market knowledge, she adds, so to have them sitting in on overseas investor meetings really helps the company better understand local buyer sentiments. ‘They also allow you to have immediate validation,’ Vierkoetter explains.
T-Online kicks off two big roadshows each year just after Q2 and Q4 earnings results. Meanwhile, its ‘missionary’ roadshows, which seek out unexplored capital markets, come after Q1 and Q3 results, and have recently focused on unexplored markets in Tokyo, Dublin and Toronto – with considerable success.
The Tokyo trip, for example, was a 48-hour whirlwind tour of five prospective Japanese investors, all of which have since become shareholders. ‘It was a missionary-type thing,’ says Thelen. ‘Our first visit to them was very difficult. But it is great to see that they are real believers now.’
At times, Thelen also asks some of the department’s junior members to accompany him on roadshows, just to learn the ropes. ‘I try to give everyone in the department a feel for what we do when we’re on trips – as well as showing them we’re not just on holiday!’ he explains.
Other regular roadshow guests are sell-side analysts, who always need to be kept up to speed on new developments. ‘They can never hear the story too many times,’ says Thelen. ‘After eight meetings per day they become very well informed, and that’s the most important factor for me – that they understand the business.’
Bringing stories to life
One of the most attention-grabbing aspects of T-Online’s IR efforts is the company’s multimedia and broadband investor presentations, which are particularly helpful for overseas institutions. While Germans usually take the sort of high-quality broadband offered by T-Online for granted, institutions elsewhere find it more difficult to visualize the product.
Investors from New York or San Francisco tend to think of the broadband services they know domestically, says Thelen, and have more trouble appreciating the potential of non-access revenues, paid content and the quality of the overall product.
By linking the corporate brand to the investment brand through a 15-minute presentation, the team brings its offering to life and makes investors more excited about the technology. ‘It’s funny,’ comments Thelen. ‘When we’re traveling on roadshows, investors ask us, What are you going to show us this time? I believe that by making our products come to life, we’ve made huge differences to the confidence in our share.’
Web efforts
As an internet media network company, T-Online needs to show investors that it’s at the forefront of technology in every area of IR, starting with its web page. The company recently launched a new corporate web site with a dedicated IR portal, which offers most of the information that analysts need, including facts and figures on management, a separate section on corporate social responsibility and an interactive annual report. ‘A lot of them don’t even need to phone up any more,’ says Thelen. ‘But the site is for everyone – the media, retail shareholders, institutions and analysts.’
The interactive annual report feature allows readers to pull out specific sections of interest, without having to download the entire report unless they want to. By playing around with some of the features in the interactive report, retail shareholders and potential investors are able to get a better feel for the company.
‘We see the web page as an opportunity to market ourselves,’ Thelen explains. ‘Obviously the vast majority of our retail investors in Germany will be T-Online customers so it’s another opportunity for them to see what’s going on in the company and which products are available.’
Good web site information is a definite plus for T-Online’s 1.5 mn retail investors, as is the company’s public hotline to its dedicated shareholder services department, which is publicised on the site.
T-Online also does regular webcasts for earnings releases, which are accessible to everyone, and posts management-analyst meetings on its site, too. According to Thelen, webcasting has now become a crucial investor communications tool. ‘Banks are on a cost-saving trip and don’t want to send their analysts over to Germany,’ he explains.
In the loop
Thelen prides himself on his department’s close involvement with the company management team. Beyond his own close relationship with CFO Rainer Beaujean, who he usually meets with several times a day, Thelen also joins Friday board meetings to report on the week’s work. ‘I’m not always doing just IR,’ he explains. ‘I often take a look at other company projects because people like to hear what the markets would think of it.’
Board meetings are great opportunities for updates on other areas of the company such as marketing efforts, new projects, or any potential buyout discussion, says Thelen. Meeting with Thelen also makes management more aware of the needs of the capital market and the importance of being accessible to investors, both proactively and reactively.
Regular board contact keeps Thelen better informed on emerging governance issues, too. Because its parent company, Deutsche Telekom, has an SEC filing, T-Online feels it needs to go the extra governance mile. ‘We’re very much on a transparency trip if you want to call it that,’ Thelen explains. ‘We have to have more transparency than a company that is listed only in Germany, because of our link with Deutsche Telekom.’
Even so, he notes, investors rarely focus on governance issues. ‘To be honest I’ve never had a meeting with a US investor who’s asked me about governance,’ he admits. ‘Not even in London. They know us so well that they don’t ask the question.’
According to Holtrop, the internet industry is undergoing a period of fundamental transformation. But with more than 3 mn broadband customers signed up already, T-Online has a better chance than most to seek out new revenue sources – namely, paid content for videos, music and games. It would seem international investors agree.
What the analysts say
Joanne Russell, head of internet, Cazenove
‘We do get good access to management. They’re very good. They realize that it’s important for us to be able to speak to them and they get back to you very promptly – and their answers to our questions are very much to the point. They realize the importance of your job in communicating to the investor market.’
Kai Kaufmann, head of internet, Dresdner Kleinwort Wasserstein
‘The head of IR is very knowledgeable when it comes to his company. I’ve attended many of his meetings with investors and received very positive feedback from investors afterwards. They’ve never told me their presentations were bad. Also, access to management has never been a problem because Horst is very close to Rainer Beaujean, the CFO. Even so, most issues can be dealt with by me talking to Horst, so there’s rarely any real need to talk to management from a sell-side analyst perspective.’
Chris Agnew, internet analyst, Goldman Sachs
‘The IR team is extremely well organized and helpful and very proactive in terms of going out to meet people. Of the roadshows I’ve been to, my impression is that they have a very positive impact with clients, because they are so good. The IR team also tunes its presentations to suit the client, depending on their knowledge and background – it pitches it right, and really understands its business.’
