The precise chemistry of cement may still be something of a mystery to scientists. But while they wait for more concrete details, Maher Al-Haffar, managing director of corporate finance at Cemex, has been trying to transmute the alchemy of investor relations into a science at the Mexico-based multi-national cement giant. Driven by company chairman and CEO Lorenzo Zambrano’s philosophy, Anything that is not measured is not managed, Cemex’s award-winning IR department applies a fearsome-sounding set of metrics to its work.
Based on his previous experience in marketing, Al-Haffar introduced what is essentially a customer contact management program at Cemex. His system allows for continuous monitoring of investor dynamics – after every meeting, phone call or e-mail with a member of the investment community, Cemex’s IR team inputs comments and concerns into this tracking tool. ‘You need to continually reevaluate what kind of investors you have by looking at their likely behavior over a long time span, what their investment benchmarks are and whether they are achieving them,’ Al-Haffar says.
During monthly meetings with the CFO or executive committee, the IR department presents its metrics. As Al-Haffar explains: ‘How many guys did we bring in? How many exited? Why? Have we shown them senior management as often as we promised? Did we meet them as often as the schedule says we should, which is at least two or three times a year, depending on their stake?’
This scientific approach to IR provides Cemex’s senior management team with solid feedback. ‘With the contact system we can go to management and say, From the last 100 meetings, these are the major concerns, the major drivers that are causing or will cause investors to buy, sell or hold,’ Al-Haffar says.
He believes the key to successful investor relations is remembering who holds the purse strings. ‘Cemex showed its commitment to do the right things in investors’ minds,’ he continues. ‘Not that we are chameleons, but we cannot forget who we work for.’
Rather than follow the latest disclosure trends in IR, the company follows practices meant to clarify its strategy and financials for shareholders. For example, Cemex relies on old-fashioned Mexican-style accounting guidelines to show the free cash flow it generates. ‘Most American managements want to optimize accounting earnings rather than cash earnings,’ Al-Haffar points out. ‘If they did what we do, many of these recent scandals would have been discovered [sooner].’
The company also pays dividends – and quite big ones – something its original Mexican shareholder base insisted upon. ‘Our dividend payout has been consistently growing about 12 percent a year for the last ten years,’ reports Al-Haffar. ‘It’s been a great help in expanding the retail investor base.’
Raising the stakes
At the dawn of the new millennium, Cemex’s senior management decided it was time to boost its IR efforts. The company was expanding into new markets and had listed its ADR on the NYSE in 1999. It was then that Rodrigo Trevi?o, Cemex’s CFO, decided to call in Maher Al-Haffar, a Syrian-born American banker.
‘Our commitment to deliver value to shareholders rests on a clear recognition that, as a public company, we manage and compete for other people’s money in the financial markets,’ says Trevi?o. ‘As a company that has delivered double-digit Ebitda growth during the past ten years, it becomes extremely important for our growth strategy that we have access to a sufficiently large, liquid and diversified shareholder base. Because of that, and because we firmly believe that investor confidence is built over time on a track record of consistent, accurate, complete and timely disclosure of information, we decided at the beginning of 2000 to enhance and revamp the IR function.’
Al-Haffar had worked on banking deals for Cemex since 1989 and was involved in several of its major acquisitions. So when he joined the company in April 2000 there was virtually no learning curve. He jumped right in, analyzing what needed to be done and preparing his action plan for the company’s IR department.
One of his first moves was to get Zambrano more involved in IR activities. ‘The best advertisement for Cemex is Lorenzo Zambrano,’ Al-Haffar says. Zambrano’s participation in investor relations soon increased and the quality and quantity of his meetings with analysts and investors improved.
Al-Haffar’s team also did its job by preparing the Street for meetings with the chief. ‘We prepped the sell side and investors beforehand, to avert the let-me-fill-your-model type meetings,’ he says. ‘We wanted discussion of the industry, strategy, deployment of free cash flow within the company, and so on.’
With Al-Haffar on board, Cemex decided to do without the external IR consultants it had previously used. ‘[Using them] meant our institutional memory was outside the company, and we have very talented staff in-house,’ Al-Haffar comments. When Al-Haffar initially came on board, the department increased from four to ten IR professionals but is now an efficient half-dozen IROs, each of whom is focused on a particular region or specialization.
A global identity
Cemex’s IR team carried away a sack-full of honors at last year’s IR Magazine Latin America Awards, including best corporate governance and best communications with the retail market. Still, Al-Haffar isn’t entirely happy with his program’s high standing among Latin American companies. That’s because he benchmarks his IR efforts against international heavyweights like Microsoft, BP, Cisco and Nokia – and is not ashamed of calling them to ask how they do it.
As one of the few Latin America-based companies with a multi-national presence and an international investor base, Cemex has, in effect, outgrown the emerging markets sector. ‘The stock is more closely related to the Dow [Jones] and the S&P because we’re so US-centric now,’ notes Al-Haffar.
Indeed, one of the reasons for the transformation of Cemex’s IR department was the continuation of the company’s international expansion. So far these efforts have been paid for by the company’s own cash flow but in the future, who knows? ‘We may need equity capital,’ says Al-Haffar. ‘But you don’t get to know your shareholders only when you need capital. You get to know them a long time before, so if you do need them, you go armed with knowledge and goodwill.’
Cemex finds that North American analysts have a good understanding of the firm’s domestic market. ‘[They] are fairly knowledgeable about the markets and Mexico – they’re not starting from scratch,’ says Ricardo Sales, who handles communications with North American analysts for Cemex.
Part of Al-Haffar’s revamping of the IR program was to rethink investor targets. With the company establishing an international profile, it was no longer necessary to focus on investors handling money earmarked for Mexico – the IR team could also target investors looking for undervalued stocks or those investing in building materials firms.
The first step in this process was to acquaint the Street with Cemex’s story as an international company. Analysts and potential investors needed to know, for instance, that 70 percent of Cemex’s business is in Nafta territory and thus not vulnerable to fluctuations in the economies of other Latin American countries like Argentina or Brazil.
Along with reeducating analysts and investors, Cemex launched a retail investor relations program. Last year the company held 30 meetings for brokers with high net-worth clients and attended some National Association of Investors Corporation (NAIC) conferences. Cemex’s efforts to attract retail holders paid off, with almost a quarter of its recent secondary offering taken up by US-based retail holders.
Moms & pops
Today, Cemex’s IR targets include expanding retail holdings from the current 7 percent and increasing European holdings, which currently stand at around 20 percent of the company’s total shares outstanding. The IR team is focusing on boosting retail holders in Europe by pilot-testing its retail strategy in the UK and Germany, where Cemex is currently conducting focus groups. According to Al-Haffar, the focus groups are very helpful in determining how European individuals make buy-decisions and what information they need. The results of this research will likely be implemented some time this year.
Cemex is also considering expanding its retail base in its domestic region, looking specifically at Chile, Argentina and Brazil. However, timing and regulation are currently impeding any real broadening of the company’s retail IR efforts in Latin America. ‘Just as we got started, Argentina went through difficult times,’ explains Al-Haffar, ‘while Chilean pension funds, although they have enough money, are not allowed to invest abroad.’
The company has started to look at pockets of savings in Asia, where interest rates are low and investors’ exposure to international markets is growing. ‘We are bound to get on these guys’ radar screens, but it’s tricky,’ says Al-Haffar. ‘I used to sell bonds in Taiwan, Korea and Japan, so I know how difficult it is to crack those markets. You have to work with local players.’
Canadians now hold 5 percent of Cemex while US investors have close to 40 percent. Mexican investors hold only around 30 percent, but this might change when Mexican pension funds become free to invest in equities.
Overall, Al-Haffar says the successes of his new millennium IR strategy are ‘greater liquidity, greater transparency, and a much broader and more educated investor base. Our 50 biggest investors are top global investors that have put time into researching the industry and economies, so they aren’t going to behave in a knee-jerk way.’
His CEO agrees. ‘Looking back at this effort after four years, I am pleased to say that we have a substantially larger and more diverse shareholder base than we had in 2000, with more than half of our investors now based outside of Mexico,’ notes Zambrano. ‘During this period, we have intensified our pace and increased the frequency of meetings with our current and prospective investors, and added a level of disclosure that goes beyond what is required of us.’
It’s all part of a smoothly cemented IR package, which reveals the company’s strengths and Al-Haffar’s marketing background. ‘Underlying this effort is a strong belief that by engaging in a meaningful dialogue with investors and analysts, we can understand their key concerns and value drivers,’ summarizes Al-Haffar. ‘It is only through a consistent, honest and transparent dialogue with the investment community that we can move beyond compliance to effectively communicate our company’s story in a crowded and competitive market. At the end of the day, you want to make sure you have satisfied customers – who, in our case, are the investors.’
What the analysts say
‘Through the years, Cemex’s IR has become more professional by increasing its transparency and proactiveness. Cemex’s press releases provide in-depth information into the company’s operations and accounting that the other large cement companies in the world today lack. In addition, the Cemex IR team responds to analyst requests in a prompt and knowledgeable way.’
Carlos Peyrelongue, Merrill Lynch
‘The company has transformed in a number of ways. In terms of IR, one of the big moves it made was bringing Maher Al-Haffar on board. He was an investment banker for many years and, if you look at some of the IR functions around the Street, you don’t see that caliber of person running them.
‘Even though the company is Monterrey-based, its major IR function is here in New York. Over the last few years, it has tried to be broader in terms of the audience it reaches – retail investors, in other words. Plus, operationally, it has broadened out from the Latin-dedicated [investor] audience to a more global audience – people who look at global building projects.
‘Zambrano and Trevi?o have done more to speak to investors directly. They are very good at disseminating concise and detailed information. They’re also in the habit of giving formal guidance some weeks in advance of the quarterlies.’
