Last month, Severn Trent, the FTSE 100 water utility, set up a sponsored American depositary receipt (ADR) program to supplement its North American IR program. Here, head of IR John Crosse talks through the thinking behind the move.
You recently came back from a US roadshow. How did it go?
We started off in Boston and New York, and ended up in San Francisco. There was a lot of traveling involved, but we also managed to hit a lot of investors over there. I think we achieved our goal, which was to keep the relationship going with existing holders but also to target some new faces.
We normally go around twice a year [with management]. In between [those trips], I tend to go on IR-only trips, so we probably do at least four roadshows a year over there.
What proportion of your shareholders is in the US?
It’s growing. If you turn the clock back three and a half, four years, we didn’t really have any North American IR program at all and as a consequence our North American shareholding went down to about 6 percent.
We’re a Midlands-based utility, so we are going to be relatively UK-focused. But we’re still a FSTE 100 company and, compared with the average for a FTSE 100 firm, 6 percent was frankly pathetic.
It was one of our strategic goals to have a higher weighting from North America, so we decided to go through a targeting program and work out what we needed to do, and then run it for two or three years and see where we ended up.
Why did you launch an ADR program?
At the moment, we’ve brought our North American holding up to 14 percent, and the ADR really is like a cherry on the top. It’s probably not going to fundamentally accelerate that growth – we’re not going to suddenly go from 14 percent to 20 percent because we’ve got the ADR – but what it may do is add an incremental 2 percent or 3 percent on top, which moves us toward our target of having something around 18 percent or 20 percent.
Where will the additional holdings come from?
When we were going round the US, the people we were speaking to were guys who had a mandate to invest in international equities, but clearly the vast majority of money that’s managed in North America – and particularly in the US – is invested in dollar-denominated stocks.
As we were going round talking to these guys, we got the sense that, for some of their colleagues, we might have an interesting story, but they wouldn’t bother meeting us because their mandate was to invest in dollar-denominated stocks.
There wasn’t an overwhelming tidal wave of people who were desperate to invest… but, on the margins, some people would be interested if we had an ADR program.
Did you already have an unsponsored program?
We had an unsponsored program but, clearly, people feel more comfortable buying into an ADR program if it is sponsored and there is some involvement from the company. They obviously feel on the back of that they’ll get the investor relations commitment and they’ll be able to meet the company and see management, and so on.
