In April 2007, when Stephan Eger took the helm of the IR department at Deutsche Telekom in Bonn, he inherited an IR team of 34, a group ‘so large it would no doubt qualify for Guinness World Records,’ he jokes. Other major German multinationals had strapping teams of 14 or 15 people. Nonetheless, Eger recalls that Deutsche Telekom’s IR function ‘was easily twice the size of comparable IR departments.’
Even with this tremendous manpower, Deutsche Telekom’s IR effort was inwardly focused and didn’t regularly and proactively reach out to the buy side, Eger adds. For him, having spent the previous 10 years as an institutional investor at Deutsche Asset Management and Allianz Global Investors and as an investment banker at Lehman Brothers, it made perfect sense to import ideas from other corners of the financial markets into Deutsche Telekom’s IR program.
|
Stephan Eger, Deutsche Telekom |
Eger put innovative systems in place to revolutionize communications, targeting and disclosure. In addition, he quickly set out to streamline the department, which now operates with just 10 IR people and an annual budget of ¤8 mn-¤9 mn ($9 mn-$10 mn), half the total of eight years ago. More important than its size, however, is the fact that the ‘team is yielding much better results,’ Eger says.
And further changes lie ahead for IR at Deutsche Telekom. In May, Eger hands over the reins to Hannes Wittig, a top-ranked telecommunications analyst from JPMorgan, as he moves to Prague to become CFO at Deutsche Telekom subsidiary T-Mobile Czech Republic.
A homegrown targeting matrix
Eger appraised Deutsche Telekom’s investor targeting efforts and made changes using both quantitative and qualitative approaches.
One problem, he says, is that public sources of investor ownership data tend to be stale, showing positions that are three-to-six months out of date. And while brokers offer a glimpse into the market, their viewpoint is skewed by their own financial interests and preference for investors paying the heftiest commissions. Another problem is that IROs can waste time and money targeting and meeting with global investors without really knowing whether these investors would have an interest in their particular stock.
Dissatisfied with existing targeting tools, Deutsche Telekom’s investor relations team built an in-house product that works on the hypothesis that the ‘best-fit’ investors for Deutsche Telekom would be those invested in other telecoms companies and those with an appetite for value and yield.
Eger realized a portfolio manager interested in European telecommunications stocks would typically own the top four or five names, and so Deutsche Telekom would have roughly a 20 percent-25 percent share of that overall investment pie. If a large London investor owned a considerably smaller share of Deutsche Telekom, that company would be identified as an ‘attack’ customer. Similarly, those with above-average holdings are designated ‘defend’ customers. Both groups merit greater effort.
‘When we do a two-day London roadshow, we can see around 40 or 50 investors, and we obviously want to see the biggest investors with the greatest differential on the positive or negative deviation from their theoretically calculated holding in Deutsche Telekom,’ Eger explains. Using this formula, he says his team can allocate limited management resources in a highly focused way.
Quantitative targeting is good, but qualitative input is necessary, too. For this reason, Eger approaches brokers to find out which other investors Deutsche Telekom should visit, perhaps because they have just started acquiring telecoms companies or because they have hired a new fund manager buying a large position within the sector.
Finally, Eger began using a customer relationship management (CRM) system developed externally so that his team can monitor success, tracking everything from conversion ratios to meeting efficiency.
When he hires a service partner to provide a system like this, Eger selects that firm to be an ‘innovation partner’. He doesn’t shy away from demanding the development of new features, knowing that the service provider will then have additional functionality other IR departments will be delighted to buy down the road.
The dynamic matrix also keeps tabs on all investor contacts. On a recent London roadshow, for instance, a portfolio manager mentioned he had significantly reduced his Deutsche Telekom position because of valuation, not strategy. Up-to-the-minute intelligence is valuable, says Eger, because otherwise the change might not be detected for three months or longer.
The CRM system also lets management and IR forge stronger relationships with investors. When planning a roadshow to, for example, London, Eger can furnish the CEO or CFO with a two-to-three-year history of all interactions with investors on the target list. ‘We know their main pain points, their topics of interest, even whether they like German beer,’ he says.
Eger tinkered with roadshow scheduling, too, to make trips more efficient by inviting all investors to a central location, such as a broker’s office or a meeting room. In cities like London or New York, avoiding intra-city travel makes a real difference, he says: ‘We can squeeze in at least one or two more meetings a day.’
Better communications and disclosure
When it came to making changes to communications, Eger says he ‘introduced basic things that are not yet common in investor relations but are common in any sales organization.’ From Lehman Brothers, for instance, he borrowed ‘the key account principle’, dedicating those IR staffers designated as ‘communicators’ to a specific group of buy-side and sell-side analysts. ‘When an investor wants to talk to Deutsche Telekom, that investor knows the one person to talk to is Mr this or Ms that,’ he explains.
What’s more, Deutsche Telekom also began proactively reaching out to investors but, unlike a typical broker, the company contacts investors only to convey critical messages. When something important happens – be it quarterly results, an acquisition or a tariff move – the Deutsche Telekom team calls investors to explain what has happened and provide the company’s take on the news.
As a very large organization – it owns T-Mobile, has major holdings in EE and a 40 percent holding in OTE in Greece – Deutsche Telekom’s need for disclosure and transparency is tremendous. And, in fact, Eger considers disclosure and transparency ‘a key service’ the company provides for its investors. A prime example comes each time a new set of quarterly earnings is released. The company furnishes its 3,000-person distribution list with a 100-page back-up document that provides the P&L and balance sheet, as well as a list of all Deutsche Telekom’s entities (the company operates in 14 European countries) and key statistics on mobile market share and tariffs. The packet is provided as a PDF and also via an iPad app.
Eger realizes this level of detail would overwhelm many generalist investors, and so he also furnishes a brief write-up, embedded in an email. ‘Investors can read it on their [commute] before having the first broker comment on the Deutsche Telekom results,’ he says. ‘We want them to first know the Deutsche Telekom story and then know the different interpretations of that story by the different brokers.’
Beyond the written communiqué, the IR team also calls investors and analysts to give a quick update prior to the actual earnings call. For anyone not on this call list, a shorter version of the update is communicated via Twitter.
‘We were the first company in Europe in the telecoms sector to proactively use social media,’ says Eger. IR has its own dedicated Twitter account and the IR team maintains a Facebook presence, where Eger’s colleagues post relevant capital markets news, videos and even feedback from the capital markets on Deutsche Telekom’s performance.
In an example of how social media is broadening Deutsche Telekom’s IR reach, 100 investors recently attended Deutsche Telekom’s late winter capital markets day in Bonn, while another 250 followed the event live on its HD web stream. Virtual participants ‘didn’t lose any quality, except obviously the social event in the evening, the wine and dine with management,’ Eger says. ‘They were able to follow and actively participate because we allowed Q&A to be brought in by Twitter, email and the web page. And it worked out very, very nicely.’
A mandate for the future
As Eger prepares for his departure, he believes the IR program has made enormous strides and yet still shows ‘plenty of room for improvement’. Questioning the status quo and continuing to improve are central to the IR mind-set that has enabled Deutsche Telekom’s team to be so successful. One area Eger would like to see strengthened is the CRM system. In his days as a broker, he could type the name of an investor into his PC and the system would dial the individual, providing a pop-up screen with details on that investor’s holdings as well as more personalized notes.
He would also like the CRM system to provide more managerial statistics, such as information on how IR team members are communicating down to a level of detail about how many emails each sends a particular investor and how often that investor is called. If, for instance, Parisian investors have reduced their overall holdings, Eger wants numerical proof that it’s not because of a ‘lack of attention from our side.’
Finally, he points out that he has dedicated considerable time and effort to reaching internal customers. He emphasizes that for a company that was privatized just 20 years ago and is still 32 percent government-held, Deutsche Telekom does not enjoy the same ‘history of being close to the capital markets’ that many other public companies do.
‘Our kind of company needs a lot of education, telling our engineers, accountants and marketing people what’s important for the stock price and what our story is for the capital markets and how everyone can contribute to that story,’ Eger says. Deutsche Telekom conducted more than 100 internal roadshows last year, and has found the payback is enormous in terms of internal stakeholders sharing high-quality information critical to investor relations.
That said, reaching 230,000 employees in 14 countries remains a daunting task. Eger hopes his successor will use social networks and other communications vehicles to continue to ‘tell the capital markets story to our colleagues.’
Over the years, Deutsche Telekom has ensured its internal goals mirror the corporate goal of being Europe’s leading telecoms operator. To this end, Eger has set some aggressive targets for his team, including external recognition for IR excellence. In 2014 the firm won the German Investor Relations Award from DIRK, the German IR association, and was given the Thomson Reuters Extel Award for the best European quoted company for IR across all companies and sectors.
Creating an innovative IR department ‘was not a linear process – it has had its ups and downs,’ concludes Eger. ‘But in the end we won [a number of coveted awards]… and we were very happy.’
