This year has not started well for companies in the energy and utilities sectors, broadly speaking. Falling oil prices, shrinking demand and proliferation of alternative fuel sources – including shale gas – have cut into companies’ profits and given IR teams some difficult news to pass on to investors.
For many, this has come in the form of unprecedented dividend cuts: over the past few weeks Spanish oil major Repsol, Italian firm Eni and US crude oil producer ConocoPhillips have all made their first cuts for some years on the back of sliding prices.
As suggested by data from the latest IR Magazine research report – the Energy & Utilities Sector Report 2016 – IR teams are taking a central role in stabilizing companies facing this downturn, and keeping investors onside.
David Carey, senior vice president of capital markets at Canadian oil & gas company ARC Resources, believes the macro environment means IR is more relevant than ever. ‘As oil prices continue to collapse, our job is to convince investors that the properties we have are competitive in a low-cost environment,’ he explains.
As investors’ priorities shift, with most looking for a break-even oil price on the back of the sector’s downturn, ARC has had less interest from US generalists, resulting in fewer meetings from the same number of trips to see investors in 2015. ‘Overall, we have noticed a decrease in demand for investor meetings but an increase in the quality of portfolio managers attending the meetings,’ reports Carey. ‘And I think this is the case because US generalists are now less interested in the Canadian oil and gas sector.’
According to the IR Magazine research, energy companies maintained roughly the same number of one-on-one meetings year on year: 227 in 2015 compared with 220 in 2014. When adjusting for North American energy firms in 2015 alone, however, this figure drops to 199 meetings. Of these, 59 percent were attended by senior management, some way above the global average and in keeping with Carey’s suggestion that, though fewer meetings are being organized, they are of a higher quality and importance.
This is not the case at utilities companies, though, which upped their average meetings tally from 139 in 2014 to 214 in the past 12 months, boasting a management attendance rate of 50 percent.
According to Elchin Mammadov, a utilities analyst at Bloomberg Intelligence, this may well be due to a change in corporate strategy in response to the falling price of power. ‘Oil and gas production is a non-core area for most utilities, which are slowly exiting exploration and production,’ he explains.
Mamamdov picks out RWE and E.ON as two companies that have recently spun off parts of their business, and Iberdrola and EDP as examples of those that are investing in their power grid to further reduce their company’s exposure.
Interestingly, three of these companies – RWE, EDP and Iberdrola – appear in the top 10 of the 2015 IR Magazine Euro Top 100. Though they may not have the best news to tell investors, companies in either sector are finding that as long as they uphold best IR practice, their stakeholders will not be going anywhere.
To find out more, get your copy of the Energy & Utilities Sector Report 2016 here
