Question: what do BASF, China Telecom, Honeywell, Itaú Unibanco, SingTel and TD Bank have in common? Answer: they all won an IR Magazine Award for financial reporting in 2013 or 2014. In other words, they have all seriously impressed members of the investment community in their respective markets with clear and helpful reporting and disclosure.
So what is it precisely that appeals to investors and analysts about these companies? Perhaps the first thing to note is that they are all multiple award-winners (see Best reporters, below), which suggests being a good financial reporter is not something that happens in isolation; it tends to be typical of companies that provide a generally successful IR service.
As the investment community has already had its say about these companies, we decided to ask some of the triumphant IROs – one each from Brazil, the US and Europe – about their approach, policy and practices in the reporting sphere.
Itaú Unibanco: consolidation and integration
Adriano de Oliveira Montico, IR manager at Brazil’s Itaú Unibanco, explains that his firm invested in a new format for what turned out to be its winning annual report at the IR Magazine Awards – Brazil 2014, held in São Paulo in July.
‘In April 2014 we launched Itaú Unibanco Holding’s 2013 consolidated annual report,’ Montico explains. ‘This is a pioneering undertaking in Brazil. Aiming to provide even greater transparency and also improve our accountability to different stakeholders, we gathered together the annual report (including sustainability indexes [that conform to] Global Reporting Initiative standards), the 20F form and the debt report into a single document.’
The report aims to improve ‘the consistency, cohesion and standardization of the information disclosed in our consolidated annual report, which is submitted [as part of our SOX compliance process], thus ensuring reliable control and security mechanisms in its preparation,’ Montico continues. There is also a dedicated website (www.itau.com.br/annual-report) especially designed to host the report – ‘a significant tool, providing for greater mobility and disclosure for our stakeholders.’
The foundations for all this were laid in the 2012 annual report. Montico explains that the company made changes at that time to align the contents of the different reports in order to prepare for the 2013 consolidated report, as well as for the integrated report, which he describes as ‘another novelty this year’.
And it was indeed a novelty. Itaú Unibanco became the first company in Brazil to submit an integrated report, a practice proposed by the International Integrated Reporting Council.
‘This report is a new communication approach, connecting the organization’s most significant information and correlating the results, operational activities, business strategies and different types of capital – human, financial, intellectual, manufacturing, natural, social and relationship,’ Montico explains.
The purpose of all this, he says, is to provide information and explain strategies to different types of stakeholders, in order to give them more accurate analysis in the short, medium and long terms. ‘Additionally, the integrated report is – and will be – a tool for assessing the organization’s capacity to generate value, identify the main strategy points and anticipate business risks and opportunities,’ he points out.
So integration is the key to Itaú Unibanco’s approach – and if the judgment of its all-important investor audience is anything to go by, it is meeting the need. ‘ As a result of all these efforts and initiatives, we won the trophy for best annual report at the IR Magazine Awards – Brazil 2014,’ Montico says proudly.
BASF: front runner
Though it goes by a different name, Itaú’s gong is essentially the equivalent of the award for best financial reporting in Europe, won this year by BASF. This company’s IR team, led by Magdalena Moll, took home no fewer than six awards at the IR Magazine Awards – Europe 2014, which were held in London in late June.
Martin Liedemit, IR manager at BASF, begins an explanation of his company’s approach to reporting with the fundamentals. ‘Let’s start with our philosophy,’ he says. ‘We know BASF is quite complex from an outside point of view, so we want to be as transparent as possible, making it easy for other people to understand the company and see how we create value. We believe transparency and accuracy of data are crucial to gaining trust in the financial market.’
Liedemit describes the company’s integrated annual report as ‘the cornerstone of our reporting’. ‘We moved to the integrated report pretty early on,’ he adds. ‘If my records are correct, we published the first integrated report in 2007.’
This is an indication of one of the key aspects of BASF’s reporting. ‘We see ourselves as a kind of front-runner,’ Liedemit explains. ‘That’s true not just for the integrated report, but also for the recent changes related to IFRS 10 and 11. We adopted these changes in 2013, a year ahead of the mandatory schedule. And we provided ‘bridge calculations’ – both in print and during a conference call – to explain the implications of the changes in detail.’
Another of BASF’s strengths is its clear commitment to transparency and open disclosure, from both management and the IR team. ‘In 2013 we conducted more than 120 events globally, with more than 400 meetings,’ recounts Liedemit. ‘We want to be accessible for our investors and analysts, so we can discuss any topic, like strategy, current business development, recent changes or facts that are not easily understood.’
These efforts don’t go unnoticed. ‘The reporting from BASF is simply outstanding, including its excellent fact book, which is always up to date and in-depth,’ enthused one German sell-sider, while a buy-sider told our researchers: ‘It’s easy to understand BASF’s reporting as all the figures are there.’
In addition to the fact book and integrated annual report, BASF publishes detailed quarterly reports and, for the first three quarters, as well as for the full year, the company holds conference calls with analysts and investors. Roughly a year ago, it altered the amount of time available for speeches and Q&A. ‘We cut the speeches short and allowed more time for Q&A,’ says Liedemit. ‘It’s something that was very well received.’
This is perhaps an indication of what Liedemit describes as the IR team’s desire to be ‘customer-friendly’ in its reporting. ‘All our reports and presentations are available online,’ he notes. ‘And key financial data can be downloaded in Excel format, so it can be used directly in analysts’ models.’
Honeywell: displaying continuous improvement
Placing third in the US overall, technology giant Honeywell took home three awards in 2014, including the gong for best financial reporting. That’s up from one in each of the previous two years, perhaps evidence of what Elena Doom, vice president of IR, calls the company’s ‘continuous improvement mind-set’.
Honeywell is a big and complex company, Doom points out, ‘so we’re continuously focused on demystifying our story and being more transparent. We deploy a very holistic financial reporting process in which the business units work very closely with finance.’
This integration involves the IR department, the business analysis and planning group – which is responsible for forecasting, among other things – the corporate controller’s department, which is responsible for disclosure, and the finance leaders of the various business units.
‘Filing the 10Q the same day we issue the earnings release forces all the key decision makers – known as the disclosure committee – to one spot,’ says Doom. ‘We may have differing agendas and views at the start, but our parallel approach allows for timely and effective communication and decision making because we’re all at the same table at the same time.
‘It’s not a case of IR owning the earnings release or the corporate controller owning the 10Q; there’s genuine joint ownership. We’re all open to suggestions, and egos are chucked out at the door.’
The process involves comparing results with ‘what we said we’d do,’ says Doom, and as it’s a collective process, ‘we can use the Qs and Ks to look ahead and highlight any inflection points we see coming.’
For Doom, the richness and depth of the process lie in how it complements the IR messaging and the management discussion and analysis – which brings us back to the investment community. ‘We want to make things easier and more intuitive for investors,’ she says. ‘We don’t want to leave them having to guess.’
Doom also believes the integration of IR with other departments in this process is facilitated by Honeywell’s approach to staffing in the IR team. ‘We maintain a few rotational positions, which builds a group of IR alumni across the finance community [at Honeywell] that ‘gets’ the outside-in perspective,’ she explains. ‘We have people in IR for two or three years before they repatriate back into the business, which is very valuable. The CEO and CFO underpin the firm’s commitment to the IR function and the message – they lead by example – but it’s crucial that it’s based on an established process, not just individuals.’
But does the investment community notice the impact of all this effort? Here’s a comment from one sell-side analyst that suggests it does: ‘Honeywell has consistent, high-quality disclosure with a professional IR team that thoroughly understands the corporation and its individual business units. It is the gold standard for the IR function.’
