More and more public companies are viewing outreach to investors and solid investor relations programs as essential to their operations, and nearly 40 percent increased their IR budgets last year, according to Thomson Financial.
Kara Newman, head of Thomson’s strategies research team, says a recent survey of more than 500 companies showed that 87 percent consider IR an important business function. Despite such support, 31 percent of investor relations officers regarded their workload as the single most difficult part of their job, and 61 percent indicated that management has assigned even more responsibilities than the previous year.
Newman presented her findings last month in a Webcast titled, “Planning for 2008: Highlights From Thomson’s 2007 IR Practices Study.” While the growing workload itself cannot be eliminated, she said, Newman recommended a list of best practices that IR departments should adopt now as they prioritize and prepare for the year ahead.
Plan Conferences
Start planning your 2008 conference schedule now, Newman said. That should include a detailed communications plan, with time allocated for both buy-side and sell-side analysts and investor groups.
Sell-side conferences are seen as an effective forum to showcase the company and senior management. While attendance at sell-side conferences varied based on market capitalization, industry, and region, most companies attended 7 to 12 conferences in 2007, Thomson’s survey found. Because many companies do attend several conferences a year, “it’s very important to keep your presentations fresh,” said Christine Berg, vice president of Thomson’s corporate advisory services, who also participated in the Webcast.
Companies must also carefully choose when to have each conference, and who to meet while attending. One mid-cap industrial company noted in the study: “We prioritize conferences based on the type of investor base they tend to draw … I prioritize [meeting] requests by looking at the investors who have spent time analyzing, understanding, and following the company.”
Thirty-two percent of respondents are focused on maintaining current sell-side coverage, versus 25 percent of those consciously seeking to increase coverage, the study says.
“Our current shareholder base, especially larger shareholders, usually gets priority and then also our sell-side contacts,” one small-cap consumer company reported in the study. “It’s probably easier that way because our CFO and CEO know those people already, and they usually have pertinent questions. You need to keep your current shareholders happy.”
Berg agreed with that point, saying: “Attending sell-side conferences certainly should not replace the time that is spent reaching out one-on-one to buy-side analysts, whether in-house or out on the road.”
Investor Management Strategy
For the most part, IR departments do understand the need for reaching out to investors, and try to do so. “Ultimately, the vast majority of companies—regardless of market cap or industry—are doing proactive outreach,” said Berg. The Thomson report found that 37 percent of IROs meet with investors on a weekly basis, and another 38 percent meet on a monthly basis.
More than half of IR executives said that talking to the investment community is the best part of their job. Yet 21 percent of respondents said they want to know more about who owns their company stock and why, and another 21 percent wished they knew more about those institutions themselves.
The study also revealed that most IROs travel far and wide to meet investors; more than half in the Thomson survey traveled to Europe. Newman said that should be no surprise, considering the weakness of the dollar against the euro and the rising appeal of U.S. investments to European investors: “U.S. stocks are looking pretty good to Europe-based investors.”
Many IR departments also wonder about Asia—“Who they should bring; if it’s worth their time,” Berg said. “They want to understand more about the investors out there.”
Newman
Ninety-five percent of CEOs and CFOs are also willing to travel to meet with investors. “The takeaway here is really to try and secure the commitment from key members of your senior management team,” Newman said. “Obviously, everyone is really busy running the business, but if you need them to meet with investors, you need to make sure that you get that commitment from them now.”
Analyst Day
Another annual rite of passage is “analyst day,” and planning for it should begin as early as possible. Secure a date early in the year, Berg said, and do not skimp on handouts or other informational materials. A Webcast of the event is also an absolute must. “Slides and presentations should certainly be archived and available during and after the event,” she said.
Fifty-two percent of survey respondents say they like to keep analyst day short by organizing half-day events. Moreover, 72 percent said they do not schedule one-on-one meetings with investors around analyst days.
Another tip: “Given how much money is spent on analyst day, it’s just as important to be sure that you don’t forget to have a plan in place to measure the success of your analyst day,” Berg said. That can be done through surveys, informal feedback, and follow-up interviews, among other techniques.
Review the IR Website
Since investors have come to rely on earnings Webcasts for vital information about a company’s financial standing, IR departments must keep their department Websites current and functional, so IR executives themselves can save their time for “addressing strategic questions when meeting with investors rather than trying to rehash data,” said Newman.
In addition to analyst day presentations, other information that companies said they include on their Websites are sell-side conference presentations, earnings release transcripts, and conference call Webcasts.
Hedge Fund Plans and Guidance
Creating strategies for meeting with hedge funds is also a hot topic. According to the study, 34 percent of companies say their interaction with hedge funds increased from 2006 to 2007. Yet a whopping 61 percent reported that their company has no plan in place to react to hedge funds or other activist building a sizable position.
“The point here is you don’t want to wait until a hedge fund comes knocking at your door to put together a group of individuals” who can ask what the fund wants, Newman said. “You want to do that now, and then you’ll be prepared to move very quickly if an activist fills a position in your company stock.”
Lastly, evaluate earnings disclosure and earnings guidance practices. Newman recommends that companies craft a disclosure statement for their first-quarter earnings and stick to it throughout the year. “Pulling back on guidance suddenly can raise speculations about what that policy is designed to hide,” she says. “You want that emphasis to be on your numbers and on your company strategy, not whether you’re potentially playing games with guidance practices.”
No comments yet