FOCUS: INVESTOR RELATIONS - Placing investors in your sights - Companies are becoming more accountable and accessible to shareholders by posting results and research on corporate web sites

It is only a little over a year since Reuters became the first UK

company to publish its annual report on the web on the same day that it

mailed the printed version to shareholders. But in the months since

there has been a distinct shift in attitudes towards the internet as an

investor relations (IR) channel.

There is no longer any doubt that the corporate world has woken up to

the possibilities the internet offers in terms of communicating with

potential and actual equity owners.

The trail blazed by the pioneering few is now being followed by many

more. And the sentiment is that in a few years time those major plcs

that do not have an IR web strategy in place will be in the

minority.

Why this should be so is very straightforward indeed. There are

advantages all round. By putting substantial amounts of financial data

on their web sites, corporations are able to offer a better service to

institutional investors, City analysts and small shareholders.

Additionally, as the internet is a global medium it allows overseas

investors speedier access to detailed information than would otherwise

have been the case.

From the listed company’s point of view, there are cost savings to be

made by introducing an IR facet to their web sites. Large corporations

spend substantial amounts every year responding to basic requests for

investment information from small investors, prospective investors,

financial journalists, students and other interested parties.

The amount of management time devoted to dealing with such enquiries and

the cost of producing and sending out printed material can be cut

dramatically by directing people towards an internet site instead.

(Although, listed companies are still required to send out copies of

their research and accounts (R&A) to existing shareholders.)

British Airways added an IR dimension to its web site earlier this year

after a number of analysts and fund managers asked it to do so. As well

as giving these financial luminaries what they wanted, the move will

almost certainly save the airline money in the future.

’We get lots of questions from smaller shareholders and students, most

of which are fairly similar and very administrative in nature,’ says BA

investor relations analyst Mitesh Kotecha. ’They will get a better

service from us if they go straight to the site rather than making a

call, leaving a message and waiting to be called back.

’We may then be able to reduce the print runs for our annual reports and

investor magazines. And you don’t need a very high percentage cutback in

print costs to have the site pay for itself.’

Supermarket chain Tesco has also put IR information on the web. ’More

and more of our customers and the investment population out there are

linked up to the web and are increasingly computer literate,’ says Tesco

investor relations analyst Harjeet Druba.

One of the big advantages for those interested in boning up on Tesco’s

financial position, continues Druba, is that the most recent figures can

be given a historical perspective. Tesco has its R&A for the past three

years up on the site.

However, UK-listed companies still lag some way behind their US

counterparts when it comes to IR on the web. There are several reasons

for this. First, there are nowhere near the number (in absolute or

indeed percentage terms) of private investors in the UK than there are

across the Atlantic - although the growing internationalisation in

equities investment (see panel) means that UK companies should think

increasingly about reaching overseas investors, for which the internet

is a very effective channel.

Second, the UK investment community is not yet using the internet to the

same extent as its US cousins. ’In the US, the brokers and fund managers

are a few steps ahead of us with regard to technology,’ says Kingfisher

IR director Andrew Mills. ’They use the internet as part of their daily

information flow.’

However, there are signs that this is changing. Enterprise Oil PR

manager Patrick d’Ancona says: ’I think that analysts and journalists

are definitely beginning to use the internet more as an information

tool. People expect you to be there now.’

In an intriguing move, financial information provider Datastream ICV is

launching a new product to give internet access from its Topic 3

workstations, which it claims are to be found on the desks of 70 per

cent of institutional investors. InvestorLink launches in June. It will

feature a link button giving access to the web.

Another internet IR service is CAROL (Company Annual Reports Online) a

site containing corporate financial information run by MarchCom, a

consultancy that specialises in IR on the web.

MarchCom director Paul Reynolds believes the internet offers

corporations IR opportunities that extend far beyond distribution of

R&A. Presentations to fund managers and analysts for a start.

’Analysts and fund managers alike tell us that they attend company

briefings primarily to receive facts which will form the basis of

questions to be asked later, in private,’ says Reynolds.

’They are also under tremendous pressure to attend a multitude of

meetings called by the companies in their portfolio. Online video gives

them the chance to duck out of attending every presentation.’

Clearly, wonderful though this technology is, it will not replace

face-to-face meetings entirely. Analysts and investors like to meet

company directors in person so as to make measured judgements about

their abilities.

That said, as the technology evolves it will obviously be used more

frequently.

One possibility is for companies to put stockbrokers’ research and

analysis on their web site, although this raises the problem of what to

do should the brokers start criticising the management or performance of

the business.

Another application being considered by a number of corporations is to

offer simultaneous webcasting of their AGMs. Railtrack is among those

thinking about such an approach for its next AGM.

Some 98 per cent of its 11,000 employees are shareholders and, all told,

it has about 350,000 small investors. In other words, there are a lot of

people who won’t go to the AGM but who will nevertheless have a strong

interest in finding out what Railtrack’s directors have to say.

The IR potential of the internet is something, says Railtrack corporate

affairs director Philip Dewhurst, that agencies have been ’slow to

recognise.’

His comment is amplified by Datastream ICV’s Simms: ’Some of the

investor relations companies are a little bit threatened that the data

produced for the plcs and accessible through the internet could detract

from their work for clients.’

Investor relations consultancies might argue that their role is to help

clients develop their financial communications strategies rather than

worrying about the ins and outs of web sites. But among those that fail

to grasp the very important contribution the internet is likely to make

to IR in the future, there is a very real danger that they could miss

out.

As Focus Communications chairman Rupert Ashe puts it: ’It will become a

sine qua non for popular shares to have good IR web sites.’

CD-ROMS: INTERACTIVE INVESTOR INFORMATION

For the past four years, supermarket group Safeway has used a

CD-ROM-based multimedia presentation at the heart of its IR. It was

designed by the Presentation Company to run on a laptop computer and

incorporates both audio and video clips.

The presentation was used initially to audiences of institutional

investors and was taken to the US to raise the profile of the company

among US funds. Using the technology, Safeway’s IR team was able to show

high resolution video clips from the Harry and Molly advertisement

campaign as well as the essential financial, business performance and

marketing information that prospective investors demand.

’For our particular business it’s a useful way of showing people what

the stores and advertising looks like,’ says Safeway corporate

development director Steve Webb.

The presentation was designed to be interactive so that with only a few

mouse clicks information could be called on to screen in response to

questions.

It was more dynamic and also more portable than the retailer’s previous

system.

Safeway was so pleased with the results that the system is now used as

the basis for its main set-piece presentations to investment analysts

and is also for presentations to financial journalists.

Sophisticated presentations such as these, says Webb, can give key

audiences a better insight into the nature of a company. They also

typify a more mature attitude to IR in corporate Britain. ’IR is a much

more well-developed management discipline than it used to be,’ says

Webb

The Presentation Company has also helped Safeway put its R&A on the

internet and its director Rob Oubridge believes IR is one of the sectors

that stands to really benefit from technology. He sees a time in the not

too distant future when companies will send out CD-ROMs to analysts and

fund managers which will be able to be updated simply by accessing those

companies’ IR web sites.

OVERSEAS INVESTORS: LIVING UP TO US STANDARDS

A research paper published by the Investor Relations Society and City

University Business School in December 1997 predicts that US ownership

of UK-listed shares will increase dramatically. The paper - ’Research

into International Equity Investment Flows’ by Javier Melian Perez -

forecasts that US institutions will increase their holding of UK

equities from 12 to 20 per cent in the next few years.

At the same time, UK institutional ownership of UK equities is expected

to continue its downward trend, falling below 50 per cent by the year’s

end. According to the US National Association of Securities, worldwide

investment in foreign stocks is doubling every three years. And half of

all such investment comes from the US. This upsurge in US investment

will have ramifications for UK companies, says the IRS. If the

experience of US companies is anything to go by, there will be an

increase in investor activism.

Companies such as Exxon and Whirlpool have already been exposed to this

sort of shareholder pressure across the Atlantic. Another upshot of this

activism will be a continuing rise in demand for investor

information.

’US companies have become used to a proactive approach in developing

relationships with their shareholders in a way which is still unevenly

replicated by UK companies,’ says IRS director Kate Hoyle.

The fact that many big US investors are prepared to buy equities

overseas presents UK companies with a significant opportunity.

Increasingly, US institutions need to be factored in to an IR

strategy.

Many leading UK corporations now run short US roadshows on an annual

basis and make a point of cultivating likely US investors. According to

Ludgate head of investor relations Reg Hoare, UK companies with a market

capitalisation of pounds 1 billion or more could justify going to the US

for ’two days or so a year’ to meet members of its investment

community.

However, it should also be pointed out that a growing number of US

institutions have established a presence in Europe as interest in

overseas equities has snowballed.

FUNDS: UNDERSTANDING THE INSTITUTIONAL INVESTOR

To City outsiders, the amount of institutional investment in UK capital

markets is almost inconceivable in its scale. The Investment Management

Regulatory Organisation (IMRO) regulates some 1,050 institutional

investors whose investments total some pounds 1,430 billion.

These pension funds, insurers, PEP companies, banks and the like have

substantial equity holdings and their attitudes can affect the share

price of a corporation. Consequently, their views about the companies

they invest in are of paramount importance.

How effective do these institutional investors think UK companies tend

to be at their IR? Where do they do well and where is there room for

improvement?

’There are some chief executives who clam up when you sit in front of

them and ask probing questions,’ says Perpetual senior fund manager Neil

Woodford, who has responsibility for pounds 3 billion in investment and

unit trusts. ’But the quality of information you get when you meet face

to face is important.

The worst companies, thinks Woodford, are those that give out misleading

information and keep their shareholders in ignorance. He is sympathetic,

however to the need for executives to balance time spent with

shareholders to the demands of running a business.

’IR in the best companies is considered quite strategically,’ says JP

Morgan Investment Management European retail analyst Christian

Koefoed-Nielsen. ’I don’t mean they crudely try to massage the share

price - rather they get the investment companies to understand the

nature and dynamics of the business. They also take a little time to

understand the nature of the investment companies.’

Taking the time to differentiate between the different investment

criteria of the institutions and funds is something that is all too

often overlooked.

By getting a clear idea of the different investment criteria of growth

and value funds, companies will gain a sharper insight into what they

are looking for.

Those funds unlikely to invest in the short term should, argues

Koefoed-Nielsen, still be kept in the picture. After all, the company’s

position could change, making them suddenly attractive to a different

type of investor - but if that investor has not been kept up to speed on

the company it will be unlikely to have the confidence to buy its shares

immediately.

Koefoed-Nielsen says he frowns on those companies that only make time

for face-to-face meetings with existing institutional investors. He also

thinks it short-sighted when companies offer visits to broker’s analysts

alone and applauds those companies that offer access to the facilities

and management of key operating divisions. As a retail analyst he ranks

Dixons, Tesco, Sainsbury’s Boots and Kingfisher as the best in his

sector at IR, with Safeway and Asda not far behind.

Given the delicate relationship between corporations and their

shareholders, some institutions are reluctant to comment on the record.

But off-the-record they are more forthcoming about problems they have

encountered.

’The investor relations function has clearly been created to take the

load off the CEO or financial director,’ says one head of research at a

City institution. ’The problem is when you have an IR manager who

doesn’t understand the financials or the business properly. That’s still

the case in too many companies. If you rely on PR types who tend to put

a positive spin on everything it’s cumulatively very negative.’

’Honesty is the best policy,’ adds one head of equities at the

investment management arm of a bank ’Companies should be as clear as

possible. There should be no subtlety.’