Welcome to the editor's blog brought to you by Inside Investor Relations. Check back for all the updates you need to keep you up-to-date on topical IR issues.
Neil Stewart, webinar moderator and IR Magazine’s editor-at-large, kicked off the event with a warning to listeners in the US that they might find some of the discussion ‘scary, and even rather shocking.’
He was talking about a growing trend of super transparency – embodied by the IR team at German energy firm RWE. Panelist Gunhild Grieve, head of RWE’s London IR office, explained that as well as offering guidance on the current year, covering a range of key performance indicators, the company also offers estimates on the year ahead.
But what makes RWE’s guidance policy really stand out is its approach to consensus estimates. ‘We have a practice whereby we ask our sell-side analysts to provide us with their numbers: they have them in their models but then [we] also [want them] on a post-restructuring or post-disposal basis,’ said Grieve. ‘We put a revised consensus on our website with those clean numbers, which are comparable with our guidance.’
This is where IROs in the US might start to break a sweat. Growing levels of transparency might be the trend in Europe, but Regulation FD in the US discourages companies from RWE-style openness. Despite this, Jason Whitaker, application specialist at Bloomberg, maintained that an ‘open line of communication’ remains the best practice – no matter where you are or what industry you’re in.
He added that whatever size your business is, if you can give guidance – even in the form of something as simple as a production target – you should be doing it. ‘The evidence seems to be that the more you give guidance, the better your share price,’ he said.
Fellow panelist Chris Bailey, head of global direct investments at Close Brothers Asset Management, agreed. He said that as a fund manager, when ‘people are saying less and less, guess what? We become less inclined to buy their shares.’
Rather than letting macroeconomic ‘wobbles’ deter you from giving guidance, Bailey noted, companies should be doing two things; offering a guidance range and extending predictions into the medium term. A range of between 5 percent and 10 percent offers the leeway that is lost on a very specific number, he explained, while medium-term forecasts encourage your investors to think beyond each quarter – which Bailey said will help attract a more committed investor, too.
‘I appreciate you’ve always got to be careful,’ he added. ‘You’ve always got to factor in what’s happening in the world, but one good thing about a guidance range – particularly something that talks beyond this year – is that you can factor in and absorb some macroeconomic volatility. And on a quarter-by-quarter basis you can say, We’re still on track – it’s been a little bit tough this quarter because of X, Y and Z, but we’re still on track. The market gives you credit for that.’
Google’s earnings gaffe yesterday served as a timely reminder of just how embarrassing and costly a results day slip-up can be. It’s perhaps unsurprising, therefore, that the vast majority of US companies have not experimented with publishing earnings solely to the corporate website.
NIRI’s latest survey on the subject – out this week – reveals that just 8 percent of respondents have ever used the corporate website ‘as the only channel of disclosure for material information’. Furthermore, 88 percent of respondents state they have ‘no immediate plans’ to move in this direction.
Breaking down the results by market cap, the smallest and largest companies are more likely to have taken the plunge: 9 percent of micro-caps and 13 percent of mega-caps say they have used the corporate website as their exclusive distribution channel at least once.
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The survey finds that the ‘materiality of information’ is the most important factor to companies when deciding the method of disclosure, followed by advice from legal counsel. Cost considerations are the least important.
Google’s gaffe, let’s remember, was not to do with web disclosure. In a
statement, the search giant put the blame squarely at the feet of its
financial printer RR Donnelley for filing a draft 8K without
authorization. Still, disclosure via the corporate website has resulted
in a few mishaps ‒ such as when a newsbot pulled Microsoft’s results statement from its website 15 minutes early.
The latest online annual report survey from Nexxar is out, covering an expanded sample of 567 mega-cap companies from around the world. The headline result? HTML has overtaken PDF as the most popular format for annual reports.
Some 40.9 percent of companies produced an HTML report in 2012, while 39.2 percent opted for PDF. The remaining 19.9 percent used what Nexxar calls a ‘JPG’ or ‘imaged-based’ format, where the pages are converted into images.
Source: Nexxar
The growth of HTML has been driven, in part, by the adoption of hybrid HTML reports. Almost half (44.4 percent) of the mega-caps that opted for HTML chose the hybrid route, combining HTML and PDF sections, reports Nexxar.
While the hybrid approach is proving a popular one, Nexxar is not a fan. ‘The PDF part has all the downsides of any PDF document displayed on the web: it's designed to be printed rather than viewed on a screen, it’s not as search engine-friendly as HTML, and it’s not interactive,’ Thomas Rosenmayr, Nexxar’s CEO and co-founder, tells IR magazine.
While the practice is not universally advocated, a vast majority of IROs who responded to the latest poll on Inside Investor Relations say companies should compile consensus estimates internally.
A huge 85 percent say they support the practice, while 13 percent say they don’t think companies should formulate an in-house view of consensus. Just 2 percent are not sure either way.
The most common reason for companies to do this is because they say the consensus figures put out by data aggregators are often inaccurate or out of date.
Three firms have got together to produce a report on how analysts and investors like to receive what they term ‘extra-financial’ information, which covers areas like environmental, social and governance issues.
The research was commissioned by the Prince’s Accounting for Sustainability Project and the Global Reporting Initiative, and conducted by Radley Yeldar.
The survey worked with a relatively small sample – 34 investors and 35 analysts – so it’s hard to read too much into the findings. In addition, 68 percent of respondents identify themselves as working in the socially responsible investment area, so the results are skewed toward their particular wants. Acknowledging the small sample size in the report, the authors say they hope their work lays the foundations for a more detailed analysis.
Still, there are some interesting findings worth pulling out. For instance, despite all the money being poured into HTML reports, the majority of investors and analysts say an on-screen PDF is their preferred format for receiving both financial and extra-financial information.
The report’s authors say the preference for PDFs ‘may be explained by their flexibility and ease of use, either as a printed or on-screen document.’ A significant minority, however, say they prefer to use a variety of formats to receive information ‒ so don’t shut down that micro-site just yet.
The report also signals further demand for integrated reporting, which refers to when companies draw links between financial performance and ESG issues. ‘The majority of our sample state that integrated reporting will be useful or very useful for increasing the reliability, accessibility, relevance and comparability of extra-financial information, as well as improving assessments of future company performance,’ notes the report.
UK companies groaning under the weight of reporting requirements could let out a sigh of relief yesterday: the interim findings of the Kay Review into the country’s equity markets showed strong opposition to the practice of quarterly reporting, which now looks set to be abolished.
The European Union, which sets the UK’s overall guidelines for disclosure, is already thinking about lifting its obligation for quarterly updates. If it does, the UK will be free to change its own rules.
More significantly, the Kay Review highlights the need for a change in attitude toward reporting. The drive for increased transparency has led to more and more disclosure, regardless of whether that information is useful, it says.
The result is that companies waste time and money on reports the investment community doesn’t want. They also develop an unhealthy interest in pleasing analysts over the short term.
In the review, author Professor John Kay says the assumption that more information is always better sounds good in principle, but in practice is flawed. It’s about time the rules changed to reflect this reality.
The bank reveals the answers in an interview for the Investor Perception Study, Canada 2012, a report that profiles the best Canadian IR programs, ranked by a survey of more than 250 investors and analysts. Below we pick out five of the answers from that report:
1. Supercharged IR: in 2006, TD Bank’s CEO and CFO decided to make investor relations a competitive advantage for the bank, taking measures such as making the head of IR a senior vice president, expanding the size of the team and ensuring each team member can answer questions from the investment community.
2. Strong backing from management: speaking in the Investor Perception Study, Canada 2012, Colleen Johnston, TD Bank’s CFO, describes investors as the ‘lifeblood’ of the business. With that kind of commitment, it’s no wonder Johnston and CEO Ed Clark were both lauded by the investment community last night, picking up best IR by a CFO and best IR by a CEO, respectively.
3. The customer is right: head of IR Rudy Sankovic offers a platinum service through an extensive program of face-to-face interactions (400 last year) and making sure each analyst (all 17 of them) gets a call on the morning of an earnings release. In short, he gives them what they want.
4. Always improving: the bank regularly collects feedback from investors and analysts through formal perception studies and informal discussions.
5. No secret to success: despite the plaudits, TD Bank insists there is no secret to its successful IR program. ‘We don’t do it differently; we do it a little better,’ says Sankovic. ‘We have a mantra around transparency, responsiveness and value-add. Those are the three things that drive everything we do.’
If there's anything that has and will continue to drive investors to demanding greater control over executive compensation, it's each case of a former CEO being well rewarded for terrible performance. And those investors now have more fuel for the fire because of Hewlett-Packard.
The business blog footnoted gave its annual award for ‘worst footnote’ to the company for Léo Apotheker's compensation for his 11-month stint as chief executive. It hasn't been easy to work out how much Apotheker would get, as the numbers are open to some interpretation. But estimates have run between $25 mn and $33 mn. Not too shabby, given that the company's stock dropped by about 40 percent during his tenure.
Footnoted gave the total a shot, and came up with about $36 mn, assuming that an FY2011 bonus came in at the bottom of the possible range – 200 percent of base salary rather than the top 500 percent.
From footnoted: ‘Among the other goodies in there was a $7.2 mn severance payment, a $4 mn signing bonus that he got when he took the job last year (while the employment agreement spelled out terms for paying it back if Apotheker lasted less than 18 months, the separation agreement says nothing about him owing any money). There was also a $4.6 mn relocation bonus that he got last year. If the move back to Belgium or France costs anywhere close to that, HP shareholders could wind up paying Apotheker more than $40 mn, since the company agreed to cover the cost of his move back to Europe.’
What compounds this insult upon injury is the fiasco that HP's board has made of the company's strategy. It went along with all Apotheker's choices at the time and has been back-peddling ever since. Rather than sell or spin off the PC division, for example, HP will now retain it. The question remains how HP's IR team will stop getting negative mileage on what has been an extended comedy of errors.
Related articles Investors and issuers vary on say-on-pay response – Inside Investor Relations And the ‘winner’ of the worst footnote of 2011 is... – footnoted What will Léo Apotheker walk away with if he’s fired? – AllThingsD
This guest post comes from Daniel Niemi, business development executive, ACT Conferencing
This October, Niagara Falls hosted a huge running event that included a half marathon. It attracted thousands of runners from across North America. The scenic course was situated next to the pristine town Niagara-on-the-Lake. Running for two hours definitely allows your mind to wander. Maybe it was the approaching IR season, but my mind was drawn to the correlation between preparing for a half marathon and preparing for an IR event.
One of the topics that dominates conversations with IR professionals is the attention to detail that has to go into corporate earnings calls. When training for a half marathon, you are consistently micro-managing your progress to make sure when the big day arrives, you are fully prepared and know what to expect with heart rate, pace and timing. Correspondingly, with IR professionals, we like to have a game plan on how the event will unfold. For example, conducting a dry run (pun intended) with the webcasting provider or the online communication tool you plan to use will help tremendously. Having confidence and familiarity in the interface will help reduce technical glitches during the event. Firming up details on the conference call is important as well. Conferencing service providers should review a booking form with you so the operator on event day will know exactly how to guide the call.
Some example questions are: 1. Will the speakers dial out for the live event? 2. Which dial-in numbers are required (local/toll free/international)? If international, what countries? 3. Is there a forward-looking statement required? 4. What information would you like gathered from the participants who call in? Should information be captured through the webcast registration? 5. Is Q&A open or restricted?
Another theme that arises is smooth communication. This encompasses having a professional operator who can communicate efficiently and professionally, adapt and troubleshoot. This communication will take place via a communication line or an online communication tool provided by the conferencing service provider.
During a half marathon, runners are communicating and listening to their bodies and running devices to gauge heart rate, distance and when to refuel with energy gels (not my favorite thing to do). Similarly, IR professionals use tools to conduct multiple tasks, such as communicate via text with co-presenters or listen for cues to progress the earnings call. The online communication tool plays an important role in this process. It enables the IR professional to improve interactions between featured speakers and participants, thereby providing the ability to make better decisions more quickly throughout the event.
This will help you: 1. Monitor participants in chronological order as they join the conference 2. View participant info such as name, phone number and company 3. View real-time phone status of each participant 4. Determine the queue order for participants during Q&A session 5. Online chat with co-presenter or operator to manage time sensitive conference details.
Preparation and communication are vital components whether you are running any sort of distance or preparing for your next quarterly earnings call. Hopefully your next IR event will run as smoothly as the Niagara Falls event... minus the bananas, energy drinks and gels.
This week Unilever, the FTSE 100-listed consumer goods company, launched a new investor relations app for the iPad and iPhone. The designers of the app, The App Business, claim a first in offering live streaming video of Unilever’s investor events and results presentations via the application.
The app was launched this week to coincide with Unilever’s annual Investor Seminar, which this year is taking place over December 1-2 in Istanbul, Turkey. James Allison, head of IR and M&A at Unilever, told IR magazine earlier this year that the event is regularly oversubscribed, so it makes sense to widen access in this way.
A screen grab from Unilever's new app showing CEO Paul Polman
