New light on communication challenges following period of upheaval

Survey reveals Investor Relations professionals’ views:

• IROs set new course after navigating financial crisis
• A gradual return in confidence
• Increase in amount of disclosure and guidance given
• Switch away from short-term survival to longer term prospects
• Increased focus on debt disclosure as bond markets remain squeezed
• A quarter of companies believe the quality of analyst coverage has declined over the past year
• IROs forced to deal with wider range of corporate governance issues

Leading Investor Relations Officers (“IROs”) are increasing disclosure and focusing on longer term information, according to a wide ranging survey by international IR, financial and corporate communications consultancy Citigate Dewe Rogerson (“CDR”).

The survey, which polled 127 leading investor relations directors from across Europe, reveals that while a degree of uncertainty and caution remains, confidence among IROs and companies is returning. It pinpoints how companies have changed the way they communicate with investors and the challenges they face in 2010.

Shift in emphasis towards longer term prospects

IROs have addressed a difficult and uncertain environment by disclosing more information. More than 50% of respondents have either changed their disclosure over the past twelve months or are planning to do so. There are also reports of a change in emphasis towards longer term information, which suggests a switch away from short-term survival to focus on longer term prospects.

However, forecasting demand is likely to remain difficult given the presence of so many uncertainties and variables as governments and central banks withdraw the measures they introduced to stabilise their economies.

28 percent of companies increasing the amount of guidance they are giving

Findings on guidance support a view that confidence is slowly returning. Over the past twelve months 18% of respondents have increased the amount of guidance they are giving, and a further 10% are considering increasing guidance over the next twelve months.

Michael Berkeley, Executive Director of CDR and head of its Investor Relations practice, commented, “The strength of the stock market recovery over the past year was in stark contrast to the strength of the economy, and a key challenge will be keeping expectations aligned to company fundamentals by managing disclosure and guidance. IROs are starting to look ahead and communicate the longer term picture, but must continue to reassure investors with short-term sequential analysis.”

41 percent of companies providing additional information on debt

The past year has seen IROs provide additional information on a company’s debt position, with 41% taking such action. The extra disclosure reflects a continuing squeeze on bank lending coupled with strong competition in the bond markets, forcing companies to work hard to make their case for borrowing. However, it is slightly surprising that 59% of respondents do not think debt has become one of the mainstream activities within the IR role. The issue is unlikely to disappear and the challenge for IROs who have increased their focus on debt disclosure following the credit crunch is to maintain it.

42 percent of respondents receiving more questions on risk management

IROs are dealing with a wider range of corporate governance issues. Over the past year, 42% of respondents said they had been asked more questions on risk management, 34% of respondents received more questions on remuneration policies and 17% of respondents said they had received more questions on board structures and responsibilities.

While shareholders have generally not been credited for engaging with companies, an overwhelming 87% of respondents believe that that investor interests are aligned with the objectives of their company. Companies with aspirations to be the best in class are expected to move away from reporting levels that simply comply with the rules to more expansive and engaging ways of communicating on corporate governance.

Analyst research: A call for quality over quantity

In the wide ranging survey, CDR also gauged the health of the sell-side model and the thoughts of IROs on the ability of analysts to understand their company and provide useful research.

• The vast majority of companies with a market capitalisation above £500m said coverage has increased.
• 42% of respondents with a market capitalisation below £500m said coverage has decreased over the past year.
• While some of the larger companies feel they have too many analysts following them, the majority of smaller companies would like to broaden their sell-side coverage.
• The increase in coverage has not been matched by an increase in research quality with over a quarter of companies feeling the quality has declined over the past twelve months.

One respondent articulated the views of many when he said that the quality of coverage has polarised: ‘There is more ‘commodity’ commentary on news and events and less detailed, thoughtful, genuinely analytical work’.

There have been more requests for information from independent research houses, but they do not appear to be addressing the gaps in coverage left by the large integrated banks. The findings suggest the number of investment banks covering each company remains high, but research teams are smaller or staffed with more junior analysts. As a result, IROs will have to deal with as many, if not more, analysts, but with a growing sense that the final output will not be of sufficient depth and quality to convey their company’s investment story properly.

Increase in confidence reflected by more communication

60% of respondents have changed or are planning to change their mix of communication channels and they are increasing communication through at least one channel. The biggest change in the communication mix is represented by more ‘one-to-one’ conversations, cited by 41% of respondents, followed by more roadshows and capital market days. 39% of respondents have increased or are planning to increase the number of investor and analyst events.

Commenting on the survey, its author Sean Bride said “This pick up in investor communication activity follows a period of retrenchment when budgets were under pressure. Some companies may also have been fearful of proactive communications either because of a lack of visibility in earnings or the absence of a positive story to tell. It’s very encouraging to see so many respondents planning to get back on the road.”

UK companies to target overseas investors

The survey revealed that UK companies, in particular, plan to target overseas investors. Responses to the survey suggest the trend in cross border diversification may have slowed over the past year, but the underlying trend remains.

Confidence is returning, but uncertainty remains. Having survived a recession that threw up a host of communication challenges, IROs would be forgiven for breathing a sign of relief. Instead, the survey reveals a set of new challenges.

'Investor Relations Survey' (PDF download)
Setting a new course.

For further information contact:

Michael Berkeley
Citigate Dewe Rogerson
Direct Tel: +44 (0)20 7282 2833
Mobile: +44 (0)7713 509316
michael.berkeley@citigatedr.co.uk

Sean Bride
Citigate Dewe Rogerson
Direct Tel: +44 (0)20 7282 1044
Mobile: +44 (0) 7530 285566
sean.bride@citigatedr.co.uk