Investor

The Tale of the Big Why

I’d like to start this blog entry with a request for money. What’s that? You want to know why I want money. Well, I’m looking for investors in my business. What’s that again? You want me to make an investment case. No problem. If you just head over to my company website, you’ll find… hold on a moment.

It’s unlikely that anyone would play down the significance of the Investor part of a company website. Whatever their size, businesses need investors. Most companies understand this, so they make sure the Investor part of their website is chock-full of stuff that they hope potential investors will like. The latest annual report will be there for all to view and probably some older reports as well. There’ll be information on most aspects of company performance as well, plus share price data, and content aimed at analysts and shareholders. But it still might be missing an answer to what I call the “Big Why” question. And what’s that? Well, put simply, its content that tells investors why they should invest in your company and not someone else.

The best way to do this is to provide a clear investment case or pitch, with dedicated content for investors. Not all websites do this however. And some might argue that the reports and results data found on Investor pages already do this, sort of, so why bother creating a specific new section? But a good investment case is not just a collection of key results and statistics. If a company is going to provide a really good answer to the “Big Why” question, it has to create a carefully designed USP for investors and their money.

So what does a good online investment case include? I’m afraid there’s no such thing as a perfect example to share, but I’ve found a few good ones that are definitely heading in the right direction.

Let’s take a look at Sainsbury’s to begin with. There’s an interesting focus here on what makes the company different to others, combined with an insight into long-term strategy and input from the chairman. A visitor to Sainsbury’s Investor centre site can still see all the reporting data they need to make sure the sums add up, but also use the Investment Case to get a deeper insight into the company’s strengths and long-term prospects.

Next, let’s look at a completely different industry and how Land Securities answer the “Big Why” question. Business strategy is shared again, like Sainsbury’s, but there’s also market information, company KPIs, and risk content. This extra layer of content could make all the difference with an investor keen to see the whole picture for a company, before they commit themselves.

My last choice is the excellent “Big Why” content provided by power generation specialists Aggreko. Here we find market and strategy content, together with information on KPIs and risk management. There’s also a clear explanation of what the company does, and perhaps most interesting of all, their competitive advantages. Aggreko have obviously put a lot of thought into explaining why they might be a good investment choice, and why they’re different to their peers.

If you think your company website might be missing some “Big Why” content, why not drop us a line and we’ll be happy to share our expertise.

In this day and age of Twitter, Facebook posts, texting and emails, it may seem that press releases are an antiquated method of communications. However, the press release in an investor relations context remains an essential tool, a workhorse that conveys important information in an efficient manner, and which serves as a basic information feed to the electronic data sources that are the lifeblood of professional investors. So a few moments spent thinking about the format should be time well spent.

When faced with a looming deadline, the default reaction of many busy professionals is to pull out a previous press release and start marking it up to reflect what they wish to say in the current release. This is fine if the previous press release being used closely resembles the current situation and it was well written, but it can be a recipe for disaster if both of those criteria are not met. So herewith are some very simple rules to make press releases used for investor relations more effective and efficient.

First, pay attention to the maxim “Know your audience”. In the context of investor relations this means that your audience is overwhelmingly professional investors. Therefor, don’t try to be cute and don’t try to obfuscate. Institutional investors have pretty much seen it all and have a low tolerance for companies that don’t play it straight or that let their pronouncements get overly inflated with hype.

Second, think about the type of press release being sent out. Earnings announcements are a different type of release than announcements regarding unique events such as mergers or acquisitions. Each should have a basic template, but they differ somewhat. For regular earnings announcements this means a template that begins by setting out the important drivers of the earnings report – sales, earnings, EPS and the one or two main contributing factors to performance in the period. This should then be followed up by a discrete discussion of each of the components of earnings. This will differ by company, but at a minimum, would include sales performance, gross profit margin, expense controls and factors that may have caused the current period to differ from the previous year’s period, such as weather, strikes, write-offs or other anomalies. In preparing the release, it is helpful for both the writer and the reader if a consistent format is followed, as this will allow easier comparisons with other periods.

The one-off type of IR announcement is somewhat different. It should follow a more traditional format for a press release, starting by addressing the most important issues first, followed by additional information in declining order of importance. At the same time, the writer must address the “5 Ws” of journalism: who, what, why, where and when. (I’ve always found that after writing a draft of such a press release, it is a useful exercise to go back and see if you have answered all of the 5 Ws. In a distressing number of cases, you will find that you’ve missed one.)

While these are very general guidelines, they can be very helpful to have when you begin to write a press release. It sure beats starting with a blank slate every time.

We live in an age of multiple information channels.

In the old days, information for investors was principally delivered via paper in the form of press releases and annual reports, supplemented at times by a company actually speaking to an investor. Those were simpler times when markets moved at a slower pace.

Today, investor relations departments need to think in terms of their message being conveyed via a number of channels, each with its advantages and disadvantages. What follows is a brief overview of the main outgoing communications channels available to IR personnel, leaving aside a detailed discussion of the use of social media and blogs, which are a subject for another day.

Traditional Written Communications

Regulatory filings, press releases and annual reports are part of the core written communication tools available when communicating with investors. They offer the benefit of being completely within the control of the issuing company (at least until newspaper editors get hold of them) and are therefore most useful when conveying detailed or complex information.  They also offer the benefit of being stand-alone pieces, by which I mean that any questions they raise with investors can be handled in a private phone call rather than in a public forum, lessening the chance of a horrendous PR gaffe.

On the down side, traditional written communications are often over-edited by the issuing companies, resulting in tightly controlled information, which often raises more questions than it answers. Additionally, this editing process slows response times down, meaning that press releases move far more slowly than stock markets.

One way to think about this type of communications is that it is similar to long-form journalism, to be used when voluminous or complicated information needs to be disseminated.

Electronic Communications

Today, much information moves in electronic form. And not just a single electronic form, but a variety of methods, most designed for speed rather than detail. Some of this is simply a quicker conduit of traditional written communications, as when wire services send press releases to internet content providers. Other electronic means, such as Twitter, pick out snippets of information and quickly place it where the entire world can see it. Some forms of electronic communications that today seem almost old-fashioned, such as email, carry the burden of being easily forwarded and continually stored in someone’s computer or server, which should give pause to any IR officer concerned about things going to unintended recipients or information getting taken out of context at a later date. (This is also true of email’s younger cousins, instant messaging and texting.)

We are just now at the point where some companies are using their web sites as their primary distribution point for important company information, but undoubtedly this trend will continue.

Verbal Communications

Although old-fashioned and sometimes limited in scope, nothing can convey management’s credibility better than verbal communications. Verbal communications can be broad-based, as when done through television and radio interviews and conference calls, medium in scope, as when speaking at a conference, or personal, as in one-on-one meetings and phone calls. Institutional investors continue to rely heavily on this type of communications as they are committing large sums of money and doing due diligence requires that they “look management in the eyes”.

What all this means for companies engaged in investor relations is that the choice of communications channels can be as important as the message itself. For example, if the company is faced with a crisis, the choice of both a press release to get detailed information out quickly, coupled with a conference call so investors can judge management’s credibility makes sense. On the other hand, routine matters may require only a press release or perhaps a simple posting to the company’s web site. The point, as with all good communications, is to consider how to best accomplish your communications objectives while meeting the needs of your audience.

It almost goes without saying (but I will say it nonetheless), that a key component of investor relations is the ability to communicate the appropriate message to the right audience.

When disclosing information to investors and the public, the investor relations function communicates to multiple audiences, generally through multiple channels.  The audiences that consume investor relations information are as diverse as institutional investors, retail investors, employees, company creditors, suppliers, industry competitors, rating agencies, governmental regulators and the general public.  Additionally, these audiences receive their information through a multitude of sources ranging from print media, the internet, mass media, specialized electronic networks, voice, personal interviews, group presentations and one-on-one meetings.

Because investor audiences and their information needs are so diverse, several frameworks are helpful in thinking about how to structure the investor relations message.  The first, suggested by Professor Robert Dolan of Harvard University[1] simply attempts to compare the amount of customization of content to the amount of audience interaction:

As can be seen, the more general the audience, the less the opportunity to tailor the information to the audience.

In addition, one can think about providing information in layers, starting with the general and moving up to be more specific, always keeping in mind regulations that prohibit the selective disclosure of important information.  Under this approach, the framework appears as follows:

Both of these frameworks derive from what is probably the first maxim of communications: know your audience. If you know who you are speaking to and how specialized the message needs to be, then you can customize what you are saying to best fit the competing goals of discussing what you want to say and delivering what your audience wants to hear.

[1] Dolan, Robert J., Integrated Marketing Communications, Note, Harvard Business School Press, 1999.

Investor relations professionals constantly struggle with a key question:

How can I help investors form a coherent, long-term investment thesis about my company?

The branding concepts of marketing can help answer this question by tying together the various strands of a company’s operations, values, culture, financial position and market perception into a single financial brand. Attention to these concepts can help elevate discussions about the company from mundane quarter over quarter earnings comparisons to more meaningful discussions of long-term goals.

Much of what is done in investor relations tends to be tactically focused: quarterly reporting, press releases, speeches and conferences with associated presentation materials. Often, the messages conveyed by these communications are one-off in nature, with no attempt to express and describe the company’s longer-term value proposition.  Even annual reports, which used to be the place where a company could spend more time showing itself to investors, have in many cases been pared down to the bare minimum. In the United States, the use of 10-K wraps for annual reports limits general discussion about the company to 8 – 12 pages. When you subtract out the pictures, listing of officers and directors, and other various matters, very little room is then left for delivery of a comprehensive overview of the company.  The result of all of this is a somewhat disjointed message – people may know what industry you are in and something about your financial performance, but it may not be immediately obvious why your company’s stock represents a viable investment thesis.

In today’s investing environment, where fewer and fewer analysts are covering more and more companies, a company can easily be lost in the crowd.  Branding can help people understand and remember a company. This is done by creating a financial message that sums up a company as a whole and presents it in a way that is instantly identifiable.

Brands resonate with people, and contrary to common belief amongst investor relations professionals, analysts are people too.  The more analysts can understand a company as a brand concept, the more it will help them flesh out the longer term opportunities to the company and get them to focus less on the short term ups and downs that every company experiences.  For example, everything that Wal-Mart does is driven by trying to achieve lower prices for their customers.  Once an analyst understands this, they can see how the “brand concept” drives sales, expense controls, the store experience, corporate culture and many other aspects of the company’s performance.

Not all companies are quite so clear-cut in their outlooks; however, all companies seek to be unique in some aspect.  This is where financial branding should focus.

While I would like to make the assertion that financial branding will enable a company to gain a premium to its stock price, that ultimately depends on its long-term financial track record and the market’s perception of its future prospects.  In the long run, markets are relatively efficient.  Where financial branding plays a role is in making a company’s story stand out from the crowd and be more understandable. This then, will attract the attention of more investors.  And the more investors that know and follow the stock of a company, the more efficient the market will be at placing a fair valuation on it.