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Why 2015 will be a year of great change for IROs

The world of investor relations is changing and there are major challenges ahead, particularly for small- and medium-sized business, suggests RD:IR’s Managing Director, Richard Davies.

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We live in strange times. As I write, the FTSE has reached record highs but, for those of us living in Europe, the world has not seemed as dangerous for many years. If you are not directly exposed to West Africa, the Ebola scare may have faded into the distance as quickly and quietly as the last outbreak of foot-and-mouth but we now have greater and even graver concerns. The sabre-rattling of the Russian state threatens the stability of European Union members in the East, and the savage chaos of the so-called Islamic State spreading ever wider across North Africa and the Middle East has even penetrated, according to recent reports, the southern border of Turkey.

The UK economy is growing strongly once again but uncertainty looms about the shape of the next government, with most polls predicting no overall majority. For the first time, political parties outside the main three could have a pivotal role in shaping policy, which the bond markets will not find encouraging. While much is made of the commendably rise in employment numbers, neither side of the House wants to talk about the thorny issue of the £1.5 trillion mountain of public debt, which has, on a non-inflation adjusted basis, risen more under five years of the Coalition than under the thirteen years of the last regime. European markets, encouraged by a vast programme of ECB quantitative easing, are currently performing strongly, even despite the threat of Grexit. However, despite the irrational ebullience, we cannot ignore the spectre of deflation which European bond markets tacitly forecast through the widespread purchase of negative rate instruments. Things will definitely get worse before they get better, fixed income fund managers now clearly believe.

We can, however, attenuate our concerns about rising currency risk for UK exports from stronger sterling by the thought of cheaper holidays on the beaches of Europe, particularly if Grexit goes ahead. That fine bottle of Château Margaux you have been coveting is getting cheaper by the day! Nobody expects oil prices to rise quickly any time soon and while this is good news for the users of oil, the fracking sector is looking increasingly desperate. Given the increasing evidence of environmental damage wreaked by this controversial process, some may see this as no bad thing. There is rich irony in Saudi intervention in oil markets producing a positive result for the ecology movement.

Disruptive regulation

The world is becoming a more difficult place for the UK banking sector, facing uncertainty from the outcome of the next election and increasing public and regulatory scrutiny. Long established practices in the areas of research and corporate access are now under fire in the quest for greater market transparency, with the expected perverse outcome of finding funding for small- and mid-cap companies even more difficult. The regulator is now the prime source of market disruption, by dint of its breaking up of the historically opaque structure of fee payments between asset managers and stockbrokers. We are entering a new market paradigm of which the outcomes are as yet unknown, although most assume that independent providers of research and corporate access will take over an increasing share of business from the sell-side outside the bulge bracket.

Life for large-cap companies will go on much as usual in the new environment due to higher trading volumes justifying the supply by investment banks of corporate advisory services. Lower down the food chain, things will get more difficult. There are already rumblings of some big-name mid-market brokers ditching their corporate access departments and trimming back on their research teams significantly as they move to a near execution-only model. It seems likely that brokers will become sector specialists if they continue to have research analysts at all.

Stewardship and engagement

The grey area remains on the valuation of investor meetings in terms of their worth to investors. Fund managers still perceive there to be great value in meeting companies’ senior management – and not just to glean information not in the public domain, as many believe.

Stewardship and engagement are now viewed as an essential part of the investment process but some doubt that investor meetings are not really situations where price-sensitive information is disclosed on a selective basis. The assumption is that if investors rely so heavily on investor meetings as part of their investment research process, these meetings must by default contain the imparting of price-sensitive information to investor benefit.

While some canny hedge fund managers may well occasionally glean additional insights from senior management on the way to the lift, we all know that most investor meetings are mainly about providing the context to fund managers for the stock selection, as well as building a level of personal trust between investor and investee company senior management.

No amount of meeting technology such as video conferencing is going to change this attitude in the short to medium term. Given that the changes in regulation move the emphasis of responsibility in terms of payment to those receiving the benefit from those providing the service, it remains unclear how investors should value investor meetings in terms of monetary sums and as ever the regulator is unwilling to provide clear guidance, leaving open a potential regulatory minefield.

The idea that the market will find its own balance in this matter due to the emergence of new formations of access and research services seems highly hazardous.

Market participants

The upshot for small- and medium-sized companies is they will increasingly have to pay for their own access and research, and install a dedicated IR professional to manage these services where one is not present (as in the majority of UK quoted companies at this time). Unless there is a deal in the offing, most brokers will not be interested in providing free services, if at all, to these companies, so they will become commoditised practices over time.

Active asset managers are still reeling from the massive rise in cashflows heading into indexed and quant products, including ETFs, as investors wake up to the disparity between charges and performance for many funds. Why choose a live fund manager when a robot can do just as well but for a fraction of the fees? UK fund managers are in a difficult place: they are no longer allowed to pay for investor access from client money; they may be unclear about the value they should apply to company meetings in their accounting; and some still believe that the market will go back to its old ways despite the imminent arrival of MIFID2 which gold-plates the actions of the FCA.

The life of the IRO will change as a result of the regulatory shake-up: there will be fewer market participants to deal with on the buy- and sell-side over time but there will be a greater demand on time to manage those that remain. Targeting, ongoing investor interface in a systemic manner and a greater emphasis on buyside analyst modelling will become generic issues and not just the domain of the large caps.

A long road ahead

2015 will be a year of significant change for IR in the UK and internationally as a result of the regulatory changes relating to access and research. We are only at the beginning of a significant restructuring of the market which will create new challenges to IROs in terms of handling of the communication and distribution of their equity story, and managing the demand for their shares in increasingly concentrated capital markets. Life will become increasingly more difficult for smaller companies, abandoned by capital markets not incentivised to support their growth. On the upside, the changes should mean an expansion in the number of IR professionals at smaller public companies. The marketisation of research is already creating higher quality analysis of companies, especially as new providers utilise the insights of deep data mining better to understand companies and the global competitive landscapes within which they operate. The marketisation of corporate access should encourage better quality investor roadshows, where the interests of the access provider/organizer are aligned with the company, and not the analyst bonus.

Like many other industries, investor relations, corporate broking and asset management are facing disruption on a major scale at home and abroad but unlike in other sectors, the disruption is being invoked by regulatory change, rather than new technologies and related market entrants. We know the route of travel but we may not yet understand so well the destination.

PLC Awards 2014

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Last night saw the 29th annual PLC Awards take place at the Grosvenor House Hotel on Park Lane. Hosted by BBC news presenter Kate Silverton, the event celebrated the success and achievement amongst small and medium-sized publicly quoted companies in the UK, in 2014.

Over 1,200 industry professionals were in attendance, including twelve members of the RD:IR management team.

RD:IR was proud to sponsor the ‘Turnaround of the Year’ award, which focused on companies that have completed the most innovative turnaround of the year, in a way likely to save or substantially improve the business. Further, the award required that the winner be a business that is strongly positioned for future growth. With a shortlist of six companies, the team were delighted that Skyepharma Plc, an RD:IR client, pipped the competition to first place.

RD:IR’s ‘Joint Head of Analytics’, Ian Smith, joined Kate Silverton in presenting Skyepharma Plc with their award.

Presentation

 

RD:IR would like to congratulate all of the shortlisted companies and the successful winners at the PLC Awards 2014: 

Best Investor Communication Award

Great Portland Estates plc

Best Performing Share Award

Skyepharma plc

Fund Manager of the Year Award

Stuart Widdowson/Strategic Equity Capital

Achievement in Sustainability Award

Berkeley Group Holdings plc

Best Technology Award

Optos plc

Turnaround of the Year Award

Skyepharma plc

New Company of the Year Award

SSP Group plc 

Entrepreneur of the Year Award

Richard Steeves/Synergy Health plc

Company of the Year Award

4imprint Group plc

A “Golden start” to the year for RD:IR

We are pleased to announce that RD:IR has renewed its Gold Sponsorship of the UK IR Society for its 6th year in a row.

The UK IR Society strives to promote best practice in investor relations and we are thrilled to continue our support of what forms the foundation of investor relations in the UK.

Far from simply giving financial backing to the Society, RD:IR supports the Society through offering assistance across a wide range of Society activities including committee and event participation.

Richard Davies said,

“RD:IR is delighted to act as Gold Sponsor of the Society for another year. We continue to believe in the work of the Society as the focus of the UK IR industry and as a prime player in the IR profession internationally.”

This renewal comes at a time when RD:IR is looking outwards to expand its international footing.

In other exciting news, RD:IR has teamed up with the PLC Awards for 2015, sponsoring the Turnaround of the Year Award. This award looks for companies which havecompleted the most innovative turnaround of the year’ in a way which will save or improve the business with the prospect of creating or enhancing substantial shareholder value for the future.

The PLC Awards will take place in March and look set to be an evening to remember. The Awards are said to be ‘the City event of the year’ and will be attended by around 1,600 guests. Please keep checking our site to find out who will be the winners of next Month’s Awards.

Written by Hayley McCrystal

IR InTouch Investor Relations Platform

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RD:IR developed its proprietary online investor relations platform, IR InTouch, in 2007, working in conjunction with clients and IR professionals to meet their exacting demands. As the years have passed and with every new development, IR InTouch has become a powerful investor relations tool which PLC’s such as Aberdeen Asset Management, Britvic and Debenhams have come to rely on for managing their IR activity.

IR InTouch combines rigorous shareholder analysis, powerful targeting, in-depth profiling and tailored investor relations contact management. It provides our clients with the data, functionality and reporting to manage investor relations communications with equity, debt, governance and SRI investor audiences.

IR InTouch has a number of separate modules, which enable clients to use the platform in a way that suits their individual requirements. Our shareholder analysis reporting tool can be employed as a stand alone service and users of this feature have access to the following data and reports, to allow them to understand their investors more accurately:

  • Shareholder analysis
  • Shareholder ownership interrogation via s793 (or equivalent) activity
  • Activist shareholder analysis
  • SRI investor analysis
  • Uploading of debt ownership data
  • Section 808 register management
  • Weighting analysis
  • Geographical analysis
  • Stocklending analysis
  • Peer/sector ownership analysis
  • Group analysis
  • Weekly or daily monitoring of share register movements
  • Written commentary on changes in ownership
  • Bespoke Reporting

Clients enjoy the SRA data service provided by RD:IR, as some of the following comments testament:

“We believe RD:IR provide some of the best share register analysis in the industry which gives us confidence when using the data at board level and also for investor targeting.” Shelley Fishwick, Aberdeen Asset Management plc

“We have recently switched to using RD:IRs combined SRA and CRM services. Their analysis of our shareholder base has been extremely thorough which gives us great confidence when reporting to our Board.The multitude of reporting options available via their CRM, which includes peer holders, weighting and geographical analysis, enables us to target more effectively and efficiently.” Stephen Nightingale, Britvic plc

Whilst some companies choose to just use the Analysis module of IR InTouch, others prefer to use the platform to its full capacity. The Contact Relationship Management (CRM) aspect of the system ensures ease of communication with current and potential investors.

IR InTouch has the following useful CRM features:

  • Extensive investor contact data
  • Investor meeting planning
  • Roadshow planning
  • Investor briefing notes for equity, debt & governance meetings
  • Maintenance of investor meeting notes
  • Ability to manage & report multiple investor audiences
  • Dedicated areas for equity, debt, governance & SRI investor contacts
  • Reporting on investor meetings
  • Email distribution
  • Targeting of new investors
  • Seamless linkage to SRA data
  • Email bounce-back monitoring

The platform can be viewed across all major browsers and devices, allowing clients to make full use of it whilst on the road. It also offers an offline data entry mode for tablet devices, ensuring meeting notes and records can be saved if there is no WiFi or cellular access readily available.

We find the IR InTouch platform an invaluable CRM tool especially with regards to recording all our meetings and notes. The system produces insightful roadshow packs which incorporate all share register and peer analysis information, which are useful for our busy meeting schedules. We have also started using the offline meeting function, allowing the recording of notes in an efficient and user friendly manner even on the move. Additionally, with a focused investor base on the CRM platform, we know we can reach thousands of relevant investors, globally, at a touch of a button.” Lisa Williams, (formally of) Debenhams plc

As a firm that takes our clients needs and requirements very seriously, we have strived to create an IR instrument of real value which is functional, intuitive and constantly evolving.

For more information regarding IR InTouch and/or a demo please contact Sarah Blackshaw on sarah.blackshaw@rdir.com or +44 20 7492 0533

Introducing Governance and Responsible Investment at RD:IR

 

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SRI, ESG, Sustainable investment, and Ethical investment, are a selection of the most common terms used to indicate an investment based upon sustainability, social, environmental and ethical concerns. Deciphering the nuances between these terms is not easy, not least because they often appear interchangeably, with their depth of application varying from firm to firm, and fund to fund.

Strong Corporate Governance is of interest to any investor as it provides the best indication that a company is able to implement its business strategy and succeed within its chosen industry. Reflected in the term ESG (Environment, Social and Governance), company management is also becoming increasingly accountable for its governance of matters which concern more than simply profit, and investors are keen to understand what companies are doing in this respect.

RD:IR’s ‘Governance and Responsible Investment’ features highlight and distinguish between these investment strategies alongside consideration of corporate governance, as we develop our capacity to support companies with identifying, understanding and communicating with investors that invest with Governance and Responsible Investment issues in mind.

 

Recognising Responsible Investment

The inclusion of environmental, social and governance ESG factors, both into specialist and mainstream investments, evidences a growing concern for climate change, social inequality, human rights, and management of access to water and other natural resources. It also tells us that not only are investors fully aware that the actions of global businesses have a considerable impact on such matters, but also that as owners and stakeholders of companies, investors can wield a certain level of power to encourage good business practice. As well as supporting sustainable development goals, motivations for responsible investment strategies include risk management, the inclusion of clients’ demands to incorporate religious, moral, ethical or lifestyle standards into their investments. Undeniably also, for certain investment firms it simply reflects the acknowledgement of a growing market for responsible investment capabilities.

 

How RD:IR can help

Responsible Investment can mean different things to different people. It is our aim to assist companies with their understanding of what Responsible Investment (or SRI or ESG) means to their investors, what themes in particular investors seeks disclosure on, and how the information is incorporated into the investment process.

Over the past year we have developed and released new features on our proprietary, online investor relations service, IR InTouch, that enable companies to search Governance (G) and Responsible Investment (RI) contacts and meetings, detailed Governance and Responsible Investment profiles, shortform G&RI profiles, and one-page summaries including historical meeting data and Proxy Advisory Agency influence. Regarding our most integral service, the shareholder analysis, a G&RI flagging system is currently under development…watch this space!

 

This post has been written by Alice Essam. Alice is an IR Researcher at RD:IR with responsibility for Governance and Responsible Investment. 

To understand further, how RD:IR may be able to help with your Responsible Investment strategy, please contact Alice on +44 20 7492 0549 / alice.essam@rdir.com or Isabel Richardson on +44  20 7492 0513 / isabel.richardson@rdir.com