UK: Investor Relations - Getting The Message Across

Last Updated: 10 December 2008

Article by Tarquin Edwards

Quoted Business talks to Tarquin Edwards of Adventis Financial PR about investor relations for Aim-listed companies.

1. On a practical level, what would your advice be for smaller listed companies to help get their message across to investors?

In today's climate, with growing inflation, the property slump, consumer woe on the high street and the ever-increasing nervousness of banks regarding credit, positive progress from smaller listed companies regularly goes unnoticed. Their often positive and encouraging messages are dulled in a sea of cynicism, wider market nerves and general investor (both retail and institutional) disdain for smaller growth stocks. This is particularly the case for companies with underdeveloped and unproven business models. Against this backdrop, however, the familiar missives of 'don't over-promise', 'maintain relationships' and 'keep communicating with your shareholders' still hold firm.

In this uncertain period we advise smaller listed clients to make sure messages to their institutional and retail investors focus on defence and safety. Most of these investors will have already adjusted their portfolios some time ago, with an emphasis in the current climate on defensive qualities and balance sheet ratios rather than profit and loss performance.

Investors want to hear management taking a realistic line and being honest about how they are going to address the mounting challenges in what is anticipated to be an increasingly difficult period. They want to hear about cost-cutting and prudent measures. They do not believe anyone who says they are growing their business, because no one can be sure of the outlook or of the ability of customers to continue to spend. They are looking for safety, strong balance sheets, cash flow and the ability to survive a very uncertain period of downturn. They want to hear realistic and honest appraisals of the problems ahead and how they will be handled.

2. What are the most effective investor relations tools for companies to help get their message across to investors?

As a rule, smaller companies face less scrutiny from analysts than larger companies and therefore need to exploit every chance to communicate their messages to investors. They should treat their financial calendar obligations as an opportunity to update investors on the company's progress. Likewise, the web, good presentations, one-on-one briefings, independent research, house broker notes and a range of other media should be used to help a client get their key message across to investor audiences.

It's hard to single out any one particular tool as more effective than another as they work best in concert with each other. Good investor relations is the harnessing of a variety of tools towards the common goal of adding to shareholder value.

That said, however, third party endorsement offered by the national and smaller company press is a particularly effective tool in helping to get company messages across to investors. On the back of news flow, it can be very powerful.

3. How do you typically get involved? What do companies struggle with most?

Changing their mindset. In other words, thinking like an investor in order to anticipate what the financial community is looking for. It comes down to disclosure and helping clients think like a public company, and therefore being open and forthcoming.

4. What makes a really good annual report?

Before one looks at what makes a really good annual report, one needs to understand exactly what an annual report is trying to achieve.

Looking from both the investor and analyst perspective, there are several main objectives of an annual report. It should educate and inform both current and potential shareholders on the company's strategy for growth, along with its wider ambitions. It should explain how that corporate strategy is being implemented and offer a report on the company's performance during the period under review, set within the context of its wider markets.

A premium should be placed on clarity and comprehensiveness. Reviews of operations need to be clearly set out in good detail. As a shop window into the merits of the company, the annual report needs to look professional and offer a succinct, honest and, of course, attractive snapshot on its performance. Good photographs break up text and help to put the company's operations into context. Judicious use of graphs and bar charts can often illustrate a point more effectively than a set of figures.

5. What makes a good investor relations website?

The website is now the first port of call for most people seeking information on a company and therefore it is essential that it is used to best effect. It should be comprehensive and easy to navigate. There is nothing more frustrating than wasting time scouring a website looking for a broker's note or an old admission document and having to wait for electronic wizardry to play itself out, only then not to find at first or second glance what one is looking for.

Quoted company websites have improved massively over recent years. This is particularly so with Aim companies which, since February 2007 and the introduction of Aim Rule 26, have been required to make key company information available on a website. This information must be kept up-to-date and free of charge.

Some smaller companies view too much disclosure with suspicion, so obviously a trade-off and balance needs to be drawn. However, if the content is generous, pertinent, up-to-date and presented with clarity, the company under the spotlight should be the ultimate beneficiary.

6. What is the future of investor relations?

Over the longer term, I would say healthy. Over the shorter term and in the current climate, 'frustrating' is the word that comes to mind as far as smaller company stocks are concerned. As we come out of the current downturn and cycle, maybe around the summer of 2009, investors will hopefully be looking for value again. Companies that have maintained discipline and sustained clear channels of communication with their investors should reap the rewards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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