A survey of investors' perceptions has found that the quality of investor relations has deteriorated in line with markets, writes CAROLINE MADDEN

The purpose of nurturing good investor relations is to ensure first of all that investors are aware of your business, and that they are then sufficiently informed to determine whether or not the investment proposition is for them, she explains. She adds that the volatile investment climate of the last year has made it even more important for companies to remain accessible to investors.

UNTIL RECENTLY, publicly quoted Irish companies were hailed as paragons of good investor relations (IR). When it came to distributing information about themselves and their financial performances to shareholders and analysts, they excelled.

Of course, that was back in the days when the news being distributed was almost invariably good.

Unfortunately, it seems that the quality of investor relations has deteriorated in line with the plummeting Irish stock market, at least according to the results of a new investor perception survey.

The survey, commissioned by British group Cross Border which publishes IR Magazine, found that the majority of European analysts and investment professionals have serious concerns about the standard of the investor relations activities of Irish companies.

Specifically, the survey identified areas such as information provision, guidance on future performance and the communication of bad news as being sorely lacking.

More than a quarter of respondents complained that Irish companies had little or no understanding of the importance of being forthcoming with bad news.

Furthermore, only 11 per cent of respondents indicated that they were satisfied with the level of guidance provided.

The standard of investor relations in Irish companies had always been regarded as “at least as good as anybody else’s, and typically better”, says Janet Dignan, managing director of Cross Border.

“This year it’s all gone pear-shaped. Respondents were most vocal about the presentation of bad news in today’s market conditions,” Dignan explains. “Many said that companies failed to deliver relevant, negative information and continued to put forward an over-optimistic outlook.

“Some even went so far as to say that companies did not understand the impact of the economic downturn, and so were not addressing the effects.”

On the upside, a number of respondents noted that some companies had recently begun providing a more realistic outlook to investors.

Dignan points out that the survey results are not quite as poor as they appear at first glance.

Although general questions about the overall standard of investor relations elicited some pretty damning responses, this was tempered by the fact that respondents were “as full of praise as they have ever been” when commenting on certain individual companies, she says.

However, analysts and investors were understandably disappointed with financial companies.

One of the few positive findings about the overall standard of investor relations was that Irish companies continue to perform very well when it comes to access to management.

In the last few years, Irish companies have gained praise for their willingness to travel to meet investors, and for providing access to senior management, both in Ireland and on roadshows internationally.

The survey found that this remains a strong selling point, as nearly two-thirds of all respondents said that Irish companies allowed access to a wide group of management members over the past year, despite the difficult market conditions.

Dignan points out that investor relations have been incredibly difficult for all companies in the last year. What people want is information about the future, she says, but in the current turbulent environment this is “the most extraordinarily difficult thing to provide, even with the best will in the world”.

Kevin Egan, head of PricewaterhouseCoopers (PwC) Ireland’s audit practice, agrees that this has been, and continues to be, a very tough reporting season for public companies in general.

A number of challenges have been cropping up, he says. For example, some companies are really struggling to value assets, or they may be looking at significant impairment provisions having bought assets at the peak of the boom, while other companies are considering restructuring.

Despite these challenges, in Egan’s experience Irish corporates have coped well in this reporting season.

So why then this disparity between PwC’s experiences with its clients and the survey results?

The financial statements that large companies are required to release into the public domain are like “a backward-looking scorecard”, Egan explains. He suspects that the “missing link” lies in the fact that analysts and investors are looking for information of a more predictive quality.

“I don’t see that as any sort of insurmountable challenge for Irish businesses,” he says.

In recent years, PwC says it has been pushing an initiative known as “report leadership”, which encourages companies to expand the amount, quality and relevance of information that it makes public.

“Our experience is that the companies’ internal management accounts are often very focused and honed on the value-creating activities of the business,” he says. The information in these internal accounts is then “sliced and diced” to produce the financial statements to be released into the public domain.

“Analysts would probably get more of the information that they wanted if corporates thought about aligning internal and external reporting,” he suggests.

Although companies face certain restrictions in relation to making profit forecasts, external financial reports could include more information that is predictive in nature, such as key performances indicators (KPIs) rather than just Gaap (Generally Accepted Accounting Principles) financial measures. These could include operating indicators or metrics of things that have already happened in the past but that can be used to predict how a business is going to perform in the future, Egan explains.

He gives the example of the broadcaster BSkyB. Investors and analysts are “not really looking at sales and profitability” when this company issues financial statements, he says. “What you see people looking at is the number of new subscribers who signed up in the last six months, the churn rate . . . the average revenue per customer.”

Those three pieces of information are very predictive, he says, and the market tends to calculate the value of the company on the basis of this information.

Ultimately, he feels that companies who respond to the need for “robust and timely communication” will put themselves in a much stronger position to rebuild shareholder value and attract capital.

The investor relations survey was conducted in January of this year, and a group of 65 individuals was interviewed. This consisted mainly of fund mangers and analysts, almost half of whom are based in Ireland. The others, all of whom follow companies in Ireland, are based in Britain or continental Europe.

Building a good rapport

CEMENT GIANT CRH, which has the largest weighting in the Iseq index of Irish shares, also pulls its weight when it comes to investor relations.

CRH has enjoyed no small success in the annual Investor Relations Awards organised by IR Magazine in association PricewaterhouseCoopers, winning numerous accolades over the years.

Eimear O’Flynn of CRH explains that the company’s approach to investor relations is built around the needs of the investment community. Analysts and investors very much value a flow of clear, timely information, she says, and they like to see well-developed, consistent strategies for the long term.

It’s also very important for the investment community to be able to access the company’s management through periodical meetings.

O’Flynn says that CRH satisfies those requirements by maintaining “very active and open dialogue” with the investment community. Last year, the company held more than 380 meetings with investors, including analysts and fund managers throughout Ireland, Britain, continental Europe and the US.

CRH’s senior executives are very giving of their time, O’Flynn says, participating in extensive roadshows, sitting down to meet with investors throughout the year and taking part in conferences. The company’s annual reports and website are also used to keep the lines of communication open with investors.