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John Rose's Blog

Before the IPO

Investor Relations should ideally begin years before a company registers to float its shares on a domestic or international stock exchange. Unfortunately, companies often make little to no investment in investor relations until just before or perhaps even after the IPO - sometimes ignoring shareholders, hiding from bankers and spending as little time as possible with fund managers and institutional investors.

This is beginning to change, of course, as the current economic climate has resulted in greater pressure on companies (especially smaller businesses) to demonstrate their viability to investors -- who are becoming increasingly skeptical and selective.

In addition to meeting the compliance requirements of publicly listed companies, businesses are also discovering that a sensible investor relations program - one that clearly and concisely explains a company's financial fundamentals to investors, bankers and the media – can provide new avenues for fundraising and dramatically lower a company's cost of capital.

It’s not difficult to set up a competent investor relations program. But it does rely upon experienced talent (in-house or out-sourced), realistic expectations, a suitable timeframe, a reasonable budget and consistent access to top management. Once these elements are in place, it all boils down to pretty simple fundamentals: transparency and disclosure.

The Job Of Investor Relations Is To Build Trust

There is a persistent myth among newly public companies that the goal of investor relations is to increase share price. The fact is, that while companies with professional investor relations often have higher valuations, it is the market that will ultimately decide what a company’s value should be. Rather, the goal of investor relations is to build trust. This trust will generally translate into higher share prices if most other variables of company performance are positive. However, if there is no trust, then even profitable firms may find their companies unfairly valued in the marketplace.

To really win the conviction of investors, companies must demonstrate a credible and enduring commitment to investor relations. That means keeping investors, bankers and analysts informed year-round, not just when it's convenient. Companies who insist on meeting only minimum requirements of disclosure are headed for trouble.

Trying To Please Everyone: Communicating Financial Results To Investors, Analysts And Media

The expectations of your company’s audiences may diverge widely. There is a marked dissimilarity among, for example, the investor who wants the company to talk about dividend policy and share buybacks; the analyst who wants the company to talk about debt levels and restructuring; and the journalist who wants to hear about investments and employing more people.

And that’s not to mention other constituents like employees, unions, or government authorities in Russia that can be especially critical, as often find it difficult to comprehend how companies can achieve high sales while announcing cost-cutting measures, lay-offs and losses.

In spite of the natural desire to address the concerns of each of these audiences, companies must also become very strict about observing selective disclosure and related information distribution guidelines prescribed by the relevant listing authority (this includes careful control of social media and other marketing communications), as well as to avoid changing the message or altering the substance and consistency of the data presented. Dedicated and well-managed investor and media sections on your corporate website should act as a central repository of publicly disclosed information, corporate governance and other policies.

That’s not to say, however, that you can’t still cater to the needs of your different audiences by understanding their unique motivations.

The Investor

The bulk of a company’s investor relations program will likely be aimed at communication with institutional and fund investors, with whom you should focus on long-term plans, being honest, and never disappointing them.

What’s more, you should always keep in mind that often what’s more important to investors than WHETHER they should buy your stock is WHEN to buy your stock (or buy more). Investors are trying to time the market. And you will quickly discover that their questions are mainly biased toward this goal. So you should try to focus their attention on business initiatives that you can post to a calendar – i.e. increased production or distribution stages, market trends that may boost sales during particular periods. They will also be interested in factors, which may cause a dip in your share price, which they may view as a buying opportunity.

The Analyst

Analysts, on the other hand are very focused on consistency of information – because they generally have devised their models on a set of assumptions and business drivers that must be consistently updated to remain valid. So it is important to maintain a constant set of elements for all your disclosures so you may “feed” analysts’ models. Any shift in strategy has to be carefully explained and presented with an understanding that it may represent a significant amount of work on the part of the analyst to shoehorn the information into their model and arrive at a reasonable buy/sell/hold recommendation.

The Journalist

Companies in Russia are traditionally more closely scrutinized by public opinion. Journalists are often more focused on general perceptions and may lack the experience and knowledge to understand the complexities of the capital markets. They need more explanation and attention, especially as share ownership is still uncommon in R