Multi-award-winning IR professional Thomas Kudsk Larsen looks at some of the big trends driving change in investor relations, from the pandemic to the ESG focus and the impact of an increasingly fragmented world
Most companies have now reported their fourth-quarter and full-year 2021 results and many management and IR teams have post-results investor outreach under way. This includes February roadshows and March broker conferences before first-quarter preps kick off in April.
A few trailblazer countries like the UK and Denmark removed most Covid-19 restrictions in January as cases fell, with some others following in February, but others – Hong Kong, for example – have seen a surge in cases. By mid-February, German investors in Frankfurt were still working from their homes, and only about half of US investors have come back to their offices.
The IR job is global – capital markets are global – but while Covid-19 is a worldwide infectious disease, countries have responded individually. As an IRO, you cannot operate the same way as you did in the past. What works in London with some investors won’t work in Germany. The idea of a global, US or European roadshow is irrelevant when rules and reopenings differ by country.
These national responses to the pandemic confirmed a trend that had already been under way for a few years: the world has become less integrated, less global. Governments stockpiled vaccines for domestic use, populations in some countries were offered a second booster vaccine while many people were, and still are, yet to get their first. The UK completed its departure from the EU. Russia invaded Ukraine.
The financial markets, and with them the IR profession, have been major beneficiaries of globalization. It’s made our jobs easier to do, but the trend is now reversing, creating more fragmentation again.
Taking ESG seriously Change was under way before the pandemic hit. And we will eventually put Covid-19 behind us, even if the world is a more volatile place by then. What the pandemic has done, though, is accelerate a number of existing trends, among them ESG, and IR people will also be left with the reality of ESG commitments and cost containment. Despite the challenges, however, ESG remains a big development opportunity to grow the IR curriculum and learn how to help your firm climb the ladder of increasing cyclicality.
During the pandemic, CFOs loved the lower cost of doing business, with travel and activity costs going down in particular. This did not have any material impact on many businesses, so why not keep travel and activities permanently at the new, lower level? It helped many companies keep some level of profitability with lower revenue during the pandemic, and chances are slim that costs will be allowed to grow again as the world reopens.
We must now ask whether, in the past, people really traveled because of business necessity, or because of entitlement or tradition? Several firms have also made commitments to reduce their carbon footprint – and travel is an obvious place to start. IR people need to take ESG seriously, through the company as a whole, but also in the way they conduct their own business.
This again feeds into the new at-least-partly virtual reality. March has several broker conferences: Credit Suisse in London is virtual, Barclays in Miami is live and Carnegie in Stockholm has a choice between on-site and virtual.
The brokers that are able to handle events where some participants are there in person and some only virtually will come out stronger from this period; hybrid is also the likely future for IR interactions. If you have the budget and it's possible to batch several activities into a full week in the US, then you go – but not for just one conference in Miami like we used to do.
The value of good IR remains as important as ever What all this change means is that, if anything, good IR is more important than ever. I recently met a contact who joined a new company last year. The company had announced its fourth-quarter, full-year results and provided guidance – a 2022 outlook – at the same time. A year earlier, the company had lost 9 percent on the day of its 2021 outlook and a further 5 percent over the next week of trading.
This new IR person recommended a different approach to providing guidance: scrap revenue and earnings targets in absolute amounts – why would the firm guarantee currency rates? Instead, the new IR person wrote a guidance paragraph for results that moved the company outlook to use constant exchange rates, while describing its critical success factors.
The company is in an investment phase and heading into results, and consensus had higher earnings numbers than what the company’s plans would suggest. But describing the need to continue spending on R&D and sales and marketing to improve the long-term value of the company landed the guidance well with investors and sell-side analysts. Recommendation upgrades followed. A week after the 2022 guidance, the share price was up.
What this shows is that in a world of increasing uncertainty and challenges to how IR is conducted, public companies and their shareholders, potential investors and sell-side analysts need a steady hand in the IR chair to help provide counsel and pilot the company through choppy waters.
The value of good investor relations has increased. It’s in higher demand than ever before. IR is becoming more complex again, with new and forgotten challenges, but that’s good for continued learning, development and the ability to grow in the job. These changes are good for the IR profession, and for people who made IR their career choice.
