Covid-19 casts gloom over German IR community
The mood among German IR professionals is unsurprisingly gloomy but they are split over whether the situation is likely to get better or worse, according to research from IR association DIRK
The organization has released the findings from its annual mood barometer, which polls members on their current and future outlook, as well as other subjects such as analyst coverage and team size.
The survey, conducted between February 19 and March 20, finds 39 percent saying the situation for companies is worse than it was six months ago, while 18 percent say the situation is better, so a net 21 percent have a negative view.
IROs show less pessimism when looking to the future, with only a net 7 percent of respondents thinking market conditions will be worse next year than they are now.
Kay Bommer, general manager at DIRK, says the findings are ‘unsurprising’ given the survey was conducted at the beginning of the Covid-19 outbreak in Germany. ‘If our indicators are correct, that would mean we are heading into a recession, which is nothing brand new to say,’ he says.
The research period covers the time when Covid-19 grew from a handful of cases in Germany to nearly 20,000. Since then, the number of confirmed cases has grown to more than 165,000, including nearly 7,000 deaths.
Germany introduced strict lockdown measures on March 22 to contain the spread of the virus. The country has managed to avoid the large number of deaths seen in other European nations and is already beginning to reopen, albeit cautiously.
The economic effects of the virus are likely to be severe, with the country’s GDP declining by 6.6 percent during 2020, predicts the German Institute for Economic Research, a leading think tank.
For Bommer, German companies have struggled to cope with the uncertainty brought about by Covid-19. ‘Many seem to have a standard book about how to communicate in a crisis, which is something we have recommended for years,’ he says. ‘My feeling is that for many companies, even though they were well prepared, this kind of crisis has exceeded any kind of preparation.
‘And it makes it really difficult for companies to say what the bottom-line effect will be for the current year – because it is literally changing on a daily basis.’
A further challenge, he adds, is the need for companies to strike the right tone in their communications. ‘You see how IROs, but even more so C-level management, are trying not to sound too pessimistic and trying to draw a positive,’ he says. ‘I think that’s a very thin line to have to consider. From what I see, companies are managing that well.’
Bommer praises Lufthansa, which is currently negotiating a state bailout, in particular. ‘It openly said this is obviously hitting us very hard, as it is the whole industry,’ he notes. ‘At the same time, it is giving numbers as best it can.’
DIRK is also advising companies on how to manage their annual shareholder meetings, which are now starting to take place amid continuing restrictions on public gatherings. To help companies, Germany has introduced a law allowing companies to hold meetings virtually.
‘Shareholders can put forward questions but only up to 48 hours before the meeting and, importantly, companies can decide which questions they are going to combine,’ says Bommer. ‘Everyone, especially investors, is looking carefully at who is answering what.’
He suggests companies don’t rush to hold their meeting. ‘Don’t use the shortest possible timeframe for the invitation,’ he says. ‘Rather stick to the four weeks you usually have for a physical annual meeting.’
Analyst coverage and team size
DIRK’s barometer also looks at analyst coverage and IR team size. The findings show a stabilization of analyst numbers for smaller companies, welcome news for those still grappling with the changes brought about by Mifid II.
Between 2019 and 2020, the number of companies with no analyst coverage rose only marginally, from 6 percent to 7 percent. Meanwhile, the proportion with between one and five analysts remained unchanged at 27 percent. The median number of analysts for all companies actually rose slightly, from 9.5 to 10.
‘That is good news,’ says Bommer. ‘You could have expected sell-side analyst numbers to go down even further. They have stopped on a relatively low level.’
Turning to the findings on team size, the majority of respondents (53 percent) have an IR set-up of between one and two people, while nearly a quarter (23 percent) have between three and four.
As might be expected, team size grows along with market capitalization. Among respondents from the MDAX index, which is for mid-caps, two thirds of companies have between three and four IR team members.
Looking at the large-cap DAX 30 index, 89 percent of respondents have at least five IR staff and 22 percent have between 11 and 20.