The South African energy company's investor relations department
Mike Tisdall operates investor relations at the very sharp end. Sasol is a profitable high technology business with, until recently, almost no debt. However it is South African, which means that it is often stigmatized as an emerging market company by international investors, while the Johannesburg Stock Exchange (JSE) graces it with a somewhat-less-than-dot-com P/E ratio of eight. It does not help that the rand, South Africa's currency, despite exchange controls, has been steadily sinking for some time.
In addition to Sasol's pioneering efforts in coal-to-oil technology, it has businesses in (not surprisingly) coal, oil and chemicals. However, some investors hanker for a pure oil play. Finally, many investors still assume it has strong government connections although the company was privatized over 20 years ago. Altogether it makes for a tough IR challenge, which hasn't stopped the company attracting overseas investment for 30 percent of its stock.
Its credibility can be judged by the willingness of international investors to provide debt financing for the recent e1.3 bn takeover of German chemical company Condea. Tisdall points out that the debt financing was an innovation for the company, but an eminently sensible one bearing in mind the low P/E on the JSE and South Africa's exchange controls.
Tisdall is well aware of the company's complexity. He was a refinery manager before moving into marketing in Sasol's phenolics business unit. He then spent five years in Hong Kong, marketing the company's products in one of the more fiercely competitive regions of the world, before returning in 1997 to handle IR. He cheerfully confesses to having 'no IR training whatsoever'. It was a steep learning curve, he says, 'And that's the way I like it. If you can go to work every day and learn something new, then life is interesting.'
Tisdall adds that it's a major challenge to get investors to understand the company. 'It has its own unique technology and a wide variety of businesses.'
South African pioneer
Tisdall's appointment from the operating and marketing side did not mean that Sasol undervalued IR. On the contrary, the company was an IR pioneer in South Africa, and the position is regarded as a high level one. Tisdall reports to the financial director, and attends the board meetings of the major divisions. Physical proximity enhances the organizational charts, so his office is on the same floor as all the top management, facilitating constant contact.
Augmenting Tisdall's operational experience on the IR team is Brian McKinnon, financial information and communications manager. He is an accountant whose previous job was to collect all the corporate financial information from the various business units. That range of contacts is still actively cultivated in his new position so, as Tisdall points out, 'He is very complementary to my role, which is understanding the technical side of the company.'
Senior management clearly recognizes the necessity for intensive IR, but Tisdall chuckles as he remembers that someone told him 20 percent of the managing director's and financial director's time should be devoted to it. 'There's no problem at all convincing them that it's essential - but it's more difficult getting them to make the time.' Even so, the managing director Pieter Cox himself also turns out for the major presentations - the interim results in March and annual meeting in September - which also occasion two-week roadshows to London, Edinburgh, and both coasts in the US. The company has over a dozen domestic sell-side analysts and ten buy-siders following it, augmented by similar numbers overseas.
In common with many companies, Tisdall has noticed significant enhancement of buy-side research capability even in the four years he has been in the job. 'I used to spend most of my time with the sell-side analysts but now I spend much more time with the buy side.' That means more time in Cape Town, home to many fund managers and institutions. In case eager investors can't wait, the six monthly results meetings in Johannesburg are video-conferenced to Cape Town and teleconferenced later in the day for the US and UK.
In the interests of disclosure, they keep analysts abreast of Sasol's key drivers - oil prices, rand-to-dollar exchange rate, refining margins and chemical prices, which are also posted on the web site.
Investor tourists
In Europe, Sasol retains London-based IR consultancy College Hill but currently has no one in the US, which does not stop a steady stream of investors coming to visit. Americans are often accused of parochialism, but Tisdall disclaims that for his visitors. They know South Africa is on the other side of the world - where it is warm and sunny when snow coats the north. 'We have a steady stream of visits, up to four a week, by overseas analysts and investors. And lots of them come during their winter,' he confides. Indeed in February this year, with help from College Hill, the company arranged a three-day analyst meeting to show the sunny side of the Sasol story.
The analysts' visits give an opportunity to expose the business unit management and the investment community to each other, which helps Tisdall in his drive to internalize IR at the company. It is a very hard drive, which involves commissioning regular surveys of investor and fund manager perceptions, and even an annual poll of analysts on their perceptions of the company. That includes brave - or at least risky - questions on how well the investor relations department is working.
Even closer to the edge is the monthly survey, conducted by outsiders, of perceptions of the company. The anonymous 'and very frank' answers are fed to top management along with a continual log of forecasts and research work.
Tisdall admits that in dealing with foreign investors it can be hard to get past the emerging market label. 'Particularly with the buy side, we often find ourselves dealing with emerging market analysts and fund managers. We'd obviously like to move more into categories of oil, gas, energy or chemicals, but it's very difficult to shake off the emerging markets mantle.'
So Tisdall's IR materials and roadshows 'try to project the image of a thoroughly first-world-run and operated company with first-world assets and technologies.' But there is more to it than just projection of an image, he assures. 'We also have a globalization strategy, like the acquisition of Condea in Europe, and we do a lot of production and marketing overseas. For example, we produce explosives in the US, waxes in Europe.'
Indeed, the company has been pretty successful in achieving its goal of expanding overseas holdings, with nearly a third now held outside South Africa. Tisdall says this is only partly his work. 'After 1994 the government allowed South African assets to be exchanged for overseas assets - and we were a popular part of these asset-swap packages.'
Of the overseas holdings, two thirds are managed out of London, even though the majority actually originates in the US. Company law changed 18 months ago to allow firms to track nominee holdings in South Africa, which has enabled Sasol to do serious tracking of investors. Domestically, the retail sector only holds 3 percent, institutions the rest. As a hangover from privatization, the government's Industrial Development Corporation holds 9 percent.
That augments one lingering problem: the overseas perception of close ties to the government. Even though the Mandela effect lingers and the ANC government is seen as generally pro-business, investors never like government involvement. Tisdall has to point out that the IDC holding involves no directors or active role in the company. 'It's a mature investment; IDC just wants the cash flow,' he says. 'The problem of government connections is simply one of perception - so we do sometimes have to point out the reality.'
Creative accounting
One anomalous holding is a result of the company's buy-back policy. Tisdall is firm that the company is undervalued on the JSE, but if it bought back and canceled stock it would incur a tax penalty. So 6.3 percent of the stock has been bought by one of Sasol's subsidiaries to achieve a better fiscal result.
There is no intention of pandering to those who are seeking a pure oil play. 'It's not our strategy. We want to reduce risk, so we target long-term growth holders. In the long term we are trying hard to hedge ourselves against oil and even against our position in South Africa. We're already back-integrated into our feedstock - the coal. But we are more and more into chemicals, and even though crude prices play a part in our product prices, it does hedge us - so we shouldn't normally move too much with oil prices.'
Sasol's IR actually manages to present the soft rand as a company advantage. Tisdall explains to investors, 'We sell up to 80 percent of our product either in hard currency or local prices fixed by hard currency; but up to 80 percent of our costs are rand denominated, so we have a high rand hedge quality for people wanting to invest in South Africa. Local investors get the high price benefit and overseas investors get the advantage of our lower costs.' In case that message is missed, the metrics are circulated and posted on the web site (sasol.com).
Some South African companies have listed overseas and Tisdall admits that this is in the back of Sasol management minds too. 'It's more a matter of when than if,' he says. 'However we'd only want to do a listing overseas if there was a fundraising exercise with it.' Presently, the low gearing and the low share price mean that debt is a cheaper source of capital for acquisitions.
If the company were to do an offering, Tisdall says it might well use its level two ADR on the Nasdaq as a platform. At present, this listing only accounts for about 2 percent of the outstanding equity and, he comments, 'There's no arbitrage at all. It opens in New York at our closing rate in Johannesburg.'
One advantage of the JSE is that it is much less regulated than London or New York, although it is catching up quickly. 'From next year we have to disclose directors' remuneration,' says Tisdall. 'Up till now that has just been a lump sum figure.' However, Tisdall insists this is no great hardship for Sasol. 'We try to give as much information as we can, without revealing proprietary material to competitors.' And as his swan song to IR he adds, 'I'm retiring soon, and I tell the analysts, When I do, I hope I'll be able to say that I never told you a lie.'
What the analysts say:
Most analysts agree that Sasol’s IR has shown signs of improvement, although one says, ‘We’d always like more disclosure.’
Merrill Lynch’s Nico Lambrechts: ‘Sasol’s IR program is committed to consistent and comprehensive roadshows, field trips, educational updates and financial reporting – although additional disclosure on certain aspects and more detail on capital projects would be welcome. Their team is well balanced, with technical and financial knowledge together with a passion about the group’s history and future. Sasol is a complex group to analyze and they assist where possible to understand the group and its future strategy.’
Anon: One analyst whose company disallows attribution says, ‘I certainly prefer Sasol’s IR to that of all the other South African companies I cover. It has a fairly serious approach to it. The IROs take their job very seriously. I’ve certainly had a lot of facilitated access to management and where they feel able to, I have no problems getting numbers or responses on any question. The level of detail has been on a gradually improving trend.’
ING Baring’s Gerhard Engelbrecht: ‘Sasol’s IR people are doing pretty well. They’ve improved tremendously recently in terms of disclosure and their general communication with the market. There’s nothing really that we can compare the company with – it’s unique. But I like its complexity. I like Sasol’s approach and Mike Tisdall is very knowledgeable, since he was a manager on the operational side before. If I had a criticism it would be that they have not really had that much exposure to the market; they’re not really familiar with these weird ratios that we use.’
Rowan Goeller of Deutsche Bank: ‘Sasol’s investor relations has improved over the last year, with investor visits to a lot of the South African assets and a more proactive approach to analysts. Access to management has been much better, especially during this most recent trip which had very good access and very good feedback with information on all the businesses. In terms of disclosure, we’d like more, but analysts always do, so it’s not that they are bad at it. We certainly get most of the information we need to model the company.’