As we look to the immediate future from the UK perspective, the crystal ball becomes somewhat clouded by the uncertainty over the shape of impending Brexit and what Britain’s trading relationships will be in the years ahead with the EU, as well as with its other trading partners. With just a few months remaining, British businesses are having to continue to plan for a wide range of scenarios, including a potential no-deal Brexit.
In the responses to the IR Society’s annual survey, and during my program of face-to-face and regional meetings with members since I took on this role in July, members have highlighted that Brexit is a key industry issue of focus for 2019 and beyond. IROs are having to articulate value messages for their companies through a period of major uncertainty.
UK retailer Next is among the first British businesses to include detailed information on its planning preparations in interim results, with a 10-page piece ‘focusing on the most challenging scenario of a no- deal Brexit’. As the mists clear and Brexit takes shape, investors will expect an increasing degree of clarity from businesses on its impact, and this will be a period when IROs will need to be deeply involved in the creation and delivery of the equity story.
Elsewhere, the significant changes imposed by the implementation of Mifid II in January continue to play out in terms of research, corporate access, analyst consensus and feedback. This provides clear opportunities for future direct engagement for IROs with the buy side, especially among larger-cap companies adequately resourced to cope with an increased volume of ‘incoming’ direct requests. IR teams will need to act as a filter for requests and expect to make themselves available for an increased number of meetings. But the shift of costs to corporates does not come with a blank check, and it will be important for heads of IR to ensure management teams understand the importance of good communication with investors and of winning the competition for capital.
Mifid II also represents a challenge for small-cap companies struggling to get attention. With less sell- side support for non-deal roadshows and decreased attendance at conferences, IROs will need to find ways to engage, potentially considering using third parties to supplement broker activities where no corporate access relationship is in place. Paid-for research may help to fill the gap where there is a reduction in or absence of sell-side research. Where this starts to affect consensus, it will be important for companies to consider (with their advisers) giving additional market guidance on key metrics in order to manage market expectations.
The first port of call for investors in small companies will be the website – and it will become more important than ever that a clear strategy and investment case is highlighted upfront.
Finally, one of the growing issues of importance to our members is ESG. With the increasing focus on ESG now coming into mainstream investor decisions, a thorough understanding and articulation of the ESG issues that impact a business – as well as those that are impacted by the business – is necessary. Reporting on these issues provides investors with information on the business’s wider societal impact and aligns with stakeholders’ reporting requirements.