Communicating with investors is one of life's essential duties for quoted companies. Briefing analysts, posting annual reports and responding to shareholder queries are time-consuming but necessary activites if a company has a listing on the stock exchange. The dynamic growth in internet use is making the corporate Website an economical and versatile vehicle for improving communication with investors, but are companies - particularly smaller ones - making the most of their sites?
It is smaller quoted companies (SQCs) that should consider their sites carefully. Market dynamics are making it increasingly difficult to persuade institutional investors to hold on to stakes in the SQC sector. At the same time, communicating with the City and private investors can be disproportionately time consuming for companies that lack the resources of global giants.
The problem of communication was highlighted last month when the Department of Trade and Industry published a report, called Quality Dialogue. The report, based on results of interviews and market research among SQCs and fund managers, concluded that 'the standards of dialogue and the quality of relationships were patchy'. A number of factors were cited including consolidation within the fund management industry and the emergence of a pan-European capital market for causing institutional investors to concentrate on larger companies. Accordingly, the need for effective investor communication by SQCs was pointed out. The DTI warned: 'SQCs have to work harder and smarter at investor relations than larger companies if they are to enable the market to value them with confidence.'
Katie Morris, chief executive of Cisco, the City group that represents the interests of smaller quoted companies, believes the internet could be a key tool for SQCs seeking to stimulate investor interest. 'It is terribly important that companies get used to using electronic media,' she says. 'The quality of information provided by companies and the timing of its dissemination are crucial to private and institutional investors. With large cap stocks often cited as the only attractive proposition for investors, communication is more important than ever for SQCs if they are to be seen as serious investment prospects.
Electronic media is playing an increasing role in shareholder communication.'
However, Morris warns, developing a Website is a big commitment for smaller companies, not just on a technological or resources level: 'It involves creating a culture of openness and accountability and a change in attitude across the whole board.' Directors have to be prepared to cope with the attention that they are going to get in return for promoting the company more actively, she adds.
If companies are to make the necessary cultural shift, their Web pages should become key channels for communication. 'There are two benefits of using the internet,' says Ken Olisa, managing director of Interregnum Venture Marketing. 'First, you can update Web pages by the minute if you choose to do so. Second, you can create interactive relationships with investors.'
The latter is something that many companies fail to exploit fully, he says: 'Too many businesses have no interactivity on their pages. They have the address and telephone number, but no email. They should try to find out a little about their investors so they can build one-to-one relationships with them.' Enabling investors that access the site to receive emails about corporate announcements is one way of discovering investors' needs and interests.
Some companies are ahead of the game. A recent report by System House looked at about 100 listed companies in the UK software and computing services industry (SCSI), 85 per cent of which were valued at less than #300 million, to see how well they used their Websites in terms of investor relations. The researchers visited the sites of all the listed UK SCSI companies. Or all but one - MSB International, the computer personnel recruitment and employment agency, is still in the process of constructing one.
System House assessed the sites based on criteria recommended by Investor Relations Magazine (see box, page 62). It selected four SCSI Web 'star' companies - Dialog Cadcentre, Computacenter, and Logica. These were the only companies to pass all four tests. Nearly 30 per cent of the Websites failed all four tests, which means they contained no investor or financial information at all.
The star companies display a commitment to using their sites to communicate with investors. At information systems specialist Dialog, which has a dual listing on the London Stock Exchange and on Nasdaq, investor relations are handled by the corporate communications team. 'We provide online information. That's our business, so we need a Website that's informative,' says Tracey Johnston, corporate PR manager at Dialog. 'We have a lot of information there for customers and investors and we are very strict about keeping everything up to date. If we put out a financial announcement, it will go up on the Website within half an hour of going out on the newswire.'
The Web designers have also incorporated a 'notify me' function, whereby an email is sent out informing people that a press release has been issued on a particular topic.
The investor relations side of Dialog's Website was set up in the summer of 1997, when its predecessor company, Maid, announced it was in negotiations to acquire US competitor Knight-Ridder Information. Dialog was highly constrained in what it could say by UK and US regulations, but it used its Website to enable customers and investors to send through questions. 'We used the site as a key part of our communications strategy,' says Johnston. The company answered the questions it could and explained why the regulations prevented it from answering others.
At systems supplier and consultancy Logica, investor relations were essentially handled by the chief executive and finance director until last July when Jane Hurley, an employee of 14 years, took on the role of dedicated investor relations manager. 'We are a growing company and getting closer to the FTSE 100, so we needed someone to deal with investor relations full time,' says Hurley. Once in the job, she looked at current issues in the investor relations press and noted the frequent references to the value of Websites.
'We already had a good site, but we needed to add an investor relations section to it,' explains Hurley.
She worked with the corporate communications department to produce the investor relations page, which went live last September. 'The information was pretty much there on the site but it wasn't all on one page,' Hurley says. 'A lot of what we did was restructuring to make sure all the information was together. We tried to keep it as simple as possible.'
Logica's financial reports are now included and available for downloading.
'Beforehand, we had highlights but not the whole thing,' says Hurley.
Analysts who can't attend a City presentation also have password-protected access to material from the presentations which is placed on the site.
Cadcentre, a company providing computer-aided design systems, set up an investor relations area on its Website shortly after it floated at the end of 1996. 'Our advisers recommended that we make ourselves as visible as we could and that we make our financial information visible,' says Steve Gilbert, head of media relations, who created the site. 'We felt it was vital to make use of the Web to inform investors about everything happening in the company and to make sure they had access to all the latest statements and final results.'
When designing the site, Gilbert looked at what other software firms were producing. 'We thought about what we would want if we were shareholders in a firm,' he says. 'Think about it from the user's angle. We went for all the obvious information. Then, last year, we went a step further and put up our annual report. We used the Adobe Acrobat format, which worked very well.'
Consultancy firm Druid, which received an honourable mention in System House's survey, redesigned its Website last year. 'We thought of all the communities we were providing information for, including people looking to invest,' says Jeremy Mackinlay, public relations manager at Druid.
The company included all its financial information in what Mackinlay calls 'a relatively easy-to-use, downloadable format'. Individuals are able to subscribe to receive financial and/or non-financial information.
The last time Druid sent out financial information this way, about 500 people were on the email list. What seems to interest people using the site is the share values. 'The underlying share price information is one of the most visited pages,' Mackinlay says.
Companies with investor relations Web pages report a favourable response. Every month, between two and three per cent of traffic on Logica's Website accesses the investor relations page.
Cadcentre's Web information is proving equally popular. 'We have a high number of hits every month,' says Gilbert. 'The investor relations area usually ranks second or third in the number of hits. Every month we are averaging about 5,000 user sessions on the Website and that's fairly high given the specialist area of business we are in.'
Johnston is in no doubt that the Website is a highly effective way of keeping Dialog's private investors informed. 'It's easier to communicate with larger shareholders, but a lot of companies these days have a number of smaller shareholders,' she says. 'We thought our small shareholders should be able to see the presentations that directors give to institutional investors.'
Financial statements from 1995 onwards are also available on the Logica site. 'We are obliged to report quarterly because we are on Nasdaq, so all those statements are up there in US and UK versions,' says Johnston.
There are also links to the company's London and Nasdaq share prices on the sites for those exchanges.
Companies with interactive Websites also benefit from cost savings. 'Since we uploaded our annual report, we have had far fewer requests to send out copies of the report,' says Gilbert. 'It's saving us work and money and investors aren't having to wait for the reports. If they would rather have a written report, they have the option of filling in a form and sending it to us over the Web.'
One fact that emerges is that companies with successful investor Web pages don't rest on their laurels. For example, Logica is planning further improvements to its Web information. 'The share price information we put on the Web is from the day before,' says Hurley. 'Now, we are looking to upgrade it.'
As for Cadcentre's Web plans, it will relaunch its site later this month.
'The Website will have a new look and feel. We will be designing it to be more interactive,' says Gilbert. 'For us, the Website is one of our most important marketing tools.'
It isn't just software and services companies that are responding to the growth in internet usage.
Hemmington Scott, a publisher of corporate directories, has had a Website offering similar data since November 1995. Its UK Equities Direct pages offer information on all London-listed companies, including real-time share prices (with a 15-minute delay), financial summaries, trading outlook statements, key shareholders and contact details. Listed companies that become site sponsors have additional information, including full annual reports and press releases.
The service is still evolving.
'If people access our site, they get the financial information and a link to the companies' Websites,' says John Suckling, general manager for electronic information services at Hemmington Scott. 'But we are working with some companies to provide information they can build into their own Website. Users going direct to a company's Website get the same information they would from us, but in that company's format.'
Hemmington Scott has seen use of the service increase dramatically since its start. 'On average, we have 400,000 page impressions a day,' says Suckling. 'As more people gain access to the internet, we have seen the number of page impressions go up each year.'
He believes that the site helps investors compare companies on a like-for-like basis: 'Whether you are a large or small investor, you want to see information presented in the same way. Of course, if you are a company, then you present your information in the best light. That's understandable, but our site enables potential investors to access comparative data.'
Investors that use the internet for gaining information about companies are increasingly likely to use the information for buying shares. Barclays Stockbrokers is an early entrant into the world of UK share trading on the internet, launching its service last month. 'You get online and get a real-time price,' says Justin Urquhart Stewart, business planning director.
'When you press the button, you have dealt.'
Barclays Stockbrokers' online customers have 15 seconds in which to hit the buy button. If they don't act in time, they can have their quote refreshed and receive another 15-second window. Customers can purchase shares worth up to #7,500. 'But if you don't pay us, you don't get the share certificates,' says Urquhart Stewart.
Barclays now handles about 70 transactions a day through the service. Surprisingly, it isn't primarily younger investors dealing in this way. 'It's the 50-plus sector,' says Urquhart Stewart. 'The sector includes people who have taken early retirement but who have been using PCs for years. And they have the money to invest.'
He believes this group likes the service because it gives them greater control over making the transaction. 'It cuts out problems such as when you can't get through to the broker because the phones are busy,' he says.
An investment culture is emerging where people can locate information about target investments online and then buy or sell shares online in the companies that catch their eye. It is easy and immediate. The emergence of an online investing culture should have obvious implications for companies seeking investors. Morris says: 'Competition for money is going to get tighter. Investors will look for those companies that are prepared to change their culture towards openness and accountability.' That means getting wise to the communications advantage that a well-designed Website can provide.
TESTS FOR INVESTOR RELATIONS WEBSITES
1: Does the site include a page called 'investor relations' or 'shareholder information' that can be found easily?
2: Does the site include information on the company's share price performance and is this delayed or real-time?
3: Are details of the company's financial results included?
4: Is a full copy of the company's annual report(s) included?
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