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Investor relations
A PRACTICAL GUIDE

London Stock Exchange plc is one of the worlds

leading equity exchanges offering companies from
all sectors access to one of the deepest pools of
liquidity.
A powerful investor relations programme is
essential for any on-market or pre-market
company and the Exchange encourages
companies to be pro-active in this arena, providing
dedicated services to encourage robust and
effective investor relations.

To find out more about how the Exchange can help

you to improve your investor relations activities,
contact your relationship manager via the
information on the inside back cover of this
practical guide.

Introduction

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When a company comes to the stock market, it may feel like the end of a long journey. But any such
idea is rapidly dispelled by the experience of life as a quoted company. Rather than being the culmination
of a businesss development, its flotation marks the start of a new and even more challenging phase
one which is immeasurably more complex than its previous existence as a private company.
By floating on a public market, you have not only gained access to finance, but you have also made a
commitment to take on the responsibilities and duties which a quotation brings. Some of these are
regulatory requirements, but alongside these are the requirements and expectations imposed by the
mechanisms of the market itself the analysts, investors and media who watch your company and judge
how it is performing. Communicating with these people is now encapsulated by the term Investor
Relations (IR).

Buchanan Communications is proud to have been

involved in the formulation, development and
delivery of this updated Practical Guide to Investor
Relations. We see our role as key in helping
companies to gain a better understanding and to
reap the benefits of a good IR strategy. Smaller

FC2

companies in particular can suffer from illiquid

registers, lower valuations and a fight for media
and investor attention. Buchanan Communications
is focused on supporting companies of all sizes
and sectors in order to gain the recognition they
deserve.

LONDON STOCK EXCHANGE

Investor relations
A PRACTICAL GUIDE

What is
investor relations?

2
Audiences and contacts

The purpose of
this publication
This publication is designed to be a valuable
resource to companies looking to maximise the
effectiveness of their IR efforts - which by
definition should mean every quoted company and
every company seeking a quotation. Our aim is to
combine an accessible, factual and down to earth
approach with practical insight into best practice
in IR, giving companies the benefit of our
contributors many decades of collective
experience across the whole range of IR issues.
We are not looking to set out hard and fast rules,
but rather to encapsulate the latest thinking in this
rapidly evolving and at times most complex of
fields, and to give all parties a greater sense of
what makes the others tick.
To that end, the Exchange is enormously grateful
to the following for their time, input and help in the
formulation of this publication:Buchanan Communications Claire Fargeot
The Investor Relations Society Natalie Evans
Hermes Focus Asset Management Ltd
Paul Harrison, Tim Bush

Best practice IR
and the IR toolkit
14
Regulatory and best
practice developments
20
Putting IR into practice
24

HBOS David Roach, Robert Moorhouse

and thanks to Richard Carpenter
London Stock Exchange plc October 2003

Managing the
shareholder register
28
Glossary
34

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What is
investor
relations

communication from the company to the market.

It should also provide for feedback from the
financial community to the company.

Investor relations (IR)

encompasses the broad
range of activities through
which a quoted company
communicates with its
current and potential
investors.

The wider aim of an IR programme should be to

provide investors and other audiences with a
clear, honest and accurate picture of the
companys past performance and prospects for
the future. This latter point is key: investors are
interested in strategic and operational information
that will help them predict how the company might
perform going forward. Feedback from the
market, particularly investors, should also help the
company to formulate its own strategy and
facilitate its delivery.

The clearest single element of an IR programme

should be keeping the market informed of
developments and events that may influence the
share price otherwise known as price-sensitive
information. But IR should not just be a one-way

A successful IR programme
should be designed to
achieve:

a fair market valuation for

the company

E
a reasonable level
of liquidity in its
shares

successful

IR

easier and cheaper

access to capital in
the future

programme

a strong group of supporters

and believers

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P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S


Why the stress upon a fair market valuation
rather than best valuation? Some companies
new to the market make the mistake of thinking
that the aim of their IR function should be to push
their share price as high as possible.
Unfortunately, if a company fails to live up to the
high expectations it has put out into the market
then its stock tends to be punished severely. The
result is a depleted share price and a struggle to
rebuild trust with investors.
On the other hand, too low a rating due to
misunderstood or poor fundamentals, or even a
lack of information provided to the market, can
lead to difficulties in raising finance in the future or
increased vulnerability to takeovers. It is better to
aim for a fair market valuation that correctly
reflects the companys circumstances and its
longer-term value.

A range of factors will determine the valuation of a

company by the market. These can be broadly
divided into three areas:

the current value of the business

the value attached to the companys prospects

the capital costs of the business.

It is important that you know your stakeholders

and the importance they attach to each area. For
example, active fund trackers will look closely at
all three, whereas passive trackers are likely to
only consider the current value.

Investors can't value what they can't see - a successful IR

programme requires transparency, the ability to bring
business performance to life and clarity in communication.
It must be underpinned by the highest standards of
corporate behaviour.
Winner - Grand Prix for Best Overall Investor Relations,
IR Magazine UK Awards 2003

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LONDON STOCK EXCHANGE

Other factors not to be overlooked would include

the uniqueness of the companys offering, the
wider economy, the management teams track
record, and the relative attraction of other
investments.
A good IR officer (IRO) will have a sound
knowledge base of their companys activities and
be able to convey that information to the market
through a range of channels. Leading IROs
recognise that the job encompasses a range of
disciplines. You need a good understanding of
regulatory and financial issues combined with a
willingness to use new technology and, perhaps
most importantly, an ability to develop
relationships inside and outside the company.
Not surprisingly, in these budget conscious times,
many companies attempt to measure the success
of their IR programmes. Ways of measuring IR
success include:

keeping a check on the way in which the

shareholder register changes over time;

assessing any improvement in understanding of

the companys story within the financial
community; and

analysing the ease with which capital is raised

some refer to this as the litmus test for IR
success.

G
The true success of an IR programme can never
be precisely quantified since valuations and
investor interest depend on such a wide range of
factors, many of which will be outside the
influence of the company. It may be best to set
reasonable, yet specific, objectives by which the
IR programme can be measured. These may
include measurements such as the number of
nominations for IR industry awards, the number of
analysts and investing institutions visited in a year,
and informed commentary and feedback from the
various capital markets audiences. Take care
however that these targets are framed so that
they point your programme towards quality rather
than just quantity.

E
P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S



Audiences
and

contacts

,

A companys IR programme has traditionally focused on

four main external audiences:


Private
investors

Institutional
investors

Financial
media

Other
contacts

Analysts

The recent trend toward socially responsible

investing and the growing importance of corporate
social responsibility (CSR) issues has seen an
expansion in the role of many IROs. In some
instances, they are now expected to maintain
regular contact with a wider group of
stakeholders, such as lobby groups, local
communities and environmental activists.

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

Each company has to make its own choices as to

how it splits the communication roles and deals
with its internal and external audiences. Some
companies, for example, believe it makes sense
for the IRO to also hold responsibility for
communication with employees. Certainly, they
are a crucial audience who may also have
significant shareholdings in the company and
there needs to be careful planning as to how they
receive information. However the roles are split or
shared, there is a growing trend towards the IR
function sitting somewhere within or close to the
finance department to enable a better
understanding of the financial aspects of the story
which is being told to investors.

Main external audiences

Institutional investors
The institutional investor audience, (also referred
to as the buy-side), will be made up of a range of
professional investors from various types of
financial institution. They will include life assurance
companies, insurance companies, pension funds,
unit trusts, investment trusts, and other
investment management groups.
These institutions may manage money on their
own behalf or on behalf of another fund. For
example, it is fairly common for the trustees of
company pension funds to appoint a fund
management institution to look after the day-today investment of the fund rather than run it
themselves.
Large institutional investors are likely to want
direct contact with the companies in which they
invest, through presentations and one-on-one
meetings. The IRO should ensure that there is a
regular information flow to leading investors and
that senior management make themselves
available at key times to answer their questions.

Recent years have seen a growth in hedge

funds, a type of professional investor who tends
to use different investment strategies than those
used by traditional institutions. Hedge funds often
bet against market movements as a means of
making money, making it difficult to assess how
they might move into or out of your stock.
Despite these difficulties, they should be provided
with the same information as other investors.
The growth in foreign institutional ownership
should also be taken into account. The
globalisation of the fund management industry
means that IROs may well find that overseas
investors have taken a position in their stock or
are interested in doing so. Market information
should be made available to a global audience via
the web or other electronic dissemination and, if
your shareholder base becomes increasingly
international, steps should be taken to ensure that
overseas investors are included in presentations
and visits.
Each institution has its own style and method of
tracking funds and it is important that you
understand how each of your institutional
shareholders operates whether they are active
or passive trackers of funds, so that you can offer
them the information they need and ensure that
you retain a strong profile with them.


8

LONDON STOCK EXCHANGE

Private investors
The number of active private investors in the UK
has declined slightly from the highs of the late
1990s when privatisations and demutualisations
boosted numbers to around 15 million. Despite
this drop, they still represent an important
audience, and can be particularly significant for
smaller quoted companies struggling to attract
institutions into their stock. ProShareTM, the UKbased organisation that promotes wider share
ownership, estimates that in 2002 there were 11
million private investors in the UK.

A small percentage of private investors will be

extremely active investors who make their own
investment decisions and trade through a broker
on an execution-only basis. These tend to be
more difficult to target but can still be reached
through broker information packs and direct
communications.

Many quoted companies also run schemes that

encourage their employees to become
shareholders, a factor that the IR function has to
take into account when preparing information for
the market.

Private investors can be a very loyal group of

shareholders - most do not trade that often and
do not have an ongoing relationship with a bank or
broker. The majority rely on press comment and
direct communication from companies for their
information on the stocks that they hold.

Other private investors will rely upon advice from

their bank, broker or other representative. Private
client stockbrokers are critical to IR for many
smaller companies and tend to be less Cityfocused than the large institutions. Some
quoted companies focus on links with
private client brokers in their local area to
develop a strong private investor
following within their region.

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

Analysts
The analyst community can be split into two
groups: sell-side and buy-side. Although their
roles are broadly similar, their information needs
are different.
Sell-side analysts work alongside brokers and
tend to have an expert knowledge of a specific
sector. Their job is to publish research on a
company with a view to generating trades in that
stock, in other words to sell the stock to
investors. They are usually the analysts who are
quoted in the financial media.
Sell-side research is used by institutional
investors and some private investors to help
make investment decisions. This means that sellside analysts retain a special place as a target
audience for IR practitioners since their opinion
can have a significant impact on the buying and
selling of your stock. In turn, analysts will want
regular access to senior management at the
companies that they follow.

and liquidity in their shares. Larger companies

may well have 30 or so sell-side analysts covering
their stock, but smaller companies may struggle
to find even one sell-side analyst who will focus
on their story.
Buy-side analysts work for large institutional
investors, such as pension funds or life assurers.
They have been growing in numbers in recent
years as institutions have sought to produce their
own research rather than rely on research from
the sell-side. Fears related to conflicts of interest
have contributed to the buy-sides reluctance to
rely so heavily upon sell-side research.
Buy-side analysts may be less sector-focused
than their sell-side colleagues, are likely to have
less time to devote to one stock, and their
research will also only be used by colleagues
within their own institution. They are increasingly
requesting meetings with IROs or senior
management at companies. The IRO has to
balance the need to respond to such requests
with the need to provide all investors with the
same information at the same time.

Despite this special relationship, sell-side analysts

must not be granted any information advantage
over other audiences. They must not be given
price-sensitive information that has not been
disseminated to the wider market: talking to a sellside analyst is not the equivalent of publishing
information to the market.

IROs tend to deal with these fears of selective

disclosure by sending out releases to cover any
price-sensitive information and then talking around
the information in those releases in meetings with
analysts and investors.

IROs can use sell-side analyst coverage

to encourage interest in their stock

10

LONDON STOCK EXCHANGE

Financial media
The financial media is an important way of
ensuring that new or updated corporate
information is disseminated to as wide an
audience as possible. Good relationships with
financial journalists are crucial to ensuring that
your story is covered in leading press, broadcast
and online media.
Gaining good media coverage can have a
significant impact on support for your stock as
both institutional and private investors can be
swayed by the stories they read, see or hear.
Becoming a quoted company does move you into
a new domain of public interest but it will not
guarantee media coverage - there are many other
companies vying for attention from the same
journalists.

Many quoted companies turn to financial PR

advisors as a means of developing those
relationships and for strategic advice on how to
gain coverage for their story. The financial PR firm
should help you develop relationships with sellside analysts which, in turn, can be key to positive
media coverage. A good financial PR firm will
advise you on innovative ways of ensuring that
your story is covered and act as a sounding board
as to how opinion stands among analysts and
journalists.
Quoted companies should treat the financial
media in the same way as they treat any other
audience and be careful to ensure that they do
not leak price-sensitive information to friendly
journalists in a bid to gain media coverage.

Clear and consistent communication is crucial in

maintaining strong relationships with core audiences.

Winner - Best Communications to the Financial Media,

IR Magazine UK Awards 2003

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

11

Other contacts
IROs can expect to encounter a wide range of
contacts from outside these main external
audiences as their role develops. Some of the
principal groups of professionals and
organisations that you are likely to come into
contact with are covered below.
Corporate finance advisors these advisors,
corporate finance boutiques or investment banks
(traditionally referred to as merchant banks
within the City), advise companies on sources of
finance and strategic opportunities, such as
mergers and acquisitions (M&A). It is now
common for an investment banking operation to
be part of a universal bank that may also
encompass securities trading, research and
investment management. These structures have
led to some of the conflicts of interest charges.
Broking houses a brokers role falls into various
categories but from a companys point of view its
main tasks will be firstly, to provide ongoing
market intelligence and advice on compliance with
the regulations. Secondly, the broker aims to
increase the volume of shares traded in your
stock so will invite their investor clients to
presentations and IROs should expect them to
generate analyst research to that end. While
brokers may help companies to contact investors
they may not always be the best means of
targeting new investors since they may focus on
their existing client base only. Many companies
use the services of more than one broker,
develop their own investor database in-house, or
use the services of an IR consultancy to help build
upon the introductions offered by their house
broker. Once again, it is worth noting that the
distinction between broker and investment bank is
becoming blurred with the development of
integrated houses.

12

IR consultants agencies which help companies

to target and maintain relationships with investors
as well as the logistics of an IR programme. They
may also advise on strategic positioning,
shareholder register analysis and targeting,
development of technology related to IR, and
other activities such as IR during M&A or crisis
management. While common in the US, pure IR
consultancies have been slower to develop in the
UK due to the traditional advisory role of brokers.
Registrars appointed by a company to keep a
register of its shareholders, send out dividends,
count votes at Annual General Meetings, and
other tasks related to the logistical management
of the shareholder register. A good registrar can
help the IRO by providing regular updates from
the register which can then be analysed in
conjunction with the corporate broker or IR
consultant.
Financial designers and printers most IROs are
charged with looking after the design and printing
of their financial literature and so need to develop
good working relationships with professionals in
these fields. The annual report is likely to be the
largest single project in each calendar year and a
design agency should be chosen that can offer
experienced input and consultancy in the field.
Confidentiality is key when choosing both
designers and printers. IROs should check that
the providers have systems in place to remind
their employees of their responsibilities with
regard to price-sensitive information.
Auditors few IROs will have to work closely with
their companys auditors on a regular basis but
they should at least develop a relationship with
them and be aware of any issues that may
concern investors. Recent scandals in the US
have put auditors and the role of audit committees
much higher up the investor agenda so IROs will
be required to have a knowledge of relevant
issues in their dealings with the financial
community.

LONDON STOCK EXCHANGE

Legal advisors there will be various instances

where IROs are required to translate complicated
legal information into more easily understandable
language without adding any new legal risks. IR
practitioners may also have to work closely with
their legal advisors when announcing material
events or during intensive periods of corporate
activity, such as mergers or acquisitions.

Primary Information Providers (PIPs) the

deregulation of the Regulatory News Service in
2002 meant that all UK-traded companies were
required to choose a Primary Information Provider
to release their price-sensitive information to the
market. There are a number of FSA-approved
service providers whose role is to take your
announcement and send it out through Secondary
Information Providers (SIPs), such as Reuters and
Bloomberg, to the market.

A more complete set of other contacts can be seen

in the diagram below:


IR consultants
Financial
designers and
printers

Broking
houses

Primary
information
providers (PIPs)

Corporate
finance advisors

Registrars

Legal
advisors

Other
contacts

Government/
regulatory
bodies

Employees/
retired
employees

Lobbyists/
activists

Customers

Suppliers

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

13

Best
practice IR
and the IR
toolkit




IROs will be involved in the

planning, staging and
presentation of key financial
calendar events for their
companies. They will also be
expected to arrange ad hoc
meetings and events as
needed.
All meetings and events should be well structured
and use audiovisual and technological aids as
necessary. Many companies now choose to make
larger meetings and presentations available via an
audio or video web cast on their IR web site in
order to avoid any charges of selective disclosure.
The main meetings and events will include:
Quarterly, interim and preliminary
results the prelims have taken
on greater significance in recent
years as the market looks for its
first concrete information on the last
reporting period and some pointers as to the next
quarter or half year. Prelim results will normally be
announced through a Primary Information Provider
(PIP) at 7.00 a.m. and then followed up with a
range of presentations and meetings during the
day and a road show where appropriate.

Although the chief executive or finance director

will normally be expected to lead the results
presentation, the IRO will be closely involved in
staging the meetings, inviting relevant audiences,
and crafting the material for analysts, investors
and journalists. IROs will also be involved in
fielding the follow-up calls that are generated by
results presentations.
Annual General Meetings (AGM)
the AGM is a statutory requirement
and should offer shareholders the
chance to quiz management, to
review activities and deal with any
issues of concern. The company should also view
it as an opportunity to gain feedback from
shareholders.

For many smaller companies, AGMs can be a bit

of a non-event with few shareholders turning up
and a simple need to run through the legal
requirements. That could change in the future,
however, as institutional investors are being
encouraged to take a more active role in the
meetings and to use their votes to focus
management in the direction they desire.
IROs should ensure that they are aware of any
potential investor concerns prior to the meeting
and help management to develop the necessary
responses well in advance. If any price-sensitive
information is released at an AGM - either as a
planned event or inadvertently in an answer - then
it should be sent out as a public announcement
through a PIP.

T
A regular reporting cycle provides companies with
the opportunity to demonstrate their strengths to
the market and renew their relationships with key
stakeholders. It also serves to reduce some of the
volatility around the share price.

Winner - Best Results Meetings & Analyst Briefings,

IR Magazine UK Awards 2003

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Institutional investor and analyst

meetings most companies
arrange meetings with leading
institutional investors and sell-side
and buy-side analysts. There remains
a tendency to keep the investor and analyst
communities separate due to their differing
information needs. Whatever approach is taken,
companies should ensure that no meeting leads
to selective disclosure to one particular institution
or group.



In these meetings it is vital that your key

messages are made clear e.g. what your
companys core competency is and what your
competitive strengths are. A general discussion of
your business will make little impact, but by
focussing on your key strengths you will market
your business far more effectively. Also, you need
to explain the value your board members are
delivering to shareholders and their subsequent
remuneration. As corporate governance worries
continue to grow, you should always be prepared
to be fully accountable on this matter.


16

The timing and location of your meetings can be

key in attracting attendance. Lunch meetings are
no longer as popular since they take up too much
time and can be less productive than a focused
one-on-one meeting. City-based results
presentations are the norm rather than expecting
investors and analysts to travel to your
headquarters.
Buy-side and sell-side analysts will expect to have
one-on-one meetings with senior management
after major results announcements or during
investor road shows by the company. IROs should
ensure that no price-sensitive information is
inadvertently leaked during such meetings and
announce information to the wider market if the
discussion moves into these areas.
Many companies arrange site visits for their
investors and analysts to provide greater insight
into their operations. They can also be used to
introduce other members of the management
team or demonstrate new products and
processes. Most companies veer away from using
site visits to give detailed financial presentations.
A word or two of warning: do not randomly send
out invitations to the financial community or
initiate contact with investors and analysts when
you do not have the means to provide information
to them over a longer period. Active targeting is
crucial as a way of focusing the resources
available for your IR programme and gaining the
greatest impact from your meetings with the
financial community.
Remember the importance of feedback. IROs
should view all of their meetings with the financial
community as an opportunity to gather the
thoughts of the market on their companys
performance and snippets of information about
their competitors.

LONDON STOCK EXCHANGE

Media briefings journalists will

expect companies to write press
releases for stories of note. Sending
out a release via a PIP is the
accepted way of disseminating
information to the market. Many companies also
choose to send their releases directly to leading
journalists, investors, and analysts. Best practice
dictates making such releases available on your
corporate web site at the same time as they are
released through a PIP.
Most quoted companies hold press briefings for
financial journalists on the same day as releasing
their results to the financial community. The
briefings tend to be similar to those arranged for
analysts but are likely to have less technical
focus. Journalists may also want to concentrate
on a particular angle that they believe will appeal
to their readers so IROs should be aware of
topics that might attract attention and brief their
management team accordingly.
Obtaining coverage from journalists will also
require expert targeting. Financial PR consultants
should know which journalists are most likely to
be interested in your story and help in setting up
interviews and briefings.

Regional shareholder meetings

companies with large numbers of
private shareholders or a
concentrated group in one region
may find it useful to stage local
shareholder meetings. The meetings should
provide private shareholders with the opportunity
to question senior management after a formal
presentation or company-led discussion.

Relatively few UK-traded companies stage

regional shareholder meetings but there is nothing
to stop smaller companies intent on building a
private investor following from devoting more
resources to this area. Some companies find it
useful to combine such meetings with customers,
suppliers, employees and other stakeholders with
a view to updating a wider group on company
performance and outlook.

Road shows there are a number of

specific areas where smaller
companies can find that a proactive
attitude reaps particular rewards. A
drive to attract private investors,
perhaps by cultivating regional private-client
brokers and their customers via a series of road
shows around the country, can help broaden the
shareholder base and improve liquidity. Such an
initiative is also likely to be good for the
companys profile in the regional press and while
it is mostly larger privatised utilities which have
made use of this idea so far, smaller companies
are catching on to its potential.



P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

17

Aside from the main events and meetings

dictated by the financial calendar, IROs should
keep in regular contact with the market to
manage expectations and gain feedback.
Companies are also required to provide
information through mandatory communications
tools, such as the annual and interim report.
Best practice dictates that companies also keep
their investor audiences up to date with a
corporate IR web site. Some of these tools are
explained in more detail below.

Good IR web sites act as an electronic library of

corporate information, a briefing tool for those
new to the company, and an ongoing information
alert system to help in the distribution of pricesensitive news. It should be noted that the FSAs
regulations do not recognise publication of a
press release on a companys own site as being
sufficient distribution of price-sensitive information
to the wider market companies have to send
releases out through one of the approved PIP
services.

Annual reports the printed annual

report has evolved from the dry,
purely financial and legal document
it once was, into a more informative
publication aimed at a wider group of
stakeholders. Most traded companies now use
the front of their report to update investors and
other readers on business lines, strategic thinking,
key financial ratios and issues such as corporate
governance and corporate social responsibility.
The back of the books remain focused on the
financials and explanatory notes.

Some traded companies have begun to use their

sites to web cast their investor meetings in a bid
to ensure that private investors gain the same
information at the same time. Financial regulators
have encouraged these moves towards webbased communications because it enables
companies to level the information playing field
between private and institutional investors. It
means that all audiences can now gain access to
price-sensitive information as soon as it is
released, whereas in the past professional
investors tended to have an information edge.

Companies with large numbers of private

shareholders often opt to produce a summary
report that is smaller in scope and cheaper to
produce and distribute. All recipients of such a
summary report are given the option of receiving
the full report and accounts should they so wish.

Web casts and conference calls a

major part of the IR armoury.
Conference calls allow investors
and analysts located across the
globe to listen to presentations and
ask questions even if they cannot make it to a
presentation in person. Many companies are now
linking their results announcement conference
calls with web casts through their IR web site in
order to open up the presentations to a wider
audience. The professional investment community
still has the advantage of being able to ask
questions over a limited access conference call
but all investors can listen to the presentation as
it takes place or can access the presentation in an
online archive after the event.

IR web sites and electronic

communications in the mid-1990s,
very few traded companies had
developed their own IR web sites.
Today, very few traded companies can
exist without one. The web has become a key tool
of investor relations due to its ability to provide
easily updated information to a global audience,
24 hours a day.

LONDON STOCK EXCHANGE

l
A The
best
IR practice
Calender example of an IR timetable
Board decision

INVESTORS
Buy-Side

Preparation of year
end results and materials
Perception study
Sign off of results and
distribution of materials

ANALYSTS
Sell-Side

OTHER
STAKEHOLDERS

Perception study

Jan
1:1 meetings with
top 20 investors

Feb

Laying the foundations Shareholder analysis

identifying new
target investors

Mar

Laying the foundations 1:1 meetings with

Building an
target investors
understanding

Apr

Q1 Results preparation
sign off and release
trading statement
AGM

Post release email

alerts and calls

Building an
understanding

Investor Day for new

and existing
investors

Preparation of materials
and Interim Results

Perception update

Interim Results sign off

and distribution of
materials

Post release email

alerts and calls

Proving the pudding

1:1 meetings with

top 20 investors

Proving the pudding

EMPLOYEES

May

Analyst results
meetings

Newsletter and
internal conference
Intranet alert
for results

1:1 Analyst
meetings

Employee
satisfaction survey
intranet based

Post release email

alerts and calls

Newsletter and
intranet alert

Analyst site visit

Customer
satisfaction
survey

Perception update

Supplier
satisfaction
survey

Jul

1:1 meetings with

other investors

Q3 results preparation
sign off and release
trading statement

Post release email

alerts and calls

Enhancing the profile

Website overhaul
investor relations
pages

Sep
Oct
Nov

Dec

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

Product
exhibition

Jun

Aug

Post release email

alerts and calls

Newsletter and
intranet alert

Analyst results
meetings

Interview with
CSR lobbyist
group

1:1 Analyst
meetings

Post release email

alerts and calls

Website overhaul
investor relations
pages

Newsletter and
intranet alert

Corporate
entertainment

19


Regulatory
and best
practice
developments

IR best practice can change

rapidly. Five years ago it was
still considered best practice
to invite analysts along to a
closed results presentation
and pay little regard to the
information advantage that
this gave the professional
investment community over
private investors. Today,
such an approach is likely to
be viewed as selective
disclosure and companies
are encouraged to relay
their presentations live over
the web.
Keeping up with changing regulations and best
practice can be challenging when you are also
trying to manage the ongoing expectations of your
shareholder base. Unfortunately, that is no excuse
for failing to take note of new regulations or the
changing information needs of investors.
There are a range of statutory and other
regulations that IROs should be familiar with while
ensuring that they keep up to date with new
initiatives. In the UK, some of the main legislation
and regulations to consider are the various
Companies Acts, the Financial Services and
Markets Act (FSMA), the Takeover Code, AIMTM
Rules, the UK Listing Rules, and the Combined
Code. There are also a number of European
directives that have significant impact upon IR
best practice and developments in the US market
are often mirrored within the UK.
IROs are also advised to keep abreast of
guidance and regulatory announcements from the
Department of Trade and Industry (DTI) and the
FSA. In the wake of the collapse of Enron in the
US, corporate governance initiatives are at the
top of the regulatory agenda and there are a

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

number of ongoing debates relating to issues

such as the independence of directors and auditor
independence. The Combined Code on corporate
governance was revised in July 2003, to take into
account the Higgs Report on non-executive
directors and the Smith Report on audit
committees. In addition, the European
Commission is currently consulting on a company
law and corporate governance action plan. The
very latest developments can be gleaned from the
useful web site links at the end of this section.
Some recent regulatory and best practice
developments of note are covered below. IROs
are reminded that these are only brief
introductions to sometimes complicated rules and
regulations. If in any doubt, please consult your
legal counsel.
Regulation Fair Disclosure (Reg FD) introduced
by the US Securities and Exchange Commission
(SEC) in October 2000, Reg FD has had a
significant impact on IR practice across the globe,
although it only technically applies to US-listed
companies. The regulation is an attempt to clamp
down on so-called selective disclosure through
which companies gave advance or closed
briefings to institutional investors and analysts.
US-listed companies are now required to widely
disseminate price-sensitive information before
embarking on such briefings with the financial
community.
Reg FD does not go any further than the UK
markets long-standing requirements on disclosure
but it does underline the expectations of
regulators and has led the move towards further
disclosure over the internet. It is now common for
traded companies to web cast their results
presentations so that all investors can gain
access to the same information at the same time.
Financial Services and Markets Act (FSMA) a
major piece of UK legislation that came into effect
in December 2001. The FSMA laid down new
rules on market abuse and updated the PriceSensitive Information (PSI) Guide. Both have an
impact upon the selective disclosure of
information and are therefore crucial to IR
practice.

21

Market abuse the FSMA increased the

likelihood of prosecution for market abuse by
introducing a new civil offence to supplement the
existing criminal offences of insider dealing. This
means that the Financial Services Authority now
only has to show that the balance of probability
points to an offence having been committed
rather than proving it beyond reasonable doubt
for a criminal prosecution. The new civil offences
for market abuse are:

misuse of information broadly equivalent to

the old insider dealing offence.

creating a false or misleading impression

relating to market information.

market distortion whereby your behaviour

may distort the market.

Anyone looking for further information on the

market abuse regime should consult the FSAs
Code of Market Conduct.
Price-Sensitive Information (PSI) Guide the
updated PSI Guide from the UK Listing Authority
defines price-sensitive information as information
that may or would be likely to lead to a substantial
movement in the price of a companys shares.
Companies and their legal advisers must
determine themselves exactly what this covers.
The guide does clarify relationships with certain
groups and, in line with Reg FD in the US, it
steers companies away from the dangers of
selective disclosure. Some highlights are:

briefings to analysts should be opened up to

the public.

analysts should not be given any preferential

treatment in the release of price-sensitive
information.

companies should review their procedures for

meetings with analysts to ensure that no pricesensitive information is revealed.
companies are encouraged to publish
information over the internet but should not
view putting it up on their website as the
equivalent of wide dissemination to the market.
Price-sensitive information has to be sent to
the market via an approved regulatory news
service (one of the approved PIPs).

Sarbanes-Oxley Act of 2002 introduced in the

US in 2002 in response to the corporate scandals
of Enron, WorldCom and the like.

22

The legislation applies to all companies listed in

the US, although non-US companies listed in the
States have been granted some exemptions by
the SEC. The ramifications of the legislation have
been much wider, however, with market regulators
the world over introducing similar rules.
The Act deals with a range of corporate
governance and disclosure issues and is designed
to tighten up procedures for listed companies and
prevent them from failing to release pertinent
information to investors. The areas it covers
include:

auditor and audit committee independence;

improved disclosure of price-sensitive events;

insider accountability and disclosure

obligations.

The Sarbanes-Oxley Act also makes reference to

analyst conflicts of interest, leading to the socalled Global Settlement between Wall Street
firms and a range of US regulatory authorities.
IROs should also be aware of the following
ongoing issues:
Corporate governance the Higgs report, which
considers the role and effectiveness of nonexecutive directors, has resulted in changes to
the Combined Code. Its aim was to bring about
greater transparency and accountability in the
board room, formal performance appraisal and
closer relationships between non-executive
directors and shareholders. Among the key
proposals are that:

the roles of chairman and chief executive

should be separated;

a chief executive should not become chairman

of the same company and at the time of
appointment should meet the test for an
independent director; and

an audit committee should be established and

at least three of its members should be
independent non-executive directors.

Following lobbying from industry bodies, the

proposals were relaxed for smaller quoted
companies in certain areas. For example,
companies outside the FTSE 350 need not have
at least half their board composed of nonexecutive directors if they have at least least two
non-executives.

LONDON STOCK EXCHANGE

European legislation there are various

directives passing through Europe that aim to
harmonise the European financial services sector.
By 2005 all companies will need to use
International Accounting Standards entailing
conformity of financial statements with strict
instructions on how these are to be interpreted.
Additional legislation includes:a) Market Transparency Directive, which ensures
transparency of information about issuers whose
securities are admitted to trading on a regulated
market. Issuers will need:

to produce an annual financial report within

three months of the end of the financial year;

a detailed semi-annual financial report; and

quarterly financial information for the first and

third quarters of a financial year.

b) Prospectus Directive, which ensures that a

prospectus once approved by the home country
authority of the issuer then has to be accepted
throughout the EU for public offer and/or
admission to trading on regulated markets.
c) Investment Services Directive, which is being
upgraded as part of the Financial Services
Action Plan.
Shareholder activism part of the value derived
by shareholders lies in their ability to put forward
their case for company change. Shareholders
often focus on a companys environmental record
and its policy on executive compensation. IROs
should ensure that they are aware of the agendas
of any activist shareholders and advise
management teams how to respond.

Corporate social responsibility (CSR) CSR has

become increasingly important to companies in
the last couple of years as they endeavour to
manage the ways in which their various audiences
view their activities. CSR has a range of
definitions but is probably best described as the
way in which a company manages its impacts
upon society and the environment.
Companies have become concerned that unless
they are seen to be acting in a responsible fashion
(managing the risks associated with poor
environmental, ethical or social performance),
their consumers and investors may well take their
money elsewhere. Communicating this activity and its effects - to investors and other
stakeholders has become an accepted part of a
well-developed CSR function. In many instances,
the responsibility for this role falls within the remit
of the IRO.
Accounting standards IROs should have a
broad understanding of accounting standards and
keep up to date with some of the relevant issues
at a domestic and international level. The last few
years have seen a big debate as to how to
account for retirement benefits, such as pensions.
The UK accounting standard - FRS 17 - requires
pension plan gains and losses to be recognised
on the corporate balance sheet.

T
Companies seeking to maintain IR best practice
have to keep apace with an increasingly tough
regulatory framework.

Winner - Best Disclosure Practice by a non-FTSE 100 Company,

IR Magazine UK Awards 2003

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

23

Putting IR

into
practice

g
Each companys IR strategy
should be determined by
careful consultation between
senior management and the
IRO. The strategy should
evolve in line with feedback
from various audiences and as
the companys understanding
of the market develops.
IROs are responsible for putting the IR strategy
into practice and should be aware of some of the
major areas where things can go wrong. Listed
below are key elements of a typical IR programme
together with a number of hints as to how to
avoid some of the pitfalls that they may represent.
Financial calendar, administration
and logistics the most common
mistake in terms of planning the
financial calendar is failing to be
organised and plan far enough ahead.
It sounds obvious, but if you are working late on
the annual report every night for a week the last
thing you want to do is take time out to book a
venue for a results presentation six months down
the line. Unfortunately, you may then find that
your options are squeezed as every other traded
company is trying to book the same venue at the
same time. Best practice dictates planning ahead.
Be strict with all the external agents and advisers
that you use and make sure that they adhere to
any deadlines that you give them.

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

Annual reports once again,

planning ahead is crucial. You know
the annual report has to be
published by a set date so work
back twelve months and design a
calendar with target dates accordingly. Thinking
about next years report when you have just sent
the current one to press is unlikely to be an
attractive proposition but that is exactly what you
should be doing. Call designers, printers and
other agencies well in advance and make sure
everyone can work together as a team.

Annual report distribution can be a major

headache. Ensure that your registrar is as up to
date as possible so that your mailing list is
correct. You can reduce distribution costs by
putting a PDF copy of your annual report on your
IR web site and directing students and other
researchers to the site.
Your annual report should follow best practice in
reporting - see the check list included in the
pocket at the back of this guide. Also remember
to seek feedback from shareholders and other
stakeholders to make sure that you are dealing
with the information needs of all of your
audiences.

25

Company presentations and

meetings there is nothing worse
than a flawless presentation to the
wrong audience. Make sure that
your contact database is up to date
and that you know the information needs of the
audience to whom you are going to present.

Larger traded companies tend to slightly tailor

their presentations according to the information or
cultural needs of shareholders in different
markets. There is nothing to stop smaller
companies from taking the same tack on a
domestic basis - as long as they abide by the
rules for the release of price-sensitive information.
Prepare in advance for all presentations and
persuade those giving the presentations that they
need to set time aside for a rehearsal. IROs
should assess the ability of their senior
management to convey corporate messages to
the financial community. Frequent presentation
training is a crucial part of any IR programme,
regardless of the seniority of those making the
presentation. It ensures that presenters are up to
date with current issues, on their toes, and helps
them avoid falling into the same traps time after
time.
It may be that training advice is best delivered by
a senior external adviser. Rehearsing with external
advisors can be a useful way of highlighting
potential presentation or Q&A problems and
tactfully preparing senior management for some of
the challenges that may arise during a
presentation. For example, during rehearsals,
never shy away from asking the most difficult
searching questions that might arise. Answers
should be honest, transparent and stick to the
relevant facts. The rehearsal is also an opportunity
to smooth out any technological glitches. If you
are not capable of producing high quality
electronic presentations in-house then outsource
the presentation well in advance.

26

Regulatory considerations should be paramount

throughout a presentation. Think carefully about
what best practice requires at every stage of
developing a presentation and carefully monitor
the event as it goes live. Make sure that anything
that is said complies with current regulations and,
if necessary, send out a release to announce
further price-sensitive information to the market. If
the presentation is well planned in advance and
the senior management team know the relevant
responses then there should be no need for
corrective action after the event.
After a presentation the IRO should solicit
feedback from the audience and offer further
access to senior management if needed.
Company statements/financial
news releases think ahead. Try
and predict some of the likely
questions from analysts and
investors and answer them up front
within the release. Be as factual as possible and
avoid putting too much gloss or spin upon an
announcement. If it is bad news, be honest about
the situation. Releases should strike a fine
balance between being as transparent as possible
about your business and not giving away valuable
competitive information. Where doubts remain IR
advisors can be used to give input to materials
prior to release.

Remember that investors, analysts, journalists and

other key audiences often receive hundreds of
releases each week. Do not bombard your
contacts with unnecessary releases because they
will then tend to ignore important information. At
the same time, never shy away from sending out
price-sensitive information in line with the
regulations.

LONDON STOCK EXCHANGE

IR web sites the most common

problem with web sites is that they
fail to take into account the needs
of the user. Your web site might
have far more corporate information
than any of your competitors but it will be useless
unless users can navigate easily around the site.

Crisis management some traded

companies make the mistake of
thinking that you cannot plan for a
crisis. You may not know exactly
what a crisis may bring but you should
at least have put in place a structured means of
responding to an emergency situation.

Make sure that your IR home page offers easy

links to the most frequently accessed information.
You should maintain a regular check on which
pages are being accessed the most and then
bring those pages to the fore when redesigning
the site or via button links from the home page. A
good search engine facility on your site can help
users locate the information they need. The most
advanced IR web sites are now allowing visitors
to pull the information they want from the site by
defining their own virtual home page.

A good crisis management plan should nominate a

team of internal and external personnel to deal
with such a situation and keep that team informed
as to any changes. Regular practice is one of the
best ways of ensuring that a team knows its role
and how to respond to various situations. A plan
of action is probably best developed in tandem
with expert advisors and should be carefully
constructed to allow for changing circumstances.

The IR web site is the easiest and most costeffective way of keeping your audiences up to
date with corporate initiatives but it should not be
seen as a replacement for sending out releases to
the market via the PIP system. Use the web as an
added channel of information to grant access to
your investor presentations, analyst meetings, and
site tours. E-mail alerts are easy to set up so that
interested visitors can register for up-to-date
news but, as with the warning on company
statements, do not abuse the system by sending
out too much information. Your audiences will
soon lose interest in your alerts.
Traded companies are advised to monitor internet
chat rooms but to steer clear of responding
directly to chat or rumour within the chat rooms
themselves. You should invite feedback via your
official IR web site and develop a consistent rule
for responding to rumours that operates across
written, spoken and electronic communications.


The most successful IR
strategy will be executed
within a context of total
awareness of your own
shareholders' views together
with preparation for every
eventuality.

Winner - Best Investor Relations During

a Takeover by a FTSE 100 Company,
IR Magazine UK Awards 2003

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

27

Managing
the
shareholder


register

Publicly quoted companies
cannot determine who buys
or sells their shares, but
they can have a significant
impact upon the
construction of their
shareholder register through
their IR programme.
Each type of shareholder will have their own
investment characteristics. For example, private
investors may be more loyal and hold the stock
longer than institutions. Yet private investors are
likely to have relatively little individual impact on
your stock whereas one institutional buy or sell
decision can have a major effect. Hedge funds, on
the other hand, may introduce an element of
volatility into your stock by buying and selling
large tranches of shares in a relatively short
period.

It is in the interests of an IRO to try and identify

which types of investors have holdings in the
company. Your broker, registrar and IR consultant
should be able to help you in that process. Armed
with that knowledge, you are in a better position
to know how your stock might react to certain
corporate news. You can also begin targeting
particular types of investor to slowly change the
make-up of your shareholder register should it be
desired.
There is no recommended or ideal balance
between institutional and retail shareholders. Each
IRO will have to come to their own decision based
on their own feedback, the current state of their
shareholder register, and the resources available
to them to target new investors. IROs should
consider their own resources before undertaking a
programme to change the make-up of their
shareholder register. While some investors will
inevitably drop off your register as you target new
contacts, you should always ensure that you have
the ability to maintain the information flow to
those on your register.

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

29

There is little point in targeting thousands of

private investors if you do not have the time or
money to support their information needs over the
longer term. Private investors can be higher
maintenance and more time-consuming than their
institutional counterparts, particularly as it may
take several thousand to match the buying power
of one institution. Each private investor has just as
much right to information from the company as an
institutional shareholder and that can be a serious
drain on IR time if it is badly managed. IROs
should use the web as much as possible to
support and update their private investors, leaving
more time to hold the hands of the bigger
institutions.
One issue to bear in mind is that too high a
proportion of private shareholders can lead to
very costly administrative charges and AGMs.
On a more positive note, however, a large retail
investor base could be an asset as it promotes an
investor friendly corporate profile.
Illiquid share registers are a problem for smaller
quoted companies in general since there is such
high competition for attention from institutions.
The consolidation of the fund management
industry has not helped in that regard. Still, there
is nothing inevitable about such a situation.
Liquidity and volatility can be helped by an active
IR programme that continually feeds the
institutional market with information about the
stock. The programme should focus on conveying
an attractive investment case combined with
proactive marketing to investors who support the
long-term strategic aims of the company.

30

Many smaller quoted companies make the

mistake of relying too heavily on their house
broker to market their stock. Your broker will help
but will also be faced by the reality that you are a
small client offering little financial reward for a
dedicated marketing campaign. Even larger
companies come unstuck by relying too heavily on
one broker each broking house will tend to
focus on a particular group of investment clients
and these may not necessarily be the best fit with
your own investment profile.

LONDON STOCK EXCHANGE


A proactive IRO will try to persuade other analysts
to research your company, although your success
will probably be limited by your market
capitalisation and whether your sector is currently
in vogue. The smallest quoted companies will
probably struggle just to persuade their house
broker to generate research (see Small company
concerns on page 32 for helpful hints). Most
advisors suggest that there is nothing wrong in
paying for independent research from a good
analyst your financial PR advisor should be able
to advise you on that issue.

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

Another alternative is to hire the services of a

dedicated IR consultant to introduce you to new
institutions and help you target those that fit your
investment story. They can also advise you on
how your investment proposition is viewed by the
market and help you gain feedback on your IR
programme. You should also build up new
contacts in-house and have some annual
objectives for making contacts or holding
meetings with new investors.

31

Small
company
concerns
Throughout this
guide we have
touched upon
some of the
difficulties faced
by smaller
quoted
companies in
their dealings
with the market.

Recent years have seen fund managers focus

more of their attention on larger quoted
companies. There are a range of factors behind
this trend, including a move toward more
international investment, the introduction of the
Euro, and the consolidation of the securities and
fund management industry. Unfortunately, brokers
and analysts have followed these moves in a bid
to retain the business of their investor clients,
making it doubly difficult for smaller quoted
companies to attract attention in the market.
Institutions have also shied away from smaller
companies due to liquidity or governance
concerns. Many smaller quoted companies still
have significant founding family shareholdings and
the limited free float can make it hard for an
institution to take a large enough stake in the
company. At the same time, large family
shareholdings can be seen as a barrier to
progress or good governance both of which are
guaranteed to scare off institutional investors.
From a corporate viewpoint, share price
valuations are lower than desired and access to
initial or continuing funding is often severely
restricted. From an institutional viewpoint, P/Es of
smaller cap stocks stand at a discount to that of
larger stocks as a form of negative compensation
for the extra difficulty in dealing in the shares,
whether it be low daily trading volumes or
difficulty of entry or exit to the share register.
So how should you go about attracting the
attention of the professional investment
community?



32

LONDON STOCK EXCHANGE

Most fund managers want to look at smaller

companies from a growth perspective. They will
only invest if they believe that your company has
a real opportunity to grow over the coming years.
Smaller quoted companies which manage to
position themselves as growth stories will tend to
be those that benefit the most from institutional
interest.
Sell-side analysts cite three possible reasons to
follow a smaller quoted company if their firm is
not the corporate broker. The first is similar to the
type of story most likely to attract institutional
interest: believing the company is a growth stock.
Being known as an expert on a significant growth
stock can help the analyst attract investor
attention that, in turn, might lead to institutions
dealing through his or her organisation.

Next comes the so-called conflict of interest

argument that has been mentioned earlier in this
guide. Analysts cover companies because it helps
their firm to pick up corporate broking or
transaction business the analyst acts as a loss
leader.
Finally, if an analyst already covers other
companies in the sector then it may be relatively
little extra work to add on coverage of another
stock. That extra effort can also help put other
research into a wider perspective.
There is some positive news to report, as the
shift between balanced and specialist fund
management continues. This shift in focus brings
the prospect of increased demand for smaller
company shares from a breed of fund managers
who possess both commitment and expertise.
Admittedly it will take a while to impact however it
is nonetheless a positive development.

Smaller companies must recognise

that those who invest in active IR
programmes will benefit the most
from increased investor interest."

Winner - Grand Prix for Best Smaller Company Investor Relations,

IR Magazine UK Awards 2003

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

33


Glossary

34

LONDON STOCK EXCHANGE

Glossary courtesy of the Investor Relations Society,

Europe's leading professional body for those in investor relations.
AGMs
The AGM is a statutory
requirement. The usefulness of
the AGM has arguably
diminished in recent years as
they have progressively become
opportunities for private
shareholders, pressure groups
and environmental lobbyists to
generate publicity. Efforts are
underway to encourage more
meaningful AGM engagement
with institutional shareholders.
Practical matters to consider
include coinciding AGM with
company visits by analysts and
institutions to encourage their
attendance.
AIM
Set up in 1995 and designed to
provide a global market for
smaller and growing companies.
The benefits are lower costs
and simpler rules, though once
admitted, companies have
certain ongoing disclosure
requirements. While AIM
companies do not fall within the
strict definition of listed
companies, their shares may be
described as being quoted or
traded on the market.

www.londonstockexchange.com
/aim/default.asp

Annual reports & interim

statements
A key requirement of the
directors is to report at the end
of each financial year to the
shareholders as to the financial
performance during the year and
the financial position of the
company at the year-end.
Annual report and accounts
have to be filed with the
Registrar of Companies at
Companies House where they
are available for the general
public, as well as being sent to
individual shareholders.
Auditors
All traded companies are
required to have their accounts
independently audited before
publication in their annual report
and accounts and Companies
House filing. Restrictions are
currently being considered on
the extent to which audit firms
can offer additional services,
and some audit firms have
already spun off for instance
their consulting arms.

Investment banks can mean

many things. They can be any or
all of a stockbroker, a merchant
bank, market maker and
commercial bank. They deal with
helping companies to find
money and will give advice on
the best source of finance. If
the choice is bonds or equities,
they will help the issuer to price
them, assist in selling and
underwrite the issue. Merchant
bank is a UK term and the
equivalent in the USA is
investment bank. A merchant
bank in the USA has a narrower
definition, being applied to
taking an active part with the
banks own capital in
takeover/merger activities.

Retail banking involves high

street branches dealing with the
public, shops, and small
businesses.
Wholesale banking involves
dealing with other banks, the
central bank, listed and private
companies, and investment
institutions.

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

Activities of an investment bank

include:

Accepting

Banks
Commercial banks deal with
taking deposits and lending
money to individuals and
companies.

Accepting bills of
exchange

Corporate finance (primary

market activity)

New issues
bonds/equities

Rights issues

Mergers and
acquisitions

Research

Securities trading (secondary

market activity)

Investment management

For companies,
pension funds, high net
worth individuals

Analyst separated
between sell-side and
buy-side

Syndicated loans

Foreign exchange

35

Central banks typically have the

following activities that may
differ in each country:

supervision of banking
system

advising the government on

monetary policy

issue of banknotes

banker to the government

banker to other banks

lender of last resort

control of currency reserves

raising funds for the

government

international liaison.

Corporate brokers
Corporate brokers are virtually
only found in the United
Kingdom. Having one used to
be a requirement by the London
Stock Exchange plc. Having a
sponsor is still a requirements
of the Listing Rules.
The role of the corporate broker
in IR has developed in recent
years. Typically the corporate
broker will organise road shows
for large companies for
institutional investors. The aim
is to increase the volume of
shares traded in these
companies; such services are
generally provided free by the
broker for large companies
although smaller companies may
have to pay a fee.

Corporate broker

companys main
interface with market

provides market with

information on
company

feedback to company
of markets view of its
stock

manages contact with

institutional investors

compliance with listing

rules.

Corporate governance
In the UK the principles of good
governance and code of best
practice are outlined in the
combined code. Compliance
with this code is part of the
FSAs Listing Rules. The new
Combined Code incorporating
the recommendations of the
Higgs Report will apply for
reporting years beginning on or
after 1 November 2003.

http://www.fsa.gov.uk/ukla/
2_listinginfo.html

Investment
Socially Responsible Investment
(SRI) is investment where
social, environmental or ethical
considerations are taken into
account in the selection,
retention and realisation of
investment, and the responsible
use of rights (such as voting
rights) in relation to investment.
SRI combines investors
financial objectives with a
commitment to social concerns

www.bitc.org.uk
Business in the Communitys
website
www.uksif.org
UK Social Investment Forums
website
Directors
Directors are appointed by the
shareholders to run the
business on their behalf.
Shareholders can exert their
voting rights to appoint or
dismiss directors, or vote on
major operational issues.
Executive directors

Corporate social responsibility

and socially responsible

Management of the day-to-day

operation of the business

Corporate social responsibility

involves companies taking into
account the social and
environmental impact of their
actions locally, regionally,
nationally and internationally.

Non-executive directors

www.societyandbusiness.gov.uk
The Governments CSR website

http://www.dti.gov.uk/cld/non_
exec_review/condoc.pdf

Role is advisory and supervisory

independent of executive
directors. The role of NEDS has
been the subject of a review by
Derek Higgs.

The Governments consultation

paper on the effectiveness of
non-executive directors

36

LONDON STOCK EXCHANGE

Financial calendar
As a result of the regulatory
requirements of the London
Stock Exchange plc and
Companies Acts in the UK (and
the equivalent in other
countries) there are a number of
events and obligations for
companies in the financial
calendar, which can be used as
opportunities for IR.

Annual reports

Prelim and interims

statements

Annual general meeting

Listing obligations.

Financial markets
Financial markets are all about
the raising of capital.
They are there to match those
who want money (borrowers)
with those who have money
(lenders).
In order for a mechanism to
exist to enable those who want
money to find the lenders, there
must be intermediaries to
organise this flow of money.
Financial markets provide the
intermediaries.
Financial Services Action Plan
The key aims of the EUs
Financial Services Action Plan
are:

to create a single EU capital

market by modernising the
EUs legislative framework,
including a wholesale review
of the Investment Services
Directive and legislation on
prospectuses and
accounting;

to revisit prudential
supervision, for example by
amending the directives
governing the capital
framework for banks,
investment and insurance
firms, and by creating a
consistent and coherent
European regime for financial
conglomerates.

promoting public
understanding of the financial
system by helping people
gain the knowledge, aptitude
and skills they need to
become informed consumers,
so that they can manage their
financial affairs more
effectively.

securing the right degree of

protection for consumers by
vetting at entry aims to allow
only those firms and
individuals satisfying the
necessary criteria (including
honesty, competence and
financial soundness) to
engage in regulated activity.

The heads of state of the EU

have called for implementation
of the Action Plan by 2005, and
the European Commission is
currently presenting many of its
formal proposals that will give
effect to the legislative
initiatives which the Action Plan
entails.

helping to reduce financial

crime by focussing on three
main types of financial crime:
money laundering; fraud and
dishonesty; and criminal
market misconduct such as
insider dealing.

http://europa.eu.int/comm/inter
nal_market/en/finances/general
/actionen.pdf

FTSE

These are:

to develop open and secure

retail markets, for example by
agreeing on the distance
selling of financial services,
providing information on
mortgages, and preparing an
EU-wide e-commerce policy
for financial services;

FSA
The Financial Services Authority
(FSA) is the independent body
that regulates the financial
services industry in the UK.
The FSA has 4 main aims:

maintaining confidence in the

UK financial system by
supervising exchanges,
settlement houses and other
market infrastructure
providers; conducting market
surveillance; and transaction
monitoring.

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

www.fsa.gov.uk

The official indices tracking the

London Stock Exchange plc
equity and bond markets are
managed by FTSE, which is
owned by London Stock
Exchange plc and the Financial
Times and is a company
specialising in index calculation.

FTSE changed in June 2001

from calculating indices on the
basis of market capitalisation to
using a free float basis (i.e.
shares available for trading).

www.ftse.com

37

Hedge funds

IPOs

OFEX

The term hedge fund first came

to use in the 1950s to describe
any investment fund that used
incentive fees, short-selling or
leverage. Usually hedge funds:

IPOs are the first sale of stock

by a private company to the
public. They may be smaller,
younger companies seeking to
expand their business or they
may be larger companies where
the owners want to sell out.

OFEX is operated by OFEX plc

and is a prescribed market
under Section 118 of the
Financial Services and Markets
Act 2000.

are organised as private

investment partnerships or
offshore investment
corporation

use a wide variety of trading

strategies involving position
taking in a range of markets

employ an assortment of
trading techniques and
instruments, often including
short selling, derivatives and
leverage;

have an investor base

comprising wealthy
individuals and institutions
and a relatively high minimum
investment limit (set at
$100,000 or higher for most
funds)

Institutional investors
Institutional investors manage
pooled funds (other peoples
money) often totalling billions of
pounds. Institutions often
maintain a core holding but deal
small amounts of a companys
stock on a regular basis.
Pension funds and insurance
companies are examples of
institutional investors.

London Stock Exchange plc

The London Stock Exchange plc
is one the worlds leading stock
exchanges. It is the most
international of all stock
exchanges, with over 1,600 UK
and nearly 450 overseas
companies from over 60
countries admitted to trading on
our markets. The London Stock
Exchange plc provides the
markets and means of raising
capital for UK and international
companies through equity, debt
and depositary receipt issues. It
also gives investors of all types
the opportunity to buy and sell
shares in the companies of their
choice.

www.londonstockexchange.com
Market abuse
The term market abuse covers
three broad types of behaviour:

misuse of information;

creating a false or misleading

impression; and

distorting the market.

The FSA has published a

detailed code of guidance on
market abuse called the Code
of Market Conduct. You can
access information at:
http://www.fsa.gov.uk/consum
er/pdfs/market_abuse.pdf

38

OFEX started with 45 securities,

and since then has seen a
progression of companies who
have used it as a springboard to
AIM and the Official List, whilst
retaining a constant core of
companies who have chosen to
remain on OFEX.

www.ofex.com
Price sensitive information
Price sensitive information is
information that would affect the
value of a companys share if it
were made public.

In its capacity as the UK Listing

Authority, the Financial Services
Authority publishes a Guide to
Price Sensitive Information
which can be accessed on their
website: www.fsa.gov.uk
PIPS (Primary Information
Providers)
In the Regulatory Information
Service (RIS), Primary
Information Providers (PIPs) are
the organisations who receive
information from the company
and pass it out to the
Secondary Information
Providers (SIPs) who
disseminate it.

LONDON STOCK EXCHANGE

Regulation Fair Disclosure

(Reg FD)
Reg FD was introduced in 2000
by the Securities and Exchange
Commission (SEC) in an effort
to prevent selective disclosure
by public companies to market
professionals and certain
shareholders. In the past, many
companies released important
information in meetings and
conference calls where
shareholders and the general
public were excluded. The goal
of this rule is to even the
playing field between individual
investors and institutional
investors.
The Reg FD rule reads as
follows: Whenever an issuer, or
any person acting on its behalf,
discloses any material nonpublic information regarding that
issuer or its securities to
[certain enumerated persons],
the issuer shall make public
disclosure of that information...
simultaneously, in the case of an
intentional disclosure; and...
promptly, in the case of a nonintentional disclosure

www.sec.gov
Road shows
The road show is a presentation
by the management of a
company that is issuing
securities or doing an Initial
Public Offering (IPO) to
potential buyers, analysts and
fund managers. The road show
usually travels around a country
or number of countries.

Sarbanes-Oxley Act
The Sarbanes-Oxley Act was
passed in July 2002 in the USA,
following a series of corporate
scandals. The Act contains
some of the most far-reaching
changes in the law governing
how public companies do
business. Among the measures
in the Act include, the creation
of a new and independent
oversight board to regulate the
accounting profession, a new
requirement that CEOs and
CFOs certify that quarterly and
annual reports are complete and
correct and the accelerated
disclosure of all director and
executive stock dealings.

www.sec.gov

broad array of issues. Socially

concerned investors have used
a range of tactics to lobby for
greater corporate social
responsibility, dialogue with
management, letter writing
campaigns, attending annual
corporate board meetings, and
filing shareholder proposals,
which are voted upon by all of a
corporations shareholders.
Short selling
Short selling is the selling of a
security that the seller does not
own, or any sale that is
completed by the delivery of a
security borrowed by the seller.
Short sellers assume the risk
that they will be able to buy the
stock at a lower amount than
the price at which they sold
short.


Shareholder activism

Shareholder activism is a
broad term that encompasses
the many ways in which
investors have engaged
corporate management on a

P R A C T I C A L G U I D E TO I N V E S TO R R E L AT I O N S

39

Useful websites
London Stock Exchange plc www.londonstockexchange.com
Buchanan Communications www.buchanan.uk.com
Investor Relations Society www.ir-soc.org
UK Listing Authority www.fsa.gov.uk/officiallist
ProShare (UK) Ltd www.proshare.org.uk
FSA www.fsa.gov.uk
IASB www.iasb.org.uk
NAPF www.napf.co.uk
ABI www.abi.org.uk

October 2003 London Stock Exchange plc, London EC2N 1HP. Telephone +44(0)20 7797 1000.
www.londonstockexchange.com
Registered in England and Wales No 2075721
Whilst London Stock Exchange plc has sought to ensure the accuracy of the information contained in this guide,
London Stock Exchange plc does not accept any liability for any inaccuracies or omissions. In particular please note
that published information may not be up to date and will not include any developments since the date of
publication.
This guide is of a general nature and is not intended to provide any legal or financial advice and must not be treated
as a substitute for specific advice.
The London Stock Exchange crest and logo and AIM are trademarks of London Stock Exchange plc.
Designed by Hut Design

40

LONDON STOCK EXCHANGE

Contacts
UK & Republic of Ireland
Marlin DSa
020 7797 1057
mdsa@londonstockexchange.com
International
Shelley England
+44 (0)20 7797 4363
sengland@londonstockexchange.com

Claire Fargeot
020 7466 5000
ir@buchanan.uk.com