Organising Capital Markets Days

At this time of the year, many companies listed across the main European stock exchanges are organising their Capital Markets Day and such an event is given wide prominence across some sections of the international financial media.

A Capital Markets Day generally forms part of a company’s overall investor relations programme. Companies organise their Capital Markets Day to provide various stakeholders with a deeper understanding of the company’s business model and organisational set-up as well as to provide an update on the overall strategy including key financial projections. Some companies also create a more immersive experience on their operational set-up through the creation of dynamic content and other promotional video messages. The entire proceedings of the Capital Markets Day or simply the videos and presentations are generally also available through a webcast on a company’s website in order to increase the reach and effectiveness of a Capital Markets Day for the investing community.

Capital Markets Days are generally organised in the ‘off-season’ due to the other statutory obligations throughout the corporate year such as the publication of interim and annual financial statements and the Annual General Meeting.

Capital Markets Days are different to an Annual General Meeting during which only the formal proceedings are generally adhered to. Moreover, while only shareholders (or their proxy) are invited to attend and vote at an Annual General Meeting, during a Capital Markets Days, a company invites a wider audience and generally focuses on the requirements of financial analysts and investors by providing a deeper understanding of the various aspects of a company and its future strategy so as to elicit increased investor engagement. Investors and other stakeholders are generally interested in information that goes far beyond what is available in the statutory financial statements. As such, organising a Capital Markets Day with a focus on non-financial and operational information and key metrics would be useful to manage investor expectations in this respect.

Once companies obtain a listing on a stock exchange, investor relations (IR) becomes a crucial aspect of a company’s engagement with its wider pool of stakeholders.

Companies generally finance their operations with both equity from their shareholders (whether private or public) and also debt instruments. When a company funds itself by means of bank loans or through bonds, the focus and interest of these stakeholders will be slightly different than those of the shareholders of the company. Debt IR therefore focuses on the debt servicing capacity of the company with presentations predominantly to banks, bondholders, credit rating agencies, analysts etc. Meanwhile, IR for equity issuers needs to provide additional focus on the development and strategic direction of the company and any matters which may be considered or expected to be price-sensitive since equity investors are dependent on any capital growth and dividend distributions in order to earn a return from their investment.

While conducting research for this week’s article I came across the following definition of investor relations, which in my view truly sums it perfectly.

“Investor Relations is a strategic management responsibility that integrates strategy, finance, communication, marketing and compliance with corporate governance to enable the most effective interaction between a company, the financial community and other constituencies, to ultimately contribute to a company’s securities achieving a fair valuation”.

It is best practice for a company to appoint an IR officer once a company obtains a listing on a stock exchange in order to oversee the overall duties that would be required. A fully-fledged and dedicated IR team would be required depending on the size of the company and the number of stakeholders involved. Essentially, an IR team is entrusted with proactively positioning the company, its strategy and its investment proposition to the investing community at large. The prime responsibility of the investor relations officer and the wider IR team is to keep the market informed of developments and events that may influence a company’s financial instruments (shares and/or bonds) in a reliable, consistent, comparable and transparent manner. It is important for the investor relations set-up to be a strategic and proactive one rather than being reactive to developments that take place. By being in contact with analysts and investors, the IR officer can provide the company’s board of directors with an indication of investor sentiment towards the company and also across the wider market which can also be useful should the company need to issue additional securities at a later date. Investor feedback should be valuable information for the board since it gives an insight into the way the company is perceived in the market.

In the past few years I had written some articles on the importance of IR and the IR efforts of Maltese companies specifically related to the removal of the obligation for companies to publish semi-annual Interim Directors Statements.

Unfortunately, very few companies continued to publish the semi-annual Interim Directors Statements. Meanwhile, those companies that continued to publish such statements and invested in improving their communication to the market have also seen an increased participation by the investing community and higher trading activity in their securities.

In my articles dealing with IR, I had also highlighted the anomaly in the Maltese capital market with investors having access to more information from bond issuers rather than equity issuers as a result of the Listing Policies in place for bond issuers on the Regulated Main Market. While the level of information provided by bond issuers, namely the financial projections, is indeed very positive since an investor can use this important financial information to assess the creditworthiness of an issuer, equity investors should have at least the same level of information to take informed decisions. In my view, financial projections are more important for equity investors as opposed to bond investors since equity investors should have a greater interest on the extent of the company’s profitability since their return is dependent on potential capital growth and any dividends, which are not fixed from one year to the next like interest payments on bonds.

It is evident from the sporadic information flow to the market, that very few companies in Malta have a dedicated IR set-up in place. The detailed definition given by the international financial journal reproduced above shows the very important role of IR. It should serve as an eye-opener for several Maltese companies whose securities are already listed on the MSE as well as for those contemplating an eventual listing.

Across the international markets, Capital Markets Days have proved to be a great opportunity to showcase a company’s business model and its unique selling proposition to drive investor engagement. Such an event should also be contemplated by several Maltese companies within their corporate calendar to improve interaction with the investing community.

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