Managing Investor Relations During Tough Times

The Business Times – Thursday, 19 February 2009

Managing investor relations during tough times By LAI KWOK KIN AS WE enter the peak financial reporting season, a strange silence seems to have descended on Singapore's corporate firmament. There is none of the usual race to be among the first to release results for the 2008 financial year (ending December). Neither is there the mad scramble for venues for investor briefings which take place each February. Meeting rooms are half-filled, if not empty, and RSVP lists for analysts and fund managers are shorter. Financial markets around the world have changed dramatically since October, and the effects are trickling down to local corporations as they present their scorecards.

Financial markets around the world have changed dramatically since October, and the effects are trickling down to local corporations as they present their scorecards for what happened last year, and ponder an uncertain future. A main reason for an initial public offering (IPO) is to tap the capital market for funds. Listed companies compete for capital, each vying to offer a better value proposition, with the hope that this will translate into a higher share price. This impulse propels the efforts to raise investor awareness through public announcements, corporate presentations and to court stock analysts, fund managers and the financial media.

Until now, the mantra uttered in forward-looking statements and media releases has been chiefly to hint at future earnings growth. The most commonly used benchmark remains the humble and sometimes over-used price-earnings multiple. Stock analysts study the financials and eyeball management to assess how net profit in the latest quarter or financial year compares with the same period a year earlier. For directors, chief financial offices and investor relations consultants of Singapore Exchange listed companies, the preparation of the few paragraphs about the future prospects (Note 10 of Appendix 7.2 of the Listing Manual) is a time of agonising and careful scattering of tea leaves for the pundits to decipher. Net profit - further drilled down to earnings per share - of the past period and projected forward by the market allows an investor to compare historical and forward price-earnings multiples. Based on the current share price and relative to comparative companies, Mr Market then decides whether to buy, hold or sell. Of course, many would say that savvy investors don't just look at earnings multiples but also price-to-book and cash flow comparisons. But in the main, the major determinant of a share price - and indeed of IPOs and reverse takeovers - has been and remains the arithmetic of growth relative to share price. But with a financial storm across the globe and corporate Singapore battening down the hatches, what should companies do and say? First, don't avoid the market. Some owners of listed companies faced with write-offs and a weak outlook tend to avoid meeting investors and analysts - presumably to save face and avoid the

agony of explaining the dismal numbers. To do so will only prolong any rise in the share price when markets eventually recover. Facing the music maintains trust - a precious commodity in these uncertain times - among investors. Second, it may be unwise to give specific guidance this time around. Asian companies tend to limit forecasts, if at all, to whether profit in the coming year or quarter exceeds the previous corresponding period. However, such blandishments may be unwise as they may not be believed in the current scenario; even the experts have been wrong about how quickly and savagely this downturn has come in the last few months. Third, in the current climate, liquidity is more important than earnings growth. Cash flow and access to credit are paramount. Investors want to know how a company is enhancing cash flows, reducing accounts receivable days, cutting costs and that its banking relationships are good. Fourth, corporations need to spell out how their businesses are being retooled to survive or thrive during and after this financial Armageddon. Investors expect management to articulate clearly how they are adapting to the new environment beyond the usual pronouncements of cost-cutting and tighter credit control. The market expects consolidation, swift disposal of non-core assets and will even welcome mergers and acquisitions to strengthen the value proposition. Finally, companies need to convince or at least remind investors of the quality of their management. These difficult times test the will, resolve and capability of top managers. These few good men and women must display the ability to reduce costs, secure new customers, convince creditors and even redefine their businesses. As this market recovers, the rising tide will not lift all boats - only those which thrived despite the storm and dared to be noticed. The author is a former journalist and securities analyst, and founder and managing director of WeR1 Consultants Pte Ltd, which provides investor relations services for listed companies