MghghInvestor relations

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Buchanan Communications is proud to have beeninvolved in the formulation, development anddelivery of this updated Practical Guide to InvestorRelations. We see our role as key in helpingcompanies to gain a better understanding and toreap the benefits of a good IR strategy. Smaller

companies in particular can suffer from illiquidregisters, lower valuations and a fight for mediaand investor attention. Buchanan Communicationsis focused on supporting companies of all sizesand sectors in order to gain the recognition theydeserve.

London Stock Exchange plc is one of the world’sleading equity exchanges offering companies fromall sectors access to one of the deepest pools ofliquidity.

A powerful investor relations programme isessential for any on-market or pre-marketcompany and the Exchange encouragescompanies to be pro-active in this arena, providingdedicated services to encourage robust andeffective investor relations.

To find out more about how the Exchange can helpyou to improve your investor relations activities,contact your relationship manager via theinformation on the inside back cover of thispractical guide.

IntroductionWhen a company comes to the stock market, it may feel like the end of a long journey. But any suchidea is rapidly dispelled by the experience of life as a quoted company. Rather than being the culminationof a business’s 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 acommitment to take on the responsibilities and duties which a quotation brings. Some of these areregulatory requirements, but alongside these are the requirements and expectations imposed by themechanisms of the market itself – the analysts, investors and media who watch your company and judgehow it is performing. Communicating with these people is now encapsulated by the term ‘InvestorRelations’ (‘IR’).

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Investor relationsA P R A C T I C A L G U I D E

What is investor relations?

2

Best practice IR and the IR toolkit

14

Putting IR into practice24

Managing the shareholder register

28

Glossary34

Regulatory and bestpractice developments

20

Audiences and contacts

6The purpose ofthis publicationThis publication is designed to be a valuableresource to companies looking to maximise theeffectiveness of their IR efforts - which bydefinition should mean every quoted company andevery company seeking a quotation. Our aim is tocombine an accessible, factual and down to earthapproach with practical insight into “best practice”in IR, giving companies the benefit of ourcontributors’ many decades of collectiveexperience 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 thisrapidly evolving and at times most complex offields, and to give all parties a greater sense ofwhat makes the others tick.

To that end, the Exchange is enormously gratefulto the following for their time, input and help in theformulation of this publication:-

Buchanan Communications – Claire Fargeot

The Investor Relations Society – Natalie Evans

Hermes Focus Asset Management Ltd – Paul Harrison, Tim Bush

HBOS – David Roach, Robert Moorhouse

and thanks to Richard Carpenter

London Stock Exchange plc October 2003

What isinvestorrelations?

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a reasonable level

of liquidity in its

shares

a strong group of supporters

and believers

easier and cheaper

access to capital in

the future

a fair market valuation for

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P R A C T I C A L G U I D E T O I N V E S T O R R E L A T I O N S 3

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Investor relations (IR)

encompasses the broad

range of activities through

which a quoted company

communicates with its

current and potential

investors.

The clearest single element of an IR programmeshould be keeping the market informed ofdevelopments and events that may influence theshare price – otherwise known as price-sensitiveinformation. But IR should not just be a one-way

communication from the company to the market.It should also provide for feedback from thefinancial community to the company.

The wider aim of an IR programme should be toprovide investors and other audiences with aclear, honest and accurate picture of thecompany’s past performance and prospects forthe future. This latter point is key: investors areinterested in strategic and operational informationthat will help them predict how the company mightperform going forward. Feedback from themarket, particularly investors, should also help thecompany to formulate its own strategy andfacilitate its delivery.

A successful IR programme

should be designed to

achieve:

successful

IRprogramme

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ghghg L O N D O N S T O C K E X C H A N G E4

Why the stress upon a ‘fair market valuation’rather than ‘best’ valuation? Some companiesnew to the market make the mistake of thinkingthat the aim of their IR function should be to pushtheir share price as high as possible.Unfortunately, if a company fails to live up to thehigh expectations it has put out into the marketthen its stock tends to be punished severely. Theresult is a depleted share price and a struggle torebuild trust with investors.

On the other hand, too low a rating due tomisunderstood or poor fundamentals, or even alack of information provided to the market, canlead to difficulties in raising finance in the future orincreased vulnerability to takeovers. It is better toaim for a ‘fair’ market valuation that correctlyreflects the company’s circumstances and itslonger-term value.

A range of factors will determine the valuation of acompany by the market. These can be broadlydivided into three areas:

� the current value of the business

� the value attached to the company’s prospects

� the capital costs of the business.

It is important that you know your stakeholdersand the importance they attach to each area. Forexample, active fund trackers will look closely atall three, whereas passive trackers are likely toonly consider the current value.

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“ Investors can't value what they can't see - a successful IRprogramme requires transparency, the ability to bringbusiness performance to life and clarity in communication.It must be underpinned by the highest standards ofcorporate behaviour.”Winner - Grand Prix for Best Overall Investor Relations,

IR Magazine UK Awards 2003

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Other factors not to be overlooked would includethe ‘uniqueness’ of the company’s offering, thewider economy, the management team’s trackrecord, and the relative attraction of otherinvestments.

A good IR officer (IRO) will have a soundknowledge base of their company’s activities andbe able to convey that information to the marketthrough a range of channels. Leading IROsrecognise that the job encompasses a range ofdisciplines. You need a good understanding ofregulatory and financial issues combined with awillingness to use new technology and, perhapsmost importantly, an ability to developrelationships inside and outside the company.

Not surprisingly, in these budget conscious times,many companies attempt to measure the successof their IR programmes. Ways of measuring IRsuccess include:

� keeping a check on the way in which theshareholder register changes over time;

� assessing any improvement in understanding ofthe company’s story within the financialcommunity; and

� analysing the ease with which capital is raised –some refer to this as the ‘litmus test’ for IRsuccess.

The true success of an IR programme can neverbe precisely quantified since valuations andinvestor interest depend on such a wide range offactors, many of which will be outside theinfluence of the company. It may be best to setreasonable, yet specific, objectives by which theIR programme can be measured. These mayinclude measurements such as the number ofnominations for IR industry awards, the number ofanalysts and investing institutions visited in a year,and informed commentary and feedback from thevarious capital markets audiences. Take carehowever that these targets are framed so thatthey point your programme towards quality ratherthan just quantity.

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Audiencesand

contacts

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A company’s IR programme has traditionally focused on

four main external audiences:

The recent trend toward socially responsibleinvesting and the growing importance of corporatesocial responsibility (CSR) issues has seen anexpansion in the role of many IROs. In someinstances, they are now expected to maintainregular contact with a wider group ofstakeholders, such as lobby groups, localcommunities and environmental activists.

Each company has to make its own choices as tohow it splits the communication roles and dealswith its internal and external audiences. Somecompanies, for example, believe it makes sensefor the IRO to also hold responsibility forcommunication with employees. Certainly, theyare a crucial audience who may also havesignificant shareholdings in the company andthere needs to be careful planning as to how theyreceive information. However the roles are split orshared, there is a growing trend towards the IRfunction sitting somewhere within or close to thefinance department to enable a betterunderstanding of the financial aspects of the storywhich is being told to investors.

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Private

investors

Analysts

Financial

media

Other

contacts

Institutional

investors

L O N D O N S T O C K E X C H A N G E8

Main external audiences

Institutional investors

The institutional investor audience, (also referredto as the buy-side), will be made up of a range ofprofessional investors from various types offinancial institution. They will include life assurancecompanies, insurance companies, pension funds,unit trusts, investment trusts, and otherinvestment management groups.

These institutions may manage money on theirown behalf or on behalf of another fund. Forexample, it is fairly common for the trustees ofcompany pension funds to appoint a fundmanagement institution to look after the day-to-day investment of the fund rather than run itthemselves.

Large institutional investors are likely to wantdirect contact with the companies in which theyinvest, through presentations and one-on-onemeetings. The IRO should ensure that there is aregular information flow to leading investors andthat senior management make themselvesavailable at key times to answer their questions.

Recent years have seen a growth in ‘hedgefunds’, a type of professional investor who tendsto use different investment strategies than thoseused by traditional institutions. Hedge funds oftenbet against market movements as a means ofmaking money, making it difficult to assess howthey might move into or out of your stock.Despite these difficulties, they should be providedwith the same information as other investors.

The growth in foreign institutional ownershipshould also be taken into account. Theglobalisation of the fund management industrymeans that IROs may well find that overseasinvestors have taken a position in their stock orare interested in doing so. Market informationshould be made available to a global audience viathe web or other electronic dissemination and, ifyour shareholder base becomes increasinglyinternational, steps should be taken to ensure thatoverseas investors are included in presentationsand visits.

Each institution has its own style and method oftracking funds and it is important that youunderstand how each of your institutionalshareholders operates – whether they are activeor passive trackers of funds, so that you can offerthem the information they need and ensure thatyou retain a strong profile with them.

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Private investors

The number of active private investors in the UKhas declined slightly from the highs of the late1990s when privatisations and demutualisationsboosted numbers to around 15 million. Despitethis drop, they still represent an importantaudience, and can be particularly significant forsmaller quoted companies struggling to attractinstitutions into their stock. ProShareTM, the UK-based organisation that promotes wider shareownership, estimates that in 2002 there were 11million private investors in the UK.

Private investors can be a very loyal group ofshareholders - most do not trade that often anddo not have an ongoing relationship with a bank orbroker. The majority rely on press comment anddirect communication from companies for theirinformation on the stocks that they hold.

Other private investors will rely upon advice fromtheir bank, broker or other representative. Privateclient stockbrokers are critical to IR for manysmaller companies and tend to be less City-focused than the large institutions. Somequoted companies focus on links withprivate client brokers in their local area todevelop a strong private investorfollowing within their region.

A small percentage of private investors will beextremely active investors who make their owninvestment decisions and trade through a brokeron an execution-only basis. These tend to bemore difficult to target but can still be reachedthrough broker information packs and directcommunications.

Many quoted companies also run schemes thatencourage their employees to becomeshareholders, a factor that the IR function has totake into account when preparing information forthe market.

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L O N D O N S T O C K E X C H A N G E

Analysts

The analyst community can be split into twogroups: sell-side and buy-side. Although theirroles are broadly similar, their information needsare different.

Sell-side analysts work alongside brokers andtend to have an expert knowledge of a specificsector. Their job is to publish research on acompany with a view to generating trades in thatstock, in other words to ‘sell’ the stock toinvestors. They are usually the analysts who arequoted in the financial media.

Sell-side research is used by institutionalinvestors – and some private investors – to helpmake investment decisions. This means that sell-side analysts retain a special place as a targetaudience for IR practitioners since their opinioncan have a significant impact on the buying andselling of your stock. In turn, analysts will wantregular access to senior management at thecompanies that they follow.

Despite this special relationship, sell-side analystsmust not be granted any information advantageover other audiences. They must not be givenprice-sensitive information that has not beendisseminated to the wider market: talking to a sell-side analyst is not the equivalent of publishinginformation to the market.

IROs can use sell-side analyst coverageto encourage interest in their stock

and liquidity in their shares. Larger companiesmay well have 30 or so sell-side analysts coveringtheir stock, but smaller companies may struggleto find even one sell-side analyst who will focuson their story.

Buy-side analysts work for large institutionalinvestors, such as pension funds or life assurers.They have been growing in numbers in recentyears as institutions have sought to produce theirown research rather than rely on research fromthe sell-side. Fears related to conflicts of interesthave contributed to the buy-side’s reluctance torely so heavily upon sell-side research.

Buy-side analysts may be less sector-focusedthan their sell-side colleagues, are likely to haveless time to devote to one stock, and theirresearch will also only be used by colleagueswithin their own institution. They are increasinglyrequesting meetings with IROs or seniormanagement at companies. The IRO has tobalance the need to respond to such requestswith the need to provide all investors with thesame information at the same time.

IROs tend to deal with these fears of selectivedisclosure by sending out releases to cover anyprice-sensitive information and then talking aroundthe information in those releases in meetings withanalysts and investors.

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Financial media

The financial media is an important way ofensuring that new or updated corporateinformation is disseminated to as wide anaudience as possible. Good relationships withfinancial journalists are crucial to ensuring thatyour story is covered in leading press, broadcastand online media.

Gaining good media coverage can have asignificant impact on support for your stock asboth institutional and private investors can beswayed by the stories they read, see or hear.Becoming a quoted company does move you intoa new domain of public interest but it will notguarantee media coverage - there are many othercompanies vying for attention from the samejournalists.

Many quoted companies turn to financial PRadvisors as a means of developing thoserelationships and for strategic advice on how togain coverage for their story. The financial PR firmshould help you develop relationships with sell-side analysts which, in turn, can be key to positivemedia coverage. A good financial PR firm willadvise you on innovative ways of ensuring thatyour story is covered and act as a sounding boardas to how opinion stands among analysts andjournalists.

Quoted companies should treat the financialmedia in the same way as they treat any otheraudience and be careful to ensure that they donot 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

L O N D O N S T O C K E X C H A N G E1 2

Other contacts

IROs can expect to encounter a wide range ofcontacts from outside these main externalaudiences as their role develops. Some of theprincipal groups of professionals andorganisations that you are likely to come intocontact with are covered below.

Corporate finance advisors – these advisors,corporate finance boutiques or investment banks(traditionally referred to as ‘merchant’ bankswithin the City), advise companies on sources offinance and strategic opportunities, such asmergers and acquisitions (M&A). It is nowcommon for an investment banking operation tobe part of a ‘universal’ bank that may alsoencompass securities trading, research andinvestment management. These structures haveled to some of the conflicts of interest charges.

Broking houses – a broker’s role falls into variouscategories but from a company’s point of view itsmain tasks will be firstly, to provide ongoingmarket intelligence and advice on compliance withthe regulations. Secondly, the broker aims toincrease the volume of shares traded in yourstock so will invite their investor clients topresentations and IROs should expect them togenerate analyst research to that end. Whilebrokers may help companies to contact investorsthey may not always be the best means oftargeting new investors since they may focus ontheir existing client base only. Many companiesuse the services of more than one broker,develop their own investor database in-house, oruse the services of an IR consultancy to help buildupon the introductions offered by their housebroker. Once again, it is worth noting that thedistinction between broker and investment bank isbecoming blurred with the development ofintegrated houses.

IR consultants – agencies which help companiesto target and maintain relationships with investorsas well as the logistics of an IR programme. Theymay also advise on strategic positioning,shareholder register analysis and targeting,development of technology related to IR, andother activities such as IR during M&A or crisismanagement. While common in the US, pure IRconsultancies have been slower to develop in theUK due to the traditional advisory role of brokers.

Registrars – appointed by a company to keep aregister of its shareholders, send out dividends,count votes at Annual General Meetings, andother tasks related to the logistical managementof the shareholder register. A good registrar canhelp the IRO by providing regular updates fromthe register which can then be analysed inconjunction with the corporate broker or IRconsultant.

Financial designers and printers – most IROs arecharged with looking after the design and printingof their financial literature and so need to developgood working relationships with professionals inthese fields. The annual report is likely to be thelargest single project in each calendar year and adesign agency should be chosen that can offerexperienced input and consultancy in the field.Confidentiality is key when choosing bothdesigners and printers. IROs should check thatthe providers have systems in place to remindtheir employees of their responsibilities withregard to price-sensitive information.

Auditors – few IROs will have to work closely withtheir company’s auditors on a regular basis butthey should at least develop a relationship withthem and be aware of any issues that mayconcern investors. Recent scandals in the UShave put auditors and the role of audit committeesmuch higher up the investor agenda so IROs willbe required to have a knowledge of relevantissues in their dealings with the financialcommunity.

P R A C T I C A L G U I D E T O I N V E S T O R R E L A T I O N S 1 3

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Legal advisors – there will be various instanceswhere IROs are required to translate complicatedlegal information into more easily understandablelanguage without adding any new legal risks. IRpractitioners may also have to work closely withtheir legal advisors when announcing materialevents or during intensive periods of corporateactivity, such as mergers or acquisitions.

Primary Information Providers (PIPs) – thederegulation of the Regulatory News Service in2002 meant that all UK-traded companies wererequired to choose a Primary Information Providerto release their price-sensitive information to themarket. There are a number of FSA-approvedservice providers whose role is to take yourannouncement and send it out through SecondaryInformation Providers (SIPs), such as Reuters andBloomberg, to the market.

Employees/

retired

employees

Customers

Suppliers

Lobbyists/

activists

Legal

advisors

Corporate

finance advisors

Broking

houses

IR consultants

Financial

designers and

printers

Registrars

Primary

information

providers (PIPs)

Government/

regulatory

bodies

A more complete set of other contacts can be seen

in the diagram below:

?Other

contacts

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Bestpractice IRand the IRtoolkit

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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 structuredand use audiovisual and technological aids asnecessary. Many companies now choose to makelarger meetings and presentations available via anaudio or video web cast on their IR web site inorder to avoid any charges of selective disclosure.

The main meetings and events will include:

Quarterly, interim and preliminaryresults – the ‘prelims’ have takenon greater significance in recentyears as the market looks for its

first concrete information on the lastreporting period and some pointers as to the nextquarter or half year. Prelim results will normally beannounced through a Primary Information Provider(PIP) at 7.00 a.m. and then followed up with arange of presentations and meetings during theday and a road show where appropriate.

Although the chief executive or finance directorwill normally be expected to lead the resultspresentation, the IRO will be closely involved instaging the meetings, inviting relevant audiences,and crafting the material for analysts, investorsand journalists. IROs will also be involved infielding the follow-up calls that are generated byresults presentations.

Annual General Meetings (AGM) –the AGM is a statutory requirementand should offer shareholders thechance to quiz management, to

review activities and deal with anyissues of concern. The company should also viewit as an opportunity to gain feedback fromshareholders.

For many smaller companies, AGMs can be a bitof a non-event with few shareholders turning upand a simple need to run through the legalrequirements. That could change in the future,however, as institutional investors are beingencouraged to take a more active role in themeetings and to use their votes to focusmanagement in the direction they desire.

IROs should ensure that they are aware of anypotential investor concerns prior to the meetingand help management to develop the necessaryresponses well in advance. If any price-sensitiveinformation is released at an AGM - either as aplanned event or inadvertently in an answer - thenit should be sent out as a public announcementthrough a PIP.

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“A regular reporting cycle provides companies withthe opportunity to demonstrate their strengths tothe market and renew their relationships with keystakeholders. It also serves to reduce some of thevolatility around the share price.”Winner - Best Results Meetings & Analyst Briefings,

IR Magazine UK Awards 2003

L O N D O N S T O C K E X C H A N G E1 6

Institutional investor and analystmeetings – most companiesarrange meetings with leadinginstitutional investors and sell-side

and buy-side analysts. There remainsa tendency to keep the investor and analystcommunities separate due to their differinginformation needs. Whatever approach is taken,companies should ensure that no meeting leadsto selective disclosure to one particular institutionor group.

In these meetings it is vital that your keymessages are made clear e.g. what yourcompany’s core competency is and what yourcompetitive strengths are. A general discussion ofyour business will make little impact, but byfocussing on your key strengths you will marketyour business far more effectively. Also, you needto explain the value your board members aredelivering to shareholders and their subsequentremuneration. As corporate governance worriescontinue to grow, you should always be preparedto be fully accountable on this matter.

The timing and location of your meetings can bekey in attracting attendance. Lunch meetings areno longer as popular since they take up too muchtime and can be less productive than a focusedone-on-one meeting. City-based resultspresentations are the norm rather than expectinginvestors and analysts to travel to yourheadquarters.

Buy-side and sell-side analysts will expect to haveone-on-one meetings with senior managementafter major results announcements or duringinvestor road shows by the company. IROs shouldensure that no price-sensitive information isinadvertently leaked during such meetings andannounce information to the wider market if thediscussion moves into these areas.

Many companies arrange site visits for theirinvestors and analysts to provide greater insightinto their operations. They can also be used tointroduce other members of the managementteam or demonstrate new products andprocesses. Most companies veer away from usingsite visits to give detailed financial presentations.

A word or two of warning: do not randomly sendout invitations to the financial community orinitiate contact with investors and analysts whenyou do not have the means to provide informationto them over a longer period. Active targeting iscrucial as a way of focusing the resourcesavailable for your IR programme and gaining thegreatest impact from your meetings with thefinancial community.

Remember the importance of feedback. IROsshould view all of their meetings with the financialcommunity as an opportunity to gather thethoughts of the market on their company’sperformance and snippets of information abouttheir competitors.

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Media briefings – journalists willexpect companies to write pressreleases for stories of note. Sendingout a release via a PIP is the

accepted way of disseminatinginformation to the market. Many companies alsochoose to send their releases directly to leadingjournalists, investors, and analysts. Best practicedictates making such releases available on yourcorporate web site at the same time as they arereleased through a PIP.

Most quoted companies hold press briefings forfinancial journalists on the same day as releasingtheir results to the financial community. Thebriefings tend to be similar to those arranged foranalysts but are likely to have less technicalfocus. Journalists may also want to concentrateon a particular angle that they believe will appealto their readers so IROs should be aware oftopics that might attract attention and brief theirmanagement team accordingly.

Obtaining coverage from journalists will alsorequire expert targeting. Financial PR consultantsshould know which journalists are most likely tobe interested in your story and help in setting upinterviews and briefings.

Regional shareholder meetings –companies with large numbers ofprivate shareholders or aconcentrated group in one region

may find it useful to stage localshareholder meetings. The meetings shouldprovide private shareholders with the opportunityto question senior management after a formalpresentation or company-led discussion.

Relatively few UK-traded companies stageregional shareholder meetings but there is nothingto stop smaller companies intent on building aprivate investor following from devoting moreresources to this area. Some companies find ituseful to combine such meetings with customers,suppliers, employees and other stakeholders witha view to updating a wider group on companyperformance and outlook.

Road shows – there are a number ofspecific areas where smallercompanies can find that a proactiveattitude reaps particular rewards. A

drive to attract private investors,perhaps by cultivating regional private-clientbrokers and their customers via a series of roadshows around the country, can help broaden theshareholder base and improve liquidity. Such aninitiative is also likely to be good for thecompany’s profile in the regional press – and whileit is mostly larger privatised utilities which havemade use of this idea so far, smaller companiesare catching on to its potential.

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Aside from the main events and meetingsdictated by the financial calendar, IROs shouldkeep in regular contact with the market tomanage expectations and gain feedback.Companies are also required to provideinformation through mandatory communicationstools, such as the annual and interim report.Best practice dictates that companies also keeptheir investor audiences up to date with acorporate IR web site. Some of these tools areexplained in more detail below.

Annual reports – the printed annualreport has evolved from the dry,purely financial and legal documentit once was, into a more informative

publication aimed at a wider group ofstakeholders. Most traded companies now usethe front of their report to update investors andother readers on business lines, strategic thinking,key financial ratios and issues such as corporategovernance and corporate social responsibility.The back of the books remain focused on thefinancials and explanatory notes.

Companies with large numbers of privateshareholders often opt to produce a summaryreport that is smaller in scope and cheaper toproduce and distribute. All recipients of such asummary report are given the option of receivingthe full report and accounts should they so wish.

IR web sites and electroniccommunications – in the mid-1990s,very few traded companies haddeveloped their own IR web sites.

Today, very few traded companies canexist without one. The web has become a key toolof investor relations due to its ability to provideeasily updated information to a global audience,24 hours a day.

Good IR web sites act as an electronic library ofcorporate information, a briefing tool for thosenew to the company, and an ongoing informationalert system to help in the distribution of price-sensitive news. It should be noted that the FSA’sregulations do not recognise publication of apress release on a company’s own site as beingsufficient distribution of price-sensitive informationto the wider market – companies have to sendreleases out through one of the approved PIPservices.

Some traded companies have begun to use theirsites to web cast their investor meetings in a bidto ensure that private investors gain the sameinformation at the same time. Financial regulatorshave encouraged these moves towards web-based communications because it enablescompanies to level the information playing fieldbetween private and institutional investors. Itmeans that all audiences can now gain access toprice-sensitive information as soon as it isreleased, whereas in the past professionalinvestors tended to have an information edge.

Web casts and conference calls – amajor part of the IR armoury.Conference calls allow investorsand analysts located across the

globe to listen to presentations andask questions even if they cannot make it to apresentation in person. Many companies are nowlinking their results announcement conferencecalls with web casts through their IR web site inorder to open up the presentations to a wideraudience. The professional investment communitystill has the advantage of being able to askquestions over a limited access conference callbut all investors can listen to the presentation asit takes place or can access the presentation in anonline archive after the event.

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The IR Calender

Board decision INVESTORS ANALYSTS EMPLOYEES OTHER Buy-Side Sell-Side STAKEHOLDERS

Preparation of year Perception studyend results and materialsPerception study

Sign off of results and 1:1 meetings with Analyst results Newsletter anddistribution of materials top 20 investors meetings internal conference

Intranet alertfor results

“Laying the foundations” Shareholder analysis 1:1 Analyst Employee Product – identifying new meetings satisfaction survey exhibitiontarget investors – intranet based

“Laying the foundations” 1:1 meetings with“Building an target investorsunderstanding”

Q1 Results preparation Post release email Post release email Newsletter andsign off and release alerts and calls alerts and calls intranet alerttrading statementAGM

“Building an Investor Day for new Analyst site visit Customer understanding” and existing satisfaction

investors survey

Preparation of materials Perception update Perception update Supplier and Interim Results satisfaction

survey

Interim Results sign off Post release email Post release email Newsletter andand distribution of alerts and calls alerts and calls intranet alertmaterials

“Proving the pudding” 1:1 meetings with Analyst results Interview withtop 20 investors meetings CSR lobbyist

group

“Proving the pudding” 1:1 meetings with 1:1 Analystother investors meetings

Q3 results preparation Post release email Post release email Newsletter andsign off and release alerts and calls alerts and calls intranet alerttrading statement

“Enhancing the profile” Website overhaul Website overhaul Corporate investor relations investor relations entertainmentpages pages

A best practice example of an IR timetable

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

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and bestpractice

developments

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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 bestpractice can be challenging when you are alsotrying to manage the ongoing expectations of yourshareholder base. Unfortunately, that is no excusefor failing to take note of new regulations or thechanging information needs of investors.

There are a range of statutory and otherregulations that IROs should be familiar with whileensuring that they keep up to date with newinitiatives. In the UK, some of the main legislationand regulations to consider are the variousCompanies Acts, the Financial Services andMarkets Act (FSMA), the Takeover Code, AIMTM

Rules, the UK Listing Rules, and the CombinedCode. There are also a number of Europeandirectives that have significant impact upon IRbest practice and developments in the US marketare often mirrored within the UK.

IROs are also advised to keep abreast ofguidance and regulatory announcements from theDepartment of Trade and Industry (DTI) and theFSA. In the wake of the collapse of Enron in theUS, corporate governance initiatives are at thetop of the regulatory agenda and there are a

number of ongoing debates relating to issuessuch as the independence of directors and auditorindependence. The Combined Code on corporategovernance was revised in July 2003, to take intoaccount the Higgs Report on non-executivedirectors and the Smith Report on auditcommittees. In addition, the EuropeanCommission is currently consulting on a companylaw and corporate governance action plan. Thevery latest developments can be gleaned from theuseful web site links at the end of this section.

Some recent regulatory and best practicedevelopments of note are covered below. IROsare reminded that these are only briefintroductions to sometimes complicated rules andregulations. If in any doubt, please consult yourlegal counsel.

Regulation Fair Disclosure (Reg FD) – introducedby the US Securities and Exchange Commission(SEC) in October 2000, Reg FD has had asignificant impact on IR practice across the globe,although it only technically applies to US-listedcompanies. The regulation is an attempt to clampdown on so-called ‘selective disclosure’ throughwhich companies gave advance or closedbriefings to institutional investors and analysts.US-listed companies are now required to widelydisseminate price-sensitive information beforeembarking on such briefings with the financialcommunity.

Reg FD does not go any further than the UKmarket’s long-standing requirements on disclosurebut it does underline the expectations ofregulators and has led the move towards furtherdisclosure over the internet. It is now common fortraded companies to web cast their resultspresentations so that all investors can gainaccess to the same information at the same time.

Financial Services and Markets Act (FSMA) – amajor piece of UK legislation that came into effectin December 2001. The FSMA laid down newrules on market abuse and updated the Price-Sensitive Information (PSI) Guide. Both have animpact upon the ‘selective disclosure’ ofinformation and are therefore crucial to IRpractice.

L O N D O N S T O C K E X C H A N G E2 2

Market abuse – the FSMA increased thelikelihood of prosecution for market abuse byintroducing a new civil offence to supplement theexisting criminal offences of insider dealing. Thismeans that the Financial Services Authority nowonly has to show that ‘the balance of probability’points to an offence having been committedrather than proving it ‘beyond reasonable doubt’for a criminal prosecution. The new civil offencesfor market abuse are:

� misuse of information – broadly equivalent tothe old insider dealing offence.

� creating a false or misleading impression –relating to market information.

� market distortion – whereby your behaviourmay distort the market.

Anyone looking for further information on themarket abuse regime should consult the FSA’sCode of Market Conduct.

Price-Sensitive Information (PSI) Guide – theupdated PSI Guide from the UK Listing Authoritydefines price-sensitive information as ‘informationthat may or would be likely to lead to a substantialmovement in the price of a company’s shares.’Companies and their legal advisers mustdetermine themselves exactly what this covers.

The guide does clarify relationships with certaingroups and, in line with Reg FD in the US, itsteers companies away from the dangers ofselective disclosure. Some highlights are:

� briefings to analysts should be opened up tothe public.

� analysts should not be given any preferentialtreatment in the release of price-sensitiveinformation.

� companies should review their procedures formeetings with analysts to ensure that no price-sensitive information is revealed.

� companies are encouraged to publishinformation over the internet but should notview putting it up on their website as theequivalent of wide dissemination to the market.Price-sensitive information has to be sent tothe market via an approved regulatory newsservice (one of the approved PIPs).

Sarbanes-Oxley Act of 2002 – introduced in theUS in 2002 in response to the corporate scandalsof Enron, WorldCom and the like.

The legislation applies to all companies listed inthe US, although non-US companies listed in theStates have been granted some exemptions bythe SEC. The ramifications of the legislation havebeen much wider, however, with market regulatorsthe world over introducing similar rules.

The Act deals with a range of corporategovernance and disclosure issues and is designedto tighten up procedures for listed companies andprevent them from failing to release pertinentinformation to investors. The areas it coversinclude:

� auditor and audit committee independence;

� improved disclosure of price-sensitive events;

� insider accountability and disclosureobligations.

The Sarbanes-Oxley Act also makes reference toanalyst conflicts of interest, leading to the so-called Global Settlement between Wall Streetfirms and a range of US regulatory authorities.

IROs should also be aware of the followingongoing issues:

Corporate governance – the Higgs report, whichconsiders the role and effectiveness of non-executive directors, has resulted in changes tothe Combined Code. Its aim was to bring about“greater transparency and accountability in theboard room, formal performance appraisal andcloser relationships between non-executivedirectors and shareholders.” Among the keyproposals are that:

� the roles of chairman and chief executiveshould be separated;

� a chief executive should not become chairmanof the same company and at the time ofappointment should meet the test for anindependent director; and

� an audit committee should be established andat least three of its members should beindependent non-executive directors.

Following lobbying from industry bodies, theproposals were relaxed for smaller quotedcompanies in certain areas. For example,companies outside the FTSE 350 need not haveat least half their board composed of non-executive directors if they have at least least twonon-executives.

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European legislation – there are variousdirectives passing through Europe that aim toharmonise the European financial services sector.By 2005 all companies will need to useInternational Accounting Standards entailingconformity of financial statements with strictinstructions on how these are to be interpreted.

Additional legislation includes:-

a) Market Transparency Directive, which ensurestransparency of information about issuers whosesecurities are admitted to trading on a regulatedmarket. Issuers will need:

� to produce an annual financial report withinthree months of the end of the financial year;

� a detailed semi-annual financial report; and

� quarterly financial information for the first andthird quarters of a financial year.

b) Prospectus Directive, which ensures that aprospectus once approved by the home countryauthority of the issuer then has to be acceptedthroughout the EU for public offer and/oradmission to trading on regulated markets.

c) Investment Services Directive, which is beingupgraded as part of the Financial Services Action Plan.

Shareholder activism – part of the value derivedby shareholders lies in their ability to put forwardtheir case for company change. Shareholdersoften focus on a company’s environmental recordand its policy on executive compensation. IROsshould ensure that they are aware of the agendasof any activist shareholders and advisemanagement teams how to respond.

Corporate social responsibility (CSR) – CSR hasbecome increasingly important to companies inthe last couple of years as they endeavour tomanage the ways in which their various audiencesview their activities. CSR has a range ofdefinitions but is probably best described as theway in which a company manages its impactsupon society and the environment.

Companies have become concerned that unlessthey are seen to be acting in a responsible fashion(managing the risks associated with poorenvironmental, ethical or social performance),their consumers and investors may well take theirmoney elsewhere. Communicating this activity -and its effects - to investors and otherstakeholders has become an accepted part of awell-developed CSR function. In many instances,the responsibility for this role falls within the remitof the IRO.

Accounting standards – IROs should have abroad understanding of accounting standards andkeep up to date with some of the relevant issuesat a domestic and international level. The last fewyears have seen a big debate as to how toaccount for retirement benefits, such as pensions.The UK accounting standard - FRS 17 - requirespension plan gains and losses to be recognisedon the corporate balance sheet.

øP R A C T I C A L G U I D E T O I N V E S T O R R E L A T I O N S

“Companies seeking to maintain IR best practicehave to keep apace with an increasingly toughregulatory framework.”Winner - Best Disclosure Practice by a non-FTSE 100 Company,

IR Magazine UK Awards 2003

Putting IR

intopractice

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Each company’s IR strategyshould be determined bycareful consultation betweensenior management and theIRO. The strategy shouldevolve in line with feedbackfrom various audiences and asthe company’s understandingof the market develops.

IROs are responsible for putting the IR strategyinto practice and should be aware of some of themajor areas where things can go wrong. Listedbelow are key elements of a typical IR programmetogether with a number of hints as to how toavoid some of the pitfalls that they may represent.

Financial calendar, administrationand logistics – the most commonmistake in terms of planning thefinancial calendar is failing to be

organised and plan far enough ahead.It sounds obvious, but if you are working late onthe annual report every night for a week the lastthing you want to do is take time out to book avenue for a results presentation six months downthe line. Unfortunately, you may then find thatyour options are squeezed as every other tradedcompany is trying to book the same venue at thesame time. Best practice dictates planning ahead.Be strict with all the external agents and advisersthat you use and make sure that they adhere toany deadlines that you give them.

Annual reports – once again,planning ahead is crucial. You knowthe annual report has to bepublished by a set date so work

back twelve months and design acalendar with target dates accordingly. Thinkingabout next year’s report when you have just sentthe current one to press is unlikely to be anattractive proposition but that is exactly what youshould be doing. Call designers, printers andother agencies well in advance and make sureeveryone can work together as a team.

Annual report distribution can be a majorheadache. Ensure that your registrar is as up todate as possible so that your mailing list iscorrect. You can reduce distribution costs byputting a PDF copy of your annual report on yourIR web site and directing students and otherresearchers to the site.

Your annual report should follow best practice inreporting - see the check list included in thepocket at the back of this guide. Also rememberto seek feedback from shareholders and otherstakeholders to make sure that you are dealingwith the information needs of all of youraudiences.

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Company presentations andmeetings – there is nothing worsethan a flawless presentation to thewrong audience. Make sure that

your contact database is up to dateand that you know the information needs of theaudience to whom you are going to present.

Larger traded companies tend to slightly tailortheir presentations according to the information orcultural needs of shareholders in differentmarkets. There is nothing to stop smallercompanies from taking the same tack on adomestic basis - as long as they abide by therules for the release of price-sensitive information.

Prepare in advance for all presentations andpersuade those giving the presentations that theyneed to set time aside for a rehearsal. IROsshould assess the ability of their seniormanagement to convey corporate messages tothe financial community. Frequent presentationtraining is a crucial part of any IR programme,regardless of the seniority of those making thepresentation. It ensures that presenters are up todate with current issues, on their toes, and helpsthem avoid falling into the same traps time aftertime.

It may be that training advice is best delivered bya senior external adviser. Rehearsing with externaladvisors can be a useful way of highlightingpotential presentation or Q&A problems andtactfully preparing senior management for some ofthe challenges that may arise during apresentation. For example, during rehearsals,never shy away from asking the most difficultsearching questions that might arise. Answersshould be honest, transparent and stick to therelevant facts. The rehearsal is also an opportunityto smooth out any technological glitches. If youare not capable of producing high qualityelectronic presentations in-house then outsourcethe presentation well in advance.

Regulatory considerations should be paramountthroughout a presentation. Think carefully aboutwhat best practice requires at every stage ofdeveloping a presentation and carefully monitorthe event as it goes live. Make sure that anythingthat is said complies with current regulations and,if necessary, send out a release to announcefurther price-sensitive information to the market. Ifthe presentation is well planned in advance andthe senior management team know the relevantresponses then there should be no need forcorrective action after the event.

After a presentation the IRO should solicitfeedback from the audience and offer furtheraccess to senior management if needed.

Company statements/financial news releases – think ahead. Tryand predict some of the likelyquestions from analysts and

investors and answer them up frontwithin the release. Be as factual as possible andavoid putting too much gloss or spin upon anannouncement. If it is bad news, be honest aboutthe situation. Releases should strike a finebalance between being as transparent as possibleabout your business and not giving away valuablecompetitive information. Where doubts remain IRadvisors can be used to give input to materialsprior to release.

Remember that investors, analysts, journalists andother key audiences often receive hundreds ofreleases each week. Do not bombard yourcontacts with unnecessary releases because theywill then tend to ignore important information. Atthe same time, never shy away from sending outprice-sensitive information in line with theregulations.

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IR web sites – the most commonproblem with web sites is that theyfail to take into account the needsof the user. Your web site might

have far more corporate informationthan any of your competitors but it will be uselessunless users can navigate easily around the site.

Make sure that your IR home page offers easylinks to the most frequently accessed information.You should maintain a regular check on whichpages are being accessed the most and thenbring those pages to the fore when redesigningthe site or via button links from the home page. Agood search engine facility on your site can helpusers locate the information they need. The mostadvanced IR web sites are now allowing visitorsto ‘pull’ the information they want from the site bydefining their own virtual home page.

The IR web site is the easiest and most cost-effective way of keeping your audiences up todate with corporate initiatives but it should not beseen as a replacement for sending out releases tothe market via the PIP system. Use the web as anadded channel of information to grant access toyour investor presentations, analyst meetings, andsite tours. E-mail alerts are easy to set up so thatinterested visitors can register for up-to-datenews but, as with the warning on companystatements, do not abuse the system by sendingout too much information. Your audiences willsoon lose interest in your alerts.

Traded companies are advised to monitor internetchat rooms but to steer clear of respondingdirectly to chat or rumour within the chat roomsthemselves. You should invite feedback via yourofficial IR web site and develop a consistent rulefor responding to rumours that operates acrosswritten, spoken and electronic communications.

Crisis management – some tradedcompanies make the mistake ofthinking that you cannot plan for acrisis. You may not know exactly

what a crisis may bring but you shouldat least have put in place a structured means ofresponding to an emergency situation.

A good crisis management plan should nominate ateam of internal and external personnel to dealwith such a situation and keep that team informedas to any changes. Regular practice is one of thebest ways of ensuring that a team knows its roleand how to respond to various situations. A planof action is probably best developed in tandemwith expert advisors and should be carefullyconstructed to allow for changing circumstances.

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“The most successful IRstrategy will be executedwithin a context of totalawareness of your ownshareholders' views togetherwith preparation for everyeventuality.”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 T O I N V E S T O R R E L A T I O N S

Managingthe

shareholderregister

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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 owninvestment characteristics. For example, privateinvestors may be more loyal and hold the stocklonger than institutions. Yet private investors arelikely to have relatively little individual impact onyour stock whereas one institutional buy or selldecision can have a major effect. Hedge funds, onthe other hand, may introduce an element ofvolatility into your stock by buying and sellinglarge tranches of shares in a relatively shortperiod.

It is in the interests of an IRO to try and identifywhich types of investors have holdings in thecompany. Your broker, registrar and IR consultantshould be able to help you in that process. Armedwith that knowledge, you are in a better positionto know how your stock might react to certaincorporate news. You can also begin targetingparticular types of investor to slowly change themake-up of your shareholder register should it bedesired.

There is no recommended or ideal balancebetween institutional and retail shareholders. EachIRO will have to come to their own decision basedon their own feedback, the current state of theirshareholder register, and the resources availableto them to target new investors. IROs shouldconsider their own resources before undertaking aprogramme to change the make-up of theirshareholder register. While some investors willinevitably drop off your register as you target newcontacts, you should always ensure that you havethe ability to maintain the information flow tothose on your register.

L O N D O N S T O C K E X C H A N G E3 0

There is little point in targeting thousands ofprivate investors if you do not have the time ormoney to support their information needs over thelonger term. Private investors can be highermaintenance and more time-consuming than theirinstitutional counterparts, particularly as it maytake several thousand to match the buying powerof one institution. Each private investor has just asmuch right to information from the company as aninstitutional shareholder and that can be a seriousdrain on IR time if it is badly managed. IROsshould use the web as much as possible tosupport and update their private investors, leavingmore time to hold the hands of the biggerinstitutions.

One issue to bear in mind is that too high aproportion of private shareholders can lead tovery costly administrative charges and AGMs.On a more positive note, however, a large retailinvestor base could be an asset as it promotes aninvestor friendly corporate profile.

Illiquid share registers are a problem for smallerquoted companies in general since there is suchhigh competition for attention from institutions.The consolidation of the fund managementindustry has not helped in that regard. Still, thereis nothing inevitable about such a situation.Liquidity and volatility can be helped by an activeIR programme that continually feeds theinstitutional market with information about thestock. The programme should focus on conveyingan attractive investment case combined withproactive marketing to investors who support thelong-term strategic aims of the company.

Many smaller quoted companies make themistake of relying too heavily on their housebroker to market their stock. Your broker will helpbut will also be faced by the reality that you are asmall client offering little financial reward for adedicated marketing campaign. Even largercompanies come unstuck by relying too heavily onone broker – each broking house will tend tofocus on a particular group of investment clientsand these may not necessarily be the best fit withyour own investment profile.

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A proactive IRO will try to persuade other analyststo research your company, although your successwill probably be limited by your marketcapitalisation and whether your sector is currentlyin vogue. The smallest quoted companies willprobably struggle just to persuade their housebroker to generate research (see ‘Small companyconcerns’ on page 32 for helpful hints). Mostadvisors suggest that there is nothing wrong inpaying for independent research from a goodanalyst – your financial PR advisor should be ableto advise you on that issue.

Another alternative is to hire the services of adedicated IR consultant to introduce you to newinstitutions and help you target those that fit yourinvestment story. They can also advise you onhow your investment proposition is viewed by themarket and help you gain feedback on your IRprogramme. You should also build up newcontacts in-house and have some annualobjectives for making contacts or holdingmeetings with new investors.

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��L O N D O N S T O C K E X C H A N G E3 2

SmallcompanyconcernsThroughout 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 focusmore of their attention on larger quotedcompanies. There are a range of factors behindthis trend, including a move toward moreinternational investment, the introduction of theEuro, and the consolidation of the securities andfund management industry. Unfortunately, brokersand analysts have followed these moves in a bidto retain the business of their investor clients,making it doubly difficult for smaller quotedcompanies to attract attention in the market.

Institutions have also shied away from smallercompanies due to liquidity or governanceconcerns. Many smaller quoted companies stillhave significant founding family shareholdings andthe limited free float can make it hard for aninstitution to take a large enough stake in thecompany. At the same time, large familyshareholdings can be seen as a barrier toprogress or good governance – both of which areguaranteed to scare off institutional investors.

From a corporate viewpoint, share pricevaluations are lower than desired and access toinitial or continuing funding is often severelyrestricted. From an institutional viewpoint, P/Es ofsmaller cap stocks stand at a discount to that oflarger stocks as a form of negative compensationfor the extra difficulty in dealing in the shares,whether it be low daily trading volumes ordifficulty of entry or exit to the share register.

So how should you go about attracting theattention of the professional investmentcommunity?

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Most fund managers want to look at smallercompanies from a growth perspective. They willonly invest if they believe that your company hasa real opportunity to grow over the coming years.Smaller quoted companies which manage toposition themselves as growth stories will tend tobe those that benefit the most from institutionalinterest.

Sell-side analysts cite three possible reasons tofollow a smaller quoted company if their firm isnot the corporate broker. The first is similar to thetype of story most likely to attract institutionalinterest: believing the company is a growth stock.Being known as an expert on a significant growthstock can help the analyst attract investorattention that, in turn, might lead to institutionsdealing through his or her organisation.

Next comes the so-called ‘conflict of interest’argument that has been mentioned earlier in thisguide. Analysts cover companies because it helpstheir firm to pick up corporate broking ortransaction business – the analyst acts as a lossleader.

Finally, if an analyst already covers othercompanies in the sector then it may be relativelylittle extra work to add on coverage of anotherstock. That extra effort can also help put otherresearch into a wider perspective.

There is some positive news to report, as theshift between balanced and specialist fundmanagement continues. This shift in focus bringsthe prospect of increased demand for smallercompany shares from a breed of fund managerswho possess both commitment and expertise.Admittedly it will take a while to impact however itis 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

L O N D O N S T O C K E X C H A N G E3 4

�Glossary

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AGMs

The AGM is a statutoryrequirement. The usefulness ofthe AGM has arguablydiminished in recent years asthey have progressively becomeopportunities for privateshareholders, pressure groupsand environmental lobbyists togenerate publicity. Efforts areunderway to encourage moremeaningful AGM engagementwith institutional shareholders.Practical matters to considerinclude coinciding AGM withcompany visits by analysts andinstitutions to encourage theirattendance.

AIM

Set up in 1995 and designed toprovide a global market forsmaller and growing companies.The benefits are lower costsand simpler rules, though onceadmitted, companies havecertain ongoing disclosurerequirements. While AIMcompanies do not fall within thestrict definition of ‘listed’companies, their shares may bedescribed as being quoted ortraded on the market.

www.londonstockexchange.com/aim/default.asp

Annual reports & interimstatements

A key requirement of thedirectors is to report at the endof each financial year to theshareholders as to the financialperformance during the year andthe financial position of thecompany at the year-end.Annual report and accountshave to be filed with theRegistrar of Companies atCompanies House where theyare available for the generalpublic, as well as being sent toindividual shareholders.

Auditors

All traded companies arerequired to have their accountsindependently audited beforepublication in their annual reportand accounts and CompaniesHouse filing. Restrictions arecurrently being considered onthe extent to which audit firmscan offer additional services,and some audit firms havealready spun off for instancetheir consulting arms.

Banks

Commercial banks deal withtaking deposits and lendingmoney to individuals andcompanies.

Retail banking involves highstreet branches dealing with thepublic, shops, and smallbusinesses.

Wholesale banking involvesdealing with other banks, thecentral bank, listed and privatecompanies, and investmentinstitutions.

Investment banks can meanmany things. They can be any orall of a stockbroker, a merchantbank, market maker andcommercial bank. They deal withhelping companies to findmoney and will give advice onthe best source of finance. Ifthe choice is bonds or equities,they will help the issuer to pricethem, assist in selling andunderwrite the issue. Merchantbank is a UK term and theequivalent in the USA isinvestment bank. A merchantbank in the USA has a narrowerdefinition, being applied totaking an active part with thebank’s own capital intakeover/merger activities.

Activities of an investment bankinclude:

� Accepting

� Accepting bills ofexchange

� Corporate finance (primarymarket activity)

� New issues –bonds/equities

� Rights issues

� Mergers andacquisitions

� Research

� Securities trading (secondarymarket activity)

� Investment management

� For companies,pension funds, high networth individuals

� Analyst separatedbetween sell-side andbuy-side

� Syndicated loans

� Foreign exchange

Glossary courtesy of the Investor Relations Society, Europe's leading professional body for those in investor relations.

L O N D O N S T O C K E X C H A N G E3 6

Central banks typically have thefollowing activities that maydiffer in each country:

� supervision of bankingsystem

� advising the government onmonetary policy

� issue of banknotes

� banker to the government

� banker to other banks

� lender of last resort

� control of currency reserves

� raising funds for thegovernment

� international liaison.

Corporate brokers

Corporate brokers are virtuallyonly found in the UnitedKingdom. Having one used tobe a requirement by the LondonStock Exchange plc. Having asponsor is still a requirementsof the Listing Rules.

The role of the corporate brokerin IR has developed in recentyears. Typically the corporatebroker will organise road showsfor large companies forinstitutional investors. The aimis to increase the volume ofshares traded in thesecompanies; such services aregenerally provided free by thebroker for large companiesalthough smaller companies mayhave to pay a fee.

� Corporate broker

� company’s maininterface with market

� provides market withinformation oncompany

� feedback to companyof market’s view of itsstock

� manages contact withinstitutional investors

� compliance with listingrules.

Corporate governance

In the UK the principles of goodgovernance and code of bestpractice are outlined in thecombined code. Compliancewith this code is part of theFSA’s Listing Rules. The newCombined Code incorporatingthe recommendations of theHiggs Report will apply forreporting years beginning on orafter 1 November 2003.

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

Corporate social responsibilityand socially responsible

Corporate social responsibilityinvolves companies taking intoaccount the social andenvironmental impact of theiractions – locally, regionally,nationally and internationally.

www.societyandbusiness.gov.ukThe Government’s CSR website

Investment

Socially Responsible Investment(SRI) is investment wheresocial, environmental or ethicalconsiderations are taken intoaccount in the selection,retention and realisation ofinvestment, and the responsibleuse of rights (such as votingrights) in relation to investment.SRI combines investors’financial objectives with acommitment to social concerns

www.bitc.org.ukBusiness in the Community’swebsite www.uksif.orgUK Social Investment Forum’swebsite

Directors

Directors are appointed by theshareholders to run thebusiness on their behalf.Shareholders can exert theirvoting rights to appoint ordismiss directors, or vote onmajor operational issues.

Executive directors

Management of the day-to-dayoperation of the business

Non-executive directors

Role is advisory and supervisoryindependent of executivedirectors. The role of NEDS hasbeen the subject of a review byDerek Higgs.

http://www.dti.gov.uk/cld/non_exec_review/condoc.pdf

The Government’s consultationpaper on the effectiveness ofnon-executive directors

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Financial calendar

As a result of the regulatoryrequirements of the LondonStock Exchange plc andCompanies Acts in the UK (andthe equivalent in othercountries) there are a number ofevents and obligations forcompanies in the financialcalendar, which can be used asopportunities for IR.

These are:

� Annual reports

� Prelim and interimsstatements

� Annual general meeting

� Listing obligations.

Financial markets

Financial markets are all aboutthe raising of capital.

They are there to match thosewho want money (borrowers)with those who have money(lenders).

In order for a mechanism toexist to enable those who wantmoney to find the lenders, theremust be intermediaries toorganise this flow of money.Financial markets provide theintermediaries.

Financial Services Action Plan

The key aims of the EU’sFinancial Services Action Planare:

� to create a single EU capitalmarket by modernising theEU’s legislative framework,including a wholesale reviewof the Investment ServicesDirective and legislation onprospectuses andaccounting;

� to develop open and secureretail markets, for example byagreeing on the “distanceselling” of financial services,providing information onmortgages, and preparing anEU-wide e-commerce policyfor financial services;

� to revisit prudentialsupervision, for example byamending the directivesgoverning the capitalframework for banks,investment and insurancefirms, and by creating aconsistent and coherentEuropean regime for financialconglomerates.

The heads of state of the EUhave called for implementationof the Action Plan by 2005, andthe European Commission iscurrently presenting many of itsformal proposals that will giveeffect to the legislativeinitiatives which the Action Planentails.

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

FSA

The Financial Services Authority(FSA) is the independent bodythat regulates the financialservices industry in the UK.The FSA has 4 main aims:

� maintaining confidence in theUK financial system bysupervising exchanges,settlement houses and othermarket infrastructureproviders; conducting marketsurveillance; and transactionmonitoring.

� promoting publicunderstanding of the financialsystem by helping peoplegain the knowledge, aptitudeand skills they need tobecome informed consumers,so that they can manage theirfinancial affairs moreeffectively.

� securing the right degree ofprotection for consumers byvetting at entry aims to allowonly those firms andindividuals satisfying thenecessary criteria (includinghonesty, competence andfinancial soundness) toengage in regulated activity.

� helping to reduce financialcrime by focussing on threemain types of financial crime:money laundering; fraud anddishonesty; and criminalmarket misconduct such asinsider dealing.

www.fsa.gov.uk

FTSE

The official indices tracking theLondon Stock Exchange plcequity and bond markets aremanaged by FTSE, which isowned by London StockExchange plc and the FinancialTimes and is a companyspecialising in index calculation.

FTSE changed in June 2001from calculating indices on thebasis of market capitalisation tousing a free float basis (i.e.shares available for trading).

www.ftse.com

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Hedge funds

The term hedge fund first cameto use in the 1950s to describeany investment fund that usedincentive fees, short-selling orleverage. Usually hedge funds:

� are organised as privateinvestment partnerships oroffshore investmentcorporation

� use a wide variety of tradingstrategies involving positiontaking in a range of markets

� employ an assortment oftrading techniques andinstruments, often includingshort selling, derivatives andleverage;

� have an investor basecomprising wealthyindividuals and institutionsand a relatively high minimuminvestment limit (set at$100,000 or higher for mostfunds)

Institutional investors

Institutional investors managepooled funds (other people’smoney) often totalling billions ofpounds. Institutions oftenmaintain a core holding but dealsmall amounts of a company’sstock on a regular basis.Pension funds and insurancecompanies are examples ofinstitutional investors.

IPOs

IPOs are the first sale of stockby a private company to thepublic. They may be smaller,younger companies seeking toexpand their business or theymay be larger companies wherethe owners want to sell out.

London Stock Exchange plc

The London Stock Exchange plcis one the world’s leading stockexchanges. It is the mostinternational of all stockexchanges, with over 1,600 UKand nearly 450 overseascompanies from over 60countries admitted to trading onour markets. The London StockExchange plc provides themarkets and means of raisingcapital for UK and internationalcompanies through equity, debtand depositary receipt issues. Italso gives investors of all typesthe opportunity to buy and sellshares in the companies of theirchoice.

www.londonstockexchange.com

Market abuse

The term market abuse coversthree broad types of behaviour:

� misuse of information;

� creating a false or misleadingimpression; and

� distorting the market.

The FSA has published adetailed code of guidance onmarket abuse called the Codeof Market Conduct. You canaccess information at:http://www.fsa.gov.uk/consumer/pdfs/market_abuse.pdf

OFEX

OFEX is operated by OFEX plcand is a prescribed marketunder Section 118 of theFinancial Services and MarketsAct 2000.

OFEX started with 45 securities,and since then has seen aprogression of companies whohave used it as a springboard toAIM and the Official List, whilstretaining a constant core ofcompanies who have chosen toremain on OFEX.

www.ofex.com

Price sensitive information

Price sensitive information isinformation that would affect thevalue of a company’s share if itwere made public.

In its capacity as the UK ListingAuthority, the Financial ServicesAuthority publishes a Guide toPrice Sensitive Informationwhich can be accessed on theirwebsite: www.fsa.gov.uk

PIPS (Primary InformationProviders)

In the Regulatory InformationService (RIS), PrimaryInformation Providers (PIPs) arethe organisations who receiveinformation from the companyand pass it out to theSecondary InformationProviders (SIPs) whodisseminate it.

P R A C T I C A L G U I D E T O I N V E S T O R R E L A T I O N S 3 9

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Regulation Fair Disclosure(Reg FD)

Reg FD was introduced in 2000by the Securities and ExchangeCommission (SEC) in an effortto prevent selective disclosureby public companies to marketprofessionals and certainshareholders. In the past, manycompanies released importantinformation in meetings andconference calls whereshareholders and the generalpublic were excluded. The goalof this rule is to even theplaying field between individualinvestors and institutionalinvestors.

The Reg FD rule reads asfollows: ‘Whenever an issuer, orany person acting on its behalf,discloses any material non-public information regarding thatissuer or its securities to[certain enumerated persons],the issuer shall make publicdisclosure of that information...simultaneously, in the case of anintentional disclosure; and...promptly, in the case of a non-intentional disclosure’

www.sec.gov

Road shows

The road show is a presentationby the management of acompany that is issuingsecurities or doing an InitialPublic Offering (IPO) topotential buyers, analysts andfund managers. The road showusually travels around a countryor number of countries.

Sarbanes-Oxley Act

The Sarbanes-Oxley Act waspassed in July 2002 in the USA,following a series of corporatescandals. The Act containssome of the most far-reachingchanges in the law governinghow public companies dobusiness. Among the measuresin the Act include, the creationof a new and independentoversight board to regulate theaccounting profession, a newrequirement that CEOs andCFOs certify that quarterly andannual reports are complete andcorrect and the accelerateddisclosure of all director andexecutive stock dealings.

www.sec.gov

Shareholder activism

‘Shareholder activism’ is abroad term that encompassesthe many ways in whichinvestors have engagedcorporate management on a

broad array of issues. Sociallyconcerned investors have useda range of tactics to lobby forgreater corporate socialresponsibility, dialogue withmanagement, letter writingcampaigns, attending annualcorporate board meetings, andfiling shareholder proposals,which are voted upon by all of acorporation’s shareholders.

Short selling

Short selling is the selling of asecurity that the seller does notown, or any sale that iscompleted by the delivery of asecurity borrowed by the seller.Short sellers assume the riskthat they will be able to buy thestock at a lower amount thanthe price at which they soldshort.

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© 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 notethat published information may not be up to date and will not include any developments since the date ofpublication.

This guide is of a general nature and is not intended to provide any legal or financial advice and must not be treatedas 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

Useful websitesLondon 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 T

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Contacts

UK & Republic of IrelandMarlin D’Sa020 7797 1057mdsa@londonstockexchange.com

InternationalShelley England+44 (0)20 7797 4363sengland@londonstockexchange.com

Claire Fargeot020 7466 5000ir@buchanan.uk.com