I have just finished a review of investor relations on Kenyan websites trying to find basic information on the listed companies there: AGM notices and annual reports and interim reports. Its a mission. I came across this post from Barclays Kenya and it raises the question: does anyone in Barclays Kenya care how their global brand is presented to the general public? Would this sort of submission be accepted in the UK? If not, why is it OK in Africa?

http://www.nse.co.ke/newsite/pdf/Announcement%202008/barclays_bank%20Ltd.pdf  

In addition to the above every financial information download link of the East African Breweries  website was not working.  Talk of the great African Renaissance and how Africa is the next best emerging market opportunity is hard to believe. Where is the pressure for improved governance going to come from, because without improved governance Africa cannot participate seriously on the global investment stage.

At minimal cost listed companies can see to be significantly ahead of their peers but nothing has happened (in the recent bull market and now in the bear market). This culture is inherent and I cant see any catalyst for change other than legislation. Even then enforcement is questionable as the please-make-a-plan-for-me-my-brother ethos applies. 

http://african.ipapercms.dk/IOD/GovernancePrinciples/.

The reports were handed out by the Institute of Directors South Africa on USB in the offline version to the media and practitioners and by all accounts it was well received. The online version on www.iodsa.co.za enables comments to be submitted to the IOD SA as the document is being reviewed online – just an example of the functionality of iPaper.

Most of our clients use iPaper, online software that publishes PDF’s online professionally, avoiding the need for bulky downloads.

The future for us is taking advantage of our Investorpass shareholder communications platform to act as an audit trail of the delivery of online annual reports so that the paper trail is cut out altogether. In Africa the default delivery mechanism will be hardcopy for some time to come as Internet penetration rates are low, nevertheless those companies adopting the online strategy sooner rather than later will be ahead of the Governance Curve in the long run.

Put in another way my question to listed companies would be “do you feel happy with not doing anything to increase your investment profile on the Web prior to 2010?”

Probably not so there’s the answer.

 -          The volume of broker coverage is low in Africa

-          The depth of broker research is shallow and resources limited

-          An independent view on the company adds credibility

-          Additional sources of information on the company may enhance and reinforce shareholder perspective

-          It will likely be inexpensive and there are no restrictions on its distribution

It is important for companies to follow strict standards to avoid such conflicts and to achieve a higher degree of credibility in the research product and the following are the standards to which companies and analysts should adhere: 

• Companies may compensate an analyst writing a research report in cash only and must not provide any compensation contingent on the content or conclusions for the research or the resulting impact on share price. 

• The analyst must disclose in the report:
  • The nature and amount of the compensation received for drafting the report;
  • The nature and extent of any personal, professional or financial relationship the analyst, his or her firm or its parent, subsidiaries, agents or trading entities may have with the company, its personnel, parent, subsidiaries or agents;
  • The author’s credentials, including professional designations and experience that qualify him/her to produce the report; and
  • Any matters that could reasonably be expected to impair his or her objectivity in producing the report.

The analyst must certify that the analysis or recommendations, if any, contained in the report represent the true opinion of the author(s).

 Listed companies must:

·         Engage qualified analysts who are committed to producing objective and thorough research that fully discloses any matters that could reasonably be expected to impair their objectivity; and

·         Not attempt to explicitly or implicitly influence the research, recommendations or behavior of the author(s).

Depending on how the research is written and distributed, investors can be misled into believing that the issuer-funded research appears to be from an independent source when, in reality, it is solicited and paid for by the  company. Therefore, full disclosure, as required above, is essential to avoid such misperceptions.

The JSE is still going to find the going tough. The liquidity is just not there, the markets are still scrip based, exchange controls etc. But its the political side that is the real barrier. The negativity that the South Africans attract in African markets is not fully appreciated by the South Africans and its difficult to see what benefit a JSE listing will bring other than increased profile (at an increased cost). Commissions and fees  will accrue to the SA market irrespective of what is said.

The correct approach would be for the SA brokers to forge alliances/ invest in the African brokers, learn the local lie of the land, sort out the research functions and play the game in the country of origin. Just like the Flemings model in the late 1990s. The countries consulted Kenya, Nigeria, Botswana, Ghana, Namibia and Mauritius all have good reason to be suspicious of SA’s intentions but conversely the conduct and regulation of the broking industry (in Kenya and Nigeria) does need significant improvement, but a listing in South Africa will not change this.

Some reasons why the JSE wont work:-

- not enough liquidity

- cost

- exchange control

- domestic overvalued equities (compared to regional peers)

Possible advantages of the JSE initiative include the ability to raise capital outside of the clearing and settlement etc of local markets. 

From our IR perspective listed companies are just as able to obtain an increased profile using the web. Primary listed companies should look inward to sorting out how the stock exchanges that represent them should get their acts in order.

Its not illegal to put forecast information on corporate websites in Africa, and if this is the case the company should take to care to ensure this information is posted responsibly with apppropriate “safe harbour” information.The information should also be posted without prominence. Directors tend to shy away from this disclosure as there is a constant responsibility to ensure that the information is not misleading. 

An alternative solution is paid broker research. The concept is new in Africa and there are best guidelines with which to comply (disclosure of how much has been paid for the report etc.) . We like the idea as a means to avoid the possible pitfalls of posting forecasts directly on the IR website.

Yes there are two levels of information generally and with regulation of this sort of thing being poor, the opportunity presented to directors of listed companies who do take their communications obligations seriously are significant. As an institutional investor extracting non-public material information from a listed company and having just put down the phone to the investee company, would you not think to yourself “what has management told other investors that they have not told me”.

The issue for listed companies in Africa is to adopt a disclosure policy, apply it, tell the investment community and show tangible evidence of this. This is the way to enhanced reputation and reducing the perception from the investment community that there might be a few surprises. The result: a lower discount rate as one percentage point is removed for consistent, reliable, transparent and meaningful financial reporting.

What does the heading of this blog have to do with this? In order for information to be deemed to be in the public domain it has to be available on an immediate, non-exclusionary and broad basis. Namely a newswire service post, submission to the stock exchange, or a webcast. Forget newswires and webcasts in Africa for the moment – how gooder job do the stock exchanges do – just check out the websites and see how many products are available for investors to receive news immediately. Very few.

This is an opportunity for listed companies.

Once correct details have been recorded (our software enables our clients to choose what information is needed in order for investors to register) the investor categories can be used to great effect. The ability to immediately discern and communicate with the media, analysts (buy side or sell side), individuals, shareholders at the press of a button (say upon the release of significant news, corporate actions etc) is key to saving time and money.

Our clients are also realizing that the compounding effect of corporate communications in brand enhancement and investment case dissemination can be significant. For example one client of ours has 500 registrants registered to receive the daily share price alert. On average 250 investors open these emails daily so in an average month of 20 trading days, our clients’ investment case and brand is exposed 5,000 times.

In addition, each time the community to which the email is addressed opens an email they have the opportunity to communicate with management and send their feedback. They do, with interesting results. This direct form of communication requires an immediate response and the benefits of having automated communications and a friendly IR firm to assist really enhances corporate brand and reputation. 

I have been involved in two IPOs where our software solution has been used to great effect to identify the investors interested in our client company. African IPOs are beautiful in this respect – huge demand and interest and an amazingly strong following from the diaspora.

A few statistics of interest relating to effective online IR at IPO stage (extracted from our clients and are indicative of course):  Online IR at IPO stage

·          attracts 3 times the number of visits to your website than an established company in the first year post-listing

·          generates visits from investors in 30% more countries than an established company websites in the first year of listing

·          have 30% less time-on-site because of the absence of historical information BUT 

·          typically attracts twice the number of unique visitors to your website than an established company in the first year AND will attract twice the number of page views on your investor relations website

·          have 30% less pages per visit because typically the absence of historical information, this reverses over time

 During the IPO the ability to immediately communicate with the market (allay their fears about shortages of prospectuses or delayed timetables, IPO results etc) occurs at the press of a button. The ability to receive feedback immediately can really help avoid disasters and enable you to change the structure of the transaction administration or communication to avoid those little things that blow out an IPO – just ask some of the big advisory players that have implemented IPOs in Africa – there’s always one or two things that go wrong.

I have lead managed 5 IPOs personally and the comfort that you get being in control of the IR function online in the advisory funtion is huge. The PR and marketing agencies are secondary players as opposed to perceived primary players (in the absence of an online solution where the advisor is more in control of the IR / media function.)

Both IPOs I did also obtained regulatory approval to have application forms delivered with softcopy prospectuses. The legal issues associated with distributing application forms without prospectus is a significant legal one given the massive market scams of the South Sea Bubble etc.

How did we give the regulators comfort in our product?:- provided a SOX compliant online shareholder communications platform: the full audit trail that shows the investor reaceived the prospectus with the application form.