For three consecutive weeks leading up to the April release of first quarter earnings, Canadian National Railway (CN) communicated more broadly with investors by participating in 45-minute calls hosted by three different sell-side analysts. The analysts, who were from BMO, RBC and Citigroup, spoke with both the CEO and CFO, an unusual opportunity given that two members of the C-suite are rarely present.
With business travel halted because of the coronavirus, CN felt the need to offer access to senior managers, who could hop on calls between other commitments. “The good thing about not having to travel is that most of management is in town,” says Paul Butcher, Vice President, Investor Relations. “Investors,” he adds, are interested in hearing from the decision makers and “really want to know: What are you doing? And how are you going to get out of this?”
The pandemic brought many firsts for Canadian IROs. While few Canadian companies had experimented with virtual AGMs in the past, in April and May dozens quickly cobbled together online annual meetings that met regulatory requirements and provided a forum for communicating with investors. Although a handful started late or encountered technical snafus, most IROs were happy with the results.
Experts agree that a global calamity demands more and better communications. “It’s human nature during a crisis to want to close the door and turn off the lights. And that’s the worst thing you could do right now. You have to continue to communicate,” says Matt Tractenberg, Investor Relations Partner at Q4 Inc. in Toronto.
Butcher agrees: “Even in difficult times, you continue to keep contact with investors and make sure they understand how we’re going to get through this.” He continues: “If you don’t tell [stakeholders] the story, they’ll make one up, and it’s usually worse than how it really is.”
Responding to a Fast-Moving Crisis
When the extent of the pandemic became apparent, says Stephanie Amaimo, Vice President, Investor Relations, for Fortis Inc., “for the first month or so, IR went on hold. It was time to focus on our people, on safety and health.” She notes that initially investor calls decreased, perhaps because investors were wrestling with more pressing concerns.
Lisa Greatrix, Senior Vice President, Finance and Investor Relations for Canadian Tire, says that in the early days of the pandemic she went into overdrive and tried to be very responsive, a tall order because “we were in constant crisis mode.” One unique challenge Canadian Tire faced was that March 12 was Greg Hicks’ first day as new CEO.
“IR is very important,” says Greatrix, “but our executives had so many stakeholders to talk to. We had the Board. We had the government. We had our customers. We had employees and our communities. Our executives were pulled in a million directions and prioritizing their time was very challenging.”
John Kageorge, a Vancouver-based communications consultant who specializes in investor relations, recommends that when a crisis hits, the first priority is to address investors about problems through simple, high-level messaging. He also points out that communicating frequently is critical. “During an emergency – and during this pandemic – one month is like one year. So, we’re living life at a different pace,” he says.
When it comes to investor questions, Brad Monaco, Director, Capital Markets, for Parkland Fuel Corporation in Calgary, finds that “most folks are more focused on the short term than ever before….We’re seeing investors that are focused on week-to-week movements and that is new.” He is also spending more time on topics such as balance sheet strength, resilience in “what may be an inevitable recession,” risk management practices, and dividend sustainability.
Guidance in Uncertainty
An early IR change made at Parkland was removing EBITDA guidance for 2020. “It gives a false sense of certainty to give guidance,” says Monaco. “We could have layered assumption on assumption with our guidance, but assumptions can change quickly at a time like this.”
CN also removed EPS guidance and volume assumptions for the year. “Our view,” says Butcher, “is that if the Bank of Canada has stopped forecasting the economy, how should we be able to forecast where volumes will be?”
In response to investors’ thirst for information, CN is continuing to offer guidance on free cash flow, suggesting that even if the company’s worst-case scenarios come to pass, it should generate $2.5 billion this year. Meanwhile, the company paused its share buyback program but maintained its dividend, which Butcher calls “sacred.”
Shopify is another company that suspended its usual quarterly and updated annual guidance because of the uncertainty the pandemic spawned. Ana Raman, Senior Manager, Investor Relations, says the announcement was made on April 1, after Shopify confirmed it would likely meet or exceed its first quarter guidance.
In order to help investors, the company provided a raft of other information, all designed to explain the state of Shopify’s business. Raman notes that in a press release coinciding with the release of quarterly earnings, the company provided a view of six weeks of post-COVID business, relative to the prior six weeks, with data points such as new store creation and curbside pickup figures.
To Zoom or Not to Zoom: Meeting Investors Virtually
While teleconferencing works wonders when “investors need to see the conviction in your executive’s face,” Tractenberg points out that “not every conversation needs a Zoom call.” Often, an investor wants a straightforward answer to a question and the technology may simply get in the way.
Having run several online meetings following virtual conferences, Butcher was surprised that “in many cases there was silence and some awkwardness that doesn’t happen face-to-face.” One solution is for management to prepare remarks to fill pauses and elicit more conversation.
Monaco finds that he is casting a wider net when it comes to virtual non-deal roadshows (NDRs), reaching out to shareholders off the beaten path. Unlike an NDR to Boston or New York, where the number of daily meetings is constrained by travel within these congested cities, more virtual meetings can be scheduled for a given day.
The greater reach of virtual conferences is an opportunity some IROs were starting to explore before the pandemic. When Siyata Mobile addressed a retail audience at an OTCQX virtual investor conference in February, “COVID-19” and “social distancing” were not yet part of everyone’s daily vocabularies.
Arlen Hansen, Siyata’s IR consultant and President and CEO of Vancouver-based Kin Communications, is convinced that the financial arguments will continue to push IROs towards online communications even after fear of contagion wanes. “We reached an enormous audience, very much bigger than what we could get through a traditional roadshow,” he says. “The cost-benefit analysis is widely in your favour for doing a virtual conference versus traveling halfway around the globe to do 10 meetings.”
An AGM Season Like No Other
While some companies have postponed their annual general meetings, the clock is ticking when it comes to regulatory requirements to hold them. An AGM must be held within 15 months of the prior AGM – and late spring is the time when the vast majority of Canadian AGMs take place, explains Carol Hansell, Senior Partner at Hansell McLaughlin Advisory Group in Toronto.
More than 200 Canadian companies announced virtual AGMs this spring. Among the first to take place were those of the Bank of Montreal, Scotiabank, and Canadian Pacific Railway. “A few have specifically noted that this is a one-time thing,” says Harlan Tufford, Senior Governance Consultant at Hansell McLaughlin. “Others have been more noncommittal.”
Fortis emphasized that without COVID-19, the company would not have opted for its 2020 annual and special meeting to be held virtually. And yet after a few dry runs and assurances that the technical backend was robust, “The virtual meeting went seamlessly. We heard kudos for our preparedness and for the technology,” says Amaimo.
Amaimo notes that the approximately 300 individuals attending Fortis’s virtual AGM was a number roughly comparable to, or even higher than, at past meetings.
Her one regret was the lack of an in-person social gathering, which historically takes place in St. John’s, Newfoundland. “We usually have a really nice luncheon. A lot of the local retail investors come, and we serve lobster or cod au gratin,” Amaimo says. “Not having that time was the only real bummer.”
What the Future Will Bring
An epidemic may seem like an odd time for exploring opportunities, but some experts would vehemently disagree.
Paul Argenti, Professor of Corporate Communication at Dartmouth’s Tuck School of Business, points out that “the most important thing an investor relations officer can do is talk about the opportunities that come from [the epidemic]. You want to show how the company is set up for success in the longer term because of what you’re doing now.”
As a case in point, in April Butcher commissioned a targeting study for CN out of a desire to be proactive. “When a lot of people are putting money aside in cash, once we hit the bottom here, there will be a good opportunity to get fresh, new investors,” he says, noting he now has a list of 200 targets to approach. “We’ll reach out to these investors and hopefully we can get some hits here. That’s the goal.”
In many ways, this worldwide crisis is also a golden moment for IROs to display their personal mettle. Greatrix mentions that no one cares about dogs barking in the background during one-on-one calls or family members interrupting conversations with a question. “Everyone is concerned about your family and how the human part is working for you,” she says. “The topics are difficult and scary, but people have shown genuine concern and have been very agreeable.”
Argenti raises a related point: “A crisis isn’t just the bad thing that happened. The most important part of the crisis is what you do to meet the challenges. That’s what investors are looking at.”
“Remember, there’s never a time when shareholders are not watching what you’re doing and taking cues from what you’re saying,” he concludes. “For an IRO, this is a time when we can all see what you’re made of and how good you are.”