The value of professional handling of IR should not be underestimated, according to regional CFO and former IR chief at FLSmidth Pernille Friis Andersen. The key concepts of good IR are credibility, continuity, and accessibility.
Among analysts, investors and corporate Denmark, there are widely differing opinions on whether active IR can affect the valuation of a company. Some simply reject the notion, but Pernille Friis Andersen, who has 15 years of experience with IR, has no doubt about its verity.
”The value of a share is determined by the company’s expected financial performance in the future. IR is of major importance when creating a credible equity story that includes future growth potential and the company’s value creation,” says Pernille Friis Andersen.
The story that the IR functions convey to the market is of course not worth much unless the company is able to continually live up to it and deliver on its promises, she stresses before she states:
”I have no doubt that good IR has an impact on share prices and valuation.”
The value of IR depends on the specific situation of a company. According to Pernille Friis Andersen, companies that are new on the stock exchange or companies that do not have clear‑cut comparable competitors and peers benefit more from IR. This is logically because such companies have a greater need to articulate some potential that is not already clear to the market.
The vast majority of smaller companies do not have an independent IR function or a dedicated IR executive. However, management should prioritise this, says Pernille Friis Andersen.
”Smaller companies in particular have quite some groundwork to do to make themselves attractive to the market. Without IR executives, the management either doesn’t have the time and energy to do it, or they spend valuable time on IR, which should be spent managing the company.”
From IR chief to CFO
Pernille Friis Andersen has presented 60 quarterly financial results, has been on countless investor roadshows and has acted as a liaison between investors and the management of FLSmidth for 15 years.
However, a year and a half ago, she was ready for new challenges, and she therefore accepted the position as regional CFO. Her IR experience provides a number of benefits and strengths she can draw on as CFO.
”I know how the investors and analysts think and what’s important for the executive committee and the board of directors. My approach is to focus on performance, growth and returns in addition to getting the numbers right and ensuring internal compliance,” she says and adds:
”It’s important to remember that, to investors and analysts, it is all about cash flow, working capital and profit margins. So, when my accounting team comes up and says: ’The numbers are correct. It’s perfect’, my answer will be: ’Excellent! Let’s look at how we can improve profit margins.’”
However, her IR experience also means that she has to surround herself with a team that complements her strengths:
”You cannot be a specialist in all areas. For example, I cannot speak in detail about IFRS or internal compliance, as I haven’t dealt with these areas in depth before. That’s why I’ve surrounded myself with a strong team that covers my weaker spots.”
Use the investors as sparring partners
IR and stock market contact require a special mindset and deep business understanding. If a CFO masters this discipline, it can represent a valuable exchange of opinion. Investors and analysts have access to a wealth of information and people; they have a global outreach and a huge network, and they often deal with input from many different industries. This makes them great sparring partners, says Pernille Friis Andersen:
”Investors are not asking questions to criticise but rather to understand. What they say can often be used as constructive feedback. So, by interacting with them, an executive board can both acquire new knowledge and gain strategic sparring.”
However, meeting with investors and analysts and answering critical questions can be yet another stress factor on top of the already intense workload related to the compulsory financial reports. Nevertheless, meeting and connecting with the market should be highly prioritised and thorough preparations should be made.
”The more preparation, the less pressure. If the CFO masters the numbers, the equity story and is prepared to answer whatever critical questions that may arise, meetings will feel constructive, and you will appear more confident,” she says.
The equity story is crucial
Pernille Friis Andersen emphasises the importance of the equity story, which essentially serves as a company’s value proposition to the market. It is a way to convince potential investors that investing retirement savings or wealth in the company is an interesting opportunity.
”You have to understand what’s interesting to investors because you are competing for their money. So, what makes the company an attractive investment? How are returns, growth and dividends created, and how will the company distinguish itself from peers? If you can’t answer that, you won’t be able to put the company forward as a good investment case,” she says.
Specifically, she points out that companies need to know which megatrends and new markets support the company’s growth potential and how this can be leveraged via, for example, increased digitisation, restructuring or M&A.
”The equity story must reflect the company’s structure, strategy and long‑term growth targets. It has to fit together, and through the dialogue with investors and analysts, views from the market are conveyed to the management and back. In this way, you can address whatever concerns and pain points there may be and find a proper solution.”
Good IR
Pernille Friis Andersen believes there are three key concepts behind good IR: credibility, continuity and accessibility.
”What’s communicated must be precise and correct, just as the company’s narrative must be consistent from quarter to quarter without any major differences. In addition, you need to be available, pick up the phone and be responsive, whether you come away with a positive message or a profit warning,” she says.
Furthermore, it is crucial to provide some relatively accurate short‑term guidance supplemented by a more long‑term view that visualises the journey the company is on, with targets that can be achieved within a three‑five‑year period.
”It’s always better to be positively surprised. There is absolutely no point in disappointing, so you should live up to your promises. Be realistic in both your short – and long‑term guidance, and explain the assumptions behind the long‑term goals.”
Three concrete pieces of advice from Pernille Friis Andersen
Crisis management: Share information sooner rather than later. When the future is uncertain, it’s better to put forward relevant scenarios and assumptions and inform about how management thinks, prioritises and plans to deal with the crisis. Openness, honesty and accessibility are crucial.
Distribution of roles: The strategic vision and narrative belong to the CEO, while the CFO must know the numbers and the nuances in the accounts like the back of her hand. However, the CFO must also know the strategic narrative, even if it belongs to the CEO. IR must relieve both parties with respect to interaction with the market and create the natural link to investors and analysts.
From IR to CFO: If you want to become a CFO, you should be open about your ambition. This kind of transition doesn’t happen by itself. You have to put yourself out there and dare to express your desire. I participated in an executive management programme to acquire new skills and thus used education as a stepping‑stone in my career
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