InspIR CEO participates in NYSE Expert Call Series:  Latin America’s Market Trends & Takeaways

On May 20, 2020 Monique Skruzny, CEO InspIR Group participated as an expert panelist on the New York Stock Exchange Expert Call Series: Latin America’s Market Trends & Takeaways.  The briefing was moderated by Nicolas Arino, Regional Head Latin America, Bermuda, and the Caribbean, NYSE.  Silvio Cascione, Director, Eurasia Group commented on current and expected economic trends in the region and the changing political outlook in key markets.  Alex Ibrahim, Head of International Capital Markets, NYSE, provided an update on capital flows, a listing update and insights into virtual IPOs.

A transcript of Monique Skruzny’s comments with the highlights from the Q1 disclosure period, what to expect for Q2 earnings discussions, insights into the current outreach strategies of IR teams and a discussion on the enhanced importance of an ESG-oriented culture follows:

For most management teams, the first quarter earnings disclosure period was the most challenging ever faced.   And, as the impact of the Coronavirus crisis only affected the final weeks of Q1, the second quarter results will be more telling in terms of impact to earnings, with greater levels of reserves taken than in Q1, the sustainability of business plans and the ability of management teams to layout scenarios for economic recovery.  The market will be looking for some definition of the triggers that could reignite investment and growth as well as thinking on a company’s strategic posture, and what McKinsey refers to as its “journey” in a recovery scenario.  What I mean by this is that many companies will be disclosing a change story, potentially the result of divestitures or M&A, as an example.  In the US we saw Uber announce an acquisition of food delivery service Grub Hub and Airbnb announce it would abandon projects not tied to its core business.

For the last few months, we have seen a number of different stories playing out depending on whether the business was deemed “essential” or not and if the business was well capitalized or not going into the crisis.

Essential businesses and even non-essential businesses with strong balance sheets reaffirmed their balance sheet position, spoke about meeting current demand within a new working environment, highlighted products and services with increased demand and resulting operating adjustments that had to be made,  such as setting up work at home stations or retooling manufacturing lines.  They also emphasized the contributions to community that were being made — or the “S” of ESG.  Some of these industries included more defensive ones, such as agriculture.  Pharma/biotech, some supermarkets, tech, ecommerce, among others were also more upbeat.

Among these groups, we saw some companies reaffirming guidance or setting new guidance with ranges and including detailed scenarios.

Amongst the most hard hit, there was a spike in regulatory filings related to impacts and actions being taken as a result of the Crisis between March 17 and 24.  Most of these fillings and then,  following in earnings communications were announcements related to the withdrawal of guidance and business continuity — actions for cash preservation, increasing liquidity, reducing non-essential CAPX, cost cutting and strategies for funding working capital needs.

Across the Board, the tones became much more human in earnings quotes, calls, internal and external letters emphasizing the importance of the health and safety of employees and customers, actions being taken for job preservation when possible and contributions to supporting communities.

Additionally, companies with digitalization plans discussed how these plans are being accelerated with a focus on structural transformation and engagement – the banking sector provided a number of good examples.

Looking forward, we believe that companies will need to address where they expect to stand in a recovery cycle.  We also expect there will be additional pressure to update guidance and are advising where there is some visibility, that ranges be provided on a scenario basis with the inclusion of detail around key assumptions.  We will encourage the humanization of engagement to continue and believe that the winners will be those that can implement and communicate different strategies while retaining this humanization aspect gained over the last few months.  Not only investors, but employees and consumers are watching closely.

Let me now touch on what’s happening in terms of engagement.  There has been an explosion of opportunities in the virtual settings – Webinars, one-on-ones, group chats, and even “Road Zooms” for pilot fishing, follow-ons and a couple of recent Virtual IPOs.  Companies are being hosted by brokers as well as doing their own videos and webcasts.

  • CEOs have become much more visible
  • Up to and post Q1 many of the conversations are with existing investors or those that are familiar with the issuer
  • Our thinking is that targeting will follow post Q2, particularly as companies will be in a better position to articulate their potential recovery scenario
  • Having said that, given valuations and volatility, there are many opportunities to meet with new investors that are reshaping their portfolios

We advocate for companies to also take control of their agendas by organizing their own NDRs.   This is especially important now that conferences are being suspended, even with some being replaced with virtual ones.  InspIR is supporting clients to do this as a complement to broker led outreach – the virtual setting presents its own set of complexities which we are working to mitigate for our clients.

With all the new virtual formats, it’s important to consider exposure of management teams, and preparation.  We are training teams and emphasizing that while this environment feels more informal, it’s critical to come prepared with key messages, Q&A and have clear the etiquette to be followed with the hosts.

We also believe that Virtual Investor Days will become more of a reality.  And with “Zoom Fatigue” this is going to require an even higher level of preparation and innovation including videos, graphics, virtual site visits…my team and I are even exploring the feasibility of including a virtual reality component for clients.  A great example of innovation is Cosan – they held an investor day in Sao Paulo, while the NY one had to me be cancelled.  They posted “bite sized” video summaries of the investor day.

A series of videos under a cohesive message that contributes to further strengthen the positioning of a company will also become more prevalent.

I’d like to make some final comments on ESG as this needs to be a key part of IR Teams’ engagement strategy.  Prior to the crisis, every conversation we had with issuers included a discussion on how to develop an integrated communications plan incorporating IR messaging and the company’s ESG commitments.  We are in the midst of a comprehensive perception study for an ESG -oriented fund in support of developing their sustainability report.  What we’re hearing from PMs is that it is understandable that in general terms, companies are focusing all of their energy now on the critical aspects of survival.  However, they are saying that the way issuers are responding to the crisis is demonstrating companies’ genuine ESG commitment — helping to distinguish between “COVID or green washers” and those with a true ESG culture.

I think we’ve all seen reports, such as from Morningstar, that sustainability-themed funds saw record inflows in the US in the first quarter, while the rest of the market saw hundreds of billions of dollars of outflows.   On top of that, many ESG indices held up better through the downturn than their broad-market counterparts.

Over the last several years, ESG practices have become a priority at both the corporate and investor level, with a growing demand from clients and the marketplace for corporations to show conviction on ESG-related issues.  As I mentioned earlier, during the Q1 earnings season there was a heavy emphasis on the Social aspect.

I just wanted to close with a quote from Ted Eliopoulos, who is the co-chair of the sustainable investing council at Morgan Stanley Investment Management.  He recently said, “Screening for companies with high ESG scores is simply a way to find good executive teams.  Companies that consider environmental and social factors — and abide by good standards of corporate governance — should be better equipped to ride out a downturn and quickly get back up to speed.”