Investor Relations Initial Response to Covid-19: The 4-point playbook
The IR playbook of how to build a holistic framework to manage investor calls and establish an agile communications strategy that balances transparency and realistic messaging whilst seizing the opportunity to demonstrate an active management team positioning the company for an eventual recovery phase.
The rapid spread of Covid-19 has created a humanitarian and economic crisis. These unprecedented times have sent global markets, governments and communities searching for answers in a very complicated and uncertain environment where the shock has the potential to be protracted and profound in its intensity.
Organisations have been responding by accelerating their actions to protect employees, customers, suppliers as well as ensuring liquidity and the preservation of cash critical for survival. Strong and steady leadership is critical for addressing the immediate concerns. In parallel the need for more frequent and transparent communications with investors has heightened as the magnitude and duration of the crisis remains unclear. On the front lines are the CFO’s and Investor Relations teams to develop an agile communication strategy that addresses investors immediate concerns and resets expectations.
1. Address investors immediate concerns
The first action to communicate is that the company is following the advice of the healthcare organisations such as the World Health Organisation, outlining the factors the company is taking to protect employees and suppliers. For essential works that are keeping operations running, such as factory workers, provide details of the steps taken to minimise risk including personal protective equipment (PPE) and shift rotation.
An important aspect should be to clearly communicate the business continuity plan that has been established. Has the transition to working from home been a relatively smooth experience given an already adopted flexible working week or an acceleration of an ongoing digital transformation of how the company is operating. Furthermore, that the core of the company is functioning with a strategy to continuously monitor liquidity and the company operations.
2. Conversations in context
Guaranteed to be one of the opening questions is ‘what is the impact of Covid-19 on the business?’ Investors have an expansive need to understand how the pandemic is affecting the business with their immediate concerns focused on the business operations, how are companies protecting employees, the supply chain, and the level of liquidity. The response is an important opportunity in framing the narrative for the discussion and should address commercial and operational disruptions within a geographical context of the business.
Details of the trends seen and the dynamics effecting the business should also be accompanied with an explanation of the performance under different scenarios as well as management’s expectations and potential actions for each case. Answers will vary depending on the industry and geography however should address supply chain risk and factory capacity as well as demand and logistics of products and services. While there are obvious negatives in demand dynamics, for example in travel and leisure, positives will exist where stock piling occurs for example in pharmaceuticals, a positive that will later be followed by de-stocking. Be prepared to be asked supply chain specifics on bottlenecks, months of inventory in stock, the geographical exposure required for manufacturing, for example in pharmaceuticals the exposure to china for certain active pharmaceutical ingredients (API’s).
CFO’s and IR teams need to address these topics while resetting expectations for multiple Covid-19 scenarios considering a wide range of variables, sensitives, and information as uncertainty about the future is the only certainty. Conversations should give colour to specific market trends and performance, and where possible context versus a non-Covid world. Additional colour will be welcomed by investors on external agencies such as slowdowns signaled from regulatory bodies for approvals, delays to legal cases and postponing the initiation of key projects led by partners.
3. Liquidity for survival
Details of the company’s liquidity position and how it can react under different stress-testing scenarios will be needed by investors. A timeline of the company’s position with a roadmap of different scenarios will help investors understand how the company can withstand a prolonged downturn. Additionally, providing examples of the options open such as government aid, credit lines, covenants of loans will give investors a clear sense of the support available. Furthermore, outlining the capital allocation plan clearly establishes the priorities of the company. These may not have changed however if certain actions have been taken or reprioritised an explanation of the logic should accompany such changes.
4. Realistic but with a positive and optimistic message
After addressing the immediate concerns of investors and guiding them through different scenarios and the known unknowns there is an opportunity for optimistic messaging. Positives may encompass an acceleration of the longer-term strategy of the company. An example could be the digital engagement of the sales force with customers and an increase in the digital training hours completed which is part of the digitization of the company.
Take the opportunity to comment on the social responsibility of the company as it’s a clear demonstration of how the company is helping to tackle the wider challenges within the communities the company operates. These could be in the form of donations to charitable foundations, providing PPE to local hospitals, collaborations with local business to support them during the downturn etc.
Concluding thoughts
Transparency will be welcomed by investors while also demonstrating an active management team anticipating impacts in different geographies and divisions of the business. Providing clear answers to investors most immediate concerns will clarify the impacts from Covid-19. Guiding them through different scenarios as well as the subsequent actions the company can take will establish the potential risks and help reset expectations.
Execution on an agile communications strategy will be vital when dealing with investors. A realistic narrative with an air of conservatism in messaging will position the company to mitigate negative surprises in the weeks and months to come with the potential to deliver unexpected good news. The discussions also present the opportunity to outline the social responsibilities of the company as well as to comment on acceleration of any long-term plans such as the digital transformation of the company. This is the silver lining for the longer-term strategy of the company and concludes the discussion on a positive. A reminder that even in times of crisis companies can seize opportunities while managing challenges in response to the pandemic and will be well positioned for the recovery phase.