African Investor Relations

This is taken directly from a LinkedIn blog item from Hubert Danso of Africa Investor.

“Africa investor Academy, the training institute of the Africa investor (Ai) group, today announced that leading investor relations officers and chief financial officers from African-listed companies will convene for the Ai Investor Relations Master Class, which will be hosted by the Ai Academy, 13 April, Bloomberg Headquarters, London ( http://www.africa-investor.com/ai_academy.asp ).

This master class is designed to give directors and senior management a practical view of the dynamics of the African investor relations landscape and international best practices, as well as obligations associated with engaging domestic and international investors. The master class will give a special focus to case studies and practical approaches to influencing your company’s valuation.

The master class will be led by leading investor relations specialist Lynge Blak, former chairman of the International Investor Relations Federation (IIRF). There will be a wealth of learning material and knowledge that can be implemented within companies immediately.”

To register: http://www.ainewswire.com/?p=906

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Talking to executives of listed companies in Zimbabwe provides an interesting insight into how hyperinflation has destroyed shareholder bases.

Most of Zimbabwe’s listed companies are now extreme penny stocks with about 230,000 minority shareholders (estimates of the total number of shareholders in all counters) holding up to a few thousand shares each, which, in value terms, amount to less than a few hundred (tens) dollars. Of 74 listed companies, only two counters trade above US$1. Twenty percent of counters trade at a value of less than US $0.01. These shares are owned by Zimbabwe’s lost, or “ghost” shareholders. Ghost because the cost of communicating with them is scary. And hidden.

The holding cost to owning shares for both shareholders and listed companies is not economically viable. It’s also not desirable for listed companies to have thousands of faceless shareholders with immaterial shareholding values. In the USA if your share price falls below a US$ you are de-listed. Zimbabwe is desperate for capital and listed companies shouldn’t expect to raise the capital they need from the man in the street. He was fleeced long time back – savings and all – by hyper-inflation. His shares are worth nothing.

But is there hope on the horizon? Foreigners complain at the lack of liquidity in African markets and the current situation in Zimbabwe might be an opportunity to pick up some stock. In the face of indigenisation legislation (now actual law) I guess Zimbabwe’s risk profile just got higher, so only the brave will be going there. Zimbabwe’s companies looking for capital are going to have to employ low cost, highly efficient means of extracting every ounce of capital from the market.

Zimbabwe’s companies legislation provides that shareholder reports and proxy material be delivered physically to shareholders. Most companies are ignoring this and merely informing the Zimbabwe Stock Exchange that they are not printing annual reports. There are only a few incidents of shareholders registering their objections to this practice, with none that I know of complaining of financial loss as a result. There is no litigation as far as I am aware. Yet.

A shareholder has a legal right to postpone an AGM where notice was inadequately given or proxy materials were not delivered. I can foresee a time in the future, when mergers, acquisitions, rights offers  and other shareholder actions do not follow the law strictly and someone digs their heals in to the greater detriment to the prospects of a company. This is high risk stuff and companies should consider using their websites as regulatory approved disclosure tools to mitigate shareholder actions of this nature. Built into this would be indemnification by the ZSE on any liabilities associated with the communication practices the ZSE endorses.

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“Meanwhile back at the coal face where we prefer to reside, we have had some good news coming out of the companies who are taking advantage of the new and improved economic environment. Impala Platinum in SA gave an upbeat presentation on Zimplats and their forthcoming capex plans. Zimplats will be key to Impala going forwards. Angloplats also announced that they would be pressing the button on their further expansion plans suggesting that both companies are satisfied with the soon to be announced Minerals and Mining Act. Also from SA Tongaat Hullet, the sugar group, spoke of their Zim operations which they are currently rejuvenating and working with government to assist indigenous out growers (this also counts as “points” toward the Indigenisation Act). Locally Delta is investing in another new bottling line, ramping up production and expanding margins. Their year end is March and our forecast for March 2011 based on volume and margin growth puts them on 5x, which could be conservative. Innscor also reported upbeat earnings and announced an interim dividend. They too have seen an excellent few months as consumer demand has increased. Truworths, the clothes retailer, reported an excellent set of figures that puts the company on 6x June 2010 earnings. All of these businesses are coming from a low base; only one year ago the formal sector was all but finished.

Agriculturally, the tobacco floors have opened early with good prices achieved so far. The crop is expected to nearly double this year as more commercial farmers return to utilize the lands. The seed maize crop is expected to triple. With rural farmers now being paid in US dollars for their cotton, maize and tobacco, we suspect that disposable incomes in these areas could be significant, especially as the cost of living is negligible relative to the cities where rents, transport and utilities eats away discretionary spending power.

We therefore urge investors to talk to company management and the farmers to find out what they are thinking and doing and to downplay the media and the politicians. This makes the market a great buying opportunity in our view and one of the more exciting in Africa, even if the ride can occasionally be a bumpy one.”

Investors need to speak to managements? Good luck trying to get through on the phone. Even if they do they executives are BUSY. Try getting meaningful information from their websites (which have been linked below) and you will fail. Whatever your view on Zimbabwe is, as an investor, listed company directors etc. information should be readily available on websites and its not. Here are the companies mentioned:-

Zimplats - OK website up to date with the basics because its regulated by the Australian Stock Exchange. Zimbabwean’s can’t trade the share locally.

Delta Corporation – no 2008 annual report, two undated media and press release articles, no share price. A subsidiary of SAB whose website has to be one of the best I’ve seen. I believe there is information on the beer market in Zimbabwe in the SAB website

Innscor - website goes to Innscor snacks. There is no Group website. As a leader in earnings and a dividend paying company one would expect more resources applied to looking after the info needs of investors. Their subsidiary Colcom has the 2007 audited financials as the latest and what’s new from  July 2008. Colcom is also dividend paying.

Hippo Valley – has no website. A significant large employer and asset of a South African conglomerate.

Truworths - a basic website whose IR section is out of date BUT they are about to sort this out…………

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Dear African CEO

It’s me again with a brief reminder that in exchange for one hour of your time, and a single decision on your part, you could improve your communications with your business and investment community tenfold. Here is a quote from the SEC worth taking seriously and following it through. It’s common sense I know, but an awful lot of common sense goes unnoticed these days.

“Ongoing technological advances in electronic communications have increased both the markets’ and investors’ demand for more timely company disclosure and the ability of companies to capture, process and disseminate this information to market participants. Indeed, one of the key benefits of the Internet is that companies can make information available to investors quickly and in a cost-effective manner.”

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Thanks for the heads up from Ashley Bendell of Exotix for this event.

“Developing the financial sector in emerging and developing markets”

Now that investors are refocusing on emerging and developing markets, the time is right to discuss how to strengthen the financial sector and develop the financial markets in these economies. Investors and governments share an interest in exploring ways to improve investment flows and returns. Key figures from governments, financial services, and multilateral organizations speaking will address vital issues including:

• What more – or less – could emerging economies do to promote investment?
• What will be the likely impact of emerging regulation on investment flows into emerging markets
• Prospects for development of domestic financial markets
• Quick wins: what innovations, tailored to local markets, have increased access to finance?
• The prospects for ‘leapfrogging’ technology.

Registration ; Book by Friday 30 April 2010 to benefit from the early booking rate.

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We have just completed our weekly listings reconciliation and record 1,552 primary listed companies in Africa.

522 in Egypt and 376 in South Africa and 228 in Nigeria. There are 45 companies primarily listed in African markets and dual listed on African exchanges, and 38 companies primarily listed outside of Africa with secondary listings in Africa. There were 3 de-listings in the week.

Why do we track this information? To operate in Africa you need to understand Africa.

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We strongly advise listed companies in Kenya to progressively address the weaknesses in the shareholder communications regime currently in place in there. If they do not, they are exposing their companies to systemic regulatory risk. This is bad corporate governance.

I will be circulating a paper to Chairpersons, CEOs and FDs of Kenyan listed companies who will be invited to join in a process of consultation and debate on a setting progressive corporate governance policies to address the current practices related to shareholder communication in Kenya. I hope to track this progress on my blog. There will be 4 possible outcomes:-

• I am shown to be completely clueless about communication issues in Kenya
• No-one will pay any attention because they are too busy
• My influence will hit a nerve and we will make a real difference and set a trend of communications governance excellence
• Some other outcome (this is Africa)

Our approach is that companies should come up with their own self regulatory code of action within the ambit of good governance. I question the ability of the NSE to undertake this challenge during a year when their de-mutualisation is the focus of attention. It’s individual companies that will take individual actions to protect themselves in the long-run. I will be starting with individual companies. Lets see what their responses are.

Watch this space.

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101 of the 427 listed companies we recently studied in 10 African countries are listed subsidiaries of listed holding companies. By market capitalisation they represent just over 36% or US$23bn of the total US$65bn of equities in our universe of companies. In many instances, in fact the majority, these subsidiaries are part of multi-national corporations with listings on the World’s top stock exchanges.

The mindset of the management of a listed subsidiary is different to that of other companies with different ownership profiles. Compliance, conformance, internal policies, group procedures, group strategy meetings dominate the governance arena. There are strict rules and regulations for many areas of a listed subsidiary’s operations and governance and a read of the governance sections of the related holding company annual report, or websites, will reveal World class commitment to good governance standards and disclosure. The latter includes electronic disclosure and proactive use of the Internet and annual report services

Listed subsidiaries of listed holding companies are liked by investors because typically there’s “big daddy” in the background and continuity of management. Listed subsidiaries of listed holding companies are mostly listed for political reasons; to mitigate the accusations of them being foreign investors “reaping the dividends” at the expense of the local economy. When indigenous residents also “reap” the same dividends it’s difficult for politician to attach the same level of rhetoric to such accusations. So a broad shareholder policy makes sense. If this is the case why are the online disclosure practices of listed subsidiaries of listed holding companies so far behind their holding company practices? Why aren’t the same practices at holding company level applied at subsidiary level? Simple indicators such as the following

• are the latest annual reports online?
• is there comprehensive information on the company online?
• is there basic investment data online?
• is information on the company up to date?
• is there an IR contact?

I have thought about this for a long time and I have yet to work it out. I have a mental block on this. But I have a few thoughts:-

- is it because it’s Africa? Most Africans don’t have computers so why bother?

- is it a case of the value of a subsidiary’s equity being irrelevant at holding company level?

- is it a case of they just have not thought about it? mmmm….

- is it a case of “there is no regulation so we don’t have to do anything?

- is it a case of “our African operations are miniscule compared to our overall group so is it really worth it?”

- is it a case of “why highlight our operations if we don’t have to?”

- is it a case of “you just can’t get the skilled staff in Africa so we view the Internet as a risk rather than an asset”?

- do shareholders in Africa count less than shareholders at holding company level? Are the benefits of engagement immaterial because of the ignorance of retail shareholders?

I don’t know.

Our study covered Nigeria, Ghana, Zambia, Zimbabwe, Malawi, Uganda, Kenya, Namibia, Tanzania and Mauritius and was carried out at the beginning of January 2o10.

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Here are a few facts about companies and investor relations practices in Africa:-

• - sub-Saharan African regulators are in many respects not doing justice to their clients: the listed companies of Africa
• - listed companies in Africa have many day-to-day challenges, they are busy and stretched, they don’t have time to consider corporate communications because even if they did what can they do about it?
• - dealing with a corporate website is a hassle because it belongs to no-one in the company and needs a broad range of skills to manage properly, the website guy down the road is certainly NOT the person to be in charge
• - there is a commercial and corporate governance imperative to communicate responsibly with the market but the benefits seem to be so intangible

We are about to give birth to www.africansmallcaps.com – our new portal to take care of each and every-one of the issues above at less than the cost of hiring the lowest cost administrative clerk. The unique feature of this? We don’t steal the identity of the investors accessing the data of the portal. Subscribers (the listed companies) have full access to the full identity of the investors accessing the website plus access to a number of other excellent corporate governance tools:-

• - investor outreach on Africanfinancials.com
• - real-time news dissemination on Twitter
• - regulatory information dissemination within 24 hours of its release
• - search engine optimisation
• - dedicated and focused introduction to an identified investment community

Want to track this initiative. Click on the InvestorPass button at the top of our website and register to receive news. It will be a refreshing ride into the future of IR in Africa.

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It’s Friday 5-oopm. Our clients’ websites have not been updated because we do not have the prices and volumes of trades today. Brokers that traded online this morning know what the prices are, but haven’t published them on their websites, or distributed them by email. We don’t know the prices. The Luse website only shows prices and not volumes, only half the story.

“The Lusaka Stock Exchange has been set up as a modern stock exchange based on the most current international standards and practices.” LuSE website

Doesn’t matter because it’s Friday? That’s not the point. How can an electronic trading system NOT get out the prices as soon as trading is complete? Read the mission statement of the LuSE and the principles of information being the lifeblood of markets.

Please may we have the prices and volumes as soon as trading closes LuSE? It’s a most current international standard and practice.

OK I will let you have the 15 minute delay.

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The final King Report on Governance for SA, King III, was released on 1 September last year and came into effect 2 March 2010 replacing the existing King II Code and Report on Corporate Governance. We  were honoured to be able to publish the new Code in iPaper format for the IODSA when it was released.

We look forward to reading all the cliche statements of commitment to the King III code in the next round of annual reports from listed companies. Why the marketing departments have the responsibility for writing corporate governance sections of annual reports evades me.

Here are a few IOD practice notes from the IODSA

Here is an overview of the new Governance Assessment Initiative

You should join the IODSA its good value

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Dear African Chief Executives, your quote for the week follows:-

A 2007 quote from the SEC USA “Shareholder Choice Regarding Proxy Materials” release

“Information in electronic documents is often more easily searchable than information in paper documents. Shareholders will be better able to go directly to any section of the document that they are particularly interested in. The amendments also will permit shareholders to more easily evaluate data and transfer data using analytical tools such as spreadsheet programs. Such tools enable users to compare relevant data about several companies more easily.”

“We believe that the Internet has helped to transform the trading markets by enabling many retail investors to have ready access to company information.”

Using the Internet to communicate is common sense. Africa is far behind and it’s only up to about 1,400 CEOs to change this.

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