“Futures made of virtual insanity now
Always seem to be governed by this love we have
For useless, twisting, our new technology
Oh, now there is no sound for we all live underground”
Jamiroquai, Virtual Insanity
“Never work with children or animals.”
W.C. Fields
Given that meeting with company management teams is one of our key
investment tools, alongside the capital cycle approach, it is reasonable to ask
how this is working after a near four month long lockdown. The short answer
is: well. The transition to virtual interaction has been remarkably seamless, and
possibly has as many benefits as it has disadvantages.
On the plus side, almost all meetings start pretty much bang on time (half
our meetings in our traffic-congested Covent Garden site usually run late).
There is no time spent ordering and receiving refreshments, or dealing with
building security access issues (which can be frustrating in large, security
conscious City buildings where the check-in staff often may not share one’s
sense of urgency). As a result, a 45-minute virtual meeting is as productive as
a 60minute physical meeting. The ability to access more information as one is
sitting in front of a computer terminal has also been beneficial.
For company executives seeking to meet with investors, visiting London
involves a lot of travel which is time-consuming and tiring and reduces meeting
schedule opportunities. They could probably do twice as many meetings if they
stayed in their office in Frankfurt or Paris, or alternatively spend half the time on
the same number.
Virtual meetings work better when the participants are well known to each
other. In, for example, Marathon’s European portfolios the average holding
period is over ten years, so we are particularly well suited for this type of
interaction.
It is just like catching up with a familiar acquaintance and so virtual interaction
seems very natural and relaxed. Introductory meetings, on the other hand,
would benefit from a physical meeting where a more personal rapport can be
established.
On the negative side, there is no substitute for direct human interaction
and the nuances are missed in a video call between a group of people. The
private remarks and opinions between the meeting room and the elevator,
the glances, the asides, the ability to see and touch product samples, are
all lacking. It is often said that virtual interacting may now become more
commonplace. However, if this is so, we will certainly miss the subtleties of
face-to-face contact.
If the meetings themselves have typically gone very well, there have been a
few issues with actually getting the required access. Capital raising has been
desperately needed by some and the rapacious investment banker (who
has not unfortunately disappeared!) has taken advantage of this situation by
charging a 2% fee for a placing, without a prospectus, to ten key shareholders,
for just a few hours’ work.1 In normal times this would necessitate a visit
from management, yet it has been noticeable during this crisis that mendicant
management teams avoid video-calls just at the time when we would like to
see the whites of their eyes. More broadly, many AGMs are now being staged
virtually in the UK and whilst that might actually increase attendance, the
difficult questions from the awkward person with their raised hand will not
likely be posed.
Virtual conferences, too, pose challenges. In the past, Marathon has
commanded a good proportion of 1-1 meetings at physical events. That is
much more difficult at a virtual conference where, instead of up to 1,000
people crammed into a conference location with limited capacity over a three-day period, the audience is now many times larger as it can include investors
and analysts from around the world.
Beyond the meetings themselves, working from home (WFH) brings other
productivity benefits for both Marathon and investee companies. The average
daily commute to central London is 1 hour 14 minutes, but for the average country-dwelling executive it is more like 1 hour 30 minutes (this does not
include the 5% of all trains that are delayed). This is less productive time, tiring,
expensive and often stressful, involving up to four modes of transport (car, train,
tube and walk). Cutting it out is a clear plus for actual working hours. There
are the softer benefits, too, such as spending more time with one’s family,
something lacking in many busy executives’ lives. Nevertheless, one should
beware the comment of W.C. Fields above as a colleague’s barking dog regularly
interrupts our calls. Young children have also been known to flit across the
screen! Another, more general benefit of WFH is being able to dictate one’s own
time. Aside from scheduled meetings, one does not have to be interrupted if one
doesn’t want to be. One can think, write and develop a train of thought without
unwelcome intrusion. Likewise, office politics is much less prevalent. On the
negative side it has been suggested that being isolated creates a sort of “mental
echo chamber”, we lose our “peripheral vision” and only tend to read what we
want and are not sufficiently challenged.
Interacting with one’s investment colleagues is, of course, crucial. This too can
be done virtually, but here there are further benefits of physical interaction that
we notice the absence of: the impromptu meetings, encounters in the coffee
area, etc. It is these office ‘collisions’ and the conversations they spark that
help bind us as a team. They form an integral part of our company culture, the
collegiate, collaborative organisation that binds us together. This is particularly
important for newer members of our company. It is this, as much as anything,
which has Marathon looking forward to at least a partial return to the office.
In the meantime, Marathon has maintained its active roster of company
interactions on a virtual basis over the last four months. If anything, the intensity
of the schedule has increased due to the ease of virtual meetings and the
important issues that are affecting companies. There are broadly three types of
interaction we have been experiencing. The first is the crisis-afflicted company,
usually from the travel, leisure and hospitality industries, who are facing severe
funding crises as business has fully dried up. The likes of Carnival, Compass,
SSP, WH Smith, EasyJet, etc. These conversations focus on fundraising and
the underlying assumptions being made to see themselves through the crisis.
We have participated in capital raising with some of these companies (like
SSP, the airport and railway station food and drinks outlet operator) where we
think the assumptions made for the recovery and the capital raised means that
shareholders will benefit from avoiding dilution in a well-run business that has a
credible value recovery story.
Then, there are the bulk of companies who are partially afflicted by the crisis,
who will suffer a lost few months and a significantly weaker year, but who hope
to see recovery later in 2020 and certainly in 2021. These are often industrial
companies and capital goods producers (such as ABB, Sandvik, Legrand, etc.)
whose end markets are global and who often provide critical infrastructure.
Unless these companies have highly leveraged balance sheets, they just regard
2020 as a lost year. If the former is the case, then they have been capital
raising, cancelling dividends and reducing executive pay (all of this goes without
saying for the first group mentioned).
Finally, there is the resilient group whose earnings are unaffected or benefit
from the crisis. Many of these companies are understandably sensitive to
the suffering of other people and companies during the pandemic so often
like to understate how well they are doing. These businesses include vital
medical equipment firms like Coloplast (incontinency and ostomy) and Getinge
(ventilators, oxygenators), grocery (Tesco) and online companies (HelloFresh,
Zooplus) who benefit from the growth of home consumption.
Whatever the company, interactions are unfortunately rather one track at the
moment with a focus on the pandemic effects. Clichés abound concerning
safety of the workforce, dropping of guidance, review of dividends, and
executive pay reductions (albeit very temporary, we suspect). Executives
tend to comment on how things are improving in China, whilst they are more
difficult in certain parts of Europe and better in others, the US is opening, and
Latin America is terrible. Talking in such clichés and broad terms is particularly
popular in the first set of companies, who are often keen to avoid discussing
their own travails. Those whose businesses are unaffected are more prepared
to talk about their own firms in a more general and longer-term strategic way.
Covid-19 has changed many aspects of our societies and everyday life. The
office is no exception, but our own experience has been positive. Marathon has
kept a full schedule of productive management meetings, for the most part,
and has benefitted from other, softer advantages of home working. We look
forward to returning to a world in which the office is once again a safe place
to be, but when we do so, we will endeavor to bring with us some of the best
parts of the WFH lockdown.
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Performance data shown represents past performance and is no guarantee of future results.
All charts and data are for illustrative purposes only. Views expressed herein are those of Marathon Asset
Management, LLP and may not be reflective of their current opinions or future actions, are subject to change
without prior notice, and should not be considered investment advice.
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article should not be considered as a recommendation to purchase or sell a particular security. The weightings,
holdings, industries, sectors, and countries mentioned may change at any time and may not represent current or
future investments.
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