Investor Relations and Shareholder Communication : Linking internal aspirations with external expectations
1. Investor Relations & Sh h ld C
I R l i Shareholder Communication
i i
Linking internal aspirations with external expectations
Sanjay Uppal
Group Chief Financial Officer
Emirates NBD
Challenges for the Modern CFO
28 – 29 October 2007
The Fairmont Dubai, Dubai
2. Best Practices & Messaging
IR Departments : Organization & Staffing
Board Management Support
B d&M tS t
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3. Your company belongs to its shareholders……
who want t understand…..
h t to d t d
‘What makes this company so unique that they should
choose t i
h to invest their money here, versus all other
t th i h ll th
opportunities’
2
4. The Investor Relations challenge ……
‘How should I communicate the performance and outlook
for th
f the company that would allow i
th t ld ll investors t assess it
t to its
fair value’
3
5. Objective of Investor Relations
Achieving ‘fair &
It IS sustainable value’ for the
value
company’s stock
It is NOT
O ‘Maximizing’ t k l
‘M i i i ’ stock value
Too many companies have paid the price of over-promising & disappointing investors
4
6. Core issues to address
How big are the opportunities of market capitalization improvement (gap
between intrinsic value vs. market value) ?
What are the key drivers of the gap ?
– Communication
– Strategic content
– Transparency
– Governance
Where are the primarily IR levers that should be “moved” ?
– Is the communication content clear and consistent ?
– Is the communication correctly targeted and done toward the right segment
of investors / analysts with the right method and frequency ?
– What type of financial tactics could unlock the value of the company in the
market ?
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7. Role of Investor Relations
Stakeholders Discussion Topics Role of the IR team
Shareholders Prepare financial results
Financial results announcement
Quarterly A
Q t l / Annual
l Prepare investor / analyst
Investors & communication (equity
Analysts Capital / Funds raising story)
Manage rating agency
Strategy
St t communications
Rating Agencies
Coordinate regulator
Forward looking
communication
statements
Coordinate all internal IR
Regulators Analyst / Investor related publishings /
presentations & communications
roadshows Validate / filter external
Customers strategy / financial
Regulator discussions - prepare
communication guidelines
Manage all media for IR.
General Public AGMs e.g. website, paper,
conference calls, etc.
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8. It’s not just about money……
“Institutional investors attributed 72 percent of the information they regard as
important to non-financial measures, compared with only 28% which are
financial.
Most frequently cited factors relate to people, such as management credibility
people
and expertise, alignment of compensation with shareholder interests and ability
to attract and retain talented people.”
Source: PwC 2004 7
9. Strategy communication matters
10
9 Ahold
lation score
e
8 Unilever
Aegon
7 Rabobank Heineken
Investor rel
Fortis
ABN-Amo
6 Achmea
Wessaren
Numico
5
4
0 20 40 60 80 100
Credibility of strategy (%)
High correlation between credibility of strategy (as seen by investors)
& their appreciation of investors relations
Source: Rematch (2001) 8
10. Disclosure are of paramount importance
What do you consider to be the most essential elements of IR
?
Percentage of respondents *
Disclosure 48
Frequency & quantity 32
Disclosure =
Financials +
Accessibility 26 Corporate
Strategy
Quality of interactions** 16
Procedures 2
* Multiple answers lead to total not equal to 100%
** Presentations, visits, meetings, etc.
Source: Taylor Nelson Sofres survey of more than 600 investors & buy-side analysts over the summer of 2001 9
11. Factors influencing perception factor CONCEPTUAL
Investor base
Analyst
y
Liquidity
Li idit models
Market
Market value reactions
Real Perception
p
Financial
factor
forecasting
Story-
telling Country /
Governance
IR activities
discount
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12. IR Magazine :
US Investor Relations Awards 2007
Grand Prix for Best Overall Investor Relations : Mega-cap GE
Best Corporate Governance GE
Best Use of Technology GE
Best Annual Report : Large to Mega-cap Berkshire Hathaway
Best Investor Relations by a Chairman or CEO Cisco Systems
Best Investor Relations for an IPO Western Union
Best Investor Relations Web Site : Mid to Large Cap General Motors
Best S i M
B Senior Management C
Communications
i i Cisco Systems
Ci S
Best Investor Relations by a European Company in US Nokia
Best Investor Relations by an Asia-Pacific Co in US Toyota Motor
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13. Winning investor confidence .
“We don’t believe reliable growth has gone out of style. We know that reliable growth is
always in style for long-term investors. They look at GE over an extended horizon, like I
do. They benefit from a company that anticipates change in the environment and executes
y p y p g
aggressively. This is your GE.”
—Jeff Immelt, Chairman and CEO, Letter to Investors, 2006 Annual Report
With more than five million shareowners, GE is one of the most widely-held stocks in the
world. For generations, GE has offered a sound investment for institutional and individual
shareowners. Over the last 10 years, GE has returned 13.5% versus the S&P 100 total
return 9.1%. Additionally,
ret rn of 9 1% Additionall GE has paid a di idend e er year since 1899 and has
dividend every ear
increased its dividend for 31 consecutive years.
Source: www.ge.com 12
14. Honesty Works – Spin Doesn’t !
BERKSHIRE HATHAWAY INC.
An example of how candid Warren Buffett can be, below is a passage in his
2001 l tt t shareholders on th l
letter to h h ld the losses made i D t Sh :
d in Dexter Shoe
“I've made three decisions relating to Dexter that have hurt you in a major
way: (1) buying it in the first place; (2) paying for it with stock and (3)
procrastinating when the need for changes in its operations was obvious. I
would like to lay t ese mistakes o C a e (o a yo e e se, for t at matter)
ou d e ay these sta es on Charlie (or anyone else, o that atte )
but they were mine. Dexter, prior to our purchase – and indeed for a few
years after – prospered despite low-cost foreign competition that was brutal.
I concluded that Dexter could continue to cope with that problem and I was
problem,
wrong.”
Warren Buffett’s letters to Berkshire shareholders over the years are a great example of
honesty and simplicity in investor communication
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15. Best Practices in Investor Relations
IR Departments : Organization & Staffing
Board Management Support
B d&M tS t
14
16. Investor Relations : Organization Design
Report to CEO / CFO CEO / CFO
3 Key elements :
Head – IR
IR Specialists
p
Analysts
IR Specialists Analysts Admin
Administrative / Support
Key role in Corporate Strategy development
Long-term success depends on IR professionals addressing investor concerns &
building confidence in their companies
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17. IR Department : Specialization Required
IR Executives
Annual Report
Website
Product development for investors
Head – IR
Internal business / product information
Competitor analysis
IR Technical S t
T h i l Systems IR Executives
Analyst interaction & communication
Analysts
Manage stock transfer agents
Analysts Admin
Sell-side experience
Buy-side experience
Financial & valuation modeling
Administrative & Support
Event organization
Production
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18. Best Practices in Investor Relations
IR Departments : Organization & Staffing
Board Management Support
B d&M tS t
17
19. Board & Management Commitment –
the starting point
Understand the demands of a public listed company
Understand that the role of IR is achieving a ‘fair’ value for the stock price & not price
fair
maximization
Allocate time to IR activities – this can be very demanding
Focus on value creation – day in and day out
Meet with investors – to demonstrate commitment of their interests. This also allows
investors t assess the leadership of th company
i t to th l d hi f the
The starting point for success in Investor Relations
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21. In conclusion……
1. Board & management commitment
2.
2 Equity story : Communicate future value
3. Reduce gap between intrinsic value & market value
4.
4 Know your investors : who, why, what, when & h
K i t h h h t h how
5. Know your other stakeholders : Understand the role of Media
6. Statutory disclosures are only the minimum : Honesty & Openness pays
7. Establish formal IR department, processes & disciplines
8. Manage Expectations : Investor confidence is hard won, but easily lost
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22. Investor Relations & Sh h ld C
I R l i Shareholder Communication
i i
Linking internal aspirations with external expectations
Sanjay Uppal
Group Chief Financial Officer
Emirates NBD
Challenges for the Modern CFO
28 – 29 October 2007
The Fairmont Dubai, Dubai