Developing an IR Plan


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  • SEC is neither the Southeastern Conference nor the top-of-the-line mercedes. It is the Securities Exchange Commission, which monitors and regulates all public corporations in the US. Foreign companies listed on US Exchanges have to meet US reporting requirements. Investment community: Analysts, can be buy or sell side, are people who use financial modeling techniques, industry knowledge and management meetings to determine the future prospects of a company. Investors are people who may or may not use that research to buy stock. Company: Board of Directors are responsible for approving major corporate decisions and guiding a company forward. Employees Media is definitely an audience for investor communications, as they will hear or see everything a company puts out.
  • Developing an IR Plan

    1. 1. Developing an IR Plan NIRI Introduction to Investor Relations Case Study Keith Mabee Vice Chairman, Dix & Eaton Fairmont Copley Plaza Hotel, Boston September 23, 2009
    2. 2. Agenda <ul><li>Introduction </li></ul><ul><li>The role of IR in value creation </li></ul><ul><li>Developing an IR plan </li></ul><ul><li>Assessment </li></ul><ul><li>Plan </li></ul><ul><li>Action </li></ul><ul><li>Measurement </li></ul><ul><li>Case study (small group breakout) </li></ul>
    3. 3. What is Investor Relations? <ul><li>Investor relations is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company's securities achieving fair valuation. </li></ul><ul><li>( Source: National Investor Relations Institute ) </li></ul>
    4. 4. The Goal of IR <ul><li>Create Fair Market Value </li></ul>
    5. 5. What is Fair Market Value? <ul><li>When a current stock price accurately reflects the full value of the company </li></ul><ul><ul><li>Based on the absolute value of the company (on paper) and the perceived value of the company in the future </li></ul></ul><ul><ul><li>Driven by perceptions; intangibles play a key role </li></ul></ul>
    6. 6. How Fair Market Value is Created Solid Execution Compelling Corporate Strategy Revenue Growth Steady Earnings Growth Fair Market Value
    7. 7. Role of IR in Value Creation <ul><ul><li>Market awareness and feedback to management </li></ul></ul><ul><ul><li>Credibility and consistent communication </li></ul></ul><ul><ul><li>Number of long-term investors; optimize shareholder mix </li></ul></ul><ul><ul><li>Analyst following </li></ul></ul><ul><ul><li>Access to capital </li></ul></ul><ul><ul><li>Share liquidity </li></ul></ul><ul><ul><li>P/E ratio </li></ul></ul><ul><ul><li>Share value </li></ul></ul><ul><ul><li>Corporate governance </li></ul></ul>
    9. 9. The IR Equation Perception Stock Price = Performance +
    10. 10. Performance-Related Variables <ul><li>Revenue growth </li></ul><ul><li>Sector attractiveness </li></ul><ul><li>Earnings growth </li></ul><ul><li>Return on invested capital </li></ul><ul><li>Cash flow </li></ul><ul><li>Balance sheet strength </li></ul><ul><li>Dividend yield </li></ul><ul><li>Beta </li></ul><ul><li>Share float </li></ul><ul><li>Liquidity </li></ul>
    11. 11. Perception-related Variables <ul><li>Intangibles </li></ul><ul><li>An intangible asset is an identifiable non-monetary asset without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. </li></ul><ul><li>Source: Cap Gemini Ernst & Young </li></ul>
    12. 12. Intangibles Are Growing in Importance <ul><li>Non-financial performance accounts for 35% - 50% of institutional investors’ valuation </li></ul><ul><li>The more sell-side analysts rely on non-financial performance, the more accurate are their earnings forecasts </li></ul><ul><li>Consistent set of non-financial drivers that analysts rely on: </li></ul><ul><li>Strategy Execution </li></ul><ul><li>Management Credibility </li></ul><ul><li>Quality of Strategy </li></ul><ul><li>Innovativeness </li></ul><ul><li>Ability to Attract Talented People </li></ul><ul><li>Market Position </li></ul><ul><li>Management Experience </li></ul><ul><li>Quality of Executive Compensation </li></ul><ul><li>Quality of Major Processes </li></ul><ul><li>Research Leadership </li></ul><ul><li>Source: Cap Gemini Ernst & Young </li></ul>
    13. 13. Perception-related Variables <ul><li>Other intangibles </li></ul><ul><ul><li>Management credibility and integrity </li></ul></ul><ul><ul><li>Customer loyalty </li></ul></ul><ul><ul><li>Employee commitment </li></ul></ul><ul><ul><li>Corporate reputation </li></ul></ul><ul><ul><li>Business ethics </li></ul></ul><ul><ul><li>Unique corporate culture </li></ul></ul><ul><ul><li>Intellectual know-how </li></ul></ul><ul><ul><li>Brand image </li></ul></ul>
    14. 14. Developing an IR Plan – Assessment <ul><li>Begin with assessment of your company, its current business/strategic plans and competitive set </li></ul><ul><ul><li>SWOT Analysis </li></ul></ul><ul><ul><ul><li>Strengths </li></ul></ul></ul><ul><ul><ul><li>Weaknesses </li></ul></ul></ul><ul><ul><ul><li>Opportunities </li></ul></ul></ul><ul><ul><ul><li>Threats </li></ul></ul></ul><ul><li>Include an analysis that factors in the impact on valuation of the economy, business sector, company performance or other issues </li></ul>
    15. 15. Developing an IR Plan – Assessment <ul><li>Analyze historic changes in the ownership profile </li></ul><ul><ul><li>Growth – GARP </li></ul></ul><ul><ul><li>Value – Hedge Funds </li></ul></ul><ul><ul><li>Income – Momentum Players </li></ul></ul><ul><ul><li>Index – Insiders </li></ul></ul><ul><ul><li>Retail </li></ul></ul><ul><li>What’s been the company’s guidance track record? </li></ul><ul><li>What are analyst expectations about performance and how it gets communicated? </li></ul>
    16. 16. Developing an IR Plan– Setting Program Objectives <ul><ul><li>Typical IR Program Objectives </li></ul></ul><ul><ul><li>To focus investors on your business, financial results and long-term prospects for creating value </li></ul></ul><ul><ul><li>To provide meaningful and relevant public disclosure tied to business dynamics </li></ul></ul><ul><ul><li>To establish timely and consistent communications and appropriate transparency with existing and potential investors </li></ul></ul><ul><ul><li>To attract the optimal shareholder mix </li></ul></ul><ul><ul><li>To educate management and employees about how their efforts can impact share price </li></ul></ul><ul><ul><li>To provide management and the Board with timely competitive feedback, corporate governance and market analysis </li></ul></ul>
    17. 17. Developing an IR Plan– Setting Program Objectives <ul><ul><li>Benefits </li></ul></ul><ul><ul><ul><li>Reduced volatility </li></ul></ul></ul><ul><ul><ul><li>Expanded liquidity </li></ul></ul></ul><ul><ul><ul><li>More optimal and diversified shareholder base </li></ul></ul></ul><ul><ul><ul><li>Lowered cost of capital </li></ul></ul></ul><ul><ul><ul><li>Enhanced shareholder value creation </li></ul></ul></ul><ul><ul><ul><li>Higher multiple relative to peers/company-specific benchmarks </li></ul></ul></ul>
    18. 18. Developing an IR Plan– Identifying and Prioritizing Target Audiences <ul><li>SEC </li></ul><ul><li>Stock exchange </li></ul><ul><li>Rating agencies </li></ul><ul><li>Sell-side analysts </li></ul><ul><li>Buy-side institutional analysts and investors in the U.S. and international markets </li></ul><ul><li>Individual investors </li></ul><ul><li>Financial media </li></ul><ul><li>Governance rating firms </li></ul><ul><li>Management and board of directors </li></ul><ul><li>Other employees </li></ul><ul><li>Customers </li></ul>
    19. 19. Developing an IR Plan – Components of a Program <ul><li>Quarterly disclosure </li></ul><ul><ul><li>Release, Conference Call, Timing </li></ul></ul><ul><ul><li>Approvals: Disclosure, Audit Committees </li></ul></ul><ul><li>Management presentations at industry conferences </li></ul><ul><li>On-site visits with investors (groups of buy/sell side) </li></ul><ul><li>Quarterly road shows </li></ul><ul><li>Analyst days; analyst-hosted conferences </li></ul><ul><li>Targeted one-on-ones </li></ul><ul><li>Annual report to shareholders </li></ul><ul><li>IR/corporate governance sections of web site </li></ul><ul><li>Targeted financial media placements </li></ul>
    20. 20. Tactics: Broaden Institutional Base 40% 18% 5% 37% Current 25% 10% 5% 60% 25% 10% 5% 60% Goal
    21. 21. Tactics: Attracting the Best Shareholders <ul><li>Institutional targeting program </li></ul><ul><li>A comprehensive quantitative and qualitative determination of the best institutional prospects, as well as an assessment of what shareholders may be close to selling </li></ul><ul><li>Prioritization of targets, key meetings, one-on-ones with senior management </li></ul><ul><li>Secure and leverage sell-side coverage comparable to peers </li></ul>
    22. 22. Targeting Criteria <ul><li>Interest in the sector </li></ul><ul><li>Investment philosophy, alignment with your company’s performance and outlook </li></ul><ul><li>Meaningful purchasing power </li></ul><ul><li>Long-term investment orientation </li></ul><ul><li>Sizeable equities under management </li></ul>
    23. 23. Program Measurement <ul><li>Evaluation is critical for all IR Programs </li></ul><ul><li>Must set measurable goals </li></ul><ul><li>Should set management expectations </li></ul><ul><li>Use benchmark investor perception research periodically </li></ul><ul><li>Provide both quantitative and qualitative views </li></ul><ul><li>Short-term share price and analysts ratings should not drive IR strategy and goals </li></ul>
    24. 24. Program Measurement <ul><li>Internal </li></ul><ul><li>Management’s view of IR </li></ul><ul><ul><li>It’s not just communicating, but also participating in strategy formulation; marketing the ‘investible story’ </li></ul></ul><ul><ul><li>Management always has good intelligence about investors’ perceptions of strategic issues and concerns </li></ul></ul><ul><ul><li>The market doesn’t over-react to good or bad news; built-in ‘credibility quotient’ </li></ul></ul><ul><ul><li>IRO is an integral part of the management team </li></ul></ul>
    25. 25. Program Measurement <ul><li>External </li></ul><ul><li>Perception Study </li></ul><ul><ul><li>Interviews </li></ul></ul><ul><ul><ul><li>Buy Side · Key Media </li></ul></ul></ul><ul><ul><ul><li>Sell Side · Industry Analysts </li></ul></ul></ul><ul><ul><ul><li>Portfolio Managers · Recent Sellers </li></ul></ul></ul><ul><ul><li>Measures perception of company’s strategies and management team </li></ul></ul><ul><ul><li>Identifies gaps between what management is communicating and how it is being received </li></ul></ul><ul><li>Analyze and report out ongoing dialogue and feedback </li></ul>
    26. 26. Program Measurement <ul><li>Objective Measures </li></ul><ul><li>Number/quality of analysts following the company </li></ul><ul><li>Number/quality of meetings held with investors </li></ul><ul><li>Number/quality of conference presentations made </li></ul><ul><li>Long-term share price relative to performance </li></ul><ul><li>Long-term share price volatility </li></ul><ul><li>Successful conversion of targeted investors </li></ul><ul><li>Achieving optimal shareholder base </li></ul><ul><li>Keeping management and BOD informed; minimize ‘market surprises’ </li></ul><ul><li>Managing within budget; delivering ROI on company’s IR objectives </li></ul>
    27. 27. Program Measurement <ul><li>Subjective Measures </li></ul><ul><li>Is the message being understood? </li></ul><ul><li>Are analysts and investors not surprised? </li></ul><ul><li>Are analysts and investors enthusiastic? </li></ul><ul><li>Is IR effective in a crisis? In capital raising? </li></ul><ul><li>Are management/Board well informed? </li></ul><ul><li>Does the IRO have credibility? Who do management and investors turn to first? </li></ul><ul><li>Is the IRO an effective corporate governance sentinel? </li></ul>