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Investor Relations and Shareholder Communication : Linking internal aspirations with external expectations

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Presentation at the "Challenges for the Modern CFO" Conference, October 2007

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Investor Relations and Shareholder Communication : Linking internal aspirations with external expectations

  1. 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. 2. Best Practices & Messaging IR Departments : Organization & Staffing Board Management Support B d&M tS t 1
  3. 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. 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. 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. 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 ? 5
  7. 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. 6
  8. 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. 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. 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. 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 10
  12. 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 11
  13. 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. 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 13
  15. 15. Best Practices in Investor Relations IR Departments : Organization & Staffing Board Management Support B d&M tS t 14
  16. 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 15
  17. 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 16
  18. 18. Best Practices in Investor Relations IR Departments : Organization & Staffing Board Management Support B d&M tS t 17
  19. 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 18
  20. 20. In Conclusion 19
  21. 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 20
  22. 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

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