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  1. 1. Fundamentals of Business & Financial Journalism Week 5: Covering company news & Corporate disclosure Jeffrey TimmermansTuesday, 23 October, 12
  2. 2. News Quiz ✤ Name one reason why property prices in Hong Kong are currently so high. ✤ What is one factor behind the current strong sales in Hong Kong’s retail sector? ✤ Google announced their earnings for the third quarter. How did they do? ✤ EXTRA CREDIT: What is SoftBank, and why is it in the news recently?Tuesday, 23 October, 12
  3. 3. Types of corporate stories ✤ Initial public offering (first sale of shares to public) ✤ New product/line of business ✤ Top executive changes ✤ Fundraising: secondary share sales & bond issues ✤ Mergers & acquisitions ✤ Earnings announcementsTuesday, 23 October, 12
  4. 4. Spot/market comment model ✤ Change: What happened? What changed? ✤ Cause: Why? ✤ Expectations: What was expected to happen? ✤ Context: Is this the first? Only? Biggest? Consistent with others? ✤ Comment: What are people saying about it? Get quotes. ✤ Future: What is likely to happen next?Tuesday, 23 October, 12
  5. 5. Spot news model (variant) ✤ What happened? ✤ Why did it happen? ✤ Key details of what happened ✤ Context & significance of what happened (“nut graf”) ✤ Consequences ✤ What’s next?Tuesday, 23 October, 12
  6. 6. Bloomberg’s four-paragraph lead ✤ Theme: What & Why ✤ Authority: Quote from someone that backs up the theme ✤ Details: Additional info & data that “are essential to telling the story” ✤ What’s at Stake: Why people should careTuesday, 23 October, 12
  7. 7. New product/line of business ✤ How does the new product/ ✤ What are initial sales goals? business fit in with company’s existing products? ✤ What are the competing products? ✤ Price? Which markets? ✤ How will the new product/ ✤ When available? business affect the company’s profits? ✤ Supply chain? ✤ Development costs?Tuesday, 23 October, 12
  8. 8. New product: example Volvo to Slash U.S. Line-Up in Bid to Reverse Sagging Sales By Ola Kinnander - Jan 26, 2011 Volvo Cars, the Swedish carmaker owned by Zhejiang Geely Holding Group Co. of China, will slash the number of models it offers in the U.S. to focus on its best- selling vehicles in a bid to Theme reverse years of declining sales. “Five or six is probably a good number,” said Doug Speck, head of Volvo’s operations in the U.S., in a telephone interview yesterday, noting that Volvo currently offers nine models there. Authority “We have to focus on the key segments with significant volume potential.” The V50 station wagon will be discontinued, falling victim to U.S. car buyers’ change in taste from wagons to crossovers, Speck said. He declined to say when the car will stop selling, saying Details Source: Bloomberg, 26 Jan. 2011 he wants to tell his 316 dealers first. Volvo, based in Gothenburg, Sweden, is still reviewing which other models will be cut from the U.S. line-up and has decided to mainly focus on the new S60 sedan and the XC60 and XC90 crossovers, he said. Volvo’s U.S. sales have declined steadily since 2004 when it sold 139,384 cars. Deliveries slid What’s 12 percent last year to 53,948 vehicles, while premium-segment rivals like Bayerische Motoren Werke AG and Volkswagen AG’s Audi gained. Volvo currently offers about as many models in at stake the U.S. as the VW brand, which sold 256,830 vehicles in the country last year.Tuesday, 23 October, 12
  9. 9. Executive changes ✤ Who is being replaced? ✤ What do his/her colleagues think? ✤ What are the reasons given for the departure? ✤ What does his/her assistant think? ✤ What are the real reasons? ✤ What’s the new salary/ ✤ What is the background of the benefits? new person? Age? Who will take his/her old place? ✤ How will this impact company’s profitability?Tuesday, 23 October, 12
  10. 10. Executive changes: example Ranbaxy Chief Financial Officer Sethi Quits Five Months After CEO Resigns By Adi Narayan - Jan 27, 2011 Ranbaxy Laboratories Ltd., India’s largest drugmaker by sales, said President and Chief What Financial Officer Omesh Sethi resigned on Jan. 25. Ranbaxy, based in Gurgaon, near New Delhi, didn’t give a reason for the departure in a Why statement to the Bombay Stock Exchange today. The financial chief’s resignation is the second exit by a senior Ranbaxy executive in less than six months, after former Chief Executive Officer Atul Sobti quit over differences with parent What’s Daiichi Sankyo Co. Sethi, who joined the company in 1989, made a “significant contribution” to at stake improve its financial performance and was involved in mergers and acquisitions, Ranbaxy said on its website. Source: Bloomberg, 27 Jan. 2011 “It just makes it a bit difficult” for Ranbaxy, said Hemant Bakhru, an analyst at CLSA Asia- Pacific Markets in Mumbai. With the exit of two top executives, “you lose that continuity which Authority is essential for any corporate to run well.” Masaya Tamae, a spokesman for Daiichi Sankyo in Tokyo, confirmed Sethi’s resignation and Details declined to comment beyond that. Sethi couldn’t be reached on his office phone and didn’t immediately respond to an e-mailed query today. Krishnan Ramalingam and Raghu Kochar, spokesmen for Ranbaxy, didn’t answer calls to their mobile phones.Tuesday, 23 October, 12
  11. 11. Stages of an initial public offering ✤ Company decides to raise funds ✤ Underwriters fine-tune price via IPO range ✤ Company hires investment ✤ Retail investors are invited to banks as underwriters subscribe to IPO ✤ Underwriters determine initial ✤ Underwriters announce pricing range for shares subscription rate and final price ✤ Underwriters sound out ✤ Shares begin trading on stock strategic (keystone) and exchange institutional investorsTuesday, 23 October, 12
  12. 12. IPOs: Key questions ✤ How much money will be ✤ Are there any keystone raised? investors? ✤ How will it be used? ✤ Which investment banks are handling the IPO? ✤ How many shares will be sold? Percentage of total number of ✤ What are the key dates? shares? Overallotment option? ✤ Pricing of IPO shares ✤ What percentage of IPO shares will be reserved for institutional ✤ Listing date investors?Tuesday, 23 October, 12
  13. 13. IPO press release Bakers Footwear Announces Pricing of Initial Public Offering Of Common Stock ST. LOUIS -- Bakers Footwear Group today announced the initial public offering of 2,160,000 shares of its common stock, all of which are being sold by the Company at a price to the public of $7.75 per share. The Company has also granted the underwriters a 45-day option to purchase up to 324,000 additional shares of common stock to cover over-allotments, if any. The Companys common stock is listed on the Nasdaq National Market under the symbol: BKRS. Ryan Beck & Co. and BB&T Capital Markets are joint managing the offering. Net proceeds to the Company from the sale of its common stock will be used primarily to open new stores, remodel existing stores, repay debt and increase working capital. Source: BusinessWire, 5 Feb. 2004Tuesday, 23 October, 12
  14. 14. IPOs: Sourcing ✤ Company executives (not just the spokespeople) ✤ Investment bankers bidding for the IPO ✤ Fund managers (often are pitched initial IPO pricing) ✤ LawyersTuesday, 23 October, 12
  15. 15. IPO: example Demand Media moves ahead with $112.5 mln IPO NEW YORK, Jan 12 (Reuters) - Demand Media Inc, which relies on search engine data and thousands of freelancers to churn out low-cost articles and video, set terms on Wednesday for Lede a $112.5 million initial public offering. The company employs 13,000 freelancers who contribute to websites including its own and Gannett Cos (GCI.N: Quote, Profile, Research, Stock Buzz) website for the Context newspaper USA Today. Source: Reuters, 12 Jan. 2011 In August, Demand Media filed for an IPO of up to $125 million. On Wednesday, the company and stockholders filed to sell 7.5 million shares for $14 to $16 per share. Details Demand Media plans to sell 4.5 million shares while stockholders will sell an additional 3 million shares. Since its founding in 2006, Demand has stoked controversy and intrigue among news editors because of its use of software algorithms to predict what stories readers want and the lifetime advertising revenue value from search engines such as Google Inc (GOOG.O: Quote, Profile, Nut Research, Stock Buzz).Tuesday, 23 October, 12
  16. 16. Secondary Fundraising ✤ Debt ✤ Shares ✤ Loan or bond? ✤ New shares or existing? ✤ Maturity? Interest rate? ✤ Size of offering? Price? ✤ Credit rating? ✤ Who is underwriting? ✤ Cheaper than share offering? ✤ Cheaper than debt? ✤ How will it affect profits? ✤ How will it affect profits?Tuesday, 23 October, 12
  17. 17. Corporate disclosure ✤ Directors’ report ✤ Auditor’s report ✤ Profit & loss (or income) statement (P&L) ✤ Balance sheet ✤ Cash-flow statement ✤ FootnotesTuesday, 23 October, 12
  18. 18. Directors’ report ✤ Details the “principal activities” of the company and its subsidiaries during the reporting period ✤ Describes any significant changes in the fixed assets of the company or its subsidiaries ✤ Lists any share or debt offerings during the period and the reasons ✤ Reviews any interests held by directors in contracts with company or subdsidiariesTuesday, 23 October, 12
  19. 19. Auditor’s report ✤ An independent auditor (accounting firm) is required to attest that the company’s balance sheet and income statement represent a “true and fair” view of the company’s performance ✤ Auditor must also state whether the company’s accounts are in order and whether they received all the information needed for the audit ✤ Any doubt about a company’s ability to remain a “going concern” must be clearly statedTuesday, 23 October, 12
  20. 20. Profit & loss statement ✤ Also called an “income statement” ✤ A roadmap that leads you from revenue to net profit ✤ Details the expenses that are incurred on the way to net profit ✤ Consolidated vs. company ✤ Always check the footnotes!Tuesday, 23 October, 12
  21. 21. Hutchison Whampoa Limited Consolidated Income Statement for the year ended 31 December 2009 As restated Note 1 2009 2008 Note HK$ millions HK$ millions Company and subsidiary companies: Revenue 2 208,808 235,478 Cost of inventories sold (74,275) (77,172) Staff costs (28,309) (31,929) Telecommunications customer acquisition costs (16,544) (22,926) Depreciation and amortisation 2 (16,258) (24,876) Other operating expenses (60,769) (66,001) Change in fair value of investment properties 1,117 672 Profit on disposal of investments and others 3 12,472 3,458 Share of profits less losses after tax of: Associated companies before profit on disposal of investments and others 5,927 12,522 Jointly controlled entities 3,677 5,286 Associated companys profit on disposal of an investment and others 3 - 3,122 2 35,846 37,634 Interest and other finance costs 4 (9,613) (17,286) Profit before tax 26,233 20,348 Current tax charge 5 (4,588) (3,443) Deferred tax credit 5 92 2,576 Profit after tax 21,737 19,481 Allocated as : Profit attributable to minority interests (7,569) (6,800) Profit attributable to shareholders of the Company 14,168 12,681 Earnings per share for profit attributable to shareholders of the Company 6 HK$ 3.32 HK$ 2.97Tuesday, 23 October, 12
  22. 22. The importance of cash Profit is opinion, cash is fact COMPANIES CAN LIE, BUT CASH CAN’TTuesday, 23 October, 12