Shareholder risk management

Transcription

1 Shareholder risk management Business Valuation International Conference Milan 22/23 October 2012 Jean-Florent Rérolle

2 Agenda Sudden shifts of value are: Frequent Lasting Strategy related Implications for companies Understand its financial market positioning Build a value creating organization Have an ongoing dialogue with investors Implications for valuers 1

3 Shareholder risk is frequent KPMG study on Sudden Shifts of Value 348 listed French companies (CAC All Tradable Index) KPMG identified: 1827 instances of sudden shifts in share price value, of over 20% relative to the index, over a one month period during the past five years 493 shifts of over 30% 86.5% of companies have experienced at least one -20% shift Almost 50% experienced at least one -30% shift % of companies which have experienced at least one -20% shift % of companies which have experienced at least one -30% shift 86,5% 64,4% 90,8% 93,1% 97,7% Total Quartile 1 48,6% 46,0% 49,4% 77,0% Total Quartile 1 Quartile 2 Quartile 3 21,8% Quartile 2 Quartile 3 Quartile 4 Quartile 4 Al least one shift Al least one shift 2

4 A sudden shift of value is lasting 75% of companies that experienced a shift in value during the first 4 years of the study saw their share price recover It takes 8.9 months on average to recover from a -20% shift and 10.9 months for a -30% shift Average recovery time for -20% shifts Average recovery time for -30% shifts 10,2 12,6 13,1 8,9 9,0 8,8 7,7 10,9 9,8 10,0 Total Quartile 1 Quartile 2 Quartile 3 Quartile 4 Total Quartile 1 Quartile 2 Quartile 3 Quartile 4 3

5 Sudden Shifts of value are strategy related KPMG has studied 207 shifts of more than -30% 52% are due to a perceived deterioration of the company s strategic trajectory 32% are related to anxiety-provoking financial decisions 16% are due to faulty strategic execution or poor governance Breakdown of reasons related to -30% shifts Number of reasons per category (-30% shifts) % 67 Strategic path 60 52% Strategic execution Financial decisions % Strategic path Growth lower than expected Lower margins Management of activities portfolio Strategic execution Process Governance Financial decisions Innapropriate financial structure Others 4

6 Companies should understand their financial positioning Develop a strong belief in the long term value creation capability of the company Identify links between the business model, strategic trajectory, competitive advantage and value Identify key value drivers and risks for each SBU Determine value of potential strategic scenarios Understand market expectations regarding the company and its competitors Assess long term implicit financial hypothesis Get to know your most significant shareholders Identify the non-financial measures that matter for investors Evaluate company s ability to deliver on its long term promises 5

7 build a value-creating organization Manage assets Respect value creation principle in all decisions Merge finance and strategic thinking Align performance measurement and compensation with value creation Manage enterprise risk Define risk appetite Analyze risk through value lenses Identify the value impact of major strategic risk (competitive advantage period, business model adaptability ) Define long term financial strategy Ensure coherence between business maturity and strategy needs Evaluate the impact of the financial structure on strategic flexibility 6

8 and deploy an investor s exchange Remember: Share price depends on investors expectations Companies are competing in the financial market Investors count more than analysts: look for the lead steers Investors need strategic, long term, balanced and fair information Coherence is key Don t be intoxicated by the short term Select and develop an ongoing dialogue with major shareholders Never over-commit! Show regularly that you are on the right track 7

9 How can valuation experts help? Change your mindset! Specialists Generalists Opinion Consulting Risk averse Calculated risk Refine our methodologies Include more non-financial issues in our analysis Strategy Governance Economics and geopolitics Behavioral finance Spend more time on scenarios (not the same as sensitivities) New approaches? 8

10 2012 KPMG Corporate Finance SAS, a French limited liability entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. CIF n C027000