Rivel Research Group Buy-side Perspectives IR Best Practice Insights from the Rivel Intelligence Council Prepared for 2017 Rivel Research Group All rights reserved. No part of this publication may be reproduced in any form or by any means, without permission in writing from the copyright owner. Presented by Claire Lavery Vice President, Rivel Research Group January 2017
Who is Rivel Research Group? Established in 1991 A unique specialty investment community perception research Custom investor perception research 150+ projects annually 6,000 telephone interviews with investors globally each year Clients include half of Global Fortune 100 IR best practices: Intelligence Council (200+ member companies) Quarterly, broad-based buy-side surveys Structured lines of inquiry, telephone interviewing Representative 2
A New Normal? Will economic growth in China continue to falter? Brexit: Signals a Scottish exit from the UK? Brexit: Signals a breakdown in post-war economic order? Uncertainty! Trump: A boom or bust for equity markets? Higher infrastructure spending = higher US interest rates? Upcoming elections in France and Germany Do tax cuts and TPP opposition risk global recession? 3
A New Normal? What a difference a year makes! Regions expected to experience recession in next year or so United Kingdom Latin America Eurozone Japan China United States 7% 19% 8% 18% 15% 10% 22% 36% 33% 31% 28% 62% Dec-16 Dec-15 4
A New Normal? IR Mandate Smart engagement is more important than ever Stand ready to address added layers of uncertainty 5
IR Mandate Insight matters more than ever IR is expected to lead the way Believe Good IR Affects Valuation Important for IRO to Be in "the Loop" 62% 88% 54% 75% 2012 2015 2012 2016 6
IR Mandate The Delta Superb IR premium +10% Opportunity Challenge Poor IR discount -20% Risk % Companies with Superb IR 31% 7
IR Mandate Advocate Transparency The core driver of IRO credibility to the buy-side The essential component of the how that investors seek More robust disclosure Transparency Guidance Future growth projections Progress in meeting goals CEO s strategic vision Capex rationale Disclosure Current financials Past performance Segment data Industry metrics 8
No guidance? Expect a lower multiple Very Important Metrics to Receive Guidance On 54% Believe companies that give no guidance deserve a lower multiple Cash flow Margins Revenues Earnings Operational goals 72% 63% 70% 55% 66% 57% 66% 55% 65% 50% 2015 2013 Insight on the strategy 64% 57% 9
Reclusive management? Expect a lower multiple Access is imperative 52% Need to meet management prior to buying a new stock (even if an IRO can answer all their questions) Bring management on the road 10
Direct interaction is prized 66% Believe companies are more candid in private meetings Better detail Better Q&A Better insight on strategy Body language cues Preferred Venues NDRs Investor Days 11
Patience is a must Only 12% 4 3 Often buy a stock after a first meeting with management Average # of people at asset manager firm involved in stock purchase decision Average # of meetings with a company s top mgmt. before investing in that company s stock 12
Making Investor Days Superb The IRO Norm Making it superb Advance prep time 4 months* (median) 6 months Frequency Every other year* Annually** Who is available C-Suite* C-Suite, division heads** Best enhancements** Showcase bench strength Maximize Q&A time Webcast event Video/multimedia use * Among senior IROs in N. America and Europe **Among global buy-side 13
Making NDRs Superb The IRO Norm Making it superb Preferred method Sell-side led* Company-led** Average # roadshow days 10 15* Exceed the norm Who leads CFO and/or CEO* CFO /CEO and COO** Geography Domestic* Domestic (international selectively)* * Among senior IROs in N. America and Europe 14
Targeting is on the rise Time Spent Targeting versus a Couple Years Ago 6% 4% More 43% 48% Virtually no change Less Uncertain * Among senior IROs in N. America and Europe 15
Messaging Differentiation Explaining how you are removing uncertainty from your story 129 It s a crowded playing field 16
Lack of differentiation defeats targeting Biggest Targeting Mistakes (Global buy-side, Feb. 2016) Not a fit for investment style 81% Wrong country/don't invest there 69% Wrong cap-size 64% Wrong sector/industry 58% Wrong exchange listing 35% Insufficient sell-side coverage 25% Evidence of activist interest 22% Not being part of an index 14% 17
Differentiate by shaping outreach strategy to reflect changing buy-side preferences Domestic investing preferred over international investing Cash flow, sustainable results before earnings growth Explain how good performance will be realized in uncertain times Prudent guidance Protect credibility * Among European buy-side 18
Differentiate with reassurance on core investment drivers Most Important Investment Drivers* (Aided) (Total European Buy-side, February 2016, n=110) Reliable cash flow Management credibility Effective business strategy Strong balance sheet Sustainable margins Attractive EPS growth Prudent capital deployment Innovative products/services Corporate governance Good revenue growth potential Economic/industry trends Attractive dividend CSR/Sustainability 29% 39% 35% 50% 50% 50% 49% 49% 58% 63% 70% 70% 79% * Ratings of 8, 9 and 10 on a 10-point scale where 10=extremely important and 1=not at all important. * Among European buy-side 19
Clarify capital deployment plans and link to management s strategic rationale few do it really well 3% Do an excellent job 54% 43% Do a good job Do a fair or poor job 20
Capital Deployment Preferences 10 years of change 2006 May-16 57% 53% 33% 38% 41% 41% 43% 45% 18% 16% 9% 9% Make a large acquisition Stock buybacks Dividends Accretive acquistion in related field Pay down debt Organically reinvest in the business * Percent of global buy-side that strongly supports each initiative 21
M&A seen as driving topline growth in uncertain times Most Likely Driver of Topline Growth (Among Global Buy-side) M & A 48% 71% Organic growth Uncertain 47% 5% Feb 2016 24% 5% May 2016 22
IR Opportunity What IROs control has real clout Most Persuasive When Making an Investment Decision (top 6) In-house Research (61%) One-on-one Management Meetings (61%) Results Conference Calls (56%) Company-held Investor/Analyst Days (54%) Annual Reports (49%) Contact with Heads of IR (39%) * Among European buy-side 23
The Outreach Challenge What should you do? Show the path through today s uncertainty Convince management to increase access Know your investors what drives investment Show how your company meets their unique needs/goals Go beyond financials to highlight intangible benefits Have command of the business strategy explain the how Link to capital deployment Advocate guidance DIFFERENTIATE You are only one of 129 companies 24
Contact details: Claire Lavery Vice President Rivel Research Group Telephone: +44 20 3356 2791 Email: clavery@rivel.com 25