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NEW CHALLENGES FOR IR? NIRI Atlanta 15 February 2008 Jeff Shacket, Vice President, Corporate Advisory Services Jared Wasserman, Senior Associate, Corporate.

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Presentation on theme: "NEW CHALLENGES FOR IR? NIRI Atlanta 15 February 2008 Jeff Shacket, Vice President, Corporate Advisory Services Jared Wasserman, Senior Associate, Corporate."— Presentation transcript:

1 NEW CHALLENGES FOR IR? NIRI Atlanta 15 February 2008 Jeff Shacket, Vice President, Corporate Advisory Services Jared Wasserman, Senior Associate, Corporate Advisory Services

2 Agenda Setting the stage: 2007 performance and 2008 outlook How are recent developments impacting IR? Explain: craft a calming response Educate: provide context, perspective and insight Act: (re)define your objectives and (re)tell your story Bigger questions

3 2 The market is more volatile … for valid reasons  Market volatility in 2007 and early 2008 has reflected a combination of macroeconomic issues, corporate financial performance, and changes in investor sentiment … as always … but the balance between them has shifted  Legitimate macroeconomic concerns  Slower US GDP growth  US trade and budgetary deficits  Presidential election cycle  Fluctuating foreign exchange rates  Inflationary pressure from energy, raw materials, and food  Credit crunch

4 3 Expectations and actual company results are falling  3Q07 S&P 500 growth: (4.4%)  4Q07 growth rate: (20.2%), or the lowest since Q (21.5%)  1Q08 estimates have dropped from +10.6% on October 1st to +0.9% last week  4Q07 results show slight uptick in rate (26%) and size of ‘misses’ (11%) but [a] rate is generally in line with historical ratios and [b] big ‘misses’ are concentrated in Financials  Still a wide range of 1Q08 forecasts: Energy +25%, Financials (21%)

5 4 The buy-side is growing more complex  Hedge funds have more assets and trade more than ever before; indeed, they now represent half of sell-side commissions  More investors are employing quantitative strategies to generate ‘alpha’  Foreign investors (including sovereign wealth funds), activists, and private equity are growing in number and strength  However, ‘plain vanilla’ institutions still control 10X the assets held by hedge funds

6 5 2008: half-empty or half full?  “The recent market volatility has made me question my investment approach. A lot of stocks have gone down a lot and it hurts. Do you double down or reduce risk? I have those thoughts. I start to ask myself what I am missing when the stocks are down meaningfully. There are opportunities forming. When there is volatility you find opportunities to buy and sell things.” – Sector Specific Investor  The current sources of uncertainty are unlikely to be resolved this year  Whether the market continues to slide lower or finds a bottom, expect continued volatility

7 6 All of this makes IR more difficult … and more important  Volatility = uncertainty, uncertainty = confusion, confusion = complaints  Investors likely to focus on the short-term and wait for the long-term  “Fast money” and algorithms create “noise”  Headlines more likely to drown out the company story  Sector and market performance can outweigh company performance  Are growth (risk) premiums and valuations shrinking?  Harder to fight for mindshare  More minds to fight for, more distractions to fight against

8 7 So what can IR do?  Today? Explain  Search for the source  Tomorrow? Educate  Provide context, perspective, and insight  Next week? Act  (Re)define your objectives and (re)tell your story

9 8 Crafting a calming response  News  Earnings  M&A  Regulatory  Industry developments  Estimates and ratings  Macroeconomics  Trading dynamics  Volume  Technical indicators  Options activity  Short interest  Buzz  Specialists  Sell-side  Traders  Blogs / internet ?  Historically, analyst up / downgrades, news and simple trading dynamics such as volume were main sources of stock movement  Lately the source with the answer tends to be “buzz”  Trading strategies are becoming more complex, as are the trading dynamics  Sometimes, like with Societe Generale, the answer isn’t known for several days

10 9 Take a step back  Your CEO wants to know what’s going on  Shift the focus to longer-term issues

11 10 Take a bigger step back  Your CEO wants to know what’s going on  Shift the focus to longer-term issues  What’s really happening with your firm? The sector? The broader market?  A recent example …

12 11 Don’t hide … (re)tell your story  Current shareholders  Reassure the believers … can they buy more?  Reconvince the doubters … close any disconnects  Respect the different disciplines … sometimes the chart, model, or mandate says ‘sell’  Sell-side analysts  Prospects  Accept immediate sources of support?  Revisit those recent targets  Plant seeds with future top holders

13 12 Bigger questions are emerging  What is the best use of our cash?  Reinvest, issue dividend, acquire, repurchase shares  What does the investment community think about our company and our stock?  Management, strategy, sector outlook, valuation, operations, communications  Are we (IR, senior management, and the Board) focused on the right things?  Benchmarks, objectives, metrics, and strategy vis-a-vis Wall Street

14 13 DIVERSIFY SHAREHOLDER BASE  Top-down Top-down  Geographically Geographically  Hedge funds /activist investors Hedge funds /activist investors  Diversifying base smoothes risk; creates opportunities Diversifying base smoothes risk; creates opportunities MEET & MANAGE INVESTORS  XXX roadshows per year XXX roadshows per year  CEO & CFO should each make XXX trips CEO & CFO should each make XXX trips  Involve operating managers if appropriate Involve operating managers if appropriate  Leverage sell-side for logistics Leverage sell-side for logistics  Sell-side conferences are not a substitute Sell-side conferences are not a substitute DEFINE, SEGMENT & TARGET  Seize control of your investment profile Seize control of your investment profile  Determine competitors for capital Determine competitors for capital  Define your target market Define your target market  Determine existing shareholder alignment Determine existing shareholder alignment  Isolate compatible portfolios Isolate compatible portfolios TRACK, EVALUATE & ADAPT  Develop a scorecard for each investor Develop a scorecard for each investor  Track near- and long-term buying/selling Track near- and long-term buying/selling  Measure ownership weightings/preferences Measure ownership weightings/preferences  Consistently assess strength of audience Consistently assess strength of audience  Adapt strategy as necessary Adapt strategy as necessary Does your company have a strategic plan for IR?


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