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Category Archives: Financial communication

Substance over style

November 13, 2009 – 1:33 pm

The CFO of a local company made a good point today during a panel discussion on the state of the capital markets: It’s the substance of a company’s story that matters to investors, more than style or charisma – especially in tough times.

Ryan VanWinkle, senior VP and CFO of NYSE-listed Ferrellgas Partners LP, was asked at the Kansas City chapter of Association for Corporate Growth to explain the company’s success in raising funds in both debt and equity markets in 2009.

“In the end it’s not any one person. If you have a good story to tell, it doesn’t matter who tells it,” VanWinkle said. For a good company with a track record and a good transaction, he said, “the capital markets are wide open.”

This is a change from late 2008, when even good companies couldn’t raise money, he said. And the day may come again when the doors all slam shut, so VanWinkle suggests that companies add some liquidity to protect against that contingency.

Just thought this was a worthwhile insight on investor relations: The reality of the story makes the difference, more than the marketing flair we show in telling it.

By Dick Johnson | Posted in Financial communication, Industry Blogs, Investor Relations | Tagged Capital markets & IR, CFOs, Investor Relations, Messages & writing, Recession | Comments Off

IR as a roadmap

November 4, 2009 – 5:44 pm

You gotta love Global Positioning Systems – finding almost anything, guiding you through the streets, offering data to get you to your destination. And you don’t have to fold them back up, like the roadmaps people used in the old days.

I thought about roadmaps – and their GPS counterparts – as I was working on a strategy for communicating a company’s value to investors.

We need to provide roadmaps to our investors, to enable them to envision our destination and see the path the company is taking. A few broad examples:

Investors need to see the path back to financial health for most companies coming through the recession. How will the P&L improve, through cost cuts or recovery in revenues? What steps are we taking, and when will we get there? Where do we need to take the balance sheet? (See earlier post on recovery IR.)
Investors in biopharma and other R&D-based companies need to understand the path for commercializing new drugs or high-tech products. What’s the process? Where are the challenges? How will we navigate them? What’s the timeline, and will investors see the mileposts along the way?
Investors in companies affected by government policy changes – health care reform, cap and trade, tax increases on dividends, you name it – need to visualize the different routes their investments may take depending on what Washington does in specific areas.

We, of course, are the map makers (or people who load data into the GPS devices).

Investor relations professionals should think more about roadmaps. A good map would tell investors where we are, what the destination is, and how we plan to get from here to there. We can’t assume investors – especially those new to a company – know the road. To create understanding, we must craft the clearest possible explanations of how our companies are moving forward to reach our goals.

The analogy to roadmaps suggests one more thing: We should also try hard to give visual expression to key investor messages. Seeing how a company intends to create value adds persuasive power to the verbal explanation of the strategy.

Do you have any examples of useful “roadmaps” in the financial or strategic realm?

By Dick Johnson | Posted in Financial communication, Industry Blogs, Investor Relations | Tagged Investor Relations, Messages & writing, Recovery, Strategy | Comments Off

Let’s make IR more visual

May 20, 2009 – 10:11 am

Whether you’re raising first-round venture capital or cultivating shareholders in a public company, investors need to understand the business model – and drawing a picture of it may help – suggests Cliff Illig, co-founder and vice chairman of Cerner Corporation, a mid cap healthcare IT company listed on NASDAQ.

Illig told a meeting of entrepreneurs last night at the Polsinelli Shughart law firm in Kansas City that a business model is essentially a value proposition. It’s not about how well-designed your widgets are, or the wonderful efforts you exert internally to develop or produce those widgets.

The business model looks outward and answers the question, “How do we create value for customers?” Someone else has described this less delicately as “How do we move money from the customers’ pockets to our pockets?”

Cerner includes a picture of its business model in each annual report and in every presentation to Wall Street, Illig said. Of course, I had to see this picture – so I looked it up (apologies for the shrunken copy shown here).

CERN business model Well, Cerner’s business model picture isn’t exactly pretty – most companies bog down in complexity when explaining their business – but it does explain their financials. The graphic is a flow chart showing where the money comes from (sales pipeline on top), how it flows through contracts and backlogs into each of the business segments, what the margins are – and, ultimately, how money gets to shareholders in the form of operating profit and EBITDA (at the bottom).

I’m not pointing to Cerner as the Michelangelo of IR art – but do consider this picture.

A schematic of a business model says a lot. The more you can simplify it, the better. My feeling is that investor relations people ought to be doodlers – always taking what we hear and looking for ways to sketch a picture of it – simpler, more visual and more intuitive. Bottom line, we want investors to understand how we create value.

By Dick Johnson | Posted in Financial communication, Industry Blogs, Investor Relations | Tagged Annual report, Business model, Investor Relations, presentations, Telling the story - tips | Comments Off

Who’s most shareholder-friendly?

March 24, 2009 – 7:35 pm

The March 2009 Institutional Investor is a must-read for IROs.

The names of top-ranked firms in 57 industries are reason enough to take a look at “America’s Most Shareholder Friendly Companies,” an II ranking based on relationship evaluations by 675 buy side analysts and portfolio managers. Yes, the list includes some of the market’s longtime “blue chips,” but also a few you might not have considered.

You can check rankings in your industry here for a mini-benchmarking.

But the common themes among top-ranked companies are even more compelling. Beyond working hard on delivering fundamentals amid a tough economy, managements are focusing more than ever on relationships with their investors. Here’s a sampler.

Southwest Airlines:

“Any time that circumstances are difficult, it puts that much more stress on providing the right information,” [CEO Gary Kelly] says. “We work hard to establish a baseline understanding of Southwest Airlines’ vision and who we are, and we do the best we can to set reasonable expectations.”

Baxter International:

“The thirst for information from investors has grown significantly over the past 12 months,” says Mary Kay Ladone, vice president of investor relations. The challenge, she explains, is trying to find the right balance between “delivering a simple message that allows shareholders to make investment decisions, but not simplifying the message to the extent that we mask some of the uncertainty. This has always been the case, but the current environment has heightened it.”

… she adheres to five basic principles when communicating with shareholders and potential investors: “simple, transparent, responsive, timely and accurate.”

Kimberly-Clark:

[CEO Thomas] Falk and his investor relations team keep shareholders informed of developments - even when the news is not good - by scheduling regular meetings in the offices of buy-side analysts in major markets and by making themselves available to answer questions. ”Good investors are always probing for the soft spots in your strategy and your deliveries,” he says. “They have done their homework.”

Procter & Gamble:

“At the heart of our investor relations approach is the clear understanding that our shareholders are the owners of the company and that we need to be pro-actively responsive to them,” [CFO Jon Moeller] says, adding that P&G hosts investor meetings eight times a year at its headquarters and also attends most major investor conferences. “We make sure they understand our strategy, how we’re competitively advantaged and how we’re building on that.”

You might say it comes down to basics. Companies that execute well on the fundamentals of investor relations - clear communication of strategy, timely disclosure of changes and generous access for shareholders - earn favor and loyalty from the buy side.

And those relationships pay off in an uncertain era.

By Dick Johnson | Posted in Financial communication, IR trends & news, Industry Blogs, Investor Relations | Tagged Bear market, institutional investors, Investor Relations | Comments Off

A surprise in the cereal box

March 23, 2009 – 8:05 am

Imagine my delight when I opened up a box of Cheerios and found a surprise inside: a snap-together plastic sports car. Cool! … Yes, I know. They say men are just 8-year-old boys in grown-up bodies, and this explains my glee upon running across a cheap little toy.

Call it quirky, but the surprise in the cereal box made me think of investors and their reactions to a pleasant surprise. We’ve all seen the pop in a company’s stock price when it beats earnings estimates.

But there are other surprises a company can give its shareholders.

Investor presentations offer an opportunity. How about surprising an audience with a speech offering deep insights into your industry and markets, rather than the usual data-dump-in-a-Powerpoint-file? How about announcing a news item at a meeting, approximately simultaneous with a broad release? Or brightening up an analyst day with a bit of entertainment? In a small way, just running on time is a nice surprise (beating a 10- or 20-minute limit demands two disciplines: saying only what matters, and practicing to nail the time).

A little psychology on the substantive side also can help relationships. Sure, there aren’t many positive surprises - earnings or otherwise - in today’s brutal economy. And you can’t hold back material information.

But IROs can help management look for opportunities to highlight an unexpected benefit or unpromised outcome. An acquiring company can deliver synergies faster than projected. A new CEO can implement changes he hasn’t been ballyhooing publicly. A cost-cutting program can exceed its targets. In each case, management can influence both what it promises up-front and how well the company executes. Never over-promising should be a core principle of IR.

For investors, a surprise is like finding a toy in the cereal box. Cool!

(I’m going to go play with my car now.)

By Dick Johnson | Posted in Financial communication, Industry Blogs, Investor Relations | Tagged Investor Relations, M&A, My two cents' worth, presentations | Comments Off

McKinsey: Good time to open up

March 19, 2009 – 7:20 pm

Transparency is “in” again, big-time. But what transparency should look like in ongoing conversations with investors isn’t always clear.

McKinsey & Co. consultants Robert Palter and Werner Rehm outline a sensible strategy in “Opening Up to Investors” in the January ‘09 McKinsey Quarterly. It begins with not hiding in tough times:

As the credit crisis sorts itself out, one outcome investors and regulators will almost certainly demand is more transparency into the strategy and the underlying operating and financial performance of companies—not only the financial ones at the storm’s center but all companies. Managers should enthusiastically embrace such reforms.

The consultants urge companies to take action by thinking through and bolstering disclosure in three areas:

Give additional detail on how you create value, such as more granular P&L and balance sheet data to help investors value business segments.
Provide a candid assessment of performance, including initiatives that don’t work out and discussion of trade-offs such as pricing and margin.
Offer long-term guidance on your value drivers - estimated ranges on a handful of key operating metrics that drive value (not quarterly EPS).

The McKinsey piece suggests quite a few examples of disclosures to implement these three broad actions in specific industries. It’s available on the McKinsey website, with free registration. (Thanks to financial communicator Nick Iammartino for passing along the McKinsey article.)

By Dick Johnson | Posted in Financial communication, Industry Blogs, Investor Relations | Tagged disclosure, Investor Relations, Telling the story - tips | Comments Off

Communicate your relative strengths

January 29, 2009 – 1:53 pm

A couple of Boston Consulting Group gurus urge companies to “Seize the Advantage in a Downturn” in the February 2009 issue of Harvard Business Review - and investor relations is part of their story.

After listing actions management can take to maximize cash and working capital, reduce costs, and drive revenue, authors David Rhodes and Daniel Stelter cite valuation as a competitive tool:

Your company’s share price, like that of most firms, will take a beating during a downturn. [Been there, done that - my comment.] While you may not be able to prevent it from dropping in absolute terms, you want it to remain strong compared with others in your industry.

Enhancing relative valuation, a familiar benchmark for IR people, calls for communicating your strengths vs. the peer group. Of course, messages to investors must follow concrete actions by management:

In a downturn, our data shows that markets typically reward a strong balance sheet with low debt levels and secured access to capital. Instead of being punished by activist investors and becoming a takeover target for hedge funds, a company sitting on a pile of cash is viewed positively by investors as a stable investment with lower perceived risk.

Stability that may seem sleepy and boring in good times is suddenly popular - but you need to talk about it, the BCG guys say:

For that to happen, you need to create a compelling investor communications strategy that highlights such drivers of relative valuation. This will also be important as you try to capitalize on the competitive opportunities that a recession offers, such as seeking attractive mergers and acquisitions.

The consultants also say raising dividends has proven more effective than share buybacks in driving valuation. But they note the potential conflict between richer dividends and maintaining a healthy cash hoard.

(Call or email me if Johnson Strategic can help you put together a compelling IR strategy or craft messages for these turbulent times.)

By Dick Johnson | Posted in Financial communication, Industry Blogs, Investor Relations | Tagged Bear market, Investor Relations, Recession, Telling the story - tips | Comments Off

Mergers, the Death Star & IR

January 27, 2009 – 5:35 am

Not all mergers are marriages made in heaven, and the ongoing Bank of America-Merrill Lynch saga is providing plenty of support for the skepticism many investors hold toward M&A as a way to create value.

Today in The Wall Street Journal, Merrill ex-CEO John Thain responds to a whispering campaign blaming him for the souring of Bank of America’s ownership of Merrill (”Thain Fires Back at Bank of America”).

Thain was shown the door last week by Ken Lewis, B of A’s CEO. The parting came amid talk by sources around Bank of America that Thain surprised the new owner with Merrill’s $15 billion fourth-quarter loss - and rushed out bonuses to Merrill employees without telling B of A. Not so, Thain is now telling everyone.

But the tidbits are as revealing as the central facts …

Merrill Lynch employees apparently refer to Bank of America’s I-banking headquarters in midtown New York as the Death Star, the dark and dangerous fortress of the evil empire in “Star Wars.”
On the Bank of America equity trading floor, employees reportedly gave a standing ovation to news of the Merrill chief’s departure.
Some other top Merrill execs had already fled the company before Thain’s resignation, contributing to the feeling of - well, rats leaving the ship.
Bank of America employees, expecting their bonuses this week, reportedly are envious of Merrill people over what looks like a sweet deal - Merrill handed out its checks before the deal closed on Jan. 1.
Thain expresses contrition (some) over spending $1.2 million redecorating his office suite as America’s financial system was unraveling. He now says he’ll pay the firm back for the pricey curtains and fancy antiques. (BTW, Thain’s interior designer has a new gig: decorating the Obamas’ White House residence.)
Thain has hired PR man-to-the-stars Ken Sunshine - yes, “Mr. Sunshine” - to help spin the defense against the whispering campaign.

None of this points to the happy family image of a merger. Of course, this was a shotgun wedding negotiated at the worst moment of the financial crisis back in September. M&A under duress is bound to lead to more stress.

Forces much more powerful than investor relations, obviously, led to the B of A-Merrill Lynch acquisition. And that may always be the case. CEOs sign deals; IROs only communicate them.

But investor relations professionals should study the risks of M&A. Especially as consolidation becomes a common solution for hard times, we can counsel CEOs on the challenges they must overcome: Integrating two groups of people is the biggest issue. A clash of cultures must be addressed openly, not glossed over with handshake photo-ops. Mutual suspicion, “Us vs. Them,” and comparisons of compensation run rampant in mergers. You must deal with them proactively.

Investors know that integration - the people side of managing a newly combined business - is critical to success. So IROs should counsel management to think deeply and communicate around these issues in M&A.

By Dick Johnson | Posted in Financial communication, IR trends & news, Industry Blogs, Investor Relations | Tagged Investor Relations, M&A | Comments Off