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Establishing Efficicent IR Communication Platform

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Presentation by Alexander Tolkach, Director for External Affairs DTEK, at FormulaS master-classs

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Establishing Efficicent IR Communication Platform

  1. 1. ESTABLISHING EFFICIENT IR COMMUNICATION PLATFORM Alexander Tolkach Director for External Affairs DTEK
  3. 3. TO WHOM IT MAY CONCERN <ul><li>Few people in the company know what is IR… </li></ul><ul><li>Everywhere nobody likes to share information, so you have to force it </li></ul><ul><li>Successful IR office is reporting to CEO only! It is presented on the Management and Board meetings </li></ul><ul><li>There is no direct system to calculate the profits of successful IR office </li></ul>But what IR can not do The company won’t get in money terms
  4. 4. HOW INVESTORS MAKE DECISIONS? They rely heavily on information inflows <ul><li>Direct communications from the company (82%*) </li></ul><ul><li>Buy-side of investment community (70%*) </li></ul><ul><li>Trade media (64%*) </li></ul><ul><li>Sell-side of investment community (53%*) </li></ul><ul><li>National business media (49%*) </li></ul><ul><li>*Percentage of respondents who ranked this type of communication in </li></ul><ul><li>the top 3 </li></ul>Source: Financial Dynamics US Investment Community Survey
  5. 5. WHAT DO INVESTORS WANT FROM A FOREIGN COMPANY? <ul><li>Financial transparency </li></ul><ul><li>62% want a reconciliation to US GAAP, IFRS as a second choice </li></ul><ul><li>46% say it is imperative that companies provide translation into US dollars </li></ul><ul><li>79% believe foreign companies should report on a quarterly basis </li></ul><ul><li>Access to management </li></ul><ul><li>87% of investors want foreign companies to visit at least once a year </li></ul>Source: Financial Dynamics US Investment Community Survey
  6. 6. BEFORE STARTING COMMUNICATIONS <ul><li>Within the Company business strategy has to be finalized and approved </li></ul><ul><ul><li>The Company has to understand it’s future for next 3-5 years </li></ul></ul><ul><ul><li>Business plan must be followed </li></ul></ul><ul><li>Clean up your business </li></ul><ul><ul><li>Demonstrate integration </li></ul></ul><ul><ul><li>Demonstrate modernization </li></ul></ul><ul><ul><li>Demonstrate M&A targets </li></ul></ul><ul><li>Limit your management in what they do! </li></ul><ul><li>Regular financial reporting </li></ul><ul><li>Unified and coordinated external communications of all the Company is a must! Especially when communicating with financial society </li></ul><ul><li>You need to meet the minority shareholders’ expectations and respect their rights </li></ul>
  7. 7. MAKE A POSITIVE FACE OF THE COMPANY First impression analysts and investors form based on your public information Positive image of the company Media WEB Site Brand recognition Rumors within the society Unblured vision and consistency
  8. 8. Key message A public company must send clear and commonly accepted messages Which believes in itself! <ul><li>Strong, qualified and cooperative management team </li></ul><ul><li>Clear and transparent public strategy of development </li></ul><ul><li>Proofs that the Management is capable of implementing the strategy </li></ul><ul><li>Ability to admit mistakes or difficulties and explain ways out of them </li></ul><ul><li>Understanding of the ways to increase shareholder’s value </li></ul>
  9. 9. Limitations in self-advertising <ul><li>Public company under no circumstances can be involved or initiate any action, which can be treated as advertising it’s shares </li></ul><ul><li>Any public address or information can be treated as attempt to advertise of inflict your share price </li></ul><ul><li>Broad understanding – so be aware of provocations </li></ul>There are many examples If the can, they will punish you
  10. 10. Teach everyone in the company <ul><li>Monitor and record everything what you say or e-mail to third parties </li></ul><ul><li>Do not say anything ‘extras’ in the private conversation – it can be used and/or recorded </li></ul><ul><li>Never say anything beyond already reported ( all employees should know published press releases at least ) </li></ul><ul><li>All forecasts and forward looking statements should be limited to officially published reports/releases </li></ul><ul><li>Do not say anything ‘extras’ on public, especially if media are present. No friendship here allowed </li></ul>Everything, even heard privately, by one journalist, analyst or banker can impact the market!
  11. 11. Communication system <ul><li>To deliver all mentioned the company must have a joint internal communications and alerting system </li></ul><ul><li>All information from the company, it’s branches and subsidiaries should be approved by IR office </li></ul><ul><ul><li>To avoid selective disclosure </li></ul></ul><ul><ul><li>To be cautious in forecasts </li></ul></ul><ul><ul><li>To be honest </li></ul></ul><ul><ul><li>All information should be based on consolidated US GAAP/IFRS financials, not on local reporting standards </li></ul></ul><ul><li>On all the events and emergencies IR office must be informed immediately, 24/7 </li></ul><ul><ul><li>All divisions should cooperate with IR to allow for fast and correct communications with investor society on all the events </li></ul></ul>
  12. 12. Information availability Information should be available without necessity to contact you <ul><li>Intuitive, multilingual and transparent WEB Site with all distributed public information such as reports, presentations, management statements and press releases </li></ul><ul><li>Nice, logical and not boring IR booklet with brief figures of financial and operational results </li></ul><ul><li>Well structured and detailed Annual Report. Not contradicting previous reports… </li></ul><ul><li>Well structured, pre-analyzed and detailed IR Presentation (for 1x1 meetings) </li></ul>
  13. 13. Be F arsighted If the question was asked and you immediately give the page number with an answer – you’ve won! <ul><li>You’d better answer questions before they are asked </li></ul><ul><ul><li>Collect the history of Q&A </li></ul></ul><ul><ul><ul><li>Questions you don’t like will not disappear </li></ul></ul></ul><ul><ul><ul><li>All unanswered questions leave negative impression </li></ul></ul></ul><ul><ul><li>All available information should better be inserted in the presentation or report in advance </li></ul></ul><ul><ul><li>Study presentations and report of the peers! </li></ul></ul><ul><li>Respond to e-mails , phone calls and meeting requests </li></ul><ul><ul><li>For all investors and analysts IR is the face of the company . Those who deny them will never get a good valuation </li></ul></ul><ul><ul><li>All unanswered questions leave negative impression </li></ul></ul><ul><li>Communications should be frequent and systemized </li></ul>
  14. 14. IPO AND IF THERE IS IR-LIFE AFTERWARDS <ul><li>Create contacts before IPO </li></ul><ul><li>Maintain contacts after IPO </li></ul><ul><ul><li>NDR </li></ul></ul><ul><ul><li>1x1 </li></ul></ul><ul><ul><li>Investor day </li></ul></ul>
  15. 15. Whom they really want to see IR officer Theoretically knows everything, but from others … Least wanted When proposing a meeting, good analyst want to see the one, who really manages the money CFO He knows what is going on, he rules the money flows … And he is really expected CEO He rules the strategy and they all want him … But his time is presious
  16. 16. WHY BUY-SIDE IS THE MOST IMPORTANT CHALLENGE OF IR <ul><li>Buy-side PM/analysts are responsible for other people's money (trillions USD). That they need to know : </li></ul><ul><li>Truth </li></ul><ul><li>Details </li></ul><ul><li>“ Pearls” </li></ul><ul><li>Funds care to trust and about the history of relations </li></ul><ul><li>They long remember the fact of fraud or deception, and therefore almost impossible to restore good relations. </li></ul><ul><li>They do not believe a publicly accessible records of sell-side, so they build own models </li></ul><ul><li>They like to provoke and test newcomers, especially in the U.S. </li></ul>
  17. 17. ESSAY TO CLASSIFY PEOPLE AT THE MEETING In general, IR is always a balance of mathematics, analysis, and psychology. But that balance is always different. <ul><li>I have devised the following classification: </li></ul><ul><li>Mathematics </li></ul><ul><li>Explorers or stalkers </li></ul><ul><li>Behavioral strategy and using materials depends on the classification </li></ul><ul><li>In London and the U.S. people at a meeting certainly believe that they are smarter. Rare - in continental Europe. </li></ul><ul><li>But usually they are really clever </li></ul><ul><li>The history of relations is a key to growth or lower a volatility of paper! </li></ul>
  18. 18. VARIANTS TO ORGANIZE MEETINGS - PASSIVE AND ACTIVE <ul><li>Passive: banks or funds go to an issuer with a proposal to meet </li></ul><ul><li>Active: issuer calls banks/funds and suggest to meet for an update/NDR </li></ul><ul><li>Active issuers are treated as smarter ones </li></ul><ul><li>Active companies generate more recognition and recalculating = buy </li></ul><ul><li>Active company is loved by sell-side, as they earn their bonus </li></ul>
  19. 19. CONDUCTING A MEETING <ul><li>There are rules to be obeyed, IR world is a peculiar society… </li></ul><ul><li>There are familiar and unfamiliar funds – treat them accordingly </li></ul><ul><li>Try to stay within courtesy limits, while breaking ice and sending “trust me” messages </li></ul><ul><li>Time management: 45-60 minutes per meeting, at least 20 minutes spared for Q&A </li></ul><ul><li>Be calm, self-assured and polite. Do not react emotionally (apart from humor) </li></ul><ul><li>Follow up a meeting (e-mail, clarifications, database) </li></ul>
  20. 20. HARD WORK AHEAD <ul><li>It is far from easy to build up a working system of information exchange and materials’ preparation </li></ul><ul><li>IR officer needs to know the company in deepest details of it’s operations, otherwise he is just a parrot – with appropriate disrespect </li></ul><ul><li>IR officer needs to invest in networking with top-management – access to first-hand information </li></ul><ul><li>IR needs to create handful of handouts, presentations, training programs for management, regular internal meetings, reporting scenarios… </li></ul><ul><li>IR officer must draft and get approved full and sophisticated scheme of information flows, approvals and reporting </li></ul><ul><ul><li>Many divisions will hate you for that and deprive you of information – it’s a long fight </li></ul></ul>
  21. 21. IR TEAM COMPOSITION <ul><li>It’s not numbers, it’s experience and devotion </li></ul><ul><li>IR office will not achieve goals just relying on numbers of people in it </li></ul><ul><li>External consultancy can be of use, but not a ultimate solution at all! If they are on a monthly payment – forget about efficiency at all </li></ul><ul><li>Analysis, communicative skills, visual materials </li></ul><ul><ul><li>Assemble a team, which can cover all that. But no more extra hands – excessive numbers will slow you down </li></ul></ul>
  22. 22. Do they know you? <ul><li>If analysts know the name of your IR officer, </li></ul><ul><li>If name of the company is known to major media, </li></ul><ul><li>If logo on your card is recognized on a conference, </li></ul><ul><li>If others start to steal from your presentations and releases, </li></ul><ul><li>If you have coverage coming from all-size banks: </li></ul>Congratulations, you have right IR team!