HOW TO SUCCEED IN IR WITHOUT REALLY TRYING

HOW TO SUCCEED IN IR WITHOUT REALLY TRYING GAVIN GRAHAM, CIO, GGOF IABC TORONTO CHAPTER 25 APRIL 2006

A Peek Into What Financial Professionals Need from IR • Cliches work because they’re true • “Tell what you’re going to tell them, tell them and tell them what you’ve told them” Anon. IR person (50 AD) • Less Is More, Keep It Simple, Stupid and Hit ‘Em With Your Best Shot • Become a trusted source, which means don’t lie by omission or evasion

Tells them something new Tells it briefly Doesn’t abuse its access Keeps its contacts to an appropriate (not too frequent) level Doesn’t tell them anything new Is longwinded and verbose Abuses its access, primarily by excessive material Doesn’t tell the truth, either by design or accident Good IR vs. Bad IR

The Most Precious Resource for Managers and Analysts is TIME • It’s A Wired World…Globalization…The World Is Flat…Information Overload… • The sheer volume of information has reduced financial professionals’ ability to extract value due to time pressures • Telling a clear story concisely will distinguish you from the crowd…IF you can gain access

Keep It Simple, Stupid • KISS applies to both the message and the medium (thanks Marshall!) • Using a less is more format, only highlight the 1, or at most 2 points you need to make. If your client can’t do that, lose them • Using electronic delivery, especially Pdf, will win you many friends

Less Is More • From the usual quarterly earnings numbers, there will be 1, or at most 2 points of importance for investors • Other points can be used to support the story that is being told by the principal points • DO include the GAAP earnings numbers in the first paragraph-some investors get grumpy if they have to go to Page 8 to find them

Hit ‘Em With Your Best Shot • The average company will have 5 or 6 occasions to get investors’ attention a year-don’t waste them • The 4 quarterly announcements, the AGM and a takeover/plant opening/major (at least 5% of revenue) contract are your chance • Make sure that everyone who is listed is aware of the story-and make sure their phone no. is correct

How Not To Do It • A major Canadian company that was presenting at an industry conference to brokers, refused to let large investors attend sessions • When the investors did attend, using the brokers credentials, there was nothing new in the presentation • The IR department refused to change their stance when asked personally by the investors

Fool me Once, Shame on You, Fool Me Twice, Shame on Me • Financial professionals have very little tolerance for unpleasant surprises, especially in the post Enron/Worldcom world • You may be forgiven for a genuine mistake, but woe-betide you if you do it again for any reason • If you don’t believe what your client says, walk away

How To Become a Trusted Source • Tell them a good story that’s correct • Tell them something they didn’t know before, and will help them make money • Tell them when you don’t know or can’t say, and get back to them if you find out the answer • Be available when they need to call you, or have someone equally knowledgeable

CEO, CFO, It’s What You Know • While providing access to the CEO or CFO is useful as an incentive, if they won’t or can’t say anything new, don’t bother • If you have a user-unfriendly management team, restrict access. Sadly, presentation ability does matter • A good internal IR team is worth its weight in gold, but too often they are the exact opposite and should be kept out of the loop for your contacts

The Media-Care and Feeding Of • Journalists need stories, just like financial professionals, but they need them by 3 p.m. today, and I mean today • Being available is half the battle; it’s amazing the number of interviews you do on bank holiday Friday afternoons • Same rules as fund managers and analysts, with the proviso that the journalist may have an agenda, of which you need to be aware

The Zulu Rule • Put forward by a former British entrepreneur, the Zulu Rule states that if you do a little study of Zulus, you will know more than 97% of the population about them-you’re an expert • If you do a little study about your clients’ industries, and it doesn’t have to be a lot, you will still be better informed than many of the managers and journalists you are in contact with-you’re an expert (use carefully around genuine experts; admitting ignorance is good)

What’s Under the Hood? • Which are the 1 or 2 points you should focus on to tell your story? • If you don’t know, go and find out; they should be obvious • Growth is good, as long as you make money doing so • Value is good, as long as there is some catalyst to make investors recognize it

GGOF’s Top 10 Ratios- In Reverse Order • 10 Earnings Per Share are the least important, as they are the most subject to manipulation • 9 Takeovers are okay, but most don’t make money for the acquiring company • 8 Management salaries are good stories, but sometimes they even earn them • 7 Corporate governance is boring but lack of it will kill you quickly

GGOF’s Top 10 Ratios-Part 2 • 6 Price to Book or Price to Sales can’t be easily manipulated and can tell you a stock is cheap • 5 Cash-flow is much more important than earnings, and you can’t fake it for long • 4 Income trusts are not a Ponzi scheme or bubble, but watch how much of their cash-flow they’re paying out-anything over 95% is not sustainable and they’ll have to cut it

GGOF’s Top 10 Ratios • 3 Value tends to beat growth over long periods of time, although in the long run, we are all dead, as Keynes remarked • 2 Watch what they do, not what they say; if management owns sizeable amounts of shares or is buying shares, generally it will work out okay • 1 Dividends are the single best guide to long term performance and, being regular cash payments, can’t be faked for long

What Do You Want To Do When You Grow Up? • Being in IR is a gateway into the financial professions or journalism • If you do a good job, you may end up being hired by the people you talk to, so remember when you speak to them that you’re conducting a very lengthy job interview • Tell the truth as you know it, and you won’t go far wrong

HOW TO SUCCEED IN IR WITHOUT REALLY TRYING