NIRI Introduction to Investor Relations

Developing an IR Plan

Rob BerickSenior Managing Director, Dix & Eaton

Boston, MA

September 15, 2010

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Agenda

• Introduction

• The role of IR in value creation

• Developing an IR plan

• 30,000-foot view of an IR Plan

• The components of an IR Plan

– Assessment

– Plan

– Action

– Measurement

• Case study (small group breakout)

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What is Investor Relations?

Investor relations is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company's securities

achieving fair valuation. Source: National Investor Relations Institute

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What is Fair Market Value?

• When a current stock price accurately reflects the full value of the company

– Based on the absolute value of the company (on paper) and the perceived value of the company in the future

– Driven by perceptions; intangibles play a key role

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Role of IR in Value Creation

• Market awareness and feedback to management

• Credibility and consistent communication

• Number of long-term investors; optimize shareholder mix

• Analyst following

• Access to capital

• Share liquidity

• Performance-to-expectations ratio

• Share value

• Corporate governance

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Performance-Related Variables

• Revenue growth

• Sector attractiveness

• Earnings growth

• Return on invested capital

• Cash flow

• Balance sheet strength

• Dividend yield

• Beta

• Share float

• Liquidity

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Perception-related Variables

Intangibles

• An intangible asset is an identifiable non-monetary asset without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.

Source: Cap Gemini Ernst &

Young

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Intangibles Are Growing in Importance

• Non-financial performance accounts for 35% - 50% of institutional investors’ valuation

• The more sell-side analysts rely on non-financial performance, the more accurate are their earnings forecasts

• Consistent set of non-financial drivers that analysts rely on:

Strategy Execution

ManagementCredibility

Quality of Strategy

Innovativeness

Ability to AttractTalented People

Market Position

Management Experience

Quality of Executive Compensation

Quality of Major Processes

Research Leadership

Source: Cap Gemini Ernst & Young

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Perception-related Variables

Other intangibles

• Management credibility and integrity

• Customer loyalty

• Employee commitment

• Corporate reputation

• Business ethics

• Unique corporate culture

• Intellectual know-how

• Brand image

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BUY-SIDE ANALYST

SELL-SIDE

ANALYST

INSTITUTIONAL SALES FORCE

RETAIL BROKER

PORTFOLIO MANAGER INDIVIDUAL INVESTOR

INDUSTRY ANALYSTSMEDIA

REGULATORS

Outside Factors Affecting Fair Value

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Customary Program Objectives

• To focus investors on your business, financial results and long-term prospects for creating value

• To provide meaningful and relevant public disclosure tied to business dynamics

• To establish timely and consistent communications and appropriate transparency with existing and potential investors

• To attract the optimal shareholder mix

• To educate management and employees about how their efforts can impact share price

• To provide management and the Board with timely competitive feedback, corporate governance and market analysis

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Overview of an IR Program

Develop value proposition that “connects the dots”

Deliver value proposition through IR tools and intermediaries

Take story directly to investors

Reinforce and validate

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Building the Value Proposition

Gauge market perceptions

Identify gapsin expectations

Identify milestones

Inventory investment viability attributes

Validate findings/craft new messaging

Audit IR messaging

Business strategy / competitive landscape

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Developing an IR Plan – Assessment

• Begin with assessment of your company, its current business/ strategic plans and competitive set

– SWOT Analysis

• Strengths

• Weaknesses

• Opportunities

• Threats

• Include an analysis that factors in the impact on valuation of the economy, business sector, company performance or other issues

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Developing an IR Plan – Assessment

• Analyze historic changes in the ownership profile

– Growth – GARP

– Value – Hedge Funds

– Income – Momentum Players

– Index – Insiders

– Retail

• What’s been the company’s guidance track record?

• What are analyst expectations about performance and how it gets communicated?

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Developing an IR Plan – Setting Program Objectives

Benefits

• Reduced volatility

• Expanded liquidity

• More optimal and diversified shareholder base

• Lowered cost of capital

• Enhanced shareholder value creation

• Higher multiple relative to peers/company-specific benchmarks

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Developing an IR Plan – Target Audiences

• SEC

• Stock exchange

• Rating agencies

• Sell-side analysts

• Buy-side institutional analysts and investors in the U.S. and international markets

• Individual investors

• Financial media

• Governance rating firms

• Management and board of directors

• Other employees

• Customers

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Developing an IR Plan – Components of a Program

• Quarterly disclosure

– Release, Conference Call, Timing

– Approvals: Disclosure, Audit Committees

• Management presentations at industry conferences

• On-site visits with investors (groups of buy/sell side)

• Quarterly road shows

• Analyst days; analyst-hosted conferences

• Targeted one-on-ones

• Annual report to shareholders

• IR/corporate governance sections of web site

• Targeted financial media placements

• Social media platforms

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Tactics – Attracting the Best Shareholders

• Institutional targeting program

• A comprehensive quantitative and qualitative determination of the best institutional prospects, as well as an assessment of what shareholders may be close to selling

• Prioritization of targets, key meetings, one-on-ones with senior management

• Secure and leverage sell-side coverage comparable to peers

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Targeting Criteria

• Interest in the sector

• Investment philosophy, alignment with your company’s performance and outlook

• Meaningful purchasing power

• Long-term investment orientation

• Sizeable equities under management

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Program Measurement

Evaluation is critical for all IR Programs

• Must set measurable goals

• Should set management expectations

• Use benchmark investor perception research periodically

• Provide both quantitative and qualitative views

• Short-term share price and analysts ratings should not drive IR strategy and goals

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Program Measurement

Internal

• Management’s view of IR

– It’s not just communicating, but also participating in strategy formulation; marketing the ‘investible story’

– Management always has good intelligence about investors’ perceptions of strategic issues and concerns

– The market doesn’t over-react to good or bad news; built-in ‘credibility quotient’

– IRO is an integral part of the management team

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Program Measurement

External

• Perception Study

– Interviews

• Buy Side • Key Media

• Sell Side • Industry Analysts

• Portfolio Managers • Recent Sellers

– Measures perception of company’s strategies and management team

– Identifies gaps between what management is communicating and how it is being received

• Analyze and report out ongoing dialogue and feedback

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Program Measurement

Objective Measures

• Number/quality of analysts following the company

• Number/quality of meetings held with investors

• Number/quality of conference presentations made

• Long-term share price relative to performance

• Long-term share price volatility

• Successful conversion of targeted investors

• Achieving optimal shareholder base

• Keeping management and BOD informed; minimize ‘market surprises’

• Managing within budget; delivering ROI on company’s IR objectives

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Program Measurement

Subjective Measures

• Is the message being understood?

• Are analysts and investors not surprised?

• Are analysts and investors enthusiastic?

• Is IR effective in a crisis? In capital raising?

• Are management/Board well informed?

• Does the IRO have credibility? Who do management and investors turn to first?

• Is the IRO an effective corporate governance sentinel?

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CASE STUDY CASE STUDY

TRIFECTA CORPORATION