Its the time of year when many finance chiefs are engaged in the stressful routine of delivering a results presentation before heading on the road to meet investors.
For some, it’s an enjoyable experience having the opportunity to articulate the numbers to a wide audience, but many are filled with dread having to face up to a tough crowd including shareholders, other market players, the media and employees.
Bobby Morse, a senior partner at City-based business communications agency Buchanan says the key for any FD is to know what your audience wants to hear – in the case of CFOs this will largely be capital markets audiences, and mainly analysts and fund managers. “A good presentation will have included in it all of the information that you know the funds want to know about – whether these are strengths or more importantly the challenges facing the company in question.
“Gone are the days of trying to cover up issues and hope the Q&A session does not address the key points which the investors will want to know about. Much better to present on these aspects on your own terms rather than get caught out in the Q&A session,” he says.
Morse says the best way to know what your audience wants is by listening to them, on roadshows, conference calls and other contact points, and also to commission regular capital markets audits- a suggested one a year or every other year- involving analysts and investors providing feedback on their thoughts about the company in question. “This is increasingly key – if you answer the questions which the market wants answers to, you are much more likely to get a better hearing,” he advises.
Tim Linacre has been a leading figure in London’s advisory community, spending over 20 years at broker Panmure Gordon, eight years as its CEO. Now senior managing partner, corporate and capital markets at Instinctif Partners, an international business communications consultancy, Linacre says that it’s important to be upfront with your audience on results day.
“If there is bad news to be delivered the temptation is to bury it in paragraph 14- you don’t want to upset or worry employees or customers. But the market hates that- and my strong advice is that if there is bad news address that upfront – you will gain more respect from the sell-side and the buy-side for doing this, and I suspect the pain to your share-price will be less than trying to hide it,” he adds.
Preparation is everything
Robin Wrench, partner and head of the London investor engagement team at Brunswick, an advisory firm specializing in business critical issues, says there is always a value in taking the time to prepare as well as you can for a roadshow. “Even for CFOs who are comfortable and experienced at presenting, the opportunity to step back and rehearse what you want to say with an impartial, expert external adviser allows you to road-test the messages before taking them to your investors with the confidence that what you are going to say is as effective as it can be,” he says.”
When you hit the road, its vital that a management team- especially the CEO and CFO should gel together well as a team with some clear sense of delineation in roles and areas of expertise, says Wrench who was a fund manager for a number of years at Deutsche Asset Management and ISIS, before working as an equity analyst and salesperson at Goldman Sachs, Fox-Pitt Kelton and Macquarie.
Wrench says it is important, if the CFO is in the room with the CEO, that the CFO plays an active role in the meeting and is not just a silent participant. “If on their own, the CFO clearly has to cover the numbers but also the more strategic issues, making sure they use the meeting to deliver the key points they want shareholders to focus on,” he says.
It may vary by company, but in most cases investors expect the CFO to have a higher profile in showing how the strategic and financial framework of the company fit together compatibly to drive value. “You often see the CFO, for example, presenting Q1 and Q3 results on their own with the CEO reserved for full and half year,” says Wrench.
It goes without saying that a strong grasp of the company’s numbers is the core competency expected of an FD, especially on the back of results, but there is also an increasing expectation of CFOs to field questions on non-financials.
Wrench says there is a shift amongst investors who now recognise that it is no longer enough to justify investments based on the numbers alone; that there is a wider range of factors that have to be taken into consideration.
“From that perspective the CFO should have a sense of the wider context in which they are operating,” says Wrench. “They need to be aware of and explain the impact of financial decisions on employees, communities and the environment. It is also about understanding the wider political and social perspectives being applied to their business,” he adds.
A CFO must also be able to explain the numbers in the context of the strategic goals and ambitions the company has, says Wrench. “There has to be an integral link between the strategy and the numbers as investors are ultimately buying the whole package,” he advises.
Tim Linacre’s tips for the road:
-Rehearse. And practice Q&A. It used to astonish me how ill-prepared CEOs were to deal with questions around numbers (and institutions would address questions to the CEO to see if they understood gearing and risk)
-Rehearse. (Deliberately made the point twice). A screwed up series of meetings can increase your cost of capital, knock your (and option holders and shareholders) wealth, and depress a management team. Spend the time, and if appropriate some money on getting some external help if the presentation is likely to be anything other than straightforward.
-Get your broker or IR adviser to think about the timing of meetings. If you are seeing institutions in London’s West End group them together rather than spending your day criss-crossing a busy London in a cab.
-Think about the institution before you go in to see them. What is their holding? Are they long or short? Have they been buying or selling? And most importantly –what did you tell them last time you met. Institutional fund-managers are bright, contentious, and have a prodigious memory of what CEOs and CFOs said at earlier meetings, and inconsistencies need explaining.
-Think about social media. How have the results been received? Fund managers monitor sentiment.
-Analyst meetings are less important than they were for smaller companies reflecting the change in the sell-side research community. Consider how you will deal with analysts. Is a dial-in better use of time, or one-on-one calls on the morning rather than a big set piece that only the house brokers come to?
-Don’t cram the timetable. Leave time between meetings in case meetings overrun, or media calls to deal with, or company calls to make. No one likes a presentation from a management team who are stressed, hurried, and have come sprinting from an earlier meeting- the recipient may put the stress levels down to more than bad scheduling!