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Financial Accounting Advisory Services
Excellence in financial communication October 2015
Page 2 Financial Accounting Advisory Services | Excellence in financial communication
Agenda 1
2
3
Excellence in financial communication
About EY
Contacts
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11
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Excellence in financial communication
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Communication matters with an increasing importance of IR function for the boardroom
Corporate management and the effectiveness in financial communication by the investor relations (IR) team are often measured by share price performance and cost of capital
Relative share price
Board Delivering on your promises
Regulatory compliance
Facilitating share
liquidity
Providing transparency
Good corporate
governance
Compelling equity story
Investor communi-
cation
1. Public scrutiny 3. Constant change 4. Real-time environment 2. Globalization Corporate performance and behavior has been in the public spotlight and is regularly highlighted in traditional and new media, such as dedicated round-the-clock news channels as well as in real-time online portals and social networks.
Capital markets have undergone major infrastructural changes in the past decade, and there has been an increase in the rate of change of regulations and corporate governance requirements. Good financial communication must adapt to meet these needs, by providing a greater volume of relevant intelligence.
Today’s share trading is dominated by many high-speed global networks. This means that stock markets remain fast-moving environments with a greater demand for a rapid IR response to investors’ requests.
Interlinked capital markets and the increase in international investors mean that the IR function has to meet global best practices. Active investors have an increasing influence on, and demand for, additional information.
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When to focus on excellence in financial communication?
For IPO candidates preparing for an IPO: financial communication to regulators, investors and analysts is critical, and often involves the introduction of new roles, processes, infrastructure and systems around the IR function.
For listed companies: to improve share price performance and share liquidity in relation to its peer group, and also mitigate risks in financial communications and disclosure.
For private companies: to attract new investors and retain and report to existing investors, they need to get “capital-market ready” by improving stakeholder communication.
EY recommends: setting up an IR organization
EY recommends: improving internal and external IR effectiveness
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Why assess the IR function and what are the indicators for improvement potential?
You perceive a number of risks? Decreasing liquidity with even lower volumes and free float
Declining share price relative to peers
No index visibility or index re-allocation
Less, or no, analyst coverage
Weak investor attention
Weak internal alignment to fulfill investors’ expectations Uncertainty about disclosure processes
Lack of transparency in the internal organization and governance
Cost pressure on IR budget
You see potential opportunities?
You compete with your peers and other asset classes over capital — there are thousands of investment alternatives worldwide!
But how to keep pace as a listed company, especially if the internal awareness and external attention of the IPO has passed?
Investor relations
How do we improve liquidity on exchange?
Why are we at the lower end of valuation multiples of relevant peers?
Is our equity story up to date?
How do we raise investor awareness and attention?
How can we improve index participation or ranking?
Is our organization aligned to meet investors’ expectations?
How do we optimize internal processes prepared to fulfill regulatory and disclosure requirements?
How do we improve transparency for the board and align financial communication activities?
How do we optimize the effectiveness of IR?
Global competition for capital
Our answer is to assess or review your
investor relations effectiveness
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What is our approach to assessing internal and external IR effectiveness?
In a moderated assessment, based on checklists and benchmarks, we work with your team through interviews or in a workshop, to assess the important areas of internal and external IR effectiveness to get prepared:
► Conduct IR readiness assessment interviews or workshop based on predefined scope
► Analyze gaps in current infrastructure to provide the IR-ready target status
► Agree on a road map to fill the gaps identified in the IR readiness report
EY IR effectiveness approach
How?
Where are you today and what do you want to achieve?
Internal effectiveness Management needs to ensure that the IR function has clear processes and structures governing how it operates within the business, what information will be provided to stakeholders, and when.
External effectiveness It is critical to keep existing shareholders satisfied with the right information on a timely basis, and to attract new investors by providing valuable insights. This helps to ensure that a company’s share price is fairly valued, while simultaneously maintaining regulatory compliance in the capital markets.
Meet investors’ demands with international best practice and maintain regulatory compliance through effective financial communication
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Scope: IR readiness assessment covers the top seven IR effectiveness factors
The scope of the moderated assessment can cover all seven IR success factors. This can be performed as:
► A concept review ► A constitution check
(including appropriateness test)
► A functional test ► An improvement assessment
EY IR effectiveness approach
What is the scope?
Compliance with all regulatory requirements Are clear internal processes and communication, and reporting lines and responsibilities, in place to keep regulatory compliance to maintain investors’ confidence? 1 Good corporate governance Can the best practices of your peer group be matched in delivering financial communication in response to day-to-day investor requests? Are the structures and organization appropriate?
2 Providing transparency Are all internal departments aware of disclosure obligations and periods, as well as regulatory changes, at all times? Are they supported by the IR calendar? Who monitors the IR function?
3 Compelling equity story Is the equity story both attractive and up to date, reflecting the key performance indicators, segment reporting and business strategy? 4 Delivering on your promises Are you meeting expectations regarding your forecasts, on the basis of relevant analyst guidance? 5 Facilitating share liquidity What is the best method for keeping pace in the competition for capital and maintaining share liquidity as a listed company, especially if internal awareness and external attention has waned?
6 Investor communication Does the capital market communication follow international standards and does it have a presence in all relevant media channels? 7
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Delivery: IR readiness report based on seven effectiveness factors
Effectiveness factor
Current status Target ‘IR ready’ status
Recommended work streams for achieving IR readiness
IR readiness
Results are summarized in an IR effectiveness report
This includes:
► Effectiveness success factors ► Current status ► Target ‘IR ready’ status
► Recommended work streams for achieving IR readiness
► IR readiness perception
EY IR effectiveness approach
Delivery
Structure of the readiness result report:
Refers to seven effectiveness factors of the IR readiness assessment
Current status derived from the interviews and compared against the target IR-ready status
Target status identifies objectives vs. best practice and regulatory obligations at listing venue
Recommended workstreams, based on our experience, to close the identified IR-readiness gaps
Our perception of IR-readiness level is visualized by a traffic light system
Major work essential
Action required
Adjustments required
Minor adjustments recommended
Well prepared
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Why EY? If you want to be a market leader, work with one
Of the 1,226 IPOs that raised US$259.1b globally in 2014:
► EY audited 233 companies that raised US$62.1b.
► EY worked with 448 companies (37% of global IPOs) that raised US$157.7b (61% of global capital raised).
Our, global multidisciplinary EY team helps more companies go public than any other big four organization Market position for audit clients undertaking IPOs
IPOs 2014 (number of
IPOs)
IPOs worldwide 2009–2014
IPOs worldwide 2004–2014
EY 1 1 1
Deloitte 2 2 2
PwC 4 3 3
KPMG 3 4 4
Source: Dealogic, EY Research
Source: EY Global IPO Center of Excellence
Global number 1 in IPO for 16 years ► EY have been the auditors to more clients that have
undertaken an IPO, than the other big four organizations, for a number of years. Such a unique position helps us to understand the issues that need to be communicated by the IR function. With over 30 years of IPO experience, we know what it takes to be ready for an IPO and the guidance needed to address the priorities, and mitigate the risks, based on international credentials.
► Our global presence in each capital market and the external network of important capital market intermediaries, regulators and exchanges, as well as a multidisciplinary team with market-specific knowledge, can facilitate cross-border IPOs and overseas listings.
► IPO leaders network: we are working with clients globally, providing access to a deep pool of knowledge and experience to help anticipate the risks, and navigate through the challenges, of life as a public company.
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About EY
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Your regional EY network Africa Angola, Botswana, Cameroon, Chad, Congo, Democratic Republic of Congo, Equatorial Guinea, Ethiopia, Gabon, Ghana, Guinea, Ivory Coast, Kenya, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Rwanda, Senegal, Seychelles, South Africa, South Sudan, Tanzania, Uganda, Zambia, Zimbabwe
Belgium and Netherlands
Germany, Switzerland and Austria
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Central and Southeast Europe Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Greece, Hungary, Kosovo, Latvia, Lithuania, FYR of Macedonia, Malta, Moldova, Montenegro, Poland, Romania, Serbia, Slovakia, Slovenia, Turkey
France, Maghreb and Luxembourg Algeria, France, Luxembourg, Monaco, Morocco, Tunisia
Financial Services Organizations Belgium, Channel Islands, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Switzerland, the UK
India Bangladesh, India
Mediterranean Italy, Portugal, Spain
Middle East and North Africa Afghanistan, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, Pakistan, Palestinian Authority, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates
Nordics Denmark, Finland, Norway, Iceland, Sweden
United Kingdom and Ireland The UK, the Isle of Man, the Republic of Ireland
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Financial Accounting Advisory Services Contacts
Global FAAS IPO Leader
Dr. Martin Steinbach
+49 6196 996 11574
Regional Leader Financial Accounting Advisory Services
Michael Oppermann
+49 6196 996 27305
EY | Assurance | Tax | Transactions | Advisory
About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. © 2015 EYGM Limited. All Rights Reserved. EYG no. AU3549 BMC Agency BACS 1002437 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.
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