August 1, 2014

Business Folk

Warren Buffett speaking to a group of students...

Warren Buffett speaking to a group of students from the Kansas University School of Business (Photo credit: Wikipedia)

Most, if not all, annual reports for 2013 have been published by now, and as investors attempt to glean what went right and what went wrong by wading through pages upon pages of corporate detritus, often the most readable section is that containing the shareholder letter.
 
Warren Buffet is arguably the most famous writer of shareholder letters because of his folksy, straight-to-the point style.  Buffet is so darn good at writing shareholder letters that myriad chairmen and chief executive officers attempt to emulate his knack for prose. The problem is, Buffet writes in his own voice, and trying to inject his vernacular into your shareholder letter could smack of inauthenticity, or even worse, someone might call you a poser.
 
Instead of invoking Buffet when trying to conjure up some down-home writing, l’d rather refer to his style as “business folk.”  Yes, it sounds like a music genre for MBAs.  But writing in the style of “business folk” seems a lot less intimidating than trying to emulate a genius.
 
Following are additional word-buffing tips:
 

  • Avoid clichés and creative analogies.  Yes, it is tempting to use catch phrases and descriptors to tell the company’s story, but words can easily become distracting, and soon enough the reader loses focus.
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  • Write as quickly as possible.  This ensures you are writing what you know and staying on point.  It also helps lay a foundation that you can wordsmith later.
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  • Use metrics that help demonstrate themes.  Numbers are great because they are hard facts, but they also pose challenges because they don’t always tell the full story.  Try to use numbers that help shareholders understand the overall direction of the company.
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  • Describe the company’s strategic direction.  Many executives underestimate the power of writing and misuse the activity, particularly in shareholder letters, to recapitulate old news.  Effective writing presents a roadmap that can help manage expectations, as well as demonstrate leadership.
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  • Read what you write out loud to determine if it actually sounds like something you would say.  If you employ a lot of three-syllable words in your daily conversations, then maybe your writing should contain three-syllable words.  (Note: If expletives factor into your daily conversations, then you should edit those out.)
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  • Use subheads to break up thoughts.  It is easy for readers to get lost in corporate minutiae, which is why it is helpful to have guideposts.  Subheads help hammer home themes we want investor audiences to remember.
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  • Make sure whatever you write is in reader-friendly formats both online and in print.
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  • Words are more important than flashy design.  Sure, an interactive quarterly report is nice, but it’s the words that will help investors determine if you have “a wonderful company at a fair price (rather) than a fair company at a wonderful price,” according to a quote from Warren Buffet’s shareholder letter in 1989.
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– Evan Pondel, epondel@pondel.com

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EXTREME IR: Fast, Furious & Highly Connected

Extreme IR

After practicing investor relations for more than 20 years, I’m always excited to learn something new.  And, I did just that at the recent NIRI 2014 Annual Conference in Las Vegas.

 

The first thing I learned is that I love live tweeting.  Sending updates from the conference sessions I attended really made me feel connected (which makes sense given the theme of the conference, “EXTREME IR: Fast, Furious & Highly Connected”).  It was fun being able to spread the vast body of knowledge represented at the conference, so I thought I would recount those tweets here, verbatim, (in more than 140 characters) so that they reside in one handy place for easy reference by my fellow IROs.  If you attended and have any thoughts to add (or even if you didn’t attend and have any thoughts to add), please share them below in the comments section.

 

  1. Regardless of who is setting up investor meetings, be clear about goals and expectations before the outreach starts.
  2. $1 billion market cap is preferred by investors for European NDRS.  $5 billion for Asia.
  3. 83% of buy-side wants cos. to hold investor day yearly.  Only 35% of companies host one yearly.
  4. Almost half of global buy-side won’t invest w/o meeting mgmt.  35% won’t invest before an avg. of 3 interactions.
  5. Law says corporations can keep profits and use them as they see fit. Boards not required to maximize shareholder value. Hmmmm.  Chatter that institutions could share holdings every 30 days with the companies they own is palatable. Will it become a reality?
  6. CEO pay ratio disclosure will become a requirement in the fall and will take effect next year.  Of 75 in session, 31% give quarterly guidance, 45% annual, 15% multi-year, 9% other.
  7. If non-GAAP measures are used as basis for exec comp make sure they tie to your company’s business goals.
  8. Non-GAAP EPS most common non-GAAP measure seen by investor community based on recent survey.
  9. About 1/3 of 40 participants in today’s session on guidance post full transcripts of earnings calls on their websites
  10. Don’t assume index investors don’t have an active interest in governance issues.
  11. Use letter from the board in proxy statement to discuss thoughts on compensation, succession planning, etc.
  12. More sessions on activism than any other topic.  Clearly a hot button issue for IR today.
  13. Boards need to be aware of what investors think even if it’s hard to deliver negative news
  14. There is a difference between active investors and activist investors. The latter trying to force change.
  15. Number of people moving into IR from finance grew 60% y-o-y.  Field is obviously getting more competitive.
  16. IR Certification will likely require 3 years’ experience to qualify for exam.  A bachelor’s degree is also recommended.
  17. Body language is important.  Hedge funds actively learn about “tells” to read between the lines when meeting with management.
  18. Analyst Day info attendees want: new initiatives; access to mgmt.; forward looking guidance; current financials; product demos.
  19. Q&A is most important part of an Analyst Day according to a recent investor survey.

 

– Laurie Berman, lberman@pondel.com

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IndyCar’s Rise Again: A Client Perspective

One of our clients, a leading e-cigarette company, recently inked a two-year sponsorship deal with KVSH Racing and four-time IndyCar Series champion Sebastien Bourdais that is proving to be very successful. Finishing a respectable seventh at this year’s Indianapolis 500, Bourdais currently sits in eighth place in the standings and is one of most successful drivers in history with 31 wins and 47 podiums. PW Senior Vice President George Medici was live on the scene with the following take on IndyCar’s return to glory.

 

KVSH Racing’s Sebastien Bourdais at the 2014 Indy 500.

KVSH Racing’s Sebastien Bourdais at the 2014 Indy 500.

Last Sunday marked the 98th running of the Indy 500, an event billed as the “greatest spectacle in racing.”  One can only truly experience the magnificence of this historical event if lucky enough to be present at Indianapolis Motor Speedway (IMS) during Memorial Day weekend.

 

Close to 300,000 people attend the race, which began in 1911 on a track of 3.2 million bricks.  A yard-wide strip of these bricks still remain across the width of the asphalt track.  It has become customary for the winning driver to kiss the “yard of bricks” after the race.

 

Ryan Hunter-Reay got to kiss those bricks last week as he became the 2014 Indy 500 champion, winning in dramatic fashion, holding off three-time Indy 500 winner Helio Castroneves by .0600 of a second, one of the closest margins of victory in IndyCar history.

 

As exciting as the race was, IndyCar Series, the premier level of American open wheel racing, is struggling to capture viewers.  The Series saw its viewership drop 22 percent last year for 19 race telecasts across ABC and NBCSN, compared with 15 telecasts in the prior season, averaging 953,000 viewers, down from 1.2 million viewers in 2012.   Much of the downturn has been a result of the infighting between IndyCar Series and Champ Car World Series (formerly CART).  The two finally merged in 2008, but left a trail of discontented fans fueled by top drivers leaving the series for Formula One and NASCAR.

 

There is some good news.  Ratings are up, a little.  This year’s Indy 500 scored a TV rating of 4.0, compared with a 3.7 score in 2013.  The added races in 2013 also led to increased total reach for the race series. Still, attracting eyeballs and fans in the seats continue to be a challenge for IndyCar organizers.  Industry insiders, however, are positive about IndyCar’s future, saying the series is “rising,” and that they are confident it will make its way back to the glory days of the 70s, 80s and 90s.

 

Ditto says our client, who already is seeing enormous return on investment as IndyCar attracts an affluent, well-educated consumer with greater discretionary income.  In fact, on-site marketing at races has not only generated wider brand awareness, but also is increasing sales.

 

Hunter-Reay’s win is a good start for IndyCar on the road back to prominence.  He’s the first American to win the Indy 500 in almost a decade, being quoted after the race promoting the series saying, “This (race) is American history. It’s where drivers are made.”

 

While this may be a recipe for success, it’s unclear if Hunter-Reay was solely responsible for the higher ratings.  Media reports say race fans were watching NASCAR driver Kurt Busch compete in both the Indy 500 and Coca-Cola 600, attempting to drive 1,100 miles in a single day in two different states.  Busch finished sixth in the Indy 500 and withdrew from the Coca-Cola 600 due to a blown engine.

 

It’s really about the drama that gets people interested.  Look what Tiger Woods did for golf.  Without him in the field, golf tournaments just don’t have the same cache when he plays.  Good, bad or indifferent, more people are watching Tiger.

 

IndyCar also can learn a thing or two from NASCAR’s playbook, such as extending the race season (which it did in 2013) and adding more drivers.  A side-by-side comparison between IndyCar and NASCAR shows stark differences, everything from more prize money to more races and drivers.

 

While adding U.S. drivers to the IndyCar Series may help spur fan interest, it’s hard to deny the talented array of race pros that hail from other countries, including Sebastien Bourdais of France.

 

Contrary to some public opinion, IndyCar is as American as apple pie.  A tour of the Indianapolis Motor Speedway Hall of Fame Museum is evidence of the racetrack’s impact on racing history, right here in the United States, a theme that may help carry the IndyCar Series back to national prominence.  In the interim, it may not be a bad idea to raise the drama level between drivers – because everyone loves a great race story.

 

– George Medici, gmedici@pondel.com

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