Strategic Investor Relations and Public Disclosure

STRATEGIC INVESTOR RELATIONS AND PUBLIC DISCLOSUREAddressing the Shareholders’ Crisis of Confidence through Strategic CommunicationsCase Study, Concepts, and Debatable Ideas

Kenny OngCNI Holdings Berhad

www.myCNI.com.my www.OOBEY.com

Intro: CNI

1. 20 years old2. Core Business: MLM3. Others: Contract Manufacturing, F&B Retail,

Export/Trading, eCommerce, Shared Services4. Malaysia, Singapore, Brunei, Indonesia, India,

China, Hong Kong, Philippines, Italy, Taiwan, Oman, United States, Vietnam

5. Staff force: ± 5006. Distributors: 200,0007. Products: Consumer Goods and Services

Contents

1. IR and its problems

2. Importance of IR to Value Creation

3. Corporate Reputation

IR and its problems

Overview of Corporate Communications and Investor

Relations problems

Value destruction in 48 hours…

13th April 2009

•Two Domino’s employees

•YouTube

•Apology from Domino’s after 48 hours

•1 million hits

•Twitter: questions on silence

•LinkedIn: suggestions by users in forum

BusinessWeek, May 4, 2009www.myCNI.com.my www.OOBEY.com

How to please Investors (the Dilbert version)

1. Buy back shares

2. Announce massive cutbacks

3. Spin off New Divisions

Ironically and Unfortunately, the above prescription is true in real life…

Why is UMW favored by Analysts?

1. high dividend yield,

2. low price earnings multiple,

3. buoyant growth outlook;

Importance of Investor Relations

Why focus on Investor Relations in the first place?

Is Investor Relations important?

1. Funds

2. Brand

3. Intelligence

4. Customer-shareholders

IR’s Key Roles

1. Funds

2. Brand

3. Intelligence

Communication to bring in the Funds

IR’s Key Roles

1. Funds

2. Brand

3. Intelligence

Communication to bring in the Sales

Funds: Types of Investors (1/2)

Institutional

Fund Managers

Corporations

Sovereign Funds

Non-Profit Org

Financial (Loans)

JV Partners

Social VCs

Holding Co.

HQ (MNC)

Gov. VCs

Supply Chain

Gov. Partnership

Competitors

Franchisees

Funds: Types of Investors (2/2)

Retail

Investor-Shareholders

Employee-Shareholders

Management-Shareholders

Customer-Shareholders

Distributor-Shareholders*

Distributor-Entrepreneurs*

Why do they Invest?

1. Return/Profit

2. Risk Management/ Hedging

3. Tax-benefits

4. CSR/Image

5. Diversify revenue

6. Counter-cyclical balance

7. Support ‘Mission’

8. Exclusive rights

8. Contractual obligation

9. National Agenda

10.Control Supply Chain

11.R&D portfolio

12.Control Management

13.Alternative Cash Flow

14.M&A

Funds: What do Investors look for?

Market Value

•M&A

•P/E

•Investor

•Etc.

Strategic Control

•I.P.

•Monopoly

•Gov-linked

Business Model

•USP

•Profit Mod.

•Mkt Disc.

•Growth

Funds: Business Model

Market Discipline

Profit Model

•Google

•Tata Nano

Business Model: USP

Unique Selling Proposition (USP)

Targeted Customer

Core Buying Purpose/ Customer Value Proposition/ Job To Be Done (JBTD)

Business Model: Profit Model

Income

MarginCash Flow

Assets

Business Model: Profit Model

1. Gillette shaver

2. Amazon, Facebook

3. Tata Nano

4. Newspapers, DVD

5. Google

Income

MarginCash Flow

Assets

Income

MarginCash Flow

Assets

"They are the most innovative"

"Constantly renewing and creative"

"Always on the leading edge"

"A great deal!"

Excellent/attractive price

Minimal acquisition cost and hassle

Lowest overall cost of ownership

"A no-hassles firm"

Convenience and speed

Reliable product and service

"Exactly what I need"

Customized products

Personalized communications

"They're very responsive"

Preferential service and flexibility

Recommends what I need

"I'm very loyal to them"

Helps us to be a success

Product Leadership

OperationalExcellence

CustomerIntimacy

•Air Asia

Operational Excellence(low cost producer)

Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995

Product Leadership(best product)

Customer Intimacy(best total solution)

Funds: Business Model: Market Disciplines

Operational Excellence

• Competitive price

• Error free, reliable

• Fast (on demand)

• Simple

• Responsive

• Consistent information for all

• Transactional

• 'Once and Done'

• Competitive price

• Error free, reliable

• Fast (on demand)

• Simple

• Responsive

• Consistent information for all

• Transactional

• 'Once and Done'

Customer Intimacy

• Management by Fact

• Easy to do business with

• Have it your way (customization)

• Market segments of one

• Proactive, flexible

• Relationship and consultative selling

• Cross selling

Customer Intimacy

• Management by Fact

• Easy to do business with

• Have it your way (customization)

• Market segments of one

• Proactive, flexible

• Relationship and consultative selling

• Cross selling

Product Leadership

• New, state of the art products or services

• Risk takers

• Meet volatile customer needs

• Fast concept-to- counter

• Never satisfied - obsolete own and competitors' products

• Learning organization

Product Leadership

• New, state of the art products or services

• Risk takers

• Meet volatile customer needs

• Fast concept-to- counter

• Never satisfied - obsolete own and competitors' products

• Learning organization

Funds: Business Model: Disciplines, Priorities, and KPIs

The McPlaybook*

Make it easy to eat• 50% drive-thru• Meals held in one

Make it easy to prepare• High Turnover• Tasks simple to learn

& repeat

Make it quick• “Fast Food”• Tests new products

for Cooking Times

Make what customers want• Prowls market for new

products• Monitored field tests

*Adapted from: Businessweek , Februrary 5th 2007

HP well-balanced portfolio, mass customization

Acer super lean cost structure, aggressive pricing

Apple powerful products, premium

pricing, limited range

Still Doing well in 2009

Funds: Business Model: Business Model

Market Discipline

Profit Model

Business Situation vs. Focus

Upturn Flat Downturn

Fight Complacency

Sharpen Edge

Keep Momentum

Conquer

‘Change’ mgmt

Reduce Fat

Continuity

Everyone Happy

Innovation

Acquire

Profits

Build momentum

Cash Flow

Talent Mgmt

Innovation/R&D

Early wins

Slow Down HR Costs

Top Talent focus

Sales, Sales, Sales

Increase attrition

Side Notes on Cost Reduction Strategy

Cost Reduction

Business Model

•USP

•Profit Model

•Market Discipline

Operational

•Finance and HR

•Supply Chain

•R&D

•Sales & Marketing

5% - 30%

30% - 80%

Business Situation vs. Sales

Fight Complacency

Sharpen Edge

Keep Momentum

Conquer

‘Change’ mgmt

Reduce Fat

Continuity

Everyone Happy

Innovation

Acquire

Profits

Build momentum

Cash Flow

Talent Mgmt

Innovation/R&D

Early wins

Slow Down HR Costs

Top Talent focus

Sales, Sales, Sales

Increase attrition

1. Optimize customers’ current assets

2. Offset customers’ costs 3. Focus market share 4. CEO and Sr. Mgmt in the field 5. Sell up the buyer chain 6. Motivate troops 7. Add extra services 8. Control troop emotions9. Specialized vs. general teams,

i.e. sell support services, sell equipment, existing customers etc. (e.g. Xerox)

Business Situations vs. Focus

Fight Complacency

Sharpen Edge

Keep Momentum

Conquer

‘Change’ mgmt

Reduce Fat

Continuity

Everyone Happy

Innovation

Acquire

Profits

Build momentum

Cash Flow

Talent Mgmt

Stack R&D

Early wins

Slow Down HR Costs

Top Talent focus

Stack Sales

Increase attrition

Many times, you need a different CEO/Leader/Management Team

for each business situation

Branding

Positioning

Execution

Communication

Investor Relation’s

How do Investors get their ‘INFO’? (1/2)

Institutional

Gov./PoliticsCustomer

Suppliers

EconomicsAGM

Market Research

Internet*

Annual Report

Analysts

Fund Managers

Due Diligence

NewsletterSpokespersons

Institutional

Gov./PoliticsCustomer

Suppliers

EconomicsAGM

Market Research

Internet

Annual Report

Analysts

Fund Managers

Due Diligence

NewsletterSpokespersons

Retail

Gov./ Politics

Customers Public

Events

EconomicsAGMAds

Internet*

Annual Report

Analysts

Fund Managers

Relatives

Friends

Pasar Malam

Employees

Employee Bloggers

Mgmt Action

Newsletter

Retail

Gov./ Politics

Customers Public

Events

EconomicsAGMAds

Internet

Annual Report

Analysts

Fund Managers

Relatives

Friends

Pasar Malam

Employees

Employee Bloggers

Mgmt Actions

Newsletter

How not to talk to Retail Investors

“The holder [of a CAB certificate] may continue to serve regularly any point named herein through the airport last regularly used by the holder to serve such point prior to the effective date of the certificate. Upon compliance with such procedures relating thereto as may be prescribed by the Board, the holder may, in addition to the services hereinabove expressly prescribed, regularly serve a point named herein through any airport convenient thereto.”

Civil Aeronautics Board, 1977

How not to talk to Retail Investors

“It has been determined not to be in the public interest that United Airlines continue to provide air transportation services between San Diego and San Antonio”

“I forbid United Airlines to fly between San Diego and San Antonio”

What topics interest Investors?

Acquisition target

Layoffs

CostCutting

New Mgmt

Treatment of ProfitsConsistency

Ecology

Economics

Politics

Strategy Alignment

CSR-related

Crisis

Topics?

What topics interest Investors?

Acquisition target

Layoffs

CostCutting

New Mgmt

Treatment of ProfitsConsistency

Ecology

Economics

Politics

Strategy Alignment

CSR-related

Crisis

Topics?

What Events impact Investors?

Politics

Financial Announcements

Shareholdingchanges

Structure

AccidentsEconomic

Crisis

CompetitorMoves

New Plans

Share-drop

Events?

What Events impact Investors?

Politics

Financial Announcements

Shareholdingchanges

Structure

AccidentsEconomic

Crisis

CompetitorMoves

New Plans

Share-drop

Events?

Importance: Intelligence

Two types:

I.R. InvestorsCRM Intelligence

Deal with…

I.R. Management

Investor Intelligence

Deal with…

Investor Intelligence: What?

Examples…

1. Record feedback and questions

2. Competitors’ IR communications

3. Top 10 Analysts’ views on Company

4. Top 10 Analysts’ views on Industry

Attachment 1 -How Sony Can Keep the Momentum

Investor Intelligence: Why?

1. Broad view of market

2. Less optimistic/review own assumptions

3. Upgrade IR function to be strategic

4. Feed Management discussions

5. Better and more relevant IR communications

6. Support (buy-in)

Revenue Growth

Base Retention

Share Gain Positioning Adjacent Market

New Business

Product Leadership

Customer Intimacy

Competencies Information Systems

Motivation, empowerment,

alignment

Financial

Learning & Growth

Internal Process

Customers

Investment Strategy

Productivity Market Value

Investor Intelligence: Why?

Dangers of Intelligence…

Also known as ‘Beware of Benchmarking’:

1. Big vs. Small company

2. Selective success stories

3. Correlation vs. Causal

4. Survey problems

5. Actionable vs. For-fun

IR and Customer-Shareholders

Retail

Investor-Shareholders

Employee-Shareholders

Management-Shareholders

Customer-Shareholders

Distributor-Shareholders

Distributor-Entrepreneurs

Affect Sales

Is Investor Relations important?

1. Funds

2. Brand

3. Intelligence

Corporate Reputation

Good News, Bad News. Who cares?

Challenges of Public and Investor Relations

1. Stake- vs. Share-holder*2. Public Opinions3. Indirect Stakeholders –

NGOs, Community Activists, Online Networks

4. Increasing focus on ecological, social, ethical issues

5. Diverged expectations for same issue

6. Web 2.0

7. What to do with Excessive Cash?

8. Superficial changes vs. Fundamental Changes

9. Investors depend on ‘hearsay’ vs. ‘facts’

10.Share Price ≠ Market11.R&D/M.S./HR vs.

Investor Expectations12.Opposing ‘Expert’ views13.Operational Risk ->

Reputational Risks

IR problems

“Good news for stockholders can be bad news for other

stakeholders.” Gregory Miller, Assoc. Prof., Harvard Business School.

Audiences – Good News? Bad News?

• money saved by tough bargaining with a union

• announcing a dividend: to employees

• announcing a dividend: to environmentalists

• setting up Diversified business

Refer Attachment 2 - Building Trust with One Group Can Destroy Trust with Another

News vs. Controllability

Can Control Cannot Control

Internal Attribution

External Attribution

Born StupidDidn’t study hard enough

Lousy Teachers

Sudden high extreme marking stds

E.g. Failed SPM

Good News vs. Controllability

Foreign investor

Segment growth

R&D breakthrough

Bad News vs. Controllability

Oil spill

Product recall

Marketing strategy

Bad debts (NPL)

Pandemic

Economy crisis

The 6 Sins of Greenwashing

1. Sin of the Hidden Trade-Off

2. Sin of No Proof

3. Sin of Vagueness

4. Sin of Irrelevance

5. Sin of Fibbing

6. Sin of Lesser of Two Evils

Study by: TerraChoice, December 2007

Summary

1. IR and it’s problems

2. Importance of IR to Value Creation

3. Corporate Reputation

Post-Downturn Possibilities vs. Investor Choices

•Strong supply of goods and weak demand

•Huge amount of money being pumped

•Combination of slow growth and surging inflation

•CPI•Real estate values •Savings rate

•CPI •Commodity prices •Government debt as a % of GDP

•Misery Index, = Unemployment + Inflation Rates

•Short-term•Technology

•Pegged to inflation •Commodities, utilities, specialty materials

•Conservative•High-quality growth

Deflation Inflation Stagflation

www.myCNI.com.my www.OOBEY.com Businessweek, 22nd June 2009, “Pick Your Poison”

Source

Indicator

Investment

Investor and Analyst Picks

Low-cost solutions for small businesses Healthcare (especially Vaccines) Solutions that increase Customer Loyalty Government Stimulus-linked Green tech

Large fixed headcount Commodities Confused Business Models High Leverage

10 Questions for CFOs – post recovery

1. Recovery shape?

2. Restructured enough?

3. Supply Chain flexible?

4. Acquisition targets?

5. Restart alliances?

6. Divest underperforming businesses?

7. Financial resources for upturn?

8. Buying talent, marketing, R&D?

9. New risks?

10.How to sell recovery plan to investors?

McKinsey & Company, May 2009, “What’s Next - 10 Questions for CFOs”

“…in the past 18 months, we have heard that profit is more important than revenue,

quality is more important that profit, people are more important than profit,

customers are more important than our people, big customers are more important than small customers, and that growth is the key to our success. No wonder our

performance is inconsistent"CEO, Anonymous

Don’t forget…

“The business of business is Business, not Investor

Relations”

Thank You.

soft copy of slides: http://totallyunrelatedrandomanddebatable.

blogspot.com/

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