Inside Investor Relations – Volume 9 –Key Elements of a Successful Meeting with Long-Term Investors

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Most corporations prefer to have a shareholder structure with more longer-term investors. It usually takes several months to several years to see the initial results of a company’s new strategy or plans. Therefore, long-term investors’ goals are more consistent with that of a company’s in maximizing long-term shareholder value. In a survey* of more than 1,000 board members and C-suite executives around the world, 86% declared that using a longer time horizon to make business decisions would positively affect corporate performance in a number of ways, including strengthening financial returns and increasing innovation.

However, investors focused on the longer-term story could be some of the most difficult ones to attract. They usually spend a significant amount of time conducting research on the company and the industry. Their questions are often more detailed, in-depth and informed which also requires that the management is prepared to respond effectively. So how can management better prepare before meeting a long-term investor?

What to communicate? Focus more on the long-term

Long-term investors care more about the key drivers of long-term shareholder value than short-term profits and the operating performance of a company. Therefore, when communicating with long-term investors, these topics should be covered as much as possible. Here are some of the key drivers and details that management should be prepared to present and explain.

1. Long-term (3-5 years) strategy targets and the execution plan: Long-term investors are particularly interested in how a company reaches its goal step-by-step. They may also want to check on the ability to executive from different angles. However, these types of investors generally care more about the logic and assumptions behind the targets more than the targets themselves. For example, if a company targets to build a new plant within a short period of time of 1 to 2 years - does it have enough human capital or cash on hand to support the plan? If the company plans to launch a new product - how much is the R&D expense and what could be the impact to the overall sales volume and the average selling prices? Would there be cannibalization? Management will want to be able to explain the logic and details of their targets in revenue, profits, and resources needed over the next 3 to 5 years, to better answer these questions from investors. Investors also need to be able to understand the long-term growth drivers and key risks and opportunities for the company. It is also important to provide investors some information about the market size of the industry (total addressable market, TAM) and the industry growth rate so that investors can better assess the potential room for growth of the company.

2. Moats and competitive advantages: Management’s argument will be much stronger when there is supporting data or examples when introducing these advantages. For example, when talking about cost advantage, is the cost 10% or 50% lower than peers and why? If the company claims an advantage in technology, how many years are we ahead of competitors and why they can’t make it? Why do your customers come to you and not your peers? In our “CEO Conversations Installment IV: MP Tsai, Founder and CEO of eCloudvalley (6689 TT) ”, CEO Tsai shared some great insight into how eCloudvalley became AWS’ best partner and why the customers “stick” around.

3. Management team: The passion of the founder or the owner of the company is of particular interest to longer-term investors. This information doesn’t appear on the financial reports and can be difficult to quantify. However, sometimes it is one of the most important factors to the future of a company. It is often worth sharing stories about the founder or how the team worked together to overcome difficulties.

4. Major risks: Management may sometimes focus only on the business opportunities and are less comfortable discussing risks. However, opportunities often come with risks – companies that conduct strong risk management by analysing current and emerging risks and can speak to the company’s mitigating actions provide investors with greater confidence. On the other hand, when investors ask about risks and management does not address these questions, this may cause investors to have doubts about the company’s execution abilities.

5. ESG (Environmental, Social and Governance): Long-term investors are increasingly putting more focus on ESG-related issues especially as compared to shorter-term ones. Rather than just offering operating results, management should also provide updates on environmental, human capital and governance initiatives and targets. Investors may look to ESG scores from a third-party institutions for insights and companies should be prepared to address any concerns. For more information on third-party ESG reporting, please refer to “Inside Investor Relations – Volume 6 – Third-party ESG Reporting”.

The company presentation is one of the best ways to present these topics. This helps management to introduce the company in a logical order and reduces the risk of jumping from question to question, losing the focus of the meeting. In addition, investors will continue to track the company after the meeting and check its progress, credibility from investors is accrued when information is provided accurately but also conservatively.

Rehearsals and more preparation could lead to a better meeting

Once the presentation is ready we also recommend doing some additional preparation prior to meeting with investors:

1. Rehearse: An investor meeting normally lasts about 1-1.5 hours so the presentation part should stay within 20-30 minutes. Investors will then have enough time to ask questions and conduct in-depth discussion. If there are two or more participants on the corporate side, management can divide responsibilities based on strengths and knowledge.

2. Solicit questions and prepare: It is advised to prepare for questions that investors frequently ask and potential questions based on recent progress of the company. It is also important to keep the financial and operating data on hand during the meeting to respond to more detailed questions with accurate numbers.

3. Research investors: Understanding more about the investor and the institution they work for often provides clues to help anticipate questions and topics they may focus on.

4. Check communication quality: Due to COVID-19, many meetings are now conducted via video conference or conference call. It is also important to be familiar with the software and to make sure the communication quality is good. For more information about communication with investors during COVID-19, please see “Inside Investor Relations – Volume 1 – How a company should be prepared to communicate with investors during COVID-19”.

5. Bring products or samples with you: If it is a face-to-face meeting it is recommended when possible to bring the products or samples with you. Investors will be able to understand the products much more easily with a deeper impression.

It is important for listed companies and their IRO to communicate with investors accurately and effectively. QIC advisors consist of experienced professionals that have worked in major sell-side and buy-side companies for many years. We help companies to formulate their strategies through our understanding of the industry and in-depth interviews with the management team. We also help facilitate the meetings with various types of investors. If you are interested in learning more about our services, please reach out to us.

Contact: yvonnehuang@qtumic.com 

Source:

1. Focusing Capital on the Long Term, Dominic Barton and Mark Wiseman, Harvard Business Review January–February 2014