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DR Advisor Quarterly Newsletter
Welcome 1
Client Profile: From IR outsider to insider 2
IR Best Practices: Virtual meetings with investors 8
New Clients 10
Educational Events 11
VOLUME 27, 2014
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Across the world, emerging market equities have been recovering, after hitting a 2014 low in early February. Brazilian equities have
performed similarly.
In this edition of the DR Advisor Quarterly, Rogério Tostes, who leads investor relations at the Brazilian telecommunications
services company TIM Participações, explains how he and his team addressed the market volatility that began in October last year.
Rogério also discusses how TIM’s IR department tackles market rumors, which can arise suddenly and be a persistently vexing
problem for a company. In his interview, Rogério also shares with us how he persuaded management to become more involved in
investor relations, beyond the earnings conference call.
Roadshows are an essential aspect of investor relations. However, they are time consuming and costly. Videoconferencing was thought
to be a solution, but over the years the technology never really fulfilled its promise. Telepresence and similar systems represent the
latest generation of videoconferencing technology. As Jennifer Strype-Menditto of our IR Advisory team explains inside these pages,
the new videoconferencing systems cannot completely replace face-to-face meetings with investors, but they can play a valuable role
in investor relations.
I hope you enjoy our latest client newsletter.
Kind regards,
Dennis Bon
Global Head, Depositary Receipts Group
Dennis Bon
Global Head, Depositary Receipts Group
Welcome
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Client Profile: From IR outsider to insider
How did you come to your current role as the head of investor relations?
I came from the sell side, where I spent a total of eight years as a telecommunications research analyst at Banco Safra and Banco Santander. After covering telco companies, I had the opportunity to move to the other side of the table. I welcomed the opportunity to see the industry from the inside, after analyzing it for so many years from the outside.
Did anything surprise you when you got to see the inside of telco?
Yes. I used to cover dozens of companies. Consequently, I wasn’t able to examine companies with much detail. When I started at TIM, I was surprised by the detailed analysis that the company undertook itself. When you get inside, you realize the vast amount of information and
the level of granularity that companies use to run their businesses. On the sell side, I was using very high level information to do my analysis, to build my DCF models.
In Brazil, the telecommunications sector is very competitive. It consists of four big players that have a market share of about twenty to thirty percent each. The sell side gives our company an outside view that we don’t always have. Granularity is important, but it’s also important to understand what’s going on around your business.
Something that I brought to my job at TIM, was knowing exactly what information the sell side and buy side need from a company. I also knew how investors and analysts like company information to be presented and how they analyze and value companies.
“After covering telco companies, I had the opportunity to move to the other side of the table. I welcomed the opportunity to see the industry from the inside, after analyzing it for so many years from the outside … When you get inside, you realize the vast amount of information and the level of granularity that companies use to run their businesses.”
Rogério Tostes, Investor Relations Officer & Member of the Board of Executive Officers, TIM Participações S.A.
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Could you give me an example of how you changed the way the information was being presented to the investment community?
We began to present the information in as much detail as possible, without actually revealing too much information about our business, performance and strategy, which our competitors could take advantage of. This included providing more operating metrics during our earnings calls.
In addition, we increased investors’ access to senior management. Previously, it was very unusual for management to present to the market. I had to explain to them why they needed to be involved in investor relations, that the conversation with the market couldn’t be with the IR department alone. In addition to involving the CEO and CFO, we have the Chief Marketing Officer talk with investors and analysts as well as our head of networks, for example. On roadshows, we involve at least one C-level executive. Management needs to engage the investment community.
How did you convince management they needed to do this?
It was a somewhat long process. We started bringing people to the company to meet with management, starting with the sell side analysts. Gradually, we extended the meetings to the buy side. Once these connections were made, it became easier to get management to continue these conversations and build relationships outside of the company. We made a point of sharing with management sell side reports about TIM and would also provide summary reports about what people in the markets were saying about our company. I think management enjoyed getting informed outside perspectives on our company and its sector. Thereafter, it became a natural process to join roadshows and to participate in equity conferences.
“In addition to involving the CEO and CFO, we have the
Chief Marketing Officer talk with investors and analysts as well as our head of networks,
for example. On roadshows, we involve at least one
C-level executive.”
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Did you see an improvement in market valuation or price multiples after increasing disclosures?
It’s hard to say. Since we increased disclosure and gave more access to management, our trading volume and market capitalization rose substantially. But we must attribute that to other factors as well. I believe, though, that greater transparency allowed investors to be more comfortable taking a position in TIM. I think it’s a matter of knowing what you are buying, from the buy side’s perspective. It’s important for investors to meet the people who are running the business. This helps them understand management’s ability to execute. It is important for communicating our equity story. Giving access to senior management and providing an appropriate level of disclosure gets investors more comfortable with your company, so they’re more likely to invest.
I should point out that while meeting with investors in 2010 we learned they were disaffected with TIM’s voting rights and ownership structure. We listened to them. I started to advocate internally listing TIM’s shares on the Novomercado, which requires a single vote per share and equal rights for minority shareholders. We eventually listed there and it clearly demonstrated to investors that we were listening to them and we were focused on good corporate governance. This is a good example of the relationship between a company and the market, of learning from the market. We received very positive feedback from investors. And it bore fruit in terms of improved trading liquidity and market valuation.
“We have a mantra in the company that any time challenges arise, whether inside or outside the company, we should increase our level of communication with the investment community, not hide or avoid investors. We travel more abroad to meet with investors and also encourage them to visit our headquarters. This year we increased our interactions with investors almost thirty percent through roadshows and conference calls.”
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Currently, emerging markets are in turmoil, including Brazil, the economy of which has slowed down considerably. Has TIM’s equity been impacted?
Being one of the largest companies in Brazil, we have been exposed to what has been happening to Brazil’s stock market. We are not protected from the situation. Investors are not displaying a lot of appetite for emerging market equities, generally. Fortunately, telecommunications has shown to be a resilient business in this market environment. We’ve also benefited from the growing trend of data use in Brazil. Our customers are using more data. Brazil is becoming very data intensive, which is helping our top and bottom lines. These are things that we’ve been emphasizing in our communications with investors.
So you’ve changed the way you communicate with the investment community, as a result of market conditions and given Brazil’s economic difficulties?
Absolutely. We have a mantra in the company that any time challenges arise, whether inside or outside the company, we should increase our level of communication with the investment community, not hide or avoid investors. We travel more abroad to meet with investors and also encourage them to visit our headquarters. This year we increased our interactions with investors almost thirty percent through roadshows and conference calls.
We track meetings and conversations with investors and you can see that these increase any time our company faces challenges. In 2012, there was a change in regulation that impacted telecommunications companies in Brazil. We were in the center of a hurricane and
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we substantially increased our contact with investors and analysts. This gave us the opportunity to give our perspective on the regulatory change and educate investors about its impact, rather than waiting and watching TIM’s stock price fall. This included giving them access to management. We wanted to clearly communicate that the company was in a strong position, despite the change in regulation. We were careful to educate the media too. Our strategy didn’t change. Also, we made sure people kept following our operational improvements and that we were still investing in the business. Without these efforts, investors could have over-reacted and our stock price would have really suffered.
There are a lot of rumors with respect to Telecom Italia. There is speculation that Telecom Italia will sell its stake in TIM. How have you been addressing these rumors, if at all?
We monitor rumors pretty closely. One issue is that the rumors emerge in both Italy and Brazil. This necessitates coordinated communications by TIM and Telecom Italia. We make sure the market knows our opinion and position on any significant rumor. If necessary, we will publish a formal statement to address a rumor in the market. At a minimum we want the market to hear our view, not just the rumors. Investors and analysts need to hear from us, not just what they might hear or read in the media. We seek to balance the information in the market.
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Are you doing anything new in IR from a technology perspective?
A big part of our business is mobile telecommunications. We have made our IR content available through IOS and Android. Also, we introduced videos of TIM’s senior management. After each earnings release, our CEO and some of the other top executives make video statements about the financial and operating results. The videos are available on our investor relations website. The videos give investors and analysts a better sense of how our CEO and other executives are thinking about the business.
After all, helping investors understand how management views the company is one of the most important elements of investor relations.
This is very true.
“We monitor rumors pretty closely … At a minimum we
want the market to hear our view, not just the rumors.
Investors and analysts need to hear from us, not just what
they might hear or read in the media. We seek to balance the
information in the market.”
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Saving travel time and money
Meetings with investors are an essential step for a company to secure their investment. However, investor roadshows entail considerable travel, making them costly in terms of money and time; the latter is particularly true with regard to senior management’s participation. Moreover, companies are increasingly traveling farther afield to places like Singapore, Sydney, Brazil and the Middle East, with the aim of better diversifying their shareholder bases and seeking out incremental demand for their equity.
In past years, videoconferencing was tried occasionally in lieu of traveling to meet with investors. But the technology had never developed sufficiently to serve as a suitable alternative for face-to-face meetings. With the advent of digital conferencing systems, such as Cisco’s TelePresence and Polycom’s RealPresence, companies are beginning to adopt virtual investor meetings in certain circumstances. The advanced technologies behind these services now provide clear images of people, allowing essential eye contact, and their voices are not
delayed, enabling a natural, free-flowing conversation. In other words, it’s as if all of the participants in a virtual meeting are together in the same room.
As more institutional investors install digital conferencing systems, this alternative to in-person meetings is gradually becoming feasible. However, these systems are expensive and few investors have installed them to date, other than the largest institutions. As a result, the systems are far from being ubiquitous. J.P. Morgan has digital conferencing systems in most of its offices and these can be made available for virtual meetings between investors and companies. Besides a limited number of installations among investors, compatibility can be another challenge. That is to say, a company or broker’s system might not be able compatible with an investor’s virtual meeting system.
When to employ virtual meetings
In the U.S., some of the largest investors are located in remote locations, such as Principal Global Investors in Iowa and Thornburg Investment Management in New Mexico. Many companies are
Jennifer Strype-Menditto, Vice President IR Advisory, J.P. Morgan
“As more institutional investors install digital conferencing systems, this alternative to in-person meetings is gradually becoming feasible.”
“In the U.S., some of the largest investors are located in remote locations, such as Principal Global Investors in Iowa and Thornburg Investment Management in New Mexico.”
IR Best Practices: Virtual meetings with investors
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surprised to learn that a fairly sizable institution is located in Alaska – McKinley Capital Management, which manages over $7 billion. As part of a roadshow that comprises important investment centers like New York and Boston, a company can set aside time to conduct virtual meetings that encompass remote investors like these, in order to take advantage of being in a closer time zone. However, virtual meetings should never be done at the expense of in-person meetings.
In addition to extending a company’s geographic reach, virtual meetings can be used to gauge an investor’s level of interest. Following a virtual meeting, senior management and the investor relations department might decide that an in-person meeting would be worthwhile.
Virtual meetings can be beneficial in another way too. If the shares and ADRs fall to a certain price level, one or several institutions might wish to meet with management immediately. Using a digital conferencing system means a meeting could take place that would not have otherwise, and any subsequent investment could provide price support. It should
be noted that a virtual meeting is far more appreciated than a conference call, especially when it concerns shareholders.
A more virtual future
Cisco and Polycom have introduced desktop versions of their virtual meeting systems. These are somewhat akin to Skype and are far more affordable than the more sophisticated systems found in conference rooms. Thus, in the near future, more investors could be available via virtual meetings, small and mid-sized institutions in particular. Regardless of the adoption rate, it can be expected that investors will continue to prefer face-to-face meetings with companies, although those in hard-to-reach places will almost always find a virtual meeting an acceptable alternative.
“...virtual meetings should never be done at the expense
of in-person meetings.
In addition to extending a company’s geographic reach, virtual meetings can be used
to gauge an investor’s level of interest. Following a virtual
meeting, senior management and the investor relations
department might decide that an in-person meeting would
be worthwhile.”
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J.P. Morgan’s Depositary Receipts Group welcomes the following client:
New Clients
Fast Retailing Co. Ltd.
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Educational Events Recent Events
This event focused on the findings of the second annual Investor Perception Study that J.P. Morgan’s DR team recently conducted among European and North American investors, with J.P. Morgan’s senior subject matter experts providing their insights on current investor perceptions of Russia.
To receive materials from this event, please contact Hina Khan at +44 207 1345631 or [email protected].
Two webinars were held to discuss our whitepaper on ADR arbitrage and program balances. The paper’s authors explained the nature of ADR arbitrage and the effects it can have on ADR program balances.
To receive materials from this event, including the whitepaper and/or webinar presentation and recording, please contact Kris Klein at +1 212 552 6604 or [email protected].
Russia Investor Perception Survey ResultsADR Arbitrage and Program Balances
March 6, 2014 Webinar
March 5, 2014Webinar
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DR clients in Chile and Brazil will have the opportunity to preview the results of our latest survey of North American and European investor opinions of Latin American companies. Additionally, J.P. Morgan’s Chief Brazil Economist, Fabio Akira, and Chief LATAM Equity Strategist, Pedro Martins Junior, will lead discussions on their areas of expertise and field questions from client guests.
To register for this event, please contact Kris Klein at +1 212 552 6604 or [email protected].
Latin America Investor Perception Survey Roadshows
May 6 Santiago, ChileMay 7 São Paulo, Brazil May 9 Rio de Janeiro, Brazil
J.P. Morgan’s Russia DR team hosted its quarterly seminar focusing on the changes in the Russian securities market regulations, as introduced by the creation of the Central Securities Depository, and its impact on DR issuers and holders. The topics for discussion included disclosure obligations, voting procedures, dividend payments and their tax treatment.
To receive materials from this event, please contact Hina Khan at +44 207 1345631 or [email protected].
DR Voting and Dividend Disclosure – Process and Challenges Seminar
March 26, 2014 Moscow, Russia
Educational Events Recent Events
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Educational Events Upcoming Events
In partnership with the Bahrain Stock Exchange and the Middle East Investor Relations Society, J.P. Morgan’s DR Group will co-host the fourth annual Investor Relations Training event for Gulf region issuers. The training will provide an introduction to investor relations and cover best practices to effectively communicate with the investor community.
To register for this event, please contact Hina Khan at +44 207 1345631 or [email protected].
This two-day conference brings together CEOs and CFOs of leading Chinese and Taiwanese companies for insightful discussions on trends in the DR industry and the broader economic landscape.
To register for this event, please contact Angela Law at +852 2800 1552 or [email protected].
Investor Relations Training DR Annual Greater China Summit
May 26 - 29Manama, Bahrain
May 29 - 31Osaka, Japan
The publication contains a summary of subject matter that is subject to change without notice and is provided solely for general information purposes. J.P. Morgan does not make any representation or warranty, whether expressed or implied, in relation to the completeness, accuracy, currency or reliability of the information contained in this publication nor as to the legal, regulatory, financial and tax implications of the matters referred herein. This document does not constitute a solicitation in any jurisdiction in which such a solicitation is unlawful or to any person to whom it is unlawful. Issued and approved for distribution in the United States by JPMorgan Chase Bank, N.A. who is regulated by the Office of the Comptroller of the Currency; in the United Kingdom and the European Economic Area by J.P. Morgan Europe Limited. In the United Kingdom, JPMorgan Chase Bank, N.A., London branch and J.P. Morgan Europe Limited are authorized and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
©2014 JPMorgan Chase & Co. All rights reserved.
Contacts
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Contributors
Ivan Peill
Editorial Desk
Kris KleinJ.P. Morgan Investor Services1 Chase Manhattan PlazaNew York, NY 10005
Ivan PeillJ.P. Morgan DR Group1 Chase Manhattan PlazaNew York, NY 10005
Alex HicksonEurope/Africa Regional DR Head +44 207 134 5565 [email protected]
Vikas TaimniEmerging Markets Regional DR Head +852 28001797 [email protected]
Kenneth TseAsia Pacific Regional DR Head +852 28001859 [email protected]
Candice TeruszkinLatin America Regional DR Head +55 212 5542620 [email protected]
