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Financial Presentations: Fashions Fail, Drugs Deliver

September 19, 2014

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It was the middle of August – that usually quiet time on the markets – when handbag and accessory maker Kate Spade saw its busiest day of trading ever. 52 million shares changed hands. Alas, people couldn’t get out quick enough. Shares plunged 25.4%. Kate Spade & Co had reported better-than-expected sales, which had helped lift the stock to a seven-year-high at $42.87 in early trading.

Then, the CFO talked about the company’s tough financial future in an investor conference call…

 

Silly remarks in silly season – or was he just telling it how it is?

I wasn’t on that conference call, but I did take a look at the transcript. http://www.nasdaq.com/symbol/kate/call-transcripts kate-spade-handbagged

It doesn’t make for light bedtime reading. What spooked investors was when CFO and COO George Carrara said that the company’s comparable sales growth for the second half of the year are expected to be in the high single-digit range – compared with an almost 30 percent increase in the first half of the year. Carrara also said the firm is considering putting off its profit margin targets for 2016 until 2017. Even though he explained this, citing several factors, investors weren’t sold. He got the tone wrong. The comments were misleading. Now the markets were questioning whether the company had a focussed growth strategy at all.

A more thought-through, rehearsed and confident presentation might have meant a very different trading day.

Giving a financial presentation can be tough. You know the form: the charismatic CEO steals the show from the start, revealing the juicy headlines figures and big ideas in opening remarks, before handing over to the numbers guy to wade through a usually dry slideshow of data, data and more data. Yet with a little practice and polish, those financial presentations will hold investors attention and keep them coming back for more.

 

Alain Hippe, the CFO of Swiss drug maker Roche gave a slick performance in July.

Take a look at Roche’s Half Year Results 2014 webcast and conference call. http://www.roche.com/investors/ir_agenda/halfyear-2014.htm You’ll need to fast-forward to around 33 minutes in.

Roche

For a bit of context, analysts had forecast a small decline in sales and the week before, cross-town rival Novartis reported second-quarter results that fell slightly shy of forecasts. Roche’s results beat earnings forecasts. The firm confirmed full year sales and profit targets. Analysts described the results as solid. Yes, Hippe had good material to work with, but he had some complex stuff to get through. He did not get bogged down. He kept the tone upbeat and positive and framed his content in such a way that the firm’s focus was absolutely clear. His confidence, backed up with firm facts, was reassuring to investors.

Here are my tips to take away:

 

1. Set the tone

Hippe means business from the start. If he wanted the take-home message to be that things are going great and will continue that way, I think he nailed it. He smiles and his demeanour throughout the presentation is confident and relaxed. This guides the audience towards thinking positive. The language he uses is enthusiastic and upbeat. “Strong” core growth, free cash flow “significantly” improved. He says “good” several times during the presentation when he is moving on to the next salient point.

 

2. Set the scene

Hippe runs through the headlines and immediately says what he is going to do. This is a neat trick to hold the audience’s attention. Without getting too scientific, remember we all have a cycle of attentiveness. Listeners tune in and out, probably because they are thinking about some of the earlier points made. Hippe also repeats the key points at the end, reinforcing his outlook.

 

3. Know your numbers

It sounds like a no-brainer, but I have been in too many presentations where the CFO relies so heavily on a crowded slide show that I am left wondering whether he even had a chance to scan his notes beforehand. It is clear that Hippe knows his content inside out. I will bet he and his team rehearsed relentlessly. The more you rehearse, the more comfortable you will be with your content and the more conversational you will sound.

A clear message

4. KISS (keep it simple, stupid)

Of course Hippe uses slides – it is after all a data-packed financial presentation. But the slides were not the star of the show. They supported what he had to say. One slide, which came up at the beginning and the end simply said “focus on cash” – that take-home message – leaving him to flesh out the details in a more conversational way. Later, there was a more complex slide crammed with numbers and a big -41% at the bottom of the chart.

Hippe draws attention to this immediately. “Don’t be irritated here by the minuses….” and briefly explains. “Look at it this way. Do the adjustment. It is a negative hit on operating profit but what this means for the second half is better momentum. Be careful when you do your predictions”. This direct approach dismisses any misunderstandings of the data and instills confidence in his knowledge and expertise. Taking it one step further, he says “let me give you more transparency” (yes, I know that is business-speak, but since English is not his first language I will let that one pass). “Here you see it, the comprehensive picture” – he demystifies the data and directs the audience to the numbers that he and the company think are important.

5. Prove it

Hippe reinforces his point, using his next slide to try out his theory by looking at sales, royalties and other operating income. Giving an example adds context and credibility to the numbers. Showing how the numbers work is incredibly valuable. If investors hadn’t got it yet, they had now.

6. Think ahead

Another clue that this presentation was well rehearsed and well prepared was when Hippe anticipated what his audience was thinking. “I heard already there were questions about the tax rate” he said, adding “it is a pretty straight story”. He then explained that the US award R&D tax credits, that so far, the 2014 has not been granted, but that since they had been awarded 15 years in a row, he was not worried. “It is not a big deal”. This is reassuring, not just because he is unconcerned, but because he had thought about potential curve ball questions beforehand. It shows he was well prepared. Always anticipate the questions or issues that might come up. This gives you time to figure out how to address them. When you do, don’t dwell on them and always finish on an upbeat note.

Be like Mr. Hippe. Look like someone who knows their numbers, who is in control and a safe pair of hands.

NB: Benjamin Ball Associates have not coached either of these CFOs, although we have worked with many others.

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