Building a Financial Brand

1
Building a Financial Brand Through
Non-Financial Disclosures

Christoph Knoess Corporate Finance Ernst Young
LLP National Investor Relations Institute, FEI
February 2002
2
To What Extent do Financial Results Drive
Valuation ?
Financial Services - Price vs. EPS
3
To What Extent do Financial Results Drive
Valuation ?
Media - Price vs. EPS
4
To What Extent do Financial Results Drive
Valuation ?
Pharmaceuticals - Price vs. EPS
5
The Speed of Change Shifts the Focus of
Valuations from the Present into the Future
Speed Intangibles Connectivity
n
Option Value
n
CF
gt
CF
t
t
Terminal Value


t
t
(1r)
(1r)
t1
t1
6
As Investors Look Further Into the Future, the
Traditional Framework for Corporate Disclosure is
too Simplistic
New framework
Success in these three interconnected markets
requires an unspoken promise a Financial Brand
7
The Information Needs of Investors Exceed the
Mandatory Disclosures Required by the SEC
Corporate Governance
Uncertainties (upside, downside, sensitivities)
Operational measures that drive value

• Mandatory
• Precise
• Backward looking
• Static

Historic Financial Results
8
How Can You Build a Financial Brand ?
Communicate a cause-and-effect model that links
your managements decisions to future cash flows
(e.g. Value Drivers analysis)
9
Examples for Disclosures that Build a Financial
Brand
Poison pills, board indep., audit relationship
Corporate Governance
Impact of F/X, GDP growth, energy prices,
unemployment, etc.
Uncertainties
e.g. same store sales growth, drug pipeline,
other internal measures used by management
Operational Measures
Financial Results
Simple financial statements Reconciled
pro-formas Unambiguous classifications
10
There is no Use to Having a Clean Conscience if
You Act as if You had Something to Hide
The reaction, I think, is going to create a
really major rethinking with respect to
information coming out of business into the
investment community. I think there is going to
be a good deal less of that and that the old
issue of competing for reputation is going to
re-emerge. And I think there are people who
are going to say that our accounts you can rely
on. And that probably will increase their
price-earnings ratios. Alan Greenspan, Wall
Street Journal, 1/30/02