investor relations (excerpts from the speech. content rights reserved by the speaker and ceibs. use of the content must be with the prior approval from ceibs.) michael jacobi (biography) cfo of ciba specialty chemicals nov. 29, 2002 good afternoon. i am pleased to be with you. who here knows ciba? i would like to very quickly talk a little about ciba and talk about investor relations. as cfo of our company, i spend one third of my time on investor relations. let me give you a piece of advice that we use for investors. ill tell you: who is ciba? what is investor relations? what does it mean, really? who are our customers? how do we meet them? what is that thing called investor relations? and some investor relations dos and donts. we are ciba specialty chemicals. we produce so-called specialty chemicals. its something you do not find in shops. you cannot find us. we work primarily on things that change the colour, performance or look and feel of certain products you buy. you will always find us in small ingredients in something bigger. its like spices in food. we are not spices in food, but ingredients in other products. these are the segments, the business areas that we are in. ill give you an example of our products as we go along. overall, the company has about $5 billion us dollars in sales. we are in switzerland. that is why we talk about swiss francs. our headquarters is in basel, switzerland. our four segments were in are about the same size, so it is a very balanced portfolio and we have very strong market positions. thats one of the good things when youre talking about investor relations. we are a large company, a billion-dollar industry, and we have very strong segments and leading positions. its much easier to explain your company and investor relations this way than if you come in and say, “we are a small company and we dont particularly define the market.“ what are our products? one is plastic additives. all these core businesses are about $1.5 billion us dollars in size. they are very large companies that are number one in the market world-wide. they are spread all over the world, obviously also in china. being a european-based company, for us, the biggest market is the united states. the second biggest is germany. the third biggest market is china. for us, china is very important in terms of presence. we have a very large presence here. we have a lot of factories, several in shanghai and qingdao. its really a very important market. what do we produce here? you have plastic, polyethylene. you cant use polyethylene-plastic bags and wrapping-anymore without using additives that stabilise against light. otherwise it falls apart. in order to stabilise it, we produce these additives for the plastic industry. we produce them here, among others, in shanghai. its one of our most recent plants, right here in pudong. if you want to see the plant, wed be happy to show you around. just get in touch with us. its a very nice plant, definitely an expensive plant. we also make coating effects. these are very exciting things. where do you find us? you find us basically on cars. if anyone has a red car. red cars, they used to turn kind of brownish. the new cars dont anymore and thats because they use something that comes from our company. the red colour comes from us. you also find this with cdrs. its an interesting example. cdrs, recordable cds, if you look from the side, you see some green shade. its usually silvery or gold, then a green shade. that is a pigment. we make that pigment. we have a modest market share. its the registration on which the laser burns. it registers the information on the colour, the pigment. the pigment comes from us, primarily sold in taiwan. these are typical things we have here. alessi, typical kitchenware in europe. these colours all come from us. we make modern paper treatment products, which go into paper production. i see some of you have white paper. the additive that makes the paper look white, two-thirds world-wide comes from us. in water treatment, cleaning water, we are quite strong. in oil trimming-separating the oil and water-the chemicals used in the extraction industry are chemicals we produce. we are not so large, but still quite common in the industry. textile chemicals, dyes and special effects for textiles. we are the worlds number one producer of chemicals for the textile industry. all the colours come from us. by the way, in the typical business suit, there are 60 chemicals in a suit. another thing that comes from us is all kinds of special effects for the fashion industry. we have one product, to protect clothes. you can spill beer and food and anything on clothes and it doesnt get dirty. this is a product we produce and sell in the industry. this is, for us, an important thing for you to see us, coming into these industries. last but not least is home and personal care. whiteners for the detergents to clean the wash, or microbial agents. these are products we produce. that gives you an idea of what the company is all about in terms of business. in terms of profitability, you see it is a company with profitability. our sales are very much on track. we will reach our $5 billion in us dollars at year-end, easygoing. and we have very good margins. its one of the most profitable companies in the industry. at the moment we are probably one of the most successful ones. i say that not because i work at ciba but because our investors tell us we are one that they regard as a benchmark in the industry. its a very strong company profit-wise as well. so that is one of the jobs of investor relations, provide regular information on the company, products, and what they do to, to the financial markets. the second job is when anyone has a question, you have to give an answer. you cant just sound good; you have to know what youre talking about. you can not go out and struggle. you have to know about our stock; you have to read up. if you dont, they dont call you up again. we monitor the development in the financial investment markets; we know what is going on. thats a task we have to do. find out where an investor has problems, where theres change. we monitor that. we have to do that very carefully. so that is getting information. and the other hand, we feed things (send out information). it is not a one way street. you have to listen very much to what happens in the market, what investors want, what they would like to hear, what they think is good, what is not so good. then you have to find a way to tell them that information. its not so easy. you have to think how do you tell the audience, your boss, exactly what the people would like to hear. you have to think very carefully how you phrase this stuff. so thats one way of doing it. and then there are some other things, companies were monitoring and so on, which in our case is part of investor relations. now who are our customers? our customers are, on one side, financial analysts. they are either part of a bank or part of an investment (company). we distinguish between so called sales-side analysts and buy-side analysts. sales-side analysts are those who help sell the materials. reports written on companies are written by sales-side analysts. they are specialised groups of people. they basically follow an industry and write about the companies in this industry. on the other hand are the buy-side analysts. these are the analysts that help investors compile information (so that they can) make a decision. the large pension funds that invest in shares have people who specialise, on their side, in monitoring investments. these are buy-side analysts. in the end, you have the fund managers, who are the ones who really decide to buy or not to buy. then you have individual investors, who want to buy their own shares. these are our customers. we get a lot of them. just to give you an idea, our company has about 100,000 shareholders. were very broadly distributed. out of that, 99500 are private individuals, who own between one and a lot of shares. but really the big amount in capital is owned by financial institutions. its something you see a lot in this industry. big investors are usually institutions like pension funds, investment funds, insurance companies, all these that own shares. they are the prime people we talk to. in our case, (our stock) is distributed all around the world. we cant just look at switzerland and say, what happens in switzerland. less than half our shareholders are swiss. twenty-five to 30 per cent are american shareholders, so i happen to go a lot to the united states. if you ever want to work in investor relations, english is absolutely necessary. there is no other language than english. no matter which country youre in, youd better be absolutely fluent in english; otherwise you wont have a chance. the technical terms are all english. how do we have contact? what do we do? these are the typical things you do. first of all you have large-scale events. you invite the investors and invite the analysts for presentations. they happen in switzerland. (some particular meetings, for instance,) happen usually at headquarters. results, you have that two times a year where you present-like the slides youve seen hereabout the company, key events, and so on. you have road shows, these are very exciting. we have, in our case, three regular large trips. we go to a lot of countries in a very short period of time. you go to a lot of cities, and you really meet a lot of investors. then you have short trips that usually held at the investors work. you meet the investors for about an hour. you come to the office, for one hour, to talk about the company. youre there for one hour, you make a presentation. that is called the one-on-one. these things we have quite a lot. then, at basel, at our headquarters, we have individuals or groups who come to visit you. we have roughly 150 of these meetings per year. we have things like telephone conferences. i sit in a room and with my hierarchy, i speak into a microphone for 20 minutes and then there are 60 minutes questions and answers afterward. they can ask anything they want. there are usually 100 people listening in. this is the kind of thing you have to watch out for. you have to be very cautious of what youre saying. because everyone can listen very concentrated. on the telephone you can lose much more. i have to be very cautious what i say, because someone will call me up later and say, “you said this, i wrote it down.“ in the beginning i was always sweating (and soaking) wet after one hour. by now i know the story, who is asking the questions? its easy going. easy going. i can say, “how is the weather in.“ these are the quantities. you get an idea. it depends on size. road shows, at one per month, you can imagine im often on the plane. telephone conferences. you have a lot of meetings, telephone conferences. you have to be an extrovert to stand through this. heres a typical road show schedule, the number of meetings i have per day. zurich in the afternoon, one meeting. find my way to the airport. fly to milwaukee in the united states, have one meeting. fly to toronto for four meetings. fly to san francisco, have three meetings. go back to switzerland and so on. you probably can imagine its extremely exciting, huh? you can be sure if youre in investor relations you know all the airports. you know exactly what the airports look like. you have a new sport called airport jogging. in these meetings, you have a routine. you have two choices. you can do a presentation and question and answers afterward, or you only have questions and answers. when you get to the lower part (the end part of the schedule), you prefer only q you can not just show the nice things. you have to explain the financial situation of the company. and you have to have an open discussion of problems. you have to be willing as well to commit errors, and be willing as well to share weaknesses. if you do not do this, the investors do not believe you any more. then you dont have to show up. so you have to be very open, be very clear of what you tell and you have to be frank and show the problems. the worst thing is when the investors start yelling at you. it happened to me in 1998. the company did not have good results, and they (the investors) came and the people said they want their money back. we launched a bond; the bond dropped very heavily. shortly afterward, i had to go to a conference. everybody shouted at me and said, “we want our money back.“ i said. “forget it,“ they were very unhappy the share price did not behave as it should be. take your time to talk it out. the worst thing you can do is not show up. that is a disaster. you must be able to explain what is going on and explain to people very clearly. what is required for an investor relations manager in terms of knowledge? a very profound knowledge. it does not necessarily require 20 years in the company, but you have to learn very hard, be very effective and know what to talk about. accounting, as i said, (is key) and you have to know about the companys industry. its not so good if someone asks about a competitor and you say,“ ive never heard about them.“ they only ask that question once. connections - you have very close contact with top management. our ir manager has an open door to everyone in the company. there is no place he can not go and talk with each and every manager. he travels around in the company very often. i think hes already been in china once or twice already. he sees the problems because he must be able to talk about them. he must see what he presents; otherwise he cant identify. he really has to go around and must know the other (players) in investment community. he really has to know the people very well. personal characteristics of investor relations manager: very, very honest. you can not be a key person who sneaks off. you have to be an extrovert. accessible. if not, people wont call you. good presentation skills. you cant be someone who says, “i dont know.“ you have to be there, be precise, and bring the message across. (theres) a lot of need (for) real training on presentation, how to do this. if you can sell something bad, you can sell good, too. if the results are bad and presentation are bad, then goodnight. let me give you an example, fortunately not from our company. one of our competitors in one of the conference calls they had with investors, everything went reasonably well. at the end, one of the people said, “thank you very much. it was nice to have you here. now well close the conference call.“ and then he forgot to switch off the phone. and then he said to one of his people, “thank god that is over; now we can go back to work.“ everybody knew. it was an absolute disaster. i know two companies where that happened. watch out for the microphone. at ciba, this is not a one way street of information. we have to hear of the trends of our competitors, what happens in the industry. investors tell you, “we heard from this company that they do that; what do you think about this?“ and i say, “interesting. very interesting, challenging.“ you write it down immediately. and then off we go, because we have the best customer intelligence. we get a lot of information on our competition. they dont have everything. we hear about companies, whats going on in the investment community, which place has problems. you find out very quickly. when you visit the investor, the people in the bank, everyone is very (aware) of what is going on. (you learn) what investors think of ciba. you study: what do they think? whats an example of how people look at us? what is the sentiment? how many recommend to buy our shares, recommend to hold, recommend to sell the shares? which, by the way, we dont like too much. its a pattern you have to monitor carefully. why would they recommend to buy the share? because its cheap, which is not our case. or because its a sound company, which is more the evaluation of the financial community