Citi Depositary Receipt Services

30 March 2017

Strictly Private and Confidential

Global Trends in Investor Relations Senior IR Roundtable Discussion

Grand Meliá Palacio de los Duques, Madrid

Citi Depositary Receipt Services

Citi’s Leading Depositary Receipt Franchise

Recent notable ADR mandates

New Issuer

ADR Listed on

NYSE

2014

Successor Depositary

ADR Listed on

NYSE

2014


ADR Trading on

OTC

2015


ADR Trading on

OTCQX

2015


ADR Listed on

NYSE

2014


ADR Trading on

OTCQX

2015


ADR Listed on

NYSE

2015


ADR Trading on

OTC

2015


ADR Listed on

NYSE

2015


GDR Listed on

LSE

2016

Depositary bank of choice for global companies

New Issuer

ADR Trading on

OTC

2016


ADR Listed on

NASDAQ

2017

Competitive Financial Support

Senior Relationship Oversight

Unique Investor Relations Advisory Team

London and New York Account Management

Seamless Programme Transition

Unparalleled Equity Distribution Network

1

Rivel Research Group

Who is Rivel Research Group?

Established in 1991

A unique specialty – investment community perception research

Custom investor perception research – 150+ projects annually

6,000 telephone interviews with investors globally each year

Clients include half of Global Fortune 100

IR best practices: Intelligence Council (200+ member companies)

• Quarterly, broad-based buy-side surveys

• Structured lines of inquiry, telephone interviewing

• Representative

2

Global AUM in passive investment accounts stands at $6 trillion

Inflow into passive investors has been at the expense of active

managers

– Hedge funds under pressure

– Asset base increasingly institutionalised

Moody’s: Passive investment will exceed 50% of global AUM

over next 4-7 years

Passive investors are major shareholders of all large companies

– Vanguard: top 5 holder of every S&P 500 company

– BlackRock: top 5 holder of 423 S&P 500 companies

– SSGA: top 5 holder of 421 S&P 500 companies

Possible reasons for the shift:

– Passive is cheap

– Active funds have struggled

– Stock market ownership cycle

– Picking funds is hard

Changing investor landscape: Shift to passive investment

$534bn Last 12 months

global outflow from

active equity funds

Last 12 months

global inflow into

passive equity funds

$442bn

Source: EPFR

3

“Passive investors, not passive owners”

– Passive investors are progressive and active voters

– Often cannot “vote with their feet” so seek to raise governance standards of all companies

– Need to understand the voting policies of your large passive investors

– Voting policies can be a filter in investor targeting

Active managers will continue to set stock prices

Risk of increased ownership concentration

Implications for capital raising venues

Targeting active investors

– Differentiate by shaping outreach strategy to reflect changing buy-side preferences

Domestic investing preferred over international investing

Cash flow, sustainable results before earnings growth

– Explain how performance will be realised in uncertain times

– Prudent guidance

– Protect credibility

Changing investor landscape: Implications for IROs

4

Changing investor landscape: Direct investor outreach

48%

43%

6% 4%

More No change Less Uncertain

Time spent targeting vs. 2 years ago*

*Senior IROs in N. America and Europe

14%

50%

22%

12%

1%

Very receptive Somewhat receptive

Not very receptive Not at all receptive

Uncertain

…but receptivity is modest at best

**Global buy-side

How receptive are you to outreach from IR?**

IROs are spending more time

on direct outreach…

5

Changing investor landscape: Investor targeting fails

14%

22%

25%

35%

58%

64%

69%

81%

Not part of index

Evidence of activist interest

Insufficient sell-side coverage

Wrong exchange listing

Wrong sector/industry

Wrong cap size

Wrong country/don't invest there

Not a fit for investment style

*Global buy-side

Biggest targeting mistakes*

6

Changing investor landscape: Building blocks of valuation

29%

35%

39%

49%

49%

50%

50%

50%

58%

63%

70%

70%

79%

CSR/sustainability

Attractive dividend

Economic/industry trends

Good revenue growth potential

Corporate governance

Innovative products/services

Prudent capital deployment

Attractive EPS growth

Sustainable margins

Strong balance sheet

Effective business strategy

Management credibility

Reliable cash flow

*European buy-side

Most important investment drivers*

7

Understand who the activists are

Low free float does not offer protection:

activist campaign can cause distraction and

embarrassment even if it cannot unseat the

board

Activists do not act alone

– They talk to your largest shareholders and have

support of significantly higher percentage of

your register than their own shareholding

Self-help is the best defence against

activism:

– Be your own activist: look at your company in

the same way an activist would

– Develop and communicate a plan to address

any issues that may leave you vulnerable

Well-funded activists do not go away if they

lose in the first skirmish

– They will be back

– You need to show that your business can

deliver the promised performance

Investment trends: Shareholder activism

8

90

100

110

120

130

140

150

160

2012 2013 2013 2014 2015 2016 2017

Activist Hedge Funds All Hedge Funds FTSE 100

54.8%

23.1%

5.7%

Strong activist fund outperformance

over last 5 years

Source: Activist Insight


GLOBAL BUY-SIDE

68% BELIEVE ACTIVISM WILL INCREASE

OVER NEXT COUPLE YEARS

3% 9%

4% 1%

2%

32%

19%

26%

64%

78%

63%

North America Europe Asia Pacific

Uncertain Decrease

Little change Increase

Buy-Side’s Near-Term Expectations for Shareholder Activism

9


The Threat

Among Global Buy-side:

46%

15%

Have been contacted

by an activist in the

past year

Have proactively contacted an

activist to voice displeasure about

a stock they own

Report that an activist has

successfully recruited their support at

one time on a stock they owned

(among those who have been

contacted by an activist)

45%

10

“We believe that a data-driven, scientifically based and technologically aware research

culture can produce sustainable alpha.” BlackRock Scientific Active Equity team, September

2015

Quantamental investing aims to eliminate the potential weaknesses of traditional systematic

investing by combining it with fundamental macro analysis

Requires significant investment in systems and analytical talent by buy-side but the rewards

can be high – Renaissance Technologies’ International Equities fund grew by 21.5% in 2016

(source: HFR)

Implications for management and IR: your investors may know more about the likely future

trends affecting your business than you do

Investment trends: Big data and quantamental investing

Example 1 Example 2 Example 3

Aim: measuring impact of

employee sentiment on

company profitability

Data type: automated web-

scraping of job sites where

employees provide feedback on

employers, social media, blogs,

chat rooms

Aim: predicting consumer

confidence

Data type: tracking online

search activity of big-ticket

items, segmented by region

Aim: estimating revenue

between quarterly results

Data type: credit card metadata

showing consumer spending

11

57% of investors say that governance is a more

important decision driver than it was two years ago

Concern over corporate governance is the top

reason that stops US investors from investing in

non-US companies

Portfolio managers increasingly see governance

as part of their role

Stewardship Codes for institutional investors are

spreading

Governance roadshows are becoming more

prevalent

– Improves communication and mutual

understanding around governance topics

between investors and the board

– Creates a forum to explain rationale and

philosophy on governance issues

– Attendees will depend on key issues

Corporate governance: Becoming more and more important

Protecting shareholders

rights

Board independence,

diversity & refreshment

Remuneration

Corporate culture

Transparency

IROs need to be equipped to talk about

a range of governance issues

12

Corporate governance: What does good governance look like?

52%

53%

66%

69%

72%

81%

84%

88%

95%

High governance ratings service score (ISS, Glass Lewis)

Meaningful CSR/sustainability guidelines

Establised CEO succession plan

Separation of Chairman and CEO roles

Good proxy access

Management pay linked to company performance

Clear code of conduct promoting ethical decision-making

Strong/objective board of directors

Commitment to transparency and disclosure

*Global buy-side

Very important hallmarks of first class corporate governance*

13

Issues at the forefront of investors’ minds are likely to include:

Board independence, composition and diversity

Remuneration

Environmental and social risks – particularly climate change

Regulatory and legislative change

– Shareholder Rights Directive

– Audit regulation

– Non-financial reporting

Stewardship and engagement

Corporate governance: Outlook for the 2017 AGM season

14

The capital deployment dilemma

Response to question: What would you most like to see

companies do with cash flow?

Source: Merrill Lynch Global Fund Manager Survey, Nov. 2016

Payout… …or capex?

Investment/payout ratio of markets and sectors against current

valuations

Source: Citi research, Worldscope, Factset (ex-financials)

Companies who pay out more than they

invest are usually awarded higher multiples

than those who do the opposite

An increasing percentage of investors are

indicating that they want to see companies

increase capex

15

The capital deployment dilemma: 10 years of change

9%

57%

38%

18% 16%

45%

9%

33%

41% 41% 43%

53%

Large acquisitions Stock buybacks Dividends Bolt-on acquisitions Pay down debt Capex

2006 2016

Percent of global buy-side that strongly supports each initiative

16

Excellent Good Fair or poor

The capital deployment dilemma: Importance of communication

Clarify capital deployment and link to management’s strategic

rationale – few do it really well*

17

*Global buy-side

Reduction in amount of substantive research

Fewer analysts covering each stock

Reduction in corporate access provision

Lower liquidity

Consolidation of asset managers

Fewer IR advisory resources

MiFID II: Uncertain consequences

Increased workload for IR teams

Inability to calculate meaningful consensus

Need for more direct investor outreach

Higher IR costs

Bigger impact on small/mid-cap companies

18

EU Market Abuse Regulation

US Stewardship Principles for Institutional Investors

SEC and ESMA guidance on the use on non-GAAP measures

EU Non-Financial Reporting Directive

Potential repeal of Dodd-Frank provisions on shareholder protections and governance

Modern Slavery Act

Other regulations that may have an impact on IR practice

19

Company websites continue to be the go-to place

for investors

Your investor presentation is one of your most

important tools – make it easy to find, download

and print and keep it up to date

Many investors will access your website on a

mobile device; make sure yours is responsive for

both smartphones and tablets

Social media has not developed into the powerful

investor communication tool that was once

anticipated

– 72% of IROs do not use social media for work

purposes (source: NIRI)

IR apps have also yet to fulfil their expected

potential

– Think about web apps rather than Apple and

Android

IR websites are vital but social media for IR has lost importance

How to impress website users

• Conventional site structure,

navigation and labelling

• Standardised approach to data

provision

• Clearly signposted archive of

results materials

• Annual reports in simple,

hyperlinked pdfs

How to distress website users

• Style over substance

• Ignoring the needs of private

investors

• Forcing professionals to hunt

around for information

• Assuming that investors will only

look in the IR section

Source: Bowen Craggs & Co.

20

Investors say that IR

matters more than ever...

Proactive IR can be your differentiator

62%

88%

2012 2015

Believes good IR

affects valuation

...but 70% of companies are

not doing IR that well

32% 31% 28%

33% 28%

0%

20%

40%

60%

80%

100%

US Canada UK Cont Europe Asia-Pacific

What percentage of companies that you

follow have superb IR?

Global Buy-side

21

Global Buy-side

Proactive IR can be your differentiator

Eurozone Debt Superb IR premium

+10%

Poor IR discount

-20% Risk

Opportunity

Challenge

% Companies with Superb IR

31%

The Delta

22

Global Buy-side

Contact us for more information

23

Citi Depositary Receipts Rivel Research Group

Lisa Williams

Director, EMEA Head IR Advisory

[email protected]

+44-20-7508-6135

Niccolò Cominacini

Vice President

[email protected]

+44-20-7508-2708

Claire Lavery

Vice President

[email protected]

+44-20-3356-2791

IRS Circular 230 Disclosure: Citigroup Inc. and its affiliates do not provide tax or legal advice. Any discussion of tax matters in these materials (i) is not intended or written to be used, and cannot be used or relied upon, by

you for the purpose of avoiding any tax penalties and (ii) may have been written in connection with the "promotion or marketing" of any transaction contemplated hereby ("Transaction"). Accordingly, you should seek advice

based on your particular circumstances from an independent tax advisor.

In any instance where distribution of this communication is subject to the rules of the US Commodity Futures Trading Commission ("CFTC"), this communication constitutes an invitation to consider entering into a derivatives

transaction under U.S. CFTC Regulations §§ 1.71 and 23.605, where applicable, but is not a binding offer to buy/sell any financial instrument.

Any terms set forth herein are intended for discussion purposes only and are subject to the final terms as set forth in separate definitive written agreements. This presentation is not a commitment to lend, syndicate a financing, underwrite or

purchase securities, or commit capital nor does it obligate us to enter into such a commitment, nor are we acting as a fiduciary to you. By accepting this presentation, subject to applicable law or regulation, you agree to keep confidential the

information contained herein and the existence of and proposed terms for any Transaction.

Prior to entering into any Transaction, you should determine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting

characterizations and consequences of any such Transaction. In this regard, by accepting this presentation, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b)

there may be legal, tax or accounting risks associated with any Transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to

such legal, tax and accounting advice (and any risks associated with any Transaction) and our disclaimer as to these matters. By acceptance of these materials, you and we hereby agree that from the commencement of discussions with

respect to any Transaction, and notwithstanding any other provision in this presentation, we hereby confirm that no participant in any Transaction shall be limited from disclosing the U.S. tax treatment or U.S. tax structure of such Transaction.

We are required to obtain, verify and record certain information that identifies each entity that enters into a formal business relationship with us. We will ask for your complete name, street address, and taxpayer ID number. We may also

request corporate formation documents, or other forms of identification, to verify information provided.

Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration, are subject to change at any time without notice and are

not intended as a solicitation with respect to the purchase or sale of any instrument. The information contained in this presentation may include results of analyses from a quantitative model which represent potential future events that may or

may not be realized, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute our judgment as of the date hereof and are subject to change without any notice. We and/or our

affiliates may make a market in these instruments for our customers and for our own account. Accordingly, we may have a position in any such instrument at any time.

Although this material may contain publicly available information about Citi corporate bond research, fixed income strategy or economic and market analysis, Citi policy (i) prohibits employees from offering, directly or indirectly, a favorable or

negative research opinion or offering to change an opinion as consideration or inducement for the receipt of business or for compensation; and (ii) prohibits analysts from being compensated for specific recommendations or views contained in

research reports. So as to reduce the potential for conflicts of interest, as well as to reduce any appearance of conflicts of interest, Citi has enacted policies and procedures designed to limit communications between its investment banking and

research personnel to specifically prescribed circumstances.

© 2017 Citibank, N.A. London. Authorised and regulated by the Office of the Comptroller of the Currency (USA) and authorised by the Prudential Regulation Authority. Subject to regulation by the Financial Conduct Authority

and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. All rights reserved. Citi and Citi and Arc Design

are trademarks and service marks of Citigroup Inc. or its affiliates and are used and registered throughout the world.

Citi believes that sustainability is good business practice. We work closely with our clients, peer financial institutions, NGOs and other partners to finance solutions to climate change, develop industry standards, reduce our

own environmental footprint, and engage with stakeholders to advance shared learning and solutions. Citi’s Sustainable Progress strategy focuses on sustainability performance across three pillars: Environmental Finance;

Environmental and Social Risk Management; and Operations and Supply Chain. Our cornerstone initiative is our $100 Billion Environmental Finance Goal – to lend, invest and facilitate $100 billion over 10 years to activities

focused on environmental and climate solutions.

Citi Depositary Receipt Services

Documents