The Fifth Quarter
An audience typically only remembers a few main highlights from any presentation, so as a communicator, it’s imperative to ensure they are taking away the right points. Perhaps the most important technique to accomplish this is the development and communication of key messages. Key messages are three to five key highlights that have been thoughtfully distilled to effectively communicate the material that is most important for an audience to understand in order to position a company prominently in the minds of its target audience.
The Importance of Key Messages:
Management teams often overlook the importance of adjusting their messaging for an audience that might know a lot, or nothing at all about their unique story, industry or potential. As a result, significant value can be realized from investing in the development of strong key messages that can be adapted and easily understood by anyone. These key messages establish the backbone of a company’s external marketing and branding. They help explain the business so that any audience can quickly understand what that company does, why they do it and how it is adding value for stakeholders, descriptors that will eventually be required for any company.
Developing Key Messages:
Your process should start with the WHY: Why should the audience pay attention to the story? Why should they give you their time or trust you with their capital? Answering these questions will help kick start the key message development process. Once the WHY has been established, consider the following points to help develop and refine the key messages:
- Prioritize critical information about the business. Separate the interesting many from the important few.
- Highlight the value proposition that your unique business provides and how that will ultimately benefit investors.
- Showcase what differentiates the company from its peers and competitors. Certain sectors can be crowded, so it’s critical to be clear on the features that make it stand out.
- Frame key messages in plain language, avoiding industry jargon and non-standard acronyms, or define them right up front if they must be included.
- Tackle commonly asked questions or misunderstanding about the business, to try and answer questions before they get asked.
- Provide facts, figures, and statistics to substantiate and enhance credibility.
- Motivate the audience to action by enticing them to learn more, take a meeting with management or by creating a sense of urgency to buy stock.
Review and Adapt:
It’s important to regularly review the key messages to ensure they continue to accurately reflect the core business, mission, target demographics and market position. Through the review process, test whether the messages are easy to recall or if anything has been lost over time. Consider any past feedback received from the target audience about the company’s messaging, as that is the best insight you can get, and adjust as appropriate. Oftentimes, the most valuable support can come from engaging an external, third-party IR or communications professional (such as 5Q!) who is able to take a step back and help streamline and simplify complex stories. Being farther away from the detail enables us to help management teams see the whole forest rather than just the trees.
After identifying the target audience and developing a set of key messages, check to ensure they are clearly reflected on your website, within press releases, presentations and fact sheets, and start to consider how to incorporate those key messages in other documents like the MD&A, AIF or Information Circular. An active company, either public or private, will benefit from leveraging every opportunity to repeatedly convey a clear, memorable, consistent and compelling story to help position the company prominently in the minds of its target audience.
We recently attended the ASC Connect Conference and thought our current and past client partners may be interested in what the hot button issues were.
In light of increasing regulatory scrutiny on company communications, which is relevant for public companies but also good for private companies to keep in mind we have prepared a summary outlining key highlights from the ASC conference as well as highlights from the recent CSA Staff Meeting Notice regarding the Cannabis Industry.
You’ll note there are comments that impact companies across various sectors, including governance issues, presentation of non-IFRS/non-GAAP financial measures, as well as highlights surrounding recent disclosures in the cannabis space. If you have any questions or wish to receive the full slide deck from the ASC, or the full CSA Staff Meeting Notice, please don’t hesitate to contact one of us on the 5QIR team.
ASC Connect Conference highlights – OCTOBER 9, 2018
Continuous disclosure issues raised regarding Cannabis companies:
- Overly promotional, particularly in press releases
- Concerned with multiple press releases that don’t contain new material information
- Disclosure regarding status of licensing process and articulating potential risk that a license is not granted
- Do you have a business plan? Where are you in this plan? (major milestones, timelines, expenditures)
- Important to describe nature of US activities and indicate that under US Federal Law cannabis is still illegal
- Need to disclose impact of financing options, relevant risks of not obtaining financing or licensing, etc.
- Provide sufficient information in Financial Statements and MD&A to communicate financial performance, including accounting treatment of biological assets and fair value measurement processes
Board Gender Diversity:
Comply or explain disclosure on board renewal and gender – provide transparency on policies regarding board renewal process
- Disclosure whether board term limits have been adopted. If the use of “other mechanisms” has been indicated, be clear on what those are. Describe mechanisms for board renewal: Focus on the Reporting Issuer’s why and how, not just the what.
- Gender Policy: a written policy for identification. Disclosure of a general “Diversity” policy is NOT What specific measures have been taken for recruiting / appointing female board members?
- Gender diversity requirements applicable at both the board level and management level
- Be specific on how the diversity policies will be implemented (or have been implemented)
- Disclose both Number of female board numbers as well as Percentage (%) of the board that is female
- The same disclosure should be provided for management
- Ensure non-GAAP measures are not obscuring or overshadowing the GAAP measures e. caution against making non-GAAP measures more prominent
- Ensure the reader is able to reconcile Non-GAAP back to GAAP
- Correctly label relevant items as Non-GAAP
- Be mindful of how many Non-GAAP measures are presented in the communication
- Maintain consistency between the various reporting documents and between reporting periods (ie Quarters) for all Non-GAAP measures
Caution Around Promotional Disclosure:
- Unsubstantiated / unsupported assertions about growth
- Issuing press releases that do NOT contain any NEW material facts
- Ensure there is sufficient disclosure and clarity regarding the company’s business plan as well as comprehensive risk disclosure in all public documents
CSA Staff Meeting Notice 51-357 (October 10, 2018) – Cannabis Industry focused
Levels of Information in Financial Statements
- Found licensed cannabis producers (LPs) often did not provide sufficient information in their FS and MD&A for an investor to understand financial performance
- IFRS requires issuers to record growing cannabis plants at their fair value. LPs need to improve their fair value and fair value related disclosures. For example, Profit & Loss including unrealized fair value gains related to the growth of biological assets which have not yet been sold.
- Issuers should separately disclose:
- Unrealized gains/losses resulting from fair value changes on growth of biological assets;
- Realized fair value amounts included in the cost of inventory sold.
- Issuers should clearly disclose:
- What they consider to be the direct and indirect costs of production associated with biological assets,
- Which P&L line item(s) these direct and indirect costs are recorded in, and
- Whether the direct and indirect costs of biological assets are capitalized, or whether they are expensed as incurred.
- Issuers should separately disclose:
US Activities & Forward-Looking Information
- Complying with securities requirements for forward looking information
- Issuers with cannabis operations in the US did not provide sufficient disclosure about the risks related to their US operations to satisfy the disclosure expectations
Fair value Measurement Process
- LPs were not providing:
- A description of the valuation techniques and processes,
- A description of the inputs used in the fair value measurement including quantitative information about significant unobservable inputs,
- The level of the fair value hierarchy within which the fair value measurement is categorized,
- The sensitivity of the fair value measurement to changes in certain inputs, and
- A discussion of any interrelationships between significant unobservable inputs and how they may affect fair value measurement.
- LPs disclose a non-GAAP financial measure similar to ‘cash cost per gram’ to portray their cost of production, after excluding non-cash fair value adjustments. While this measure is often calculated differently by individual LPs, the way in which it has been calculated should be understandable to investors. In many cases, the composition of a non-GAAP financial measure was unclear because it was difficult to understand what costs had been included in the GAAP measure that formed the starting point in calculating cash cost per gram.
- Must provide sufficient explanation when reconciling items and disclose significant judgments made to quantify the reconciling item when explaining the calculation for Non-GAAP measures.
- Issuers who make announcements about anticipated production capacity in a new facility under construction should disclose the material factors and assumptions inherent in that projection. Assumptions for financial projections should be specific and comprehensive, particularly with respect to quantitative details, such that an investor is able to clearly understand how each assumption contributes to the projection.
Misleading or Unbalanced Disclosure (Discuss Relevant Risks):
- Issuers considering entering the cannabis industry, or issuers considering new investments in the cannabis industry, should ensure that announcements about these new opportunities are balanced, factual and not misleading to investors.
At some juncture, your company developed a website and a corporate presentation, allocating human and financial resources to ensure that those two key pieces of investor relations material were telling the right story. Since then, subsequent iterations have more or less been variations on the same theme.
When is it time to embark on a wholesale review of your front-line collateral to ensure that it reflects the company’s best possible story? We’re not talking about regular updates (which should be often); but material changes to reflect what the narrative is and how it’s being told.
All C-Suite executives have had multiple iterations of their résumés: the one that got them the summer job as a lifeguard in high school is different from the one that got them the summer job as an intern for an up-and-coming tech company; and the one that got them the full-time job as a software engineer after graduation was different yet again. Twenty-five years on, and now at the pinnacle of the executive’s career, the résumé currently focuses on qualities like leadership, strategic planning and governance. Along the way, a number of independent eyes – trusted friends or colleagues – have likely provided advice on form and content.
Front-line corporate collateral is no different than a résumé: as marketing documents, they need to evolve to take into account important changes to a story in order to be effective.
Here are some questions to ask to determine whether it’s time to consider a wholesale re-vamp.
Has the Corporation Grown Materially?
While growth is frequently mentioned in front-line collateral as a measure of success (a questionable thesis), its practical impact on how the company tells its story is often over-looked. The most common mistake we see in the collateral of small and medium-sized businesses is a reflected in an inability to focus on core services/assets/projects, while dismissing the rest as immaterial (to the investor relations story). Rather than cull non-core material from the narrative, the tendency is to keep it in and then simply add new content to reflect the growth piece. While legacy assets or clients that are smaller in scale will contribute to the bottom line, their materiality needs to be assessed carefully to determine worthiness of mention on the website or corporate presentation. Giving equal line space to a project that contributes 5% to revenue as one which contributes 20% risks the inference that the company is unfocused.
Has the Business Plan Changed Materially?
New products and services, geographic diversification and responses to financial or operating challenges are often catalysts to promote material changes to the company’s business plan. Rather than try and fit a new narrative into the old story, consideration should be given to re-writing the script.
Has the Target Audience Changed?
There are many factors that impact the make-up of a public company’s investor base (both current and prospective). These include items that are related both specifically to the company (revenue sources, market capitalization); as well as more general market factors (is the sector more/less out of favour). What might have been a retail-focused, Canadian story might now be one that attracts institutions outside the country. Understanding the primary constituency – and tailoring form and content accordingly – is critical to telling the best possible story.
Is the “User Experience” Optimized?
User experience is important and begins with the efficiency of what can be accessed on-line; and then moves to the quality of the content. To this extent, is the company’s website – and the corporate presentation loaded on the website – optimized? Investors have become accustomed to fast and mobile-compatible access to data that depicts accurate and graphically intensive information. A deficiency in any of these can led to a poor user experience. Broken links, unintuitive navigation, slow-loading pages and a bland slide show do not project a professional image.
Conducting the occasional audit of front line collateral is an important exercise. This should not be done in the context of regular updates coinciding with continuous disclosure events (such as issuing news releases or publishing interim/annual results); nor should it be undertaken by the individuals who are primarily responsible for their production and maintenance. While it’s impossible to adopt a hard-and-fast rule about when that audit should occur, asking – and answering – the four questions posed above should provide the appropriate guidance.
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