Drive corporate value through evidence-based capital market communication

Corporate Presentation | TonalityTech

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Executive Summary

Language matters to investors▪ Choosing the right words is essential to communicate in the right way with investors,

but IROs lack evidence how language drives investor decisions

Steering capital market communication = steering corporate value▪ Our research shows that a negative tone in capital market communication leads to a 2.7%

lower stock return when benchmarked against top-performing communicators

Striving towards maximum user-friendliness through our Word Add-In▪ We assure a seamless integration of our big data knowledge into text writing processes

through joint software development with IROs in the US and Europe

▪ Our inter-active Word Add-In allows for instant optimization of financial disclosures to optimize the tone in your capital market communication

From cutting-edge research to evidence-based financial communication▪ Our solution is based on powerful big data algorithms that we develop in cooperation with

leading academic data scientists and validate in real-world experiments with investors and analysts

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Choosing the right words is essential to communicate in the right way with investors

What IROs can controlThe essence of capital market communication

The What

Set of facts A

BThe How

How you communicate facts

We help IROs to understand how investors perceive language and to choose the right words in capital market communication

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IROs lack evidence how language drives investor decisions

Source: Interviews with investor relations and corporate communication professionals

"Our communication is all about facts. However, we face a lack of evidence on how investors perceive it."

– Head of IR and communications

… lacks a fact base

"Each executive has their own opinion of how investors process news."

– Head of IR… is subjective

"We always face the same question: How do investors perceive our language?"

– Head of IR

… leads to unknown market reactions

Choice of words… Concerns of IROs

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| 4Source: TonalityTech analysis, Yahoo Finance

20

25

30

35

40

45

50

55

60

65

October 2015August 2015 December 2015

-40%

Stock price of a global automotive supplierIn Euro

Profit warning

Neutral tonalityVery negative tonality

Anecdotal evidence suggests that overly negative language amplifies the market reaction to bad news

EXAMPLE

“…surprisingly heavy charges combined with an unexpected rise in unit output figures…”

Investors are particularly sensitive to negative language accompanying bad news

Our machine learning algorithms identify the tonality of words based on their effect in capital market disclosures

Capital market disclosures (e.g. earnings, 8-Ks, etc.)

Abnormal stock market returns

Machine learning algorithms

$$$

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Co-developed with leading academics

Dynamic tonality dictionary

The TonalityTech big data approach outperforms the predictive accuracy of conventional approaches with a factor of 5

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21

100

5 X

Standard approach(static dictionaries)

TonalityTech approach

Coefficients of dictionary regression on returnsNormalized to 100

TonalityTech statistically selected dictionaries Benchmark approach

TonalityTech outperforms predictive accuracy of standard approaches by a factor of 5

Bottom 25%

1.9

AverageBenchmark

The wrong choice of words leads to lower returns

Abnormal return depending on tonality1

In percent

▪ Negative tonality yields an

up to 2.7% lower excess

return

▪ For a company with a

market capitalization of

USD 10 billion, this means

up to USD 270 million in

lower stock valuation

1 Control variables account for company performance (market-to-book value, market value, cumulative abnormal returns,

market model alpha), sector performance (sector index) and market performance (market index)

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-2.7

-1.2

The tonality in capital market disclosures has a lasting effect on stock

prices

Ad hoc announcement day

Negative tonality

Positive tonality

Neutral tonality

-4

-2

0

2

4

-2 -1 0 1 2 3 4 5

Trading days relative to ad hoc announcement day

Average cumulative abnormal return of selected stocksIn percentIn percent

SOURCE: Liebmann, Tetlock (Journal of Finance) | 8

Financial professionals give better ‘Sell’ or ‘Buy’ recommendations when financial disclosures have a higher tonality

| 9Source: Survey conducted in Q1 2016; TonalityTech, Finance Research Group – University of Freiburg

212

66

Improved tonepress release

Original press release

More favorable ‘Sell/Buy’ recommendationNumber of responses2

More positive tone leads to better evaluation by investors & analysts1

We improve the tone of original (published) press releases based on our big data insights

1: P-value for statistical significance < 0.001; 2: 70 participants, thereof 39 analysts, IROs, (investment) advisers with multiple ‘A/B’-tests

The study

The results

Implication

76% of finance professionals give a better recommendation based on disclosures with a more positive tone

Our solutions enable IROs to enhance the tone in their capital market communication by choosing investors’ language

Solutions

Words matter: accounts for the perception of language

Capital markets & investor communication

1

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Dynamic: regular updates to reflect changes in language perception

Tailored: accounts for different languages and target groups

Tonality analytics & benchmarking

2

Based on our big data analytics insights, we help IROs to choose the right words when communicating with investors

Highlightingindicates tonality:Red – NegativeBlue – Positive

Replacement suggestions sorted by tonality

PDF and email reports included

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1

With tailored language analyses, we enable IROs to benchmark their language against their peers

| 12Source: TonalityTech analysis

Average tonality

In percent, past 12 months

53.1

46.0

BenckmarkTop-3 competitors

Internationalbank

-13%

Average readability

In percent, past 12 months

67.2+9%

73.1

An international bank with 15 percent lower tonality and higher variance in tonality vs. benchmark

Overall high readability in financial disclosures; slightly ahead of peers

2

DISGUISED CLIENT EXAMPLE

Our customers appreciate our ‘language compliance check’

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Craig Marks, Director of Investor Relations at AstraZeneca, about

our TonalityTech add-in:

“integrates seamlessly with our writing process”

“immediately tells us which words are good to use, easy to read and

which aren’t”

“helps maintain quality compliance through an objective score”

The financial press frequently features TonalityTech

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“Say it better: A new software (from TonalityTech) supports writing disclosures

with a positive effect.”

- Börsen-Zeitung, October 24, 2015

Our solution enables evidence-based capital market communication

Drive corporate value

Anticipate investor reactions

Enable evidence-based communication

Optimize company communications to improve

market valuation

Understand how investors incorporate language into

their decision making

Succeed in corporate communication through our

innovative solutions

Contact us at contact@tonality.tech

Visit our website www.tonality.tech

| 15Watch our product video https://youtu.be/tDvhpj0BIE8