Key Highlights from the Radar Reporting Season Primer : December 2009

Focus Shifts to the Income StatementThe results of our survey highlight a significant change in the areas which institutional investors are focusingon as part of their investment decision making process. In short, their focus has shifted from the balancesheet to the income statement.Specifically, the main two income statement related issues which investors are focusing on are operatingleverage and currency exposure. Also, investor’s interest has significantly increased in environmental, socialand governance (ESG) issues. This comes as a response to the heightened level of interest in these areasfrom superannuation funds and asset consultants. Other key issues which institutional investors are focusingon are: earnings guidance; interest rate exposure; corporate activity and capital management; China leverage;earnings quality and cash flows; consumer leverage; and the dispersion of analyst earnings forecasts.

Take Control over the BookWe found that investors overwhelmingly believe listed companies to be generally well capitalised. Anexception to this was small listed property trusts.Participants suggested that the capital raising process could be improved from an institutional investor’sperspective if:• Companies, rather than brokers took primary control over the stock allocation process; and• Companies chose rights issues rather than placements as a capital raising structure (given this protectsthe interests of existing shareholders). However, participants did convey their dislike for heavilydiscounted non-renounceable rights issues as they effectively force investors to supply capital (orbecome diluted and receive no consideration for renounced rights).

Bullish Outlook for Australian EquitiesThe investors surveyed were overall very bullish on the outlook for the Australian equities market over thecoming 6 months. 65% of participants expected the market to rise over the next 6 months and 50% ofparticipants expected it to rise by 10-20%. Growth managers and style neutral managers were the mostbullish, whereas value managers tended to be bearish. The sectors nominated as having the best prospectswere: Building Materials; Mining Services; Resources and Discretionary Retail. The sectors nominated ashaving the weakest prospects were: Healthcare; Telecommunications; and Consumer Staples.

Components of an Effective Investor Relations ProgramOn the issue of investor relations programs, investors nominated the following as being key areas whichneed to be properly addressed by listed companies: access to management; knowledge of the company;knowledge of investors; development of relationships; honesty and trust; importance of being pro-active; andthe need to effectively manage the information flow through to the investment community.