Market Volatility – How Risk Management Relates to Investor ExpectationsPRESENTED BY JASON STOKES, SALES MANAGER, CORPORATE6th DECEMBER 2011

LIGHTNING IN ALBUQUERQUEREUTERS/University Of Essex

EARTHQUAKE IN CHILE REUTERS/University Of Essex

NATURAL DISASTERS

REUTERS/University Of Essex

MARCH 2011

EUROZONE FINANCIAL CRISISREUTERS/Brendan McDermid

SEPTEMBER 2011

CYBER ATTACKS.REUTERS/Brendan McDermid

AUGUST 2011

REGULATORY CHANGES AND

GOVERNMENT POLICY

REUTERS/Molly Riley

ANTICIPATING THE NEWS

AND PLANNING, WHATS NEXT?

REUTERS/Regis Duvignau

WHAT’S NEXT?

Source: Thomson Reuters Datastream

-50 0 50 100 150 2005Y % change

0.05

0.10

0.15

0.20

0.25

0.30

0.35 5 Ye

ar V

olat

ility

S&P/ASX 200

BHP BILLITON

WOOLWORTHS

AU BENCHMARK 10 YEAR DS GOVT. INDEX

US $ TO AUSTRALIAN $ (WMR)

Gold Bullion LBM U$/Troy Ounce

MSCI WORLD U$

THE PAST 5 YEARS VOLATILITY V % CHANGE

THE IMPORTANCE OF MANAGING YOUR INVESTORS• SPELT Risks abound, but specifics include

• Currency fluctuations

• Predatory M&A activity

• Funding and debt

• Market perception

• Regulatory

SP/ASX 20

Accumulation index

<.ATLIA> to proxy

firms with Good risk

management (Safe

Firms) SP/ASX Small

Ordinaries

<.AXSOA> to proxy

firms with less risk

managements (Risk

Firms).

Add the Volatility Index <.VIX>

Spread chart of the two returns, which represent how

much the Safe Firms outperform the Risk Firms

(Outperformance).

When there is a spike in the VIX, Safe Firms outperform

more than those times when market is less volatile.

SOURCE: THOMSON REUTERS EIKON

UNDERSTANDING YOUR INVESTORS

TOP 20 HOLDERS ON A SHARE REGISTER• Do you know who owns your company?

• Can you name the Top 10 Investors?

• More importantly, do you know why they’re holding?

THE SHARE REGISTER ANALYSIS PROCESS• Most registers dominated by “nominees”

or “custodians” – e.g. HSBC Custody Nominees, JP Morgan Nominees

• Majority of institutions hold through nominees and therefore hidden / unidentified

• Obtain a copy of the register and identify registered holders holding stock as nominee or custodian for other parties

• Send s672A disclosure requests to nominees

• Issue disclosure requests to sub-nominees

• Analyse information to unveil fund managers and beneficial holders

THE SRA PROCESS - LEGISLATION• 672A  Disclosure notices

(1)  ASIC, a listed company or the responsible entity for a listed managed investment scheme, may direct:…under section 672B as having a relevant interest in, or having given instructions about, voting shares in the company or interests in the scheme;

…to make the disclosure required by section 672B.

• A person has a relevant interest in securities if they: – (a) are the holder of the securities; or – (b) have power to exercise, or control the exercise of, a right to vote attached to the securities;

or– (c) have power to dispose of, or control the exercise of a power to dispose of, the securities.

It does not matter how remote the relevant interest is or how it arises. If 2 or more people can jointly exercise one of these powers, each of them is taken to have that power.

THE SRA PROCESS - LEGISLATION• Other relevant sections:

– information must be given within 2 business days (s672B(2))

– prescribed fee payable per notice issued (s672B(2)(c), s672D)

– register of information about relevant interests must be kept and can be inspected or a copy requested (s672DA)

23

SAMPLE RESULTS OVERVIEW• Thomson Reuters identified 302 institutional shareholders holding 148,202,219 shares across 24 countries. This represents 26% of the shares outstanding or 65% of the

free float. Overall, the number of shares held by institutional investors has increased by 2.7 million shares, an increase of 2% compared to the previous quarter.

• The top ten investors remained fairly stable with only 2 new entries: UBS Global Asset Management (Switzerland) and Amundi Asset Management. This Paris-based,

Growth investment advisor has been buying XYZ’s shares since December 2008 and has increased its position by 470%.

• London based hedge funds are the main sellers over the last three months as hedge funds overall decreased their exposure to the stock by 24%.

• Value investors remain the leading investment style group, followed by growth and index investors.Top 10 Holders Top 5 Buyers and SellersRank Name % S/O Mar-10 Net Change Rank Name % S/O Mar-10 Net Change

1 Parvus Asset Management (UK) LLP 1.75% 10,000,000 ▼ (490,000) 1 UBS Global Asset Management (Switzerland) 1.09% 6,237,679 ▲ 5,891,787

2 Norges Bank 1.63% 9,315,602 ▼ (534,398) 2 BNP Paribas Asset Management S.A.S. 0.51% 2,916,307 ▲ 2,108,998

3 UBS Global Asset Management (Switzerland) 1.09% 6,237,679 ▲ 5,891,787 3 Amundi Asset Management [4] 0.62% 3,573,096 ▲ 1,421,593

4 BlackRock Institutional Trust Company, N.A. 1.05% 5,996,164 ▼ (569,731) 4 Macquarie Investment Management Ltd. 0.31% 1,785,365 ▲ 1,054,658

5 Fortis Investments 0.91% 5,198,000 0 5 Federal Finance Gestion 0.16% 938,500 ▲ 938,500

6 State Street Global Advisors (US) 0.90% 5,126,700 ▼ (223,300) 1 Egerton Capital Ltd. 0.63% 3,620,000 ▼ (3,948,975)

7 Fidelity International Limited 0.84% 4,825,900 ▲ 840,200 2 Pictet Asset Management Ltd. 0.00% 1,104 ▼ (1,516,397)

8 BlackRock Advisors (UK) Limited 0.76% 4,356,344 ▼ (413,922) 3 Artio Global Management LLC - 0 ▼ (1,335,000)

9 Egerton Capital Ltd. 0.63% 3,620,000 ▼ (3,948,975) 4 ING Investment Management (Netherlands) [11] 0.03% 200,000 ▼ (742,000)

10 Amundi Asset Management [4] 0.62% 3,573,096 ▲ 1,421,593 5 Artemis Investment Management Ltd. - 0 ▼ (632,592)

8%

27%

19%

11%

21%

14%

Value

Growth

Index

GARP

Hedge Fund

Other

8%

29%

17%8%11%

19%

8%

United Kingdom

United States

France

Italy

Switzerland

Rest of Europe

Rest of World

26%8%6%

60%

Institutional

Strategic Holdings

Retail/Unidentified

Other Filings

Total Shareholder Composition Institutional Shares by Geography Institutional Shares by Investment Style

SOURCE: THOMSON REUTERS SHARE REGISTER ANALYSIS

INVESTOR STYLES

• Investment Styles

• Aggressive Growth

• Broker Dealer

• Core Growth

• Core Value

• Deep Value

• Emerging Markets

• GARP

• Growth

• Hedge Fund

• Income Value

• Index

• Momentum

• Sector Specific

• Specialty

• VC/Private Equity

• Yield

INVESTOR TARGETING ANALYSIS• Identifying prospective investors with the greatest propensity

to hold your stock company – hence maximising management time

• Utilise information to organize investor roadshows

• Use this as a screening tool to filter meeting requests

• Compare your shareholders against the shareholders in peer companies using information obtained under s672DA register of information about relevant interests

• Access publicly available information on institutional shareholdings in companies worldwide

26

SAMPLE INVESTMENT STYLE ANALYSIS

• Over the last 3 months value investors increased by 20.6% and strengthened their position as XYZ’s largest investment style group, as they currently account for 27% of the total shares identified. The sharp raise of

value investors should be analyzed in consideration of the fact that 77% of the increase is accountable to the large buying from UBS Global Asset Management (Switzerland). As we discussed, this is the result of the

internal reshuffling of XYZ’s shares amongst different division of the UBS group rather than a genuine buying motivated by current favorable stock valuation.

• Index investors decreased their exposure to the stock by 8%, declining at a similar pace observed during the previous quarter when index investors sold overall 7% of their stake. This is not surprising given the fact

the XYZ’s share price dropped 5.3% over the last three months and it underperformed the FTSE MIB index by 4% in the same period. It is also interesting to note that the US based BlackRock Institutional Trust

Company and BlackRock Advisors (UK) Limited decreased their respective holding exactly by 8.7% whilst the corresponding subsidiaries of the State Street group decreased their positions by around 4.5%.

Stock MetricsPerformance 3-Month -5.3%Performance 6-Month 4.3%Performance 12-Month 51.8%P/E 12.3P/B 2.3PEG 3.9DY % 4.5%

Current Split8%

27%

19%

11%

21%

14%

Value

Growth

Index

GARP

Hedge Fund

Other

Price (€)

8

12

16

20

% of Identified Institutional Owners by Style

Value

GrowthIndex

GARPHedge FundOther

0%

5%

10%

15%

20%

25%

30%

Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10

+32%

SOURCE: THOMSON REUTERS SHARE REGISTER ANALYSIS

27

HOLDERS BY GEOGRAPHY

NOTE: Bubble size represents the Current Holdings while the colors represents the Net Change.

India0.49M = UNCH1 Holder

Slovenia0.15M = UNCH2 Holders

Canada1.28M ▼ (0.01M)33 Holders

United States46.31M ▲ 3.53M413 Holders

Australia135.47M ▲ 3.35M422 Holders

Singapore8.48M ▲ 0.22M28 Holders

New Zealand0.81M ▲ 0.81M6 Holders

Japan3.57M ▲ 0.01M117 Holders

Hong Kong3.23M ▲ 0.14M26 Holders

UAE0.77M ▼ (0.35M)4 Holders

United Kingdom11.63M ▲ 0.79M129 Holders

Ireland0.63M = UNCH23 Holders

Norway1.01M ▲ 0.01M4 Holders

France0.20M ▼ (0.13M)10 Holders

Switzerland0.74M ▼ (0.02M)23 Holders

Luxembourg3.09M ▼ (0.20M)14 Holders

Germany3.14M ▲ 2.62M34 Holders

Netherlands0.42M = UNCH10 Holders

Korea (South)0.12M = UNCH1 Holder

Malaysia0.22M = UNCH1 Holder

0123456789

101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657585960616263646566676869707172737475767778

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90

MANAGEMENT REPORTING• Boards are elected by investors and naturally have an

interest in investor sentiment

• Qualitative measures include:– Report top holders (beneficial / underlying) rather than top registered holders

(typically nominees)

– Report major movements on the register

– Share price performance and trading activity

– Retail vs institutional splits and changes

• Qualitative comments:– Investor feedback from meetings

– Market commentaries

– Broker comments

• Act as the conduit for information flow between the market and the company

CORPORATE GOVERNANCE / AGM• Understanding your investors will be the basis for a successful

outcome at the company’s Annual General Meeting (AGM)

• Ensure the dissemination of meeting information to the underlying investors and not merely to the nominees

• Consider soliciting investor support through proxy votes particularly where voting exclusions or contentious resolutions are being considered

• Engage with shareholder groups (ASA, corporate governance advisors)

• Remember : Investors control the outcome of a meeting – shareholder activism and corporate governance is on the agenda

UNDERSTANDING THE MARKET, MARKET VOLATILITY, AND BEING PROACTIVE

    EQUITIES

    NEW YORK - U.S. stocks ended flat on Friday but capped the best week for Wall Street bulls in almost three years after data showed the U.S. unemployment rate dropped to a 2-1/2 year low.

    The Dow Jones industrial average .DJI dipped 0.61 point, or 0.01 percent, to 12,019.42. The S&P 500 .SPX shed 0.30 point, or 0.02 percent, to 1,244.28. The Nasdaq Composite .IXIC edged up 0.73 points, or 0.03 percent, to 2,626.93.

    For a full report, double click on .N

    - - - -

    LONDON - Britain's top shares posted their highest weekly percentage gain since January 2009, buoyed by central banks' moves to boost liquidity and prospects for next week's key summit to tackle the euro zone debt crisis.

    The FTSE 100 .FTSE closed up 62.95 points, or 1.2 percent, at 5,552.29, bouncing back after Thursday's 0.3 percent slip in the wake of Wednesday's 3.2 percent jump. Over the course of the week, the index firmed 7.5 percent.

    For a full report, double click on .L

    - - - -

    TOKYO - The Nikkei average extended gains to log its biggest weekly advance in two years on Friday, though the mood was far from upbeat given uncertainty over whether Europe will next week manage to cobble together steps to counter the debt

crisis there.

    The benchmark Nikkei .N225 added 0.5 percent to 8,643.75,

for a weekly gain of 5.9 percent, its biggest since the first week of December 2009. In one positive technical sign, the Nikkei stayed comfortably above its 25-day moving average, at 8,573.

    For a full report, double click on .T

    - - - -

    SYDNEY - Australian shares are likely to open steady on Monday, holding ground following a 7.6 percent jump last week ahead of a European Union summit, while encouraging data showed U.S. unemployment fell to a 2-1/2-year low.

    Stock index futures YAPcm1 slipped 0.1 percent to 4,295.0, a 7-point premium to the underlying S&P/ASX 200 index .AXJO. The benchmark rose 1.4 percent on Friday, capping the strongest weekly gain in three years.

    - - - -

        

GET THE HEADS-UP

THE VIX IS A GOOD EARLY (ISH) INDICATOR

SOURCE: THOMSON REUTERS EIKON

ALSO ITRAXX CDS INDEX

SOURCE: THOMSON REUTERS EIKON

Source: Thomson Reuters Datastream

Price and Volatility ChartAU BENCHMARK 10 YEAR DS GOVT. INDEX

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Source: Thomson Reuters Datastream

Price and Volatility ChartUS $ TO AUSTRALIAN $ (WMR)

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Source: Thomson Reuters Datastream

Price and Volatility ChartGold Bullion LBM U$/Troy Ounce

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37

CARBON TRADING

SOURCE: THOMSON REUTERS EIKON

KEY TAKEAWAYS

1. You can’t control the market volatility, but you can mitigate the risk and outperform your peers

2. Understand your Investors– Current holders model – focusing on opportunity and risk in your

existing shareholder base, and understand what their drivers are

– New purchasing model – focusing on investors with no current equity holdings in your company, targeting those that suit your fundamentals

3. Monitor the issues, and be proactive with your stakeholders, especially with any change in your fundamentals

Jason StokesThomson Reuters Corporate

Phone: +61 2 9373 1948Mobile: +61 402 851 923Level 10, 60 Margaret St

Sydney NSW 2000jason.stokes@thomsonreuters.com

QUESTIONS AND COMMENTS