An ASX publication for investor relations professionals, senior executives and their advisers

Lithium: is it really ‘white petroleum?’

A new world for research reports with MiFID II

Nufarm outlines its new focus

Listed@ASX • ISSU

E 08 • WIN

TER 2018

Listed ASXWINTER2018

S T E V E VA M O S

XERO’S NEW CHIEF DRIVING GLOBAL STRATEGY

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Contents Winter 2018

COVER STORY

FEATURES

Xero goes global The accounting innovator is moving on with a new CEO and a global outlook. Ben Power reflects on former leader Rod Drury’s legacy and introduces new chief Steve Vamos to the market.

Two places at onceBen Power explores whether including both online and offline components in annual shareholder meetings improves investor communication.

One woman is not enough Token appointments no longer cut it as investors expect boards to reflect the communities with which their businesses engage. Rachel Alembakis reports.

MiFID II disruptsWith new regulations impacting investment research, the onus is on IR teams to get in front of incumbent and new players to ensure their businesses continue to receive coverage, writes Alexandra Cain.

Buckle upLithium, aka ‘white petroleum’, leads a new investment class as battery-powered vehicles take to the streets. Tim Treadgold straps in.

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CHAIRMAN Rick Holliday-Smith

BOARD MEMBERSYasmin AllenMelinda ConradDr Ken Henry ACPeter MarriottRobert PriestleyHeather Ridout AODamian RocheDominic StevensPeter Warne

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PUBLISHER Craig Marsh

CONSULTING EDITOR Alan Deans

EDITOR Alexandra Cain

DESIGN DIRECTOR Mark Maric

CONTRIBUTORS Rachel Alembakis, David Coe, James Dunn, Greg Dooley, Ian Matheson, Ben Power, John Price, Domini Stuart, Tim Treadgold

The opinions expressed in Listed@ASX do not necessarily represent the views of the ASX, the publisher nor the publication. While every effort has been made to ensure accuracy, no responsibility can be accepted by the ASX or the publisher for omissions, typographical or printer’s errors, inaccuracies or changes that may have taken place after publication. All rights reserved.

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4 CEO report6 Ticker tape50 ASX focus52 Listed life54 New listings57 At the close59 Calendar

7 Cleansing notices ASIC Commissioner

John Price explains why it’s important to stick to the rules when preparing these important corporate tools.

9 ESG is here to stay New AIRA guidelines

give IR teams direction on how to engage with the new ecosystem of stakeholders, writes CEO Ian Matheson.

17 Breach reporting starts Notifications to the

regulator are on the rise. Victoria Geddes from FIRST Advisers explains.

30 No news not good An earnings downgrade

does not have to be a company’s downfall, writes Geoff Fowlstone.

51 Cut to the chase FCR’s Ashley

Rambukwella on why annual reports are much more than a review of operations.

Download the free Listed@ASX app to receive the magazine with enhanced features.

The app also includes the regular ASX Compliance Updates, Listing Rules, Guidance Notes and reporting calendar all stored conveniently for reference in your app library.

Follow @ASX for the latest market news and data

REGULARS COLUMNS

ROUNDTABLES

CASE STUDIES

Responding to a hack attack Increasingly hackers are able to penetrate large business’s IT systems. So the onus is on listed companies to be prepared for an attack.

New funding lines emergeMirvac enters the Registration S market to broaden its investor base, writes Domini Stuart.

A new-look Nufarm Investors are embracing the trimmed down agribusiness veteran after it completed a cost-cutting program. Domini Stuart investigates.

Activists push ESGListed companies are feeling the heat from super funds and global investors to embrace action on climate change and diversity.

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CEO Report

EVERYTHING ON THE LINEIntangibles such as reputation are increasingly important in an era in which they can be destroyed – along with share values – in a heart beat.

Dominic StevensManaging Director and CEO, ASX

Reputation, trust and a company’s ‘social licence to operate’ are front of mind for corporate Australia. None of these issues are new for listed companies. Indeed, in the world of capital markets and fund raising, reputation has always been paramount. However, new regulations and technology, growing stakeholder activism and the ever-increasing risk of cyber attack are creating a new world for those wanting to remain in control of their message and preserve their reputations.

These challenges, along with an exploration of various avenues to access capital and Xero’s path to free cash flow, are recurrent themes in this winter 2018 edition of Listed@ASX.

The new requirement for companies to notify customers and regulators of data breaches means they can no longer hide a cyber attack or leak of confidential information, malicious or not. While a company’s brand and reputation may be seriously impacted by such a disclosure, our roundtable discussion explores ways companies can manage an issue and their reputation should disaster strike.

Although not covered in this edition, the ASX Corporate Governance Council recently released a consultation paper on a proposed fourth edition of the Corporate Governance Principles and Recommendations, which addresses issues such as social licence to operate and corporate values and culture. Given the Hayne Royal Commission, the timing couldn’t be better, with companies and their boards seeking guidance on how to respond to changing stakeholder expectations. The full package of proposals is available on ASX’s website: www.asx.com.au/regulation/corporate-governance-council/review-and-submissions.htm.

Above all, honest and open communication is key to engaging investors and corporate reputations. Our ESG roundtable explores ways companies can respond to activist investors on climate change and diversity. Geoff Fowlstone’s advice for managing an earnings downgrade shows how too little rather than too much information can create a free fall in reputation and share price.

New technology is not just re-shaping corporate communication. ASX recently opened consultation on the proposed ‘Day 1’ scope and implementation plan for its CHESS replacement program using distributed ledger technology. ASX’s Cliff Richards highlights important aspects of the consultation paper, including the new system’s features and timetable to go-live.

Stakeholder engagement and feedback continue to be integral to ASX’s planning. We welcome your views and input as we move ahead together to transition to a contemporary, innovative and world-leading clearing and settlement system.

I hope you find this edition interesting and beneficial.Regards

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Some of the listing anniversaries below show the enduring nature of ASX’s market. Top of the pile is Washington H Soul Pattinson’s 115th anniversary of listing on 21 January 2018.

The next closest contender is Orica, which will reach its 80th year of listing in September this year while Argo Investments’ listing will turn 70 in July.

A slew of companies turn 20 or 25 this year including AMP, Graincorp, Primary Healthcare and ASX itself (20 years) and Woolworths, GWA Group and Seven Group Holdings (25 years). Stockland, Suncorp and Ruralco turn 30, while Elders turned 35 in April and QBE Insurance turned 45 in March. Quite a few of our New Zealand-based companies turn five, including Mercury, Meridien Energy, Metlifecare and Summerset Group.

Ticker Tape

LISTING ANNIVERSARIES

The pie chart below shows listings on ASX in the year to April 2018. Notable entrants that contributed significantly to their sector’s representation below included Magellan Global Trust (ASX: MGG), VGI Partners Global Investments (ASX: VG1) and MCP Master Income Trust (ASX:MXT) in Investment Entity; Domain Holdings Australia (ASX:DHG) in Information Technology; Briscoe Group Australasia (ASX: BGP) and Restaurant Brands NZ (ASX: RBD) in Consumer Discretionary; Wagners (ASX: WGN) in Materials; and New Energy Solar (ASX:NEW) in Utilities. The “Other” section includes real estate, health care and telecommunications companies.

LISTINGS ON ASX

Consumer Staples

Others

2%

3%

Utilities

Industrials

5%

5%

Investment Entity 26%

Consumer Discretionary 17%

Information Technology 20%Financials 12%

Materials 10%

ASX’s Investor Days were held around the country during March 2018. Roughly 1,100 retail investors attended, hearing from industry specialists about the state of the market, tools for investing, self-managed superannuation and various investment products like exchange-traded funds.

A feedback survey following the event affirmed the importance of company websites and other documentation as sources of information for investors as they make investment decisions. Investors were asked about their preferences for both online and other information sources.

• Company websites – rated as the third most viewed online source of information, behind broker and newspaper web sites (17 per cent).

• Annual reports – again, the third most popular other source (18 per cent), after seminars and conferences and print news.

• Product disclosure statements (PDS) – the fourth most important other source (12 per cent).Companies must ensure

their communication with investors is clear, concise and unambiguous to reach this group of shareholders.

REACHING INVESTORS ASX has premiered its new retail access program ASX CEO Connect for mid to large cap companies, in partnership with nabtrade. The event will be held monthly in Sydney and will give six companies the opportunity to present to ASX’s broad and engaged retail and SMSF investor community. For more information see: www.asx.com.au/listings/issuer-services/ceo-connect.htm or email CEOconnect@asx.com.au.

For small- and mid-cap companies ASX is premiering a small- and mid-cap conference in Sydney in September this year. If you are interested in participating see the ad later in this magazine or contact michelle.mcallister@asx.com.au.

WHAT INVESTORS WANT

Ticker Tape

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I mproved access to capital to facilitate future growth is a benefit of listing on a financial market. When seeking further

funds, listed entities can offer investors the liquidity that comes with a secondary market.

Where a company has a track record of continuous disclosure and related price discovery, the law provides for certain disclosure concessions at times of fundraising that reduce the costs and improve the speed of capital raising for listed companies.

One of these concessions involves the use of ‘cleansing notices’ under subsection 708A(5) of the Corporations Act. These notices facilitate shares issued without a prospectus, such as shares placed with sophisticated investors, being on-sold in the market.

Cleansing notices serve an important function and should not be viewed as a mere formality. Further, the requirements around the use of these notices are there to ensure the market trades on a fully informed basis.

Incorrect use of these notices can result in harm to investors as well as liability for issuers. Inconvenience to investors and additional legal costs may also result if there is a need to suspend trading while the issue is addressed.

Requirements for cleansing noticesUndisclosed information: Issuers must consider whether there is certain information that has been withheld from the entity’s continuous disclosure obligations in accordance with the listing rules, such as information about an incomplete proposal that has not previously been disclosed under the carve outs in

ASX Listing Rule 3.1A. This information must be disclosed in the notice if investors would reasonably require it for the purpose of making an informed assessment of the entity’s financial information, prospects and the rights and liabilities attached to the securities. It is important issuers establish clear procedures to identify whether any information of this kind needs to be disclosed.

Quoted securities: The securities being issued must be in a class of securities that have been quoted at all times during the previous three months. This provides the foundation for an informed market through a history of continuous disclosure and price discovery, which in turn underpins the cleansing notice regime.

Limited suspensions: Trading in the relevant class of securities must not have been suspended for a total of more than five days during the 12 months before the

securities were issued (or if the class has been quoted for less than 12 months, since it was first quoted).

No exemptions and no ASIC determination: During the same period, the issuer (or its director or auditor) must not have been given ASIC relief from certain continuous disclosure, financial reporting or audit requirements and ASIC must not have made a determination that prevents reliance on the cleansing notice regime.Timing: Cleansing notices must be given within five business days after the day on which the securities were issued, and before the sale offer is made.

If an issuer is unable to give a cleansing notice due to not being able to satisfy one or more of the requirements above, the issuer may need to consider seeking ASIC relief before proceeding with the issue of shares.

An issuer can also use a prospectus to facilitate the sale of securities if a cleansing notice cannot be used. In this case the prospectus must be lodged with ASIC on or after the date of issue, but before the on-sale of the securities.

Importantly, in applying to ASX for the quotation of securities under an Appendix 3B, an issuer makes certain warranties to ASX. These include that an offer of the securities for sale within 12 months after their issue will not require a disclosure document or product disclosure statement (PDS). Issuers should satisfy themselves they can provide this warranty, including by having regard to whether the requirements for using a cleansing notice can be satisfied.

Find out more in ASIC Regulatory Guide 173: Disclosure for on-sale of securities and other financial products.

CLEANSING NOTICES FOR SECURITIES’ SALESIt’s important to stick to the rules when preparing these important corporate tools.

John Price Commissioner, Australian Securities and Investments Commission

ASIC Report

“Cleansing notices serve an important function and should not be viewed as a mere formality.”

Listed@ASX | Winter 2017 | 9

Investor relations professionals know only too well the complex web of influence around thorny environmental,

social and governance (ESG) issues. The question of how they effectively engage is causing considerable concern. Questions arise such as whether companies need to talk to everyone who calls, the type of information to issue and how to make the best use of the board’s, chair’s, CEO’s and CFO’s time.

This engagement dilemma is here to stay. So having a clear understanding of the new ecosystem is a great help. ESG issues cause boards pain, especially when it comes to remuneration and voting at annual meetings.

AIRA has recently spent considerable time and effort seeking valuable input from experts in the field, to draft an extensive set of ESG engagement guidelines and recommended practices. The emphasis has been to explain the web of interested parties and the functions they serve. The guidelines provide a checklist of relationships, which are a set of principles that provide practical guidance and detailed case studies.

It is important AIRA leads on these issues. Constructive engagement with the investment community is critically important if companies are to retain the support of shareholders for growth capital. It is also essential for winning their backing for resolutions at annual and other shareholder meetings. It is no longer enough to know your shareholders alone.

Numerous parties are now involved in ESG issues, including asset owners, asset managers, proxy advisers, activist groups and ESG research providers. It is vital companies have a detailed understanding of who’s who in this web, what their various requirements are, the timeframes involved and who should represent the company to these various parties.

IR officers need to play a central role coordinating these interactions. At different times, a diversity of people from the company will be called on, including the chair, board committee chairs, CEO, CFO, company secretary and sustainability officer. But as ESG issues become more material from a continuous disclosure perspective, they need to be managed appropriately from a disclosure process point of view. IR officers are the ideal gatekeepers because they already co-ordinate engagement on other critical shareholder issues.

The 2017 benchmarking report by the Responsible Investment Association Australasia (RIAA) found the owners or managers of $622 billion in investment assets in Australia apply some form of ESG integration and engagement. This represents 47 per cent of professionally managed assets in Australia, which is a considerable increase from the $13.9 billion of ESG-managed assets reported in the first public RIAA survey in 2002.

There is evidence this ESG focus among the shareholder base is not well understood, however, and may be contributing to an engagement deficit. In September 2016, AIRA conducted a survey of the ESG activities of listed entities in the ASX 200

and NZ 50 indices and found only 23.5 per cent of respondents proactively engage with stockbroker and investor ESG analysts. A full 82.7 per cent don’t hold specific events or meetings for the investment community to explain their ESG practices. Just 51 per cent speak on a reactive basis to those practitioners when approached.

This lack of effective engagement has ramifications. The number of campaigns against companies by activists is on the rise. So too is the number of hostile investor actions. Poor engagement threatens access to, and the pricing of, domestic and international capital with an ESG focus. It also influences the appropriate articulation of strategy to investors. Lastly, it impacts long-term share price discovery.

Here is a short checklist listed entities should consider when dealing with ESG issues.• Avoid wasting time by knowing exactly

whether a particular asset manager is also a beneficial shareowner and whether they have the right to vote those shares.

• Give priority to asset owners.• Thoroughly prepare chairs and directors

prior to attending meetings.• Ask whether ESG and investment

analysts will attend the meetings.• Consider the appropriate timing of

meetings.Supportive long-term investment

is underpinned by effective dialogue between investors and companies. Better communication of ESG issues will enable more efficient allocation of capital, increase the focus on sustainable long-term value creation and, through enhanced understanding, increase trust among market participants. This is part of a virtuous circle that contributes to lowering the cost of, and increasing access to, capital in Australasian markets.

ESG IS HERE TO STAYNew guidelines give IR teams direction on how to engage with the evolving ecosystem of stakeholders.

Ian MathesonCEO, Australasian Investor Relations Association

AIRA

“IR officers are the ideal gatekeepers because they already co-ordinate engagement on other critical shareholder issues.”