1. Understanding the Reports That Cross Your Desk Michael Allen Principal, Corporate Finance

2. Understanding Reports That Cross Your Desk The Issue of Reports Financial Reports Contents of Annual Reports The Media and Annual Reports Management Reports Understanding Management Reports 18 September, 20152 ASX Rule 3.1 for Listed Companies The Balance Sheet The Profit & Loss Statement The Statement of Cash Flows Thinking Like a General Manager

3. The Issue of Reports The type of reports that will cross your desk will vary based on:- The type of business you work for: conglomerate vs government department The style of CEO you work for e.g. detail person or big-picture person The use of email The time of year 18 September 20153 Supporting your boss requires:- Knowing which reports are important and which are not Understanding the issues arising from those reports Being able to communicate about those issues Do not assume reports are complete or accurate

4. Financial Reports Two main types:- Annual Reports o Prepared for shareholders o Have public relations issues Management Reports (monthly) o Prepared for internal purposes o Vary hugely o Could include lots of individual reports that inform Management and the Board on status of the business and legal entities o May have public relations issues – Rule 3.1 18 September 20154

5. Contents of Annual Reports Chairman’s Report CEO’s Report Operations Report (the “meat”) Director’s Report Financial Reports o Balance Sheet o Profit & Loss Statement o Statement of Cash Flows o Statement of Changes in Equity 18 September 20155

6. The Media and Annual Reports (Listed Companies) Things the media are sensitive to:- Profit performance o vs previous half or previous year o vs what was expected Audit qualifications o e.g. the company is not a going concern (liquidation pending?) o make sure there is no qualification or understand what the qualification means 18 September 20156 Executive and Board remuneration Executive and Board shares or options Related party transactions Discussions to buy or sell businesses or major strategies Strategies/purchases that have not worked Forecasts for the future of the business

7. Management Reports Ideally these reports should cover:- Budget versus actual profit and loss Reforecast of year end result (for ASX listed companies) Balance Sheet positions Cash position and forecast if an issue KPIs of the business Have an issue based commentary in words and not just be a pile of figures BHP does not need to discuss cash flow problems as it does not have any Many businesses do have cash flow issues! 18 September 20157

8. Understanding Management Reports Develop relationships with key report producers If you don’t understand important points then ask o People don’t mind explaining their output Think in terms of an investor Understand KPI’s If you note what you think is a missing KPI of significance, raise it with your boss. You might find it becomes their idea very quickly! 18 September 20158

9. ASX Rule 3.1 – for Listed Companies This rule creates stress points for listed companies The rule requires stock exchange announcements for matters which may cause a change in share price Profit downgrades or upgrades are typical examples The rules are specific about when announcements should be made The interplay between the need to announce quickly and get authorised by the Board is difficult 18 September 20159

10. Secrets of the Balance Sheet 18 September 201510

11. Balance Sheet Example 18 September 201511

12. Secrets of the Profit & Loss Statement 18 September 201512

13. Profit & Loss Statement Example 18 September 201513

14. Secrets of the Statement of Cash Flows 18 September 201514

15. Statement of Cash Flows Example 18 September 201515

16. Thinking Like a General Manager To think like a General Manager you need to understand the business What is the business model? What are the key drivers? e.g. sales level, margins achieved, resource prices, new customers What are the key risks affecting business performance? 18 September 201516

17. Summary Learn the Business Identify the Key Reports Understand the Key Reports

18. 18 September 201518 QUESTIONS