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AGM SEASON 2013

t h e t r u s t e d v o i c e o f s h a r e h o l d e r s January 2014 Vol 28 #01

EQUITY

www.australianshareholders.com.au

What matters

most to shareholders & directors

Fundamental & technical analysis seminars

asa aGm rePorts

30

January Vol 28 #01

CONTENTSEQUITY

t h e t r u s t e d v o i c e o f s h a r e h o l d e r s

CALENDAR OF EVENTS

Features this month

04THE AGM SEASON THAT WASThe ASA monitored a record number of companies in 2013, generated an unprecedented amount of media coverage and was appointed to represent shareholders who own more than $5 billion worth of shares. We’ve also tracked the biggest votes against remuneration reports and directors.

more inside...

08GOOd COrpOrATE GOvErNANCE: WHAT MATTErS MOST TO SHArEHOldErS ANd dirECTOrS

Macquarie University PhD student Christofer Adrian describes the responses of members of the ASA and members of AICD to a survey seeking views on the relative importance of nine different corporate governance attributes.

09ASiC’S NEW SurvEillANCE SySTEMIn the May 2012 federal budget,

the Government announced a $43.7 million funding commitment to allow ASIC to invest in its capabilities to monitor markets and to deter and prosecute misconduct.

03 07 10

25 25 26

28 29 30

CHAIRREPORT

ASA MEDIAEXPOSURE

AGM reports

BrickBatsBOUQUEts&

ASA NEWSDESK

AGL SITE TOUR

BUYER BEWARE: THE RISKS OF HYBRID SECURITIES

INVESTOR EDUCATION

EQuiTy January 2014

CHAIR REPORT JANUARY 2014

BOArd OF dirECTOrSIan Curry FCPA, FCIS, Dip Fin Planning, ChairmanBetty Clarke-Wood ACIPDenis O’Sullivan BCom, AAUQ, ANZIIF, SAFin, FCPABarry Nunn AO, BE Geoff Sherwin FCA, F Fin, FAICD

NATiONAl OFFiCESilvana Eccles National Operations Manager

Lakbir Gill Research Assistant

Veronika Ilnycky Communications Officer

Kate Machattie Accounts Officer

Stephen Mayne Policy & Engagement Coordinator

Katrina Meggitt Events & Member Services Coordinator

STATE BrANCHESACT Edward Patching [email protected] Bert Godwin [email protected] Alison Harrington [email protected] Kevin Parken [email protected] Don Hyatt [email protected] Barry Nunn [email protected]

EQuiTy EdiTOrSSilvana Eccles & Stephen Mayne [email protected]

CONTACT dETAilS

TELEPHONE 1300 368 448 02 9223 8811FAX 02 9223 3964ADDRESS Suite 301, Level 3 90 Pitt Street Sydney NSW 2000 GPO Box 359 Sydney NSW 2001ABN 40 000 625 669EMAIL [email protected] www.asa.asn.auwww.australianshareholders.com.au

diSClAiMEr This material in EQUITY is provided for information only. No responsibility or any form of contractual, tortious or other liability is accepted for decisions made on the basis of the information contained herein. Nothing in EQUITY is intended or should be interpreted as being investment advice. Investment advice can only be obtained from persons who are licensed in accordance with the Corporations Act. Views expressed in articles in EQUITY do not necessarily reflect ASA policy. The ASA does not endorse or favour any specific commercial product or company. The ASA is often able to negotiate discounts or benefits for ASA members however the inclusion of discounts or advertisements in EQUITY, on the ASA website or within other ASA communications does not constitute an endorsement for the products, services or companies mentioned.

COpyriGHTAll material published in Equity is copyright, as are ASA Policy Statements whether published in Equity or not. Reproduction in whole or in part is not permitted without written authority from the Editor.

All graphs for the Company Reports derive from www.netquote.com.au. Any correspondence regarding matters covered in this magazine should be addressed to the Editor.

The holiday season may not be over but there is a heavy workload across the ASA as we address a number of issues.

All our policy position statements are being reworked and finalised for launch with the new website and member management system. An updated monitor’s manual, templates for voting and reports and training modules need to be prepared.

The IT project itself is progressing well and members will receive detailed advice as to how they can use the system. Through Equity please advise the National office of any changes to your contact details. In particular if you have not advised an email address please do so as our new system, particularly as it relates to our own annual report, notice of meeting and proxy form, will increasingly require members to opt in for these communications.

For all companies with 30 June balance dates and most with September balance dates, our company monitors have completed their reports. The trend of declining numbers of shareholders attending annual general meetings continues and the seeming lack of interest in asking questions is of concern. ASA is often the only one seeking information or holding directors to account. Even when companies have performed badly there is little reaction or pressure brought on boards and management by way of voting against director re-election or incentive arrangements.

The proxy collection initiative disclosed strong support for ASA where we were able to appoint proxy collectors. We have always assumed that members and shareholders generally give ASA proxies even where we did not monitor the company. We now know this to be the case and will expand our attendance at many more annual meetings in 2014.

Three of our State CMC Chairs have stepped down from this important role. John Campbell in Western Australia, Michael Perry in New South Wales and myself in Victoria are being succeeded by Len Roy, Allan Goldin and Geoff Bowd. My thanks go to John and Michael for the enormous contribution they have made to ASA.

Michael has also been a director and State chair and I was pleased to present him with a certificate of appreciation recording his service at the NSW Christmas lunch. The continued support of Denis O’Sullivan, Bob Ritchie and Dan Steiner ensures a strong team for the year ahead.

A warm welcome to Bert Godwin who succeeds Michael Perry as NSW State chair. Bert is involved in the Newcastle group and is already working to strengthen and start groups in NSW.

Your directors met in Sydney for a board meeting in early December. The agenda included the accounts to the end of October and these showed a surplus for the ten months and a likely sound result for the year. The 2014 budget was approved and the IT project was noted as being on time and budget. Education plans for the year were noted.

In the December Equity I advised the board was considering the appointment of independent non-executive directors. I can now advise that at our board meeting two appointments have been made effective from 1 January with the likelihood of a third.

Diana D’Ambra and Clare Mazzetti bring business experience and significant strengths to ASA and the board. Diana has recently retired as a partner at KPMG where she was a member of the national leadership group for the valuations practice. Diana has extensive experience in mergers and acquisitions. She is also involved with a not for profit company. Clare has strategic consulting experience and has worked in the financial services industry and the not- for-profit field.

We welcome these two directors and look forward to their contribution to ASA.

ian Curry

EQuiTy January 2014

By Stephen Mayneasa Policy and engagement coordinator

reviewing the biggest ever AGM season for ASA

The dust has settled on another eventful AGM season for the ASA and the prognosis was good.

We formally monitored a record 197 companies in 2013 (see full list on our website) and also received a record amount of media coverage during the December quarter.

Remuneration practices continue to improve courtesy of the well-designed “two strikes” system so ASA voted against a minority of remuneration reports in 2013. However, we still opposed pay practices of many major companies such as Westpac, ANZ, BHP Billiton, ASX, Westfield, Aurizon Holdings, Transurban, Myer, Boral and Suncorp. The most common reason for opposition was when long-term incentive schemes had a performance period of only 3 years, but we’re seeing good movement to longer term packages across the market so our campaign will continue.

On the opposite page you can see a comprehensive list of the major remuneration report protest votes during the main season, plus some ASA interpretation as to what drove the high “against” vote.

Interestingly, it wasn’t just poorly performing companies who ran into trouble as the likes of Super Retail Group and Aurizon Holdings (formerly QR National) have done well for investors.

And the likes of Telstra and Commonwealth Bank demonstrated that CEOs can receive large payments whilst receiving strong support if the packages are well structured to align with shareholders.

The most disappointing rem result of the season was BHP Billiton’s 97% vote in favour, in spite of large bonus payments being made when shareholders lost 9% over the 5 year performance period.

Whilst the board intervened to reduce potentially bigger payouts, ASA believes there should be no bonuses when investors suffer a negative Total Shareholder Return and we’re drawing a “line in the sand” on this issue after the BHP issue came to light.

The large list on page 6 of the 32 directors who received protest votes exceeding 10% is arguably the more interesting development from the main season.

The proxy advisers and institutional investors are resolutely pursuing the governance ideal that boards have a majority of genuinely independent directors and this is driving the big protest votes.

ASA is considering adopting a formal policy position that non-executive directors are no longer independent after

12 continuous years of services. The market seems to be moving in a similar direction which probably isn’t a bad thing when you consider that the average age of male ASX100 directors has increased from 59.5 years in 2001 to 64.1 years in 2012.

ASA continues to believe in board diversity across a range of metrics, such as gender, background, professions and age.

ASA’s proxy collecting power remained strong in 2013 and we’re obliged to Woolworths for disclosing that ASA received proxies from 11.12% of the 22,297 Woolworths shareholders who bothered to vote.

Given that Woolworths had 423,534 ordinary shareholders when its annual report was released, it is disappointing to see an overall turn out rate of just 5.26% of retail shareholders but heartening that more than 10% of participants (2,474 in total) chose to have ASA represent them.

In terms of shareholders appointing ASA as proxy, the biggest numbers in 2013 (before seeing ANZ and NAB AGM data) were Telstra (3470), BHP Billiton (3037), Commonwealth Bank (2699), Westpac (2574), Wesfarmers (2518) and Woolworths (2474).

However, this doesn’t translate across into the value of these shares as the top six from the main season were as follows in terms of both the dollar value of the proxies and the average holding of each proxy provider:

Commonwealth Bank: $557 million (average holding $206,373)

BHp Billiton: $505 million (average holding $166,282)

Westpac: $419 million (average holding $162,781)

Woolworths: $250 million (average holding $101,051)

Wesfarmers: $225 million (average holding $89,356)

Telstra: $157 million (average holding $45,240)

In terms of ASA’s voting power, it is with the major listed invested companies where we pack the biggest punch because the register is almost exclusively made of retail investors. At the AFIC AGM ASA represented 790 holders who entrusted us with $72 million worth of votes which was almost 7% of the total vote. The equivalent figure at Argo was closer to 10% of the total vote.

Fairness in capital raisings is another important issue for ASA and it was good to see a number of large protest votes against companies seeking pre-approval to be able to selectively place 25% of the company.

EQuiTy January 2014

EXplAiNiNG THE BiG rEMuNErATiON rEpOrT prOTEST vOTES duriNG MAiN 2013 AGM SEASON

Karoon Gas (50%): Melbourne-based company with excessive pay practices and a need for more independent directors.

Cabcharge Australia (45%): investors frustrated with board intransigence and refusal to adjust pay and governance practices.

Forge (41%): investors were unhappy with discretionary payments of $300,000 to the CEO which weren’t contractually required.

david Jones (40%): the protest vote was more about shareholder concern with the board after CEO Paul Zahra announced his intention to resign.

linc Energy (38%): largest shareholder and CEO Peter Bond is delisting the company and taking it to Singapore, so protest partly reflected concern about this move, plus his refusal to adjust pay practices.

Automotive Holdings (38%): Perth-based company which suffered a first strike mainly because it largest shareholder, AP Eagers, is also a competitor and voted against.

Super retail Group (36%): a great performer but some concern over CEO’s incentive structures.

Southern Cross Media (31%): investors concerned about excessive fees taken out by largest shareholder Macquarie Group over the years, plus a lack of independent directors.

iselect (28%): perhaps reflected broader governance concerns after difficult transition from private to public company.

Aurizon Holdings (28%): rail giant with big plans for the WA iron ore market received a protest because it has repeatedly changed the goal posts on pay since listing 3 years ago.

Hills ltd (26%): concern over the LTI grant for new CEO Ted Pretty.

Brickworks (24%): just missed a first strike but protest driven by 12% shareholder Perpetual which is involved in a wider battle involving the cross-shareholding with Soul Pattinson.

After retail investors were diluted out of billions of dollars during the post-GFC round of capital raisings, we are determined to take strong action when a capital raising is structured to disadvantage retail investors.

The worst infringement of our property rights is when an issuer does a heavily discounted institutional placement without a follow-up share purchase plan for retail investors.

The next worst situation is a discounted pro-rata offering where non-participants are unable to renounce their entitlement and retail investors are not offered the opportunity to apply for “additional shares” to take up the retail shortfall made available by non-participants.

The recent $351 million Virgin Australia capital raising was a good example of this where the board imposed an artificial restriction on the amount of additional shares retail investors could apply.

ASA was involved in a Takeovers Panel application over this issue and whilst we failed to have the terms of the offer changed, our action did send a message to the wider market. In the end we were partially vindicated when the $69.1 million Virgin offer finished 75% short, allowing the three foreign airlines sub-underwriters to scoop up an additional 3.88% in the company for $51.6 million.

ASA is pleased to see that the ASX Onmarket Bookbuilds service is now up and running as this potentially provides a fairer and cheaper way for issuers to raise capital whilst also driving down the excessive fees paid to investment banks.

In conclusion, thanks again to the hard working 70-plus ASA company monitors who allow us to be the most important voice at public company AGMs across Australia.

And I’d especially like to thank the three retiring state monitoring chairs - Ian Curry in Victoria, John Campbell in WA and Michael Perry in NSW for their excellent contributions over many years.

Their successors – Geoff Bowd in Victoria, Len Roy in WA and Allan Goldin in NSW – have big shoes to fill and we very much appreciate them stepping up.

EQuiTy January 2014

director Company % against vote

poll or proxy reason for protest

Phillip Dubois Sonic Health Care 39.04% Show of hands Long time executive director, not enough independent NEDs

Richard Lee Newcrest 29.49% Poll called Long term director, accountability for Lihir losses

David Slack-Smith Harvey Norman 27.87% Show of hands Lack of independent directors

David Ackery Harvey Norman 27.85% Show of hands Lack of independent directors

Reg Gillard Perseus Mining 26.84% Show of hands Long-time director, chair should recruit more NEDs

Donald McMichael Cabcharge 26.72% Show of hands Lack of independent directors, ongoing remuneration protests

John Spark Newcrest 26.11% Poll called Audit committee chair, accountability for Lihir losses

Chris de Boer Southern Cross Media 25.06% Show of hands Long-standing concern about Macquarie fee leakage

Lee Seng Hui Mount Gibson Iron 24.39% Show of hands Not regarded as an independent director

John Roberts DUET Group 24.37% Poll called Executive of former external manager Macquaie Group

Emma Stein DUET Group 24.31% Poll called Investor wanted more independence from AMP/Macquarie

Ron Finlay DUET Group 24.27% Poll called Investor wanted more independence from AMP/Macquarie

Eric Goodwin DUET Group 24.26% Poll called Investor wanted more independence from AMP/Macquarie

Doug Halley DUET Group 24.04% Poll called Investor wanted more independence from AMP/Macquarie

Peter Harvie Southern Cross Media 23.28% Show of hands Long-standing concern about Macquarie fee leakage

Tony Bell Southern Cross Media 22.99% Show of hands Long-standing concern about Macquarie fee leakage

Tim Poole Newcrest 22.87% Poll called Long term director, accountability for Lihir losses

Wal King Ausdrill 22.21% Show of hands Concern over Leighton governance issues

Stephen Chapman Blackmores 21.40% Show of hands Need for more independent directors

Frank Jones Premier Investments 20.90% Show of hands Long-serving director, lack of independent NEDs

Michael Millner Brickworks 20.34% Show of hands Perpetual protesting over excessive family influence

Peter Wade Mineral Resources 19.74% Show of hands Need for more independent directors

Linda Nichols Fairfax Media 19.68% Poll called Gina Rinehart voting against

Sandra McPhee Fairfax Media 19.66% Poll called Gina Rinehart voting against

Robert Webster Brickworks 18.67% Show of hands Perpetual protesting over SOL cross-shareholder

Veryln Fitzgerald Blackmores 17.28% Show of hands Need for more independent directors

Leigh Clapham David Jones 13.76% Poll called Concern over director share trading and CEO departure

Alan Latimer TPG Telecom 13.15% Show of hands Need for more independent directors

Peter Evans Ramsay Health Care 12.52% Poll called Long-serving director, lack of independent NEDs

Bruce Soden Ramsay Health Care 12.44% Poll called Long-serving director, lack of independent NEDs

Russell Caplan Aurizon Holdings 11.24% Poll called Loss of confidence in chair of rem committee

Alan Miles Qube Logistics 10% Show of hands Lack of independent directors

directors who received 10%+ protest votes during the main AGM season

EQuiTy January 2014

For all links to all the latest stories in the media visit ‘ASA in the Media’ at www.asa.asn.au.

ASA MEDIAEXPOSURETHE MOTlEy FOOl05/11/13 - Give these chairmen the boot, declares the ASA

BuSiNESS SpECTATOr05/11/13 - Leighton chairman resilient

THE AGE 06/11/133 - ASA urges vote against iSelect plans

ABC rAdiO pM07/11/13 - Fairfax Media avoids board spill

THE AuSTrAliAN 07/11/13 - Mirvac braces for anger over executive incentives

AuSTrAliAN FiNANCiAl rEviEW 08/11/13 - Leighton Holdings CEO was ‘out of control’

AuSTrAliAN FiNANCiAl rEviEW 11/11/13 - DJs should apologise over shares and move on: ASA

THE AuSTrAliAN 12/11/13 - Ausdrill investors urged to reject King

THE AuSTrAliAN 13/11/13 - ASA wants Aurizon chairman to resign

BuSiNESS SpECTATOr13/11/13 - Prescott faces calls to retire

THE AGE 13/11/13 - Aurizon gets first strike on pay

AuSTrAliAN FiNANCiAl rEviEW 14/11/13 – REA targets listings revenue

THE WEST AuSTrAliAN 15/11/13 – Weak uranium price hurts Paladin

THE AuSTrAliAN 16/11/13 - Macmahon ducks second strike over pay

SydNEy MOrNiNG HErAld 18/11/13 - Virgin rebuked by ASA over capital raising

SydNEy MOrNiNG HErAld18/11/13 - David Jones: ASA joins the revolt

COuriEr MAil 18/11/13 - ASA takes issue with BoQ bonuses, but proxy advisers give green light

NiNEMSN 18/11/13 - First strike against iSelect

SydNEy MOrNiNG HErAld 19/11/13 - Shareholder blow to iSelect executive remuneration report

AuSTrAliAN FiNANCiAl rEviEW 19/11/13 - ASA disappointed with Virgin capital raising

THE MOTlEy FOOl 20/11/13 - BHP under pressure to increase shareholder returns

THE AuSTrAliAN 20/11/13 - Virgin mulls legal action against Qantas over anti-capital raising campaign

AuSTrAliAN FiNANCiAl rEviEW 20/11/13 - Virgin considering more retail investors for $350m raising

SydNEy MOrNiNG HErAld 21/11/13 - Virgin won’t bow to ASA demands

CriKEy 21/11/13 - Qantas finds an unlikely ally in small Virgin shareholders

THE AuSTrAliAN FiNANCiAl rEviEW22/11/13 - ACCC lines up Qantas for inquiry

THE AuSTrAliAN FiNANCiAl rEviEW22/11/13 - Rick Crabb reappointed to Paladin board

THE AuSTrAliAN FiNANCiAl rEviEW 22/11/13 - Wal King re-elected to Ausdrill board

THE AuSTrAliAN FiNANCiAl rEviEW 22/11/13 - Virgin faces test on stock limits

THE AuSTrAliAN 22/11/13 - BHP to build on $7.5 billion sell-off

ABC NEWS 22/11/13 - Australian Shareholders’ Association applies to Takeovers Panel to stop Virgin’s capital raising

ABC rAdiO pM22/11/13 - Shareholders protest at David Jones AGM

AuSTrAliAN FiNANCiAl rEviEW23/11/13 - Decision on Virgin raising pending

SydNEy MOrNiNG HErAld25/11/13 - Boards under attack from activist funds

THE AGE25/11/13 - Harvey Norman faces pressure to dole out franking credits

THE WEST AuSTrAliAN25/11/13 - Fleetwood Directors urged to buy shares

THE AuSTrAliAN 27/11/13 - Warrnambool investors tell ASIC board not playing fair in dairy deal

COuriEr MAil 27/11/13 - BoQ bursts bubble talk

THE AuSTrAliAN 28/11/13 - Bevan to step down as Alumina chief

SydNEy MOrNiNG HErAld 02/12/13 - Graincorp no protected species, says farmers

THE WEST AuSTrAliAN 02/12/13 - Shareholders send message with pay strike

FiNANCE NEWS NETWOrK 03/12/13 - Virgin welcomes regulator ruling

THE AuSTrAliAN 03/12/13 - Virgin’s 350m equity raising to go ahead

THE WEST AuSTrAliAN 05/12/13 - Case for Forge class action strengthens

THE AuSTrAliAN13/12/13 – Virgin’s capital success irks Qantas

THE MOTlEy FOOl13/12/13 – Capital raisings draw ire of ASA

MANNNG rivEr TiMES13/12/13 – Shareholders branch formed in Taree

EQuiTy January 2014

Good corporate governance: what matters most to shareholders and directors By christofer adrian, Phd student, macquarie university

Individual shareholders and directors are largely in agreement about which aspects of corporate governance they considered most important for a company, placing high value on the independence of key roles. We found the two groups agreed to an extent that surprised us. The top four attributes for both groups are the separation of the roles of CEO and chair of the board, independence of the board, independence of the audit committee, and limits on the provision of non-audit services by the auditor.

Our research, which is the first to ask individual shareholders and directors these questions, has important implications for regulators, informing any potential future amendment of corporate governance codes in Australia. Furthermore, it broadens our understanding of the factors that contribute most to effective corporate governance.

In particular, the results of the top four aspects for each group show that independence of key corporate governance players, such as the board of directors, the audit committee, and the auditor, are considered crucial for achieving good corporate governance.

However the most important single factor, for both stakeholder groups, is the separation of the roles of the CEO and chair. In the research we examine it as CEO duality. This result affirms Australian governance guidelines and practices since only a small percentage of companies in this country have the CEO and chair positions held by the same person. This is in contrast with the US, where the majority of large companies have CEO duality.

Corporate governance has been a high priority for regulators, directors and investors in the past decade, prompted by several high-profile corporate collapses, such as Enron in the US and HIH in Australia. These collapses and their costly consequences prompted regulators around the world to strengthen corporate governance guidelines, codes and legislation.

In the US, the Sarbanes-Oxley Act was introduced one year after the collapse of Enron. In Australia, regulators introduced (with subsequent amendments) the ASX Corporate Governance Council’s Principles of Good Corporate Governance (POGCG) in 2003 and Corporate Law Economic Reform Program (CLERP) 9 in 2004. These principles address several corporate governance aspects (which we term, attributes), such as recommendations on the proportion of independent directors on the board and the audit committee. While the purpose of these attributes is to protect the interests of corporate stakeholders, there has been no prior investigation of the individual views of stakeholders on which corporate governance attributes they consider to be most important.

Shareholders and directors are key corporate stakeholders. As the owners, shareholders have their money at stake through their investments. They are one of the main capital providers to Australian markets, and it is important to protect their interest and ensure that their confidence in the capital market is maintained. Directors have positional power in companies to make decisions that affect other stakeholders. Moreover, directors are also stakeholders in their own right: they receive remuneration and bear the risks of financial and other penalties under various legislations. We conducted our research in two phases to get the different perspectives on good corporate governance from both groups.

TABlE 1: COrpOrATE GOvErNANCE ATTriBuTES

CG Attributes Operational definition

Board Composition Proportion of independent directors on the board

Board Size Number of directors on the board

Multiple Directorships Number of directorships a director holds

Audit Committee Composition Proportion of independent directors on the Audit Committee

Audit Committee Size Number of directors on the Audit Committee

Provision of Non-audit Services by the Auditor

Ratio of Non-audit services fees to total audit fees

Audit Partner Tenure Length of tenure of audit partner (in years)

Remuneration Committee Composition

Proportion of independent directors on the Remuneration Committee

Chief Executive Officer Duality Whether Chief Executive Officer and Chair of the Board are the same person

The first phase involved interviews with eleven key industry figures from various backgrounds including academics, a financial analyst, a director, professional accounting body executives, a financial commentator, and an accounting practitioner. The interviews confirmed to us that our survey was addressing issues that were of interest to stakeholders, and that our list of corporate governance attributes chosen from the academic literature (summarised in Table 1) were consistent with the interviewees’ notions of effective corporate governance.

The second phase was conducted using an internet-based survey aimed at directors and shareholders. The results are summarised in Table 2. This survey was designed using Adaptive Conjoint Analysis (ACA) and asked respondents which attributes they perceive will constitute effective corporate governance.

What do Australian shareholders and directors consider the most important aspects of good corporate governance? is there agreement or contradictory opinion between shareholders and directors? in this report, we describe the responses of members of Australian Shareholders’ Association and members of Australian institute of Company directors to a survey seeking views on the relative importance of nine different corporate governance attributes.

TABlE 2: COrpOrATE GOvErNANCE ATTriBuTES

rank Shareholders directors

1 CEO Duality CEO Duality

2 Board Composition Audit Committee Composition

3 Audit Committee Composition

Board Composition

4 Provision of Non-audit Services by the Auditor

Provision of Non-audit Services by the Auditor

5 Remuneration Committee Composition

Board Size

6 Multiple Directorships Remuneration Committee Composition

7 Board Size Multiple Directorships

8 Audit Partner Tenure Audit Partner Tenure

9 Audit Committee Size Audit Committee Size

We appreciate the support of the Australian Shareholders Association (ASA) and the Australian Institute of Company Directors (AICD) in promoting this survey via their websites to their respective members, and we thank those members who completed the survey. In total, we received 230 completed responses from shareholders and 46 completed responses from directors.

The respondents from both groups ranked CEO Duality as the most important corporate governance attribute. This finding affirms the ASX Corporate Governance Council’s Principles of Good Corporate Governance (ASX CGC POGCG) Recommendation 2.3 which states that the position of chair should be held by an independent director in order to ensure a separation of duties in the top-management of the company.

Both shareholders and directors rated Board Composition highly, as the second and third most important attributes for respective groups. This result is consistent with Recommendation 2.1 of ASX CGC POGCG which states that a majority of the board should be independent directors. Furthermore, Audit Committee Composition is also important as it was placed third and second as the most important attributes by shareholders and directors respectively. The overall results on these two attributes support the notion that audit committee is an important subset of the board, hence its performance (and independence) can also have a huge impact on the overall board performance.

Provision of Non-audit Services by the Auditor was ranked fourth for both groups in terms of its relative importance compared to the other attributes. This result is not surprising since the provision of non-audit services has been given significant media attention, particularly in the aftermath of large corporate collapses in the US and Australia. It is widely believed that significant levels of non-audit service fees render auditors financially dependent on their clients, thereby reducing their ability to detect material misstatements. Our survey indicates that both shareholders and directors are concerned that auditor independence might significantly affect the effectiveness of corporate governance.

At the other end of the scale, the size of both board of directors and the audit committee were not perceived to be relatively important by the respondents. Also, and quite interestingly, audit partner tenure was found to be relatively less important that the other attributes (ranked eighth). While limiting audit partner tenure is argued to enhance auditor independence and the overall effectiveness of corporate governance, both shareholders and directors do not think it would be as effective as limiting the amount of fees paid to the auditors for non-audit services (ranked fourth).

In the May 2012 federal budget, the Government announced a $43.7 million funding commitment for ASIC to invest in its capabilities to monitor markets and deter and prosecute misconduct. It provided ASIC with the ability to plan for a future that includes increased trade and message traffic, new and dynamic trading technologies and techniques, increased competition between trading venues and the continued globalisation of markets.

The funding allowed ASIC to provide four key deliverables, the first being the replacement of ASIC’s market surveillance system, now in operation. The system, called Market Analysis Intelligence (MAI) provides ASIC with an enhanced technological capability to detect, investigate and prosecute trading breaches.

The ramping up of technology is a fillip to ASIC’s striving towards its strategic priorities of confident and informed investors and financial consumers, and fair and efficient financial markets. MAI has been designed to handle the continued increase in high-frequency trading and algorithmic trading, and improves on technology previously designed for a single market. The system enables ASIC to interrogate large data sets and monitor market activity, consistent with the increased use of technology in trading. It also provides capacity to handle the continued increase in trade and message data, which could reach 1 billion messages per day.

The system puts at the disposal of ASIC’s surveillance staff tools based on technology already used extensively for market data capture, alerts and analytics and high frequency trading. These tools provide sophisticated data analytics to identify suspicious trading in real time and across markets, and the ability to analyse trade data for patterns and relationships. ASIC is confident that this will lead to greater levels of detection of insider trading and market manipulation, and the flexibility to detect and deal with new types of misconduct.

For investors and financial consumers, this equates to further confidence to participate and invest in a market that is fair, efficient, where market misconduct is reduced, armed with the knowledge that ASIC has at its disposal some of the most advanced surveillance tools available.

These tools will be further enhanced as the remaining three key deliverables are completed. These are advanced analytic and investigative capabilities, a new portal to boost collaboration and communication with market participants, and the development of a workflow system that will assist ASIC to manage its cases from the moment ASIC receives an alert, complaint or enquiry, to the end of an enforcement action.

Such capabilities are evidence of a regulator positioning itself to be ready for the challenges of a fast moving and dynamic market, and to build on its strong existing surveillance framework, delivering increasingly transparent and clean markets, for the benefit of all.

ASiC’s new market surveillance system

EQuiTy January 2014

MONiTOrS: STEpHEN MAyNE (lEE BuCKlANd ATTENdiNG)

date 13 November, 2013

venue Brisbane Convention & Exhibition Centre

Attendees 200

ASA proxies 763,500 shares from 146 holders

value of proxies $3.581 million

proxies voted Yes, Poll on all items

Market cap $10 billion

pre-AGM meeting No

MONiTOrS: JOHN CAMpBEll & dErEK MillEr


venue Duxton Hotel, Perth

Attendees approximately 25


value of proxies $780,000

proxies voted No, show of hands

Market cap $262.3 million

pre-AGM meeting Yes, with rem committee chair and 2 executives

AURIZON HOLDINGS AGM

AUSDRILL AGM

EQuiTy January 2014

AUSDRILL’S PERFECT STORM AS WALKING HIT BY SHAREHOLDER BACKLASH

RECIDIVIST AURIZON HIT BY FIRST STRIKE,SUBSTANTIAL PROTEST AGAINST REM CHAIR

The meeting was very brief. Chairman Terry O’Connor opened proceedings confirming that the managing director was back at work after his trial for conspiracy to defraud the ATO concluded with a deadlocked jury. He commented that “nothing had occurred in the trial to change the board’s full confidence in the Managing Director.” The Chairman then made some comments on Fairfax press allegations about facilitation payments at Leightons and Mr Wal King’s involvement, and concluded that the Board saw no reason to change its support for his re-election as a director.

The company issued profit guidance on 7 November stating that Ausdrill expects to report a net profit after tax of between $35 million and $45 million for 2013-14 on revenues of between $825 million and $925 million. Ausdrill reported a net profit after tax of $90.4 million on revenue of $1.13 billion for 2012-13. The chairman said that Ausdrill has been hit by the perfect storm – a downturn in demand for services, a focus by mine owners on cutting costs and deferring non-essential expenditure, including capital works, exploration programs and non-critical maintenance, and finally, in the case of Ausdrill, the completion of four significant contracts, three in Africa and one in Australia.

Ausdrill believe BTP is a good business and will be seen as good value in future. The chairman said the company is in a solid financial position with no cash shortage. There were good prospects for drilling work in Queensland oil and gas projects. However, the immediate prospects for exploration drilling and related work were poor with the outlook for junior miners being bleak. The company was working hard to achieve satisfactory returns in the medium term.

ASA asked the Auditor for some explanation about the carrying value of BTP which was purchased at the peak of the market, just before the downturn. The response was that, at the date of the audit, no adjustment was seen to be necessary.

All resolutions were passed on a show of hands with 15% of proxies against approval of the remuneration report and 22% against the re-election of Wal King, one of the biggest protest votes recorded against a director this season.

Both resolutions were opposed by the ASA but our vote was not sufficient to make it worth demanding a poll on these items as we had less than 2% of proxies.

Aurizon has been a strong financial performer since it was floated by the Queensland government as QR National three years ago.However, remuneration and stewardship issues have remained a problem and this year it manifested itself with a first strike against the remuneration report and a double digit protest vote against director Russell Caplan, the chairman of the remuneration committee.The history of Aurizon’s pay indiscretions is clear. In 2010-11, discretionary bonuses were paid because of the impact the Queensland floods had on earnings. Shareholders suffered but the executives didn’t. In 2011-12, the board agreed to changes in accounting treatments which had the effect of increasing reported earnings by $51 million. This flowed straight through into higher bonuses for the executives. ASA argued strongly against this at the 2012 AGM and was disappointed with the board’s response.There were some improvements in 2012-13, but in light of past discretionary payments, shareholders were clearly unhappy that CEO Lance Hockridge saw his fixed salary increase from $1.65 million to $1.93 million. The CEO’s STI payment of $2.5 million also seemed excessive and it was difficult to justify the overall 2012-13 package of $6.11 million.Similarly, we object to the chairman’s fee rising from $407,000 in 2011-12 to $479,000 last year, especially in light of the remuneration issues at the company. ASA has identified Aurizon chairman John Prescott, 73, as someone who should retire. BHP performed poorly under his leadership in the 1990s and we have been disappointed with his handling of remuneration issues at Aurizon. It was noteworthy that The AFR’s Matthew Stevens wrote a comment piece the day after the Aurizon AGM suggesting that it was time for Mr Prescott to retire. We agree.The final votes at the AGM were clear. Despite presumed continuing support from the Queensland Government, with its now reduced 8.85% stake in the company, there was a 28% vote against the remuneration report, an 18.64% vote against the CEO’s LTI grant and an 11.24% vote against the chairman of the remuneration committee.Debate at the AGM was dominated by a range of anti-coal protestors asking numerous questions about the company’s operations. The 55,000 regular retail shareholders didn’t make themselves heard but the institutions certainly did as Aurizon was the most valuable company to receive a strike in 2013. After three years of stutters, let’s hope some serious change is entertained in 2014.

EQuiTy January 2014

MONiTOr: dENiS O’SullivAN


venue Hilton Hotel, Brisbane

Attendees 140

ASA proxies 1.047 million shares from 240 holders



Market cap $4.037 billion

pre-AGM meeting Yes, with chairman, director David Willis and 2 execs.

Chairman Roger Davis and managing director Stuart Grimshaw both addressed the meeting on the company’s operations for the year which they described as challenging and pointed to an equally challenging year ahead. Both also emphasised that BoQ is focussed on growing profitably whilst operating within strict risk guidelines. Substantial changes to the senior executive team and other senior staff, as well as changes to the company’s structure and strategy directed towards achieving demanding management targets, have contributed significantly to producing the much improved result of a profit of $185.8 million for the year to 31 August 2013, compared with a loss of $17.1 million for the previous year. The 2012 result was heavily impacted by loan impairment expense of $401 million which reduced to $114.6 million for the year just ended.

TSR for the year was a strong 34% composed of a fully franked dividend of 58 cents per share compared with 52 cents for the previous year and a substantial increase in share price, which has continued to increase since year end. However, as return on equity is a less than satisfactory 7%, shareholders will be hoping for the improved financial performance of the company to continue into the future.

During debate, we referred to the substantial loan write-offs since 2011 and asked if more were to come. The chairman responded reassuringly.

In respect of the resolutions requiring voting, ASA earlier indicated for vote recommendations for all except the ratification of issue of 3,203,115 shares and the remuneration report for which against votes were recommended. We spoke to both these resolutions to explain the ASA position which in relation to the former, was to remind the company that pre-existing shareholders’ holdings had been diluted, as had occurred a number of times in the past, in an endeavour to ensure that the interests and property rights of all shareholders would be properly considered in future issues. In respect of the remuneration report resolution, the against vote resulted from some aspects of the company’s incentive based remuneration arrangements conflicting with ASA policy.

All resolutions were voted upon by poll and received majorities in excess of 96%. This included the re-election of David Willis whose record had been questioned in some quarters from his time as CEO of HBOS Australia for 4 years leading into the GFC. The British bank was eventually nationalised and suffered billions of dollars in losses from its Australian loan book.

BANK OF QUEENSLAND AGM

MONiTOr: JOHN CAMpBEll


venue Crown Convention Centre, Burswood

Attendees 29 shareholders and 39 visitors



proxies voted Yes, poll on all items

Market cap $978 million

pre-AGM meeting Yes, with chair and 3 execs

Chairman David Griffiths explained to shareholders that AHG operates across four states and New Zealand and has a substantial and growing logistics business. The financial performance in 2012-13 included a record profit of $72.7m and he sees the overall macro settings being supportive for AHG, with 152 franchises at 87 dealership locations in Australia and New Zealand. They sell 22 brands of vehicle, including 9 of the top 10, the omitted brand being Honda. The logistics business includes Toll Refrigerated, Harris and Rand Transport operations and AMCAP and Covs spare parts. Revenue has grown at a Compound Annual Growth Rate of 8.6% since 2008-09. AHG’s TSR measured 21% over the past year and nearly 100% per annum over five years.

Mr Griffiths was up for re-election and the ASA asked about his role as chairman of Great Southern Ltd when it collapsed in 2009. Mr Griffiths explained that its business strategy needed significant change and this was being undertaken when overwhelmed by the global financial crisis. He was comfortably re-elected with our support as only 0.2% of the proxies opposed him.

The Group MD Bronte Howson gave an overview and trading update for the 4 months to October with turnover up 7% with the Auto division up 13.2%. Logistics was proving to be a strong part of the business with the new Hazelmere facility, although delayed, currently operating at 83% capacity. AHG is confident about economic growth boosting business and the outlook has improved in the last four months with management focus on cost control and organic growth. AHG’s digital strategy is important and a new advertising campaign with the catchy slogan “AHG – Easy as 123” is underway.

We were surprised to see a substantial 36% vote against the remuneration report, incurring a ‘first strike’. We had decided to support all three remuneration resolutions but we noted concerns about the 3-year appraisal period for the LTI, the discounting of market value to “fair value” to determine the number of rights to allocate, and the high short-term incentive element of Mr Howson’s remuneration. We understand that the main opposition to the remuneration report came from their competitor shareholder, AP Eagers, holding a hostile 20% stake in AHG.

ASA intends to quiz AP Eagers about its AHG holdings at its AGM in Brisbane next May. There was also a 10% protest vote against a fee rise for the directors.

AUTOMOTIVE HOLDINGS AGM

BAD DEBTS COME TUMBLING DOWNAS SHAREHOLDERS SUPPORT ALL ITEMS

HOSTILE COMPETITOR REVS UP AHEBY USING STAKE TO TRIGGER STRIKE

The role of founder Gordon Merchant, a new CEO appointed 12 weeks ago, details on arrangements with the Centerbridge/Oaktree consortium and 19 resolutions, of which 11 were hostile to the board, all made for a lively Billabong AGM.

Chairman Dr Ian Pollard outlined that with finances secured, a CEO appointed and confidence that the future success of the company was in the hands of management, the outlook for Billabong was positive. To secure the financial arrangements with the Centerbridge/Oaktree consortium, shareholders were implored to vote for the placements and rights issue to be tabled at the EGM to be held in January 2014. This will enable Billabong to turn around its global operations.

The chairman also addressed the hostile resolutions proposed by Coastal Management, a New York-based fund which owns 7.6% of Billabong. He advised that the resolutions were proposed prior to the arrangements with the C/O Consortium being finalised. Coastal’s proposed changes to the constitution, removal of the three non-executive directors and proposed appointment of two of Coastal’s representatives were not in the interests of the company going forward.

Dr Pollard advised that the board met 57 times in 2012-13 and 45 times so far in 2013-14, much of this time without a CEO. American Neal Fiske has only been CEO for 12 weeks but delivered an impressive presentation stressing the company needs to put the focus back on its brand. The new mantra is ‘fewer bigger better’. He was well received by shareholders and the wider market as Billabong shares jumped after the AGM.

As outlined in its voting intention, the ASA advised the meeting that Billabong should tender its external audit service with a view to replacing PwC, which has performed the audit since Billabong floated. Following further prompting from a fellow shareholder the chairman agreed to provide an answer by the next AGM.

All 19 resolutions were voted by poll. The board recommended voting for resolutions 1 to 8 and against Coastal’s resolutions 9 to 19. The aspiring Billabong directors from Coastal failed to show up, prompting one shareholder to comment: “At least when Stephen Mayne nominates for a board he turns up to the AGM!”

The results of the poll showed that resolutions 1 to 8 were passed and resolutions 9 to 19 failed, all in accordance with the board’s recommendations. However, the hostile recommendations from global proxy adviser ISS saw some of the Coastal resolutions supported by up to 35% of voted shares.

MONiTOrS: STEpHEN MAyNE & SilvANA ECClES

date 10 December 2013

venue Sofitel Hotel, Gold Coast

Attendees 86 shareholders and visitors





pre-AGM meeting Yes, by telephone with Chairman

MONiTOrS: JOHN CAMpBEll & duNCAN SEddON


venue Perth Convention and Exhibition Centre

Attendees 311 shareholders and 250 visitors

ASA proxies 13,458,560 shares from 3037 holders

value of proxies $505 million



pre-AGM meeting Yes, with Chairman and executives

Chairman Jac Nasser explained to shareholders that he would like to recognise the contribution of the 26,000 employees and contractors in Western Australia. BHP has been in business in WA for over 60 years, with more than 20 per cent of the global assets and more than 78,000 shareholders in the state. BHP expects the Chinese economy to grow by more than 7% in 2014 and that China and other emerging economies will be the major drivers of global economic growth in the long term, which could deliver up to a 75 per cent increase in demand for some commodities over the next 15 years. With the four key pillars of coal, copper, iron ore, and petroleum, and a possible fifth pillar in potash, BHP hopes to be able to meet every phase of the economic development cycle, from investment to consumption-led economies.

A full year dividend increase of 4% to US116c per share – which translated to a 13 per cent increase to $A1.20. Dividend has increased at a CAGR of 18 per cent over the last 10 years, and BHP has returned more than $US59 billion in dividends and share buy-backs to shareholders in that time.

CEO Andrew MacKenzie reported the results and said that his focus was on extracting more value from existing operations. Over the next two years, he expected to increase production by 8% per year and deliver additional productivity-led cost savings. It was planned to reduce capital expenditure by 25 per cent, to $US16 billion, for the 2013-14 year, with a further decline in the following year.

Most of the 4-hour meeting was taken up with climate change questions with a consistent response from the chairman that BHP is a climate change believer and the board is addressing the matter. All resolutions passed with the most significant against votes being 2.7% against the three remuneration resolutions opposed by the ASA, and 4.7% against providing general authority for the directors to issue shares in Billiton plc. We explained why we opposed the remuneration resolutions, including our strong opposition to the awarding of large bonuses in the context of negative shareholder returns. We asked for action on the accumulated $10 billion of franking credits but were informed this was not a high priority because of the large proportion of overseas shareholders. We also asked for consideration to be given to dismantling the DLC structure but no positive response was forthcoming.

BHP BILLITON AGM

BILLABONG AGM AFTER 102 BOARD MEETINGS IN 18 MONTHS,BILLABONG LANDS CEO AND SURVIVES AGM

DESPITE 3037 PROXIES WORTH $505 MILLION,BHP DUCKS ASA SANCTION OVER TSR BONUSES

EQuiTy January 2014

AFTER 102 BOARD MEETINGS IN 18 MONTHS,BILLABONG LANDS CEO AND SURVIVES AGM

DESPITE 3037 PROXIES WORTH $505 MILLION,BHP DUCKS ASA SANCTION OVER TSR BONUSES

MONiTOr: pETEr METCAlF

date 6 December, 2013

venue Sofitel Wentworth Hotel, Sydney

Attendees 150 shareholders plus 160 visitors



proxies voted Yes, poll on remuneration only


pre-AGM meeting Yes, with chairman Rob Millner and CFO

This year’s meeting was better attended than last year’s due to the anticipated update on the contentious cross-shareholding proposal but ASA’s proxy vote was slightly down. The meeting was preceded by an elaborate trade display showcasing the wares of all subsidiaries and associates and it was inspired by the Berkshire Hathaway AGM.

The chairman’s address was nothing more than a rehash of the annual report but did include an element of current year trading results and outlook for a number of subsidiaries. There was no discussion on the accounts apart from an ASA request for a five year financial summary. The accounts are very complex and a summary is badly needed.

The remuneration report was unanimously passed on a show of hands and was supported by the ASA. The chairman was re-elected on a show of hands and was supported by the ASA despite his perceived lack of independence due to tenure and shareholder grounds. His continued role as a director is regarded as crucial to the ongoing success of the company. The Millner family and their forebears have controlled the company for over 100 years and seem determined to bat on.

The board told the ASX there was a 12% vote against the chairman, but this was misleadingly based on the total shares on issue. In reality, the 28.1 million against votes represented 15.3% of the directed votes in the poll and reflected the voting power of Perpetual, which is the second largest shareholder after the 42.7% stake held by Brickworks.

The interesting part of the meeting was left till the end when the chairman gave an update on proceedings on the cross shareholding proposal. He left little doubt that the proposal, whilst possibly of benefit to Brickworks shareholders would be extremely damaging to Soul Pattinson and he told the meeting that all of the company’s cash would be paid to Brickworks shareholders who would also gain all of Soul Pattinson’s franking credits. As a result Soul Pattinson would not be able to pay dividends in the future and it would be left a legacy of significant debt on its books.

Representatives of Carnegie/Perpetual attempted to allay concerns but their efforts received a somewhat hostile response from the meeting. The combatants will resume hostilities in court to determine who can vote on the proposals when Brickworks shareholders reconvene in February.

SOUL PATTINSON AGM

MONiTOr: pETEr METCAlF


venue The Establishment, Sydney






pre-AGM meeting Yes, with chairman Rob Millner

Given that this meeting was held in the midst of an ongoing battle over the company’s cross shareholding with Soul Pattinson there was an air of expectancy at the start and the meeting didn’t disappoint as it unfolded.

The chairman started proceedings with a long and spirited defence of the corporate structure and its performance over the long term and emphasised the financial stability it has afforded the company during downturns in the building industry. He said Brickworks has been the only building stock to maintain its dividend since the GFC and the company’s TSR over the past 15 years has exceeded all its peers. He went to pains to demonstrate that Brickworks was a long term performer, was not managed to outperform in the short to medium term and that strategies were geared to a 15 year time horizon. The ASA challenged him on that point by saying that it considered 15 years was unrealistic given shareholders expectations in today’s equity market. However, from the tone of other speakers it was obvious the board has considerable support for its current strategies.

Lead independent director Robert Webster also addressed the meeting with an update on the cross shareholding battle and advised that the board had not come to a conclusion on whether the proposal was in the best interests of shareholders. The board has requested an ATO tax ruling, has commissioned an expert report and is taking legal action against its largest independent shareholder to force the proposer of the deal to provide clearer information. Mr Webster indicated that a general meeting is to be held in February to consider the proposal. Multiple shareholders, including several employees, spoke against the Perpetual proposal, mostly criticising the lack of information. The general mood of shareholders was caution until more information is made available, even though Brickworks is regarded as having the better of the deal relative to Soul Patts.

The remuneration report was commended by the ASA for its reasonableness and structure but was opposed by 24% on a poll. Discussions after the meeting suggested that Perpetual used the vote to register a protest against the board. Similarly, the resolutions for the re-election of two directors received against votes in the order of 20%. The ASA supported both directors. The chairman advised the meeting that the board intended to appoint a new independent director shortly and the ASA spoke in support of that decision.

BRICKWORKS AGM

ENTRENCHED MILLNER CHARMS SHAREHOLDERS WITH TRADE DISPLAYS, PUSHES DEBT BOGEY

BRICKWORKS OFFERED A PILE OF SOL CASH,BOARD AND SHAREHOLDERS WARY OF CHANGE

MONiTOrS: AllAN GOldiN & MAry CurrAN


venue Intercontinental Hotel, Sydney

Attendees 71 shareholders





pre-AGM meeting Yes, with chairman Reg Kermode

MONiTOr: TOM rAdO


venue Computershare’s Conference Centre, Melbourne

Attendees 26 shareholders, 26 visitors




Market cap 6.2 billion

pre-AGM meeting Yes, with CEO, CFO & IR Manager

Subdued corporate activity and low interest rates have again impacted on its profit – a drop of 9%. It generates margin income on client funds it holds at any given time by investing on the short-term money market.

Although revenue increased mainly due to its newly acquired American businesses, write-offs and other expenses such as system rationalisations and technology upgrades, reduced net profit. Computershare paid a 28c dividend, 20% franked. It sold its interactive events technology group IML at a 76% loss which surprised us as the $39 million write off was not previously officially assessed in the accounts over the last few years. In Australia, it launched “Digital Post Australia” to deliver registry and other mail to subscribers as well as secure storage of records for these subscribers; however it is experiencing problems compared to the existing registry’s eCommunication. Given the issues present they are modifying its direction.

The high PE ratio of 36 indicates that the market sees the economy and corporate activity picking up with more IPO, M&A and capital raising activity globally. All of which should generate more business for the company.

In view of The AFR article “Computershare firm probed”, we asked for comments on the story of two employees of Georgeson, a Computershare company, giving bribes for inside information on voting intentions from an advisory firm in the USA.

The CEO, Stuart Crosby, responded by saying that although the incident was uncovered some 15 months ago, the two employees had since had their employment terminated and it’s only now that the US Securities & Exchange Commission (SEC) has indicated an investigation into Georgeson’s complicity. He added that it mainly involved minor value “bribes” such as concert and sport event tickets.

We supported the re-election independent director Les Owen. Despite a heavy workload, he is well qualified and said he’d be reducing his commitments in 2014.

We supported the Remuneration Report mainly for the following reasons. The STIs was only 30% of base remuneration; 15% of which was immediate cash and the other 15% was on a 2 year deferred share grant. With the LTIs, 50% was subject to EPS growth performance hurdle over a 5 year period, whilst the other 50% did not vest for 5 years provided the employee remained with the company.

CABCHARGE AGM

COMPUTERSHARE AGM

86 YEAR OLD CHAIRMAN A NO SHOWFOR HISTORIC THIRD STRIKE ON REM

HIT BY MARKET SLOWDOWN AND LOW RATES, BUT LOFTY PE SUGGESTS BETTER TIMES AHEAD

Executive chairman Reg Kermode was missing, yet no reason was given to shareholders. Non-independent director Neil Ford, whose re-election suffered a 21.2% protest vote last year, took over as acting chair.

The company has suffered from regulatory intervention such as the ‘one Fels swoop’ on taxi regulation in Victoria and apps such as ‘go catch’. The share price is at a low of approximately $3.80. Revenue only crawled 3% higher in 2012-13 and net profit edged up 1% to $60.6 million.

The group made a number of acquisitions including additional investments in CDC of $26 million, which meant that net debt to equity ratio increased from 36.0% to 43.6%. The acting chairman spoke of ‘prudent capital management’ and noted the decrease in the dividend payout.

On the payments front, the number of contactless transactions processed on their terminals doubled and the rapidly growing use of Cabcharge FASTeTICKETs is encouraging. There is also the deployment of FareWay Plus, the new in-taxi payment engine and demand is increasing.

To return to the question of the ‘executive chairman’, Mr Ford raised the ASX Corporate Governance Principles of “if not, why not” and that the combined role will cease when Reg Kermode retires. He also committed to the rebalancing of the mix of fixed pay, STI and LTI.

We brought to bear the lack of diversity on the board. Cabcharge has a 50% female workforce and no female directors.

There were only two resolutions. We asked veteran Donald McMichael to speak to his election and explain why he has so little ‘skin in the game’. Sadly he declined stating this was a private matter. He suffered a solid 26.7% protest vote on the proxies but the motion passed on a show of hands.

The remuneration report did not gain our tick of approval and the proxies were 46% against. We have a number of issues such as the size of fixed pay versus incentives, the dual role of Mr Kermode and the need for more skin in the game from some directors. A poll was called. The final results lodged at the ASX showed 45% against, which means Cabcharge is the first ASX200 company to notch up three strikes.

The against vote was around 40% in 2011 and 38% last year, so shareholder antipathy is clearly growing. The retirement of Reg Kermode is arguably the best way to deal with the problem.

EQuiTy January 2014

HIT BY MARKET SLOWDOWN AND LOW RATES, BUT LOFTY PE SUGGESTS BETTER TIMES AHEAD

MONiTOr: rOGEr JuCHAu


venue David Jones Ballroom, Sydney






pre-AGM meeting No

Celebrations were somewhat subdued as chairman Peter Mason and CEO Paul Zahra pushed their way through the shoals of directors’ share dealings, flat results, CEO resignation, remuneration excesses and continuing in-store service problems. The Chair apologised for the directors’ share dealings which ASIC is reviewing and affirmed that Mr Zahra was leaving when a replacement is in place for personal reasons and had done a sterling job taking DJs into the “omnichannel” retailing world.

Both men painted a positive picture of changes wrought to bring DJs into the new era of retailing and were enthusiastic about the future benefits of on-line retailing, regenerating customer growth and the strategic links including Liberty, Harrods, and “union pay credit card” operations which opens DJs to a vast world of Chinese customers.

Despite these developments, analysts continue to project net profit of around $100 million for the next 2-3 years and return on equity to remain around 11% because of poor returns on revenue. Asset performance continues to plague DJs although they are considering unlocking the wealth tied up in property and spare air space above its flagship Sydney and Melbourne stores. Share price is likely to gyrate around $2.50-$3.00 and may take a positive swing once there is sustained success in the webstore and when the “seamless” shopping experience is felt by all.

ASA’s commentary and action on remuneration contributed to the 40% protest vote against the remuneration report (1st strike) and a 36 % protest against rights awarded to Mr Zahra. Shareholders used their votes to register their concerns with director Clapham’s dealings (13% against). The AFR ran a page 1 headline the following day declaring “Investors humble DJs chair”, suggesting the remuneration protests were more about the unpopular departure of Mr Zahra. Directors Stone and Conrad received larger majorities and the retirement of director John Harvey was announced. A poll was conducted on all resolutions. The chair said that remuneration practices will undergo a thorough review.

The medium term challenge for DJS is to get their retailing ducks in a row. How it resolves the demands of keeping both on-line and in-store operations up to the mark and also contend with a competition model, whose elements are less and less predictable, is uncertain. And even more problematic is where to allocate the scarce investment dollar to boost the customer base. There remains the traditional loyal customer – can DJs educate them to change expectations about their in-store experience?

DAVID JONES AGM

MONiTOrS: pETEr METCAlF & STEvE WATSON


venue Wesley Centre, Sydney

Attendees 47 shareholders, 34 visitors





pre-AGM meeting Yes, with chairman

Long-serving chairman Peter Polson told the meeting in his annual address to shareholders that 2013 was a pivotal year for Challenger. The strategies set for the business several years ago delivered record financial results during the year and there is more to come. For shareholders, this translated to a TSR of 27% for the year as well as an enhanced dividend payout. The chairman said that the payout ratio (dividends and buyback) would equate to 50% of normalised profit going forward.

CEO Brian Benari elaborated at length on strategy issues and explained that fundamentally the company’s future will be defined by the expected growth in national retirement savings and he pointed to a recent study which forecast the Australian super system would grow from $1.7 trillion to $7 trillion in the next 20 years.

Challenger participates in the super savings phase via its boutique funds management business and participates in the super spending phase via its annuity business. So, the company’s strategy is firmly entrenched in the national super system and they would benefit from any policy move which grows the pool of funds.

The remuneration report received an 11.6% no vote due to the recommendation of an institutional proxy advisor, Ownership Matters. Whilst nothing like the 70% against vote in 2010, it was a material protest worthy of discussion.

We also voted against the report and were disappointed to hear the chairman advise the meeting that in 2014 future LTI grants will see 50% of a given tranche vest at the minimum hurdle rate rather than the current 33%.

This will give us just another reason to vote against the report in 2014. There is a discernable link between executive pay and performance but we continue to believe that the overall quantum is excessive especially when compared to other similar sized companies in the ASX 50-100 bracket.

The chairman also advised that performance hurdles will remain as presently set despite not being achieved for the last two years. We note that LTI awards can be retested for vesting until the end of the third anniversary.

Two directors, including the chairman, were re-elected for three year terms and they were both supported by the ASA and more than 99% of directed proxies.

CHALLENGER LTD AGM

DID INVESTORS “HUMBLE THE CHAIRMAN”OR WERE THESE SERIOUS REM CONCERNS?

CHALLENGER SCORES WELL FOR OWNERSBUT AT A HIGH REMUNERATION BILL

It has been a troublesome few years for Fairfax. The statutory loss of $16.4 million in 2012-13 wasn’t great, but hey, the previous year saw a staggering $2.73 billion loss. The profitable sale of Trademe had derisked the balance sheet and reduced net debt to just $154 million, which will be further reduced by the post-AGM sale of accommodation site Stayz for $220 million.

Shareholders were warned that the newspaper division had suffered a further 10% revenue slump in the first quarter. CEO Greg Hywood gave an impressive, passionate and determined outline of the quite brutal restructuring program he is overseeing.

The ASA representative asked a range of questions, including whether further write-downs were necessary given that the claimed net assets remained well above the company’s market capitalisation.

There was a substantial protest vote of almost 20% against Linda Nicholls and Sandra McPhee which was wholly driven by the largest shareholder, Gina Rinehart, demonstrating her ongoing frustration with the company.

Ms Rinehart also voted against the grant of approximately 15 million share options to Greg Hywood, meaning it was only supported by 78.59% of voted shares in the poll.

However, she pulled her punched on the remuneration report, presumably because she didn’t have the numbers to trigger a second strike and therefore would have been seen to have failed. The REM Report passed with 97.4% in favour.

The ASA questioned the $96 million in cash paid out as redundancy payments in 2012-13 as the board appears to have given away 15-20% of the company’s value to departing employees.

ASA also challenged the board to take more of their pay in shares rather than cash. Chairman Roger Corbett only holds about $60,000 worth of shares. Asked to commit to buy more shares in 2014, Mr Corbett declined, so ASA voted against the remuneration report given that we want chairs to have genuine “skin in the game”.

MONiTOr: STEpHEN MAyNE


venue Sydney Masonic Centre

Attendees 200 approx.





pre-AGM meeting Yes, with chair earlier in the year.

FAIRFAX MEDIA GINA LASHES OUT AS STRUGGLING BOARD BATTLES BRAVELY TO FIND A WAY FORWARD

MONiTOr: TONy rOBiNSON


venue Museum of Sydney

Attendees 15 shareholders, 2 visitors.




Market cap $2,672 million

pre-AGM meeting Yes, with chair Doug Halley and one exec

CEO David Bartholomew said the business has been reorganised, rearranged and incorporated at significant cost, giving management the opportunity to focus, reduce costs, and grow the business. Chevron’s Wheatstone project is signed up and underway, smart meters are 77% complete at United Energy and successful regulatory negotiations at Multinet has secured tariff increases of CPI plus 1.5% in 2015 and plus 2% in 2016.The new funding arm, DFL, has divested minority interests, reduced the group’s gearing, funded Wheatstone and negotiated the refinancing program. Management is projecting a distribution of 17c up from 16.5c this year and to fund growth on accretive terms.The share placement in September was questioned as there was no opportunity for shareholder participation through an SPP or pro-rata entitlement offer. The chair responded that there was no time for other options but the company is currently evaluating alternatives for possible future capital raisings.ASA asked the Chairman for reassurance that the remuneration committee will seriously consider changing the short term bonus award from straight cash, to include a significant amount of equity and extending the performance period of the LTI from 3 years to 4.The Chairman responded that the remuneration committee had rejected partial equity STI due to the importance of cash as a motivator and the tax considerations of equity valuations. He is sympathetic to the second suggestion and will present it at the next remuneration committee meeting.ASA asked that director Ron Finlay be allowed to explain why he holds only a small number of securities. The Chair responded that there had been virtually no trading windows for directors to buy shares and he believes that buying equity was a private matter and directors did not need it to heighten their performance. Mr Finlay said he has tried to buy equity in DUET on several occasions but had been legally advised not to due to the market sensitive work he was involved in.The ASA voted for 11 of the 13 motions and against the two remuneration related items, both of which passed with more than 98% as did the constitutional amendment and refreshment of placement capacity. The elections of five directors - chair Doug Halley, Ron Finlay, Emma Stein and Macquarie’s John Roberts and Eric Goodwin - only received 76% in favour as one of the proxy advisory companies recommended against on the basis they were not independent enough from AMP and Macquarie.

DUET GROUP AGM MACQUARIE/AMP CONNECTIONS TRIGGER26% PROTEST VOTE AGAINST FIVE DIRECTORS

EQuiTy January 2014

MONiTOrS: AllAN GOldiN & dAvid JACKSON


venue The Westin Hotel, Sydney






pre-AGM meeting Yes with Chairman, CEO and executives

The meeting was not very well attended, no doubt the conflict with the DJs AGM was a factor for the financial community. Two directors, Philip Fan, a Hong Kong resident and Anthony Rozic submitted their apologies for non-attendance. Chairman Ian Ferrier ran the meeting well, holding the announcement of the proxy voting until the end of the meeting, after all the discussion and the casting of votes. Apart from your ASA representative there were only three questions.

CEO Greg Goodman gave an upbeat presentation on the future for Goodman both nationally and internationally. The operating profit forecast for 2013-14 was confirmed at $594 million, an increase of 6% on 2012-13. It should be noted, however, that operating profit is an underlying profit, excluding a number of items. For example the 2012-13 statutory profit was $161 million, compared with the $544 million operating profit. Your representative was critical of the emphasis on the adjusted profit. The 2014 distribution to shareholders is forecast to increase by 7% to 20.7 cents, all unfranked.

The appointment of executives to the Board was also criticised, particularly as it increased the size of the board to eleven for no discernible gain to the future performance of the company. We also expressed concern at the complete lack of “skin in the game” of the Deputy CEO, Anthony Rozic, who has no shares, having sold his vested shares in 2012 and 2013. Unfortunately, due to incapacity, he was not in attendance to provide an explanation. It was encouraging that the non-executive Directors are now required to hold equities equivalent to twice the value of their annual base pay within 5 years of appointment and a proportion of their pay is used for equity purchases until that occurs. This is a welcome requirement that we would like other companies to follow. No explanation was given for the increase from 3 to 5 directors sitting on the Remuneration and Nominations committee.

The construction of the executive remuneration packages was criticised, in particular the payment of all short term incentives in cash, the lack of declared hurdles and clawback provisions and simply because we continue to believe that overall remuneration packages at Goodman are excessive.

All resolutions were very comfortably passed with more than 96% of directed votes in favour of all items. The total votes cast at 80% of total securities was also much higher than the norm.

GOODMAN GROUP AGM

MONiTOrS: GEOFF SHErWiN & KEviN BOWMAN


venue Hyatt Hotel, Perth



value of proxies $2,825,026

proxies voted No, show of hands on all items


pre-AGM meeting Yes, with Chairman, Mark Barnaba, and company secretary

Chairman and largest shareholder Andrew Forrest introduced the CEO, Nev Power. He noted that FMG had completed its 10th year in 2013 which was a pivotal year of expansion, increased efficiency and an increase in the dividend from 8c to 10c per share. The financial statements disclosed record revenue of $US8.1 billion, net profit of $US1.7 billion, capital expenditure $US6.2 billion, net debt $US 9.9 billion (excluding lease commitments) and the completion of no 4 berth at Port Hedland. He noted that capex was expected to decline rapidly in the next two years whilst production would ramp up to 155mtpa. He expected FMG to be in third position of the lowest cost producers and substantial debt reduction would be achieved during the next two years. The culture and family values of FMG were emphasised with 12.5% of staff being indigenous Australians, and $1.4 billion of contracts having been let to Indigenous enterprises.

China’s continuing growth prospects and demand for steel was highlighted. The speed of infrastructure construction was demonstrated to the audience by means of an impressive time lapse display.

In the chairman’s address Mr Forrest emphasised that FMG’s goal is to become a moderate to low risk, high growth company. It has long-life, high quality ore bodies and debt reduction is continuing. He says the company operates in a sustainable manner whilst making a significant contribution to the communities in which it operates and to the Australian economy.

The remuneration report was passed on a show of hands after the proxy votes disclosed a 95% vote in favour. The ASA voted against on the grounds of governance issues arising from an executive director’s substantial margin loan over company shares, personally guaranteed by the chairman.

All other resolutions were passed on a show of hands following the display of substantial proxy majorities, including the appointment of two new female independent directors, Elizabeth Gaines and Sharon Warburton, along with a new executive director, namely former Worley Parsons managing director Peter Meurs.

The FMG board now has a majority of independent directors, 7 out of 12. We would prefer it also had an independent chairman but acknowledge the success that founder Andrew Forrest has delivered, firstly as CEO and now as non-executive chairman.

FORTESCUE METALS AGM

INVESTORS SEEM UNPERTURBEDBY EXCESSIVE SALARY PACKAGES

THIRD FORCE IN IRON ORE REDUCING DEBT,EXPANDING CAPACITY, ADDING DIRECTORS

MONiTOr: riCHArd WilKiNS


venue Radisson Blu Hotel, Sydney





Market cap 200 million

pre-AGM meeting No

The 2013-14 financial year started well with revenue slightly above expectations, and costs within guidance. Cash flow directed to reducing debt and tax should be about $80 million, up 10% on 2012-13.

Infigen, the old Babcock & Brown Wind, is in discussion with a small group of potential buyers for the 141mW Capital wind farm with any sale proceeds to be used to reduce debt. The company recently announced a proposal to buy some of the Class A US tax equity, as a prudent use of scarce cash. The investment offers a high return with short payback period and has the extra benefit of moderating some of the cash flow dip from US operations in coming years.

The Board decided it will not resume dividend payments but are confident that it will be able to satisfy its debt obligations in future years, even when they become more stringent. Infigen has a strong pipeline of development projects, especially in Australia, but their fulfilment depends on access to debt and equity, which are unavailable on acceptable terms in the unsupportive regulatory climate.

ASA asked whether Infigen’s decision not to sell the US assets, and their impairment in the latest results, reflected a permanent reduction in their value. The company explained that it was better value to keep them, and the impairment arose from factors that did not directly relate to Infigen. We also asked for details of the Class A purchase and likely intensity of the coming cash squeeze in 2016-18, as cash flow from US projects is directed to Class A interests while the Australian debt covenant tightens. Infigen is confident that this is manageable with the investment return mitigating the covenant squeeze.

On balance, ASA opinion on the remuneration report was a “borderline” vote in favour, but we urged the board to consider lower incentives in future years, extend the LTI period to 4 years and remove retests. The Chair emphasised that the Board’s position was that the executives are not overpaid for very challenging roles.

We voted against the CEO LTI rights because we consider that the potential pay of $1.65 million is too high compared to other KMPs at Infigen, and also relative to successful CEOs of other companies. Although the proxy votes were less than 4% against both pay resolutions, the show of hands on the LTI only passed 17 votes to 14 after ASA spoke against it.

MONiTOrS: JOSEpH TAN & MAlCOlM KEyNES


venue Adelaide Convention Centre


ASA proxies 1.9m shares from 215 holders


proxies voted Yes, poll on 3 out of 6 items


pre-AGM meeting Yes, with chair and deputy CFO

This year’s AGM for Hills Ltd (formerly Hills Holdings Limited) carried forward last year’s theme regarding the company’s restructure and transformation under new CEO Ted Pretty.

The company’s revenue from continuing operations in 2012-13 was $492.5 million, which has almost halved due to the sale of several large businesses. Net cash flow from operating activities was $81.4 million, an encouraging increase from last year.

The company reported a net loss of $91.4 million which was largely due to $113.3 million in write-downs and costs associated with restructuring, impairments and divestments. This was in line with estimates given at last year’s AGM.

Chair Jennifer Hill-Ling said that Hills is moving from capital-intensive manufacturing into innovation and telecommunication services.

Director Fiona Bennett was comfortably elected but the second candidate, David Spence, suffered a surprising protest of almost 8%. He was the only candidate who currently serves on the remuneration committee, has been on the board since 2010 and has strong communications and technology experience.

Adoption of the remuneration report was voted by poll and attracted against votes of 26%, so the company recorded a first strike on its remuneration report. The ASA voted ‘for’ this resolution as the report was clear and fair. In 2012-13 no grant was made under the LTIP due to non-achievement of hurdles and other reasons and the CEO’s STI component was 45% of his total remuneration as no LTI was offered.

The next resolution regarding approval of performance rights to Mr Pretty also had a 26% ‘against’ vote. We voted ‘for’ this resolution, although the LTIP had a three-year performance period, since the company deferred Mr Pretty’s LTIP by 12-month and withdrew the LTIP proposal at last year’s AGM. The proposed LTIP now was effectively 4 years from when the Managing Director started his role at Hills.

The Resolution of change to the company name was passed overwhelmingly in favour.

The Chairman highlighted share price doubling from the same time last year and distributions of dividends of 3.25c per share in this calendar year. No additional restructure or impairment charges were announced, and we expect Hills’ 2013-14 result to reflect this through a healthy profit.

HILLS LIMITED AGM

INFIGEN AGM MESOBLAST AGMGOOD WIND DEVELOPMENT PROSPECTSHAMPERED BY DEBT, RET UNCERTAINTY

HILLS SHAREHOLDERS DELIVER STRIKE AND 26% AGAINST CEO’S LTI GRANT

EQuiTy January 2014

MONiTOr: pETEr SCHiFF


venue Deloitte, 550 Bourke Street, Melbourne






pre-AGM meeting Two phone call with chair

ASA commenced monitoring Mesoblast in 2013 after its market capitalisation briefed exceeded $2 billion. Chairman Brian Jamieson addressed the AGM held at Deloitte’s Melbourne office with a summary of the company’s achievements in 2012-13.Mesoblast is a regenerative medicines company that is studying the use of proprietary cell lines (MPC and MSC) in the development of products to fulfil unmet medical needs. Diseases under study, or to be investigated, include heart failure, type 2 diabetes, orthopaedic diseases of the spine and bone marrow cancer. CEO Silviu Itescu was recently the feature interview on Alan Kohler’s now defunct ABC1 program, Inside Business.In 2013 the company received US Federal Drug Administration (FDA) approval for its manufacturing plant in Singapore and successfully raised $170 million in additional capital through the selective placement of 27 million new shares at $6.30. ASA prefers pro-rata entitlement offers, but in this instance we do note the stock was around $5.70 shortly before Christmas so recipients of the placements shares are under water. The company is currently a loss-making entity in development phase. It incurred a loss of $61.7 million for the year, and at 30 June had cash reserves of $317 million.Since 1 July the company has received FDA approval for a phase 3 clinical trial in patients with heart failure, to be conducted by their partner Teva Pharmaceticals. On 11 October they announced the acquisition of the culture-expanded mesenchymal stem cell business of Osiris Therapeutics, including a large intellectual property portfolio.ASA pointed out that the chairman’s fees were excessive for a company of this size and complexity. We, therefore, voted against the remuneration report.We supported the election of Dr Eric Rose and the re-election of Michael Spooner to the board, but voted against the re-election of the chairman because he holds another chairmanship and three other directorships.We supported approval of the employee share option and loan funded share plans, even though they do not comply with ASA guidelines. The majority of the employees work in the US, and the company has attempted to craft incentives to be even handed to its staff in all jurisdictions.ASA voted against the proposal to increase the directors’ fees pool size by 25% to $1.25 million. Directors received an increase in 2013 and we saw no need for the early addition of another director when there are currently five non-executive directors. All resolutions were supported by more than 95% of the directed proxies.

$2B COMPANY BLASTS ONTO ASA RADARAND CASHES UP HEADED FOR THE CLINIC

MONiTOr: rOGEr JuCHAu


venue Four Seasons Hotel, Sydney

Attendees 218





pre-AGM meeting No

Chairman David Crawford and managing director Steve McCann kept the focus on future growth. However their attention was deflected by audience questions over issues such as the potential involvements in the Abbot Point export coal terminal, continuing issues over the management rights transfer at Prime Trust and the personnel involved in the ABC Learning collapse.The Chairman also said executive remuneration issues raised at the 2012 AGM were addressed and will be reviewed further. Continuing inputs from ASA and others are welcome. Mr Crawford announced that KPMG, a firm he used to chair, would continue its uninterrupted run as external auditor since 1958 and that UK-based director Gordon Edington was retiring after 14 years on the board.Analysts are projecting net profit to grow from $550 million to $620 million by 2015-16 and hold positive views about the value in the construction contract book and development pipeline.ASA noted the 15% ROE target announced by the chair, but raised concerns that this target may only be delivered via high leverage since the other drivers for ROE, return on revenue and asset turnover, were currently below par. In particular a lot of cash and revenue are to be released from ongoing work, delayed completions and unsold property. The chair also confirmed that ASA’s request for prompter Tax Advice Statements was being addressed.While all resolutions on elections of directors and remuneration matters were comfortably passed with more than 96% in favour, ASA was greatly disappointed by the 97% vote in favour of director David Ryan, the chairman of ABC Learning at the time of its 2009 collapse. ASA pointed out the multi-billion losses and dreadful governance associated with ABC Learning’s failure and ongoing regulatory and professional issues for some individuals involved in the collapse. The ongoing ethical and professional issues surrounding Mr Ryan’s continuing presence on the Lend Lease board was a serious concern and ASA could not support his re-election.The issue for Lend Lease is whether the much-vaunted embedded wealth in backlogs and pipelines will be realised in a timely manner to sustain shareholder returns and meet payment obligations as new mining, housing and commercial developments enter more uncertain and competitive conditions.

UNCLOGGING A BIG PIPELINE ANDTHE ABC OF SAVING DAVID RYAN

LEND LEASE AGM

MESOBLAST AGM

MONiTOr: JOHN Curry


venue Mural Hall, Myer Melbourne

Attendees 100 shareholders plus about 100 visitors





pre-AGM meeting Yes, with chairman and HR manager

Chairman Paul McClintock said the company had turned in a solid performance in a challenging environment. Sales for 2012-13 were 0.8% ahead of the previous year, and the margin on sales improved slightly, but net profit was 5.1% lower. There are some signs of cautious consumer confidence.The company will keep pushing for the government to regulate for GST to be charged on on-line purchases from overseas costing less than $1,000, a message which was also pushed strongly at the Harvey Norman and Premier Investments AGMs.An international search is being conducted for a replacement next year for Bernie Brookes, the long-serving present CEO who was first hired after private equity firm TPG purchased the company in 2006.Major refurbishments to stores (the biggest being the long-delayed flagship Melbourne Emporium) and an increase in operating costs will impact on profit in the first half year and the full benefit will not be realised until the 2014-2015 year.There are now over 5 million Myer 1 members who account for nearly 70% of sales. On-line sales growth was 200% higher in 2012-13 with 90,000 items now available on-line as part of the company’s multi-channel strategy.Sales in the first quarter of 2013-2014 were 0.44% higher than the first quarter last year, with trading up modestly, but patchy.In an uncontentious question and answer session, the ASA raised the relatively high level of fees paid to the auditors for non-audit work compared with the audit fee and said this could affect the independence of the auditor. The response was that the non-audit fee was mostly for tax work.Chris Froggatt and Rupert Myer stood for re-election as directors. On a poll both were re-elected with over 99% of votes cast being in their favour.The ASA spoke against adoption of the remuneration report even though no STI or LTI awards had been granted to executives in the year. The LTI is only for 3 years and the STI does not provide for any award to be taken in shares. In 2014 the STI will revert to a single measure of performance – achievement of a budgeted level of net profit after tax, but any award will be paid in cash. Shareholders do not know the budgeted profit level. The remuneration report was approved by shareholders holding over 98% of votes cast on a poll.

MYER AGM

MONiTOrS: lEN rOy, lOrrAiNE GrAHAM & GEOFF FiEld


venue Royal Perth Yacht Club






pre-AGM meeting Yes, with chairman and co secretary

Chairman Rick Crabb noted that 2012-13 had been a watershed year with record production and these results had continued in the first quarter of 2013-14. With regards to safety, performance had been high but after year end fatalities had occurred at each of their major projects. As a result a full review of safety was underway.

He expressed disappointment that after years of development, expansion and upgrading of their two main operations, they were hit by a spot price for uranium at an eight year low. He reiterated the Langer Heinrich mine in Namibia is world class with a 20 year production capacity but that the Kayelekera mine in Malawi is a higher cost operation. The Kayelekera Mine (excluding inventory) has undergone several impairments and now has nil value in the balance sheet.

Their first attempt to sell a minority interest in Langer Heinrich had been unsuccessful and they decided to offer a selective placement of shares at a considerable discount to improve their cash position.

The chairman advised that CEO John Borshoff was to continue in the role until December 31, 2014. Mr Borshoff highlighted the record production performance but warned uranium prices had fallen below Paladin’s cost of production. He was adamant the outlook was brighter.

He emphasised the supply/demand situation noting that Japanese inventory reductions and falling prices had caused new investment to almost cease. He predicted that nuclear growth in China and elsewhere would create a supply shortfall from about 2016 putting upward pressure on prices.

The ASA raised concerns over the $US474 million loss in 2012-13 and the accumulated losses of $1.3 billion. Other shareholders questioned the company’s viability.

ASA voted against the remuneration report on the grounds the performance hurdles were not clear. We supported the re-election of Mr Baily but opposed Mr Crabb based on workload concerns and his 19 years on the board, including the last 10 as chairman. No dividends had been paid to shareholders during that 19 year period.

We did not support the ratification of share issue as it was not equitable for all shareholders and the placement further diluted PDN shares.

All resolutions were passed on a show of hands. The proxies were more than 97% in favour of the two directors but there was a 16% protest against the remuneration report and 12.5% opposed the share placement resolution.

PALADIN ENERGY AGM RAMSAY HEALTH CARE AGM

19YRS ON BOARD, NO DIVIDENDS, $1.3B INLOSSES AND RE-ELECTED WITH 97% FOR

ASA KEEPS THE REM PRESSURE ON,SHAREHOLDERS BACK ALL RESOLUTIONS

EQuiTy January 2014

MONiTOr: ElizABETH FiSH


venue The Shangri-La Hotel, Sydney






pre-AGM meeting Yes, with deputy chair and 3 execs

Chairman and controlling shareholder Paul Ramsay spoke about the acquisition of the Peel Health hospital in WA, and looking forward to expanding this hospital to its full potential, whilst also tendering for the Northern Beaches hospital in NSW and completion of the Wollongong hospital. He spoke about the imminent finalisation of an agreement with French company Medipsy, a psychiatric operator in France. He confirmed that the board was keen to see further expansion in Asia. However as CEO Chris Rex noted in his address, that particular market is complex and the organisation will proceed cautiously, although he thought China would undoubtedly provide some opportunities in the future.

The ASA voted undirected proxies against the remuneration report but it was supported by 98% of voted shares, even though Mr Ramsay could not vote his controlling 36.2% stake. However, the issue of equity incentives to the CEO and CFO both attracted material protest votes of more than 13% and that was after Mr Ramsay voted his 73.15 million shares in favour.

ASA supported these items along with a proposed increase in the fee cap for non-executive directors to $2.2 million. Given that Ramsay is capitalised at $7.75 billion and has seen its share price soar from less than $1 to more than $40 over the past 20 years, it was surprising to see a 23.2% protest vote against the fee rise, although Mr Ramsay was unable to vote on this item.

ASA understands that this institutional and proxy adviser protest may have been more about the age, lack of independence and long tenure of most of the non-executive directors who have collectively accumulated more than 100 years of board service.

It was disappointing that neither of the two independent directors up for re-election spoke to shareholders. Peter Evans has been a director for 13 years and suffered a 12.52% against vote due to his long tenure and consequential lack of independence.

Finance director Bruce Soden, a position he has held for 16 years, suffered a similar protest as his presence on the board again mitigates against the principle of having a majority of independent directors.

The ASA asked when Ramsay would appoint a female to its all male board? The Chairman responded that there were no vacancies at present so his position was that if something is not broken, don’t fix it. Perhaps an external female candidate should nominate for the board at next year’s AGM.

MONiTOr: Bill HENdErSON


venue Just Building, Richmond

Attendees approximately 50.





pre-AGM meeting Yes, with Company Secretary Kim Davis

Chairman and controlling shareholder Solomon Lew outlined that the previous two years had been amongst the most difficult he had seen in his 50 years of retail experience with the 2012-13 financial year a sustained challenging retail environment. Setting aside the one-off gain and treating the investment in Breville Group on a pro forma basis year on year, the profit before tax rose 3.8% to $101.8 million. The Chairman highlighted Premier’s strong view of the unfair competition caused by the $1000 GST exemption on offshore online purchases.The ASA was represented by Bill Henderson and Richard Giles and the ASA was the only speaker at the meeting. Voting was by show of hands after proxies had been displayed and no poll was called in spite of the substantial protests against two of the long-serving directors.In respect of the director elections, proxy votes accounted for about 84% of the shares on issue. The two independent directors, Tim Antonie and David Crean, received more than 99% of directed proxies in favour. However, there were significant protest votes against the non-independent directors, Lindsay Fox (11%) and Frank Jones (21%). Excluding the 42.4% stake controlled by Mr Lew’s camp, the ‘against’ percentages would double. Indeed, if you back out Mr Lew’s 58.55 million shares, Mr Jones was only supported by 43.45 million proxies, with 27.2 million against, including second largest shareholder Perpetual which holds a 12% stake.Both messrs Fox and Jones have been on the Board for 26 years. Mr Fox is 76 and the Chairman declined an ASA request to reveal the age of Mr Jones. If a poll had been called, the ASA would have supported Antonie, Crean and Fox but would have voted against Jones. Contrary to good practice, the Chairman does not allow candidate directors to speak to their election.The ASA informed the meeting that in our view having two directors on the Board for 26 years was inappropriate. We also stated that on our count the number of independent director was only 3 out of 10, an inadequate proportion. We also expressed the view there was inadequate hands on retail experience among the non-executive directors.The Remuneration Report received an 11% against vote, although Mr Lew wasn’t able to vote. We spoke in favour because the long term incentive scheme is a much tougher one than most others the ASA encounters.

PREMIER INVESTMENTS AGM

RAMSAY HEALTH CARE AGM

GREAT PERFORMER SUFFERS SURPRISINGPROTEST AGAINST VETERAN DIRECTORS

VETERANS FOX AND JONES ATTRACT PROTESTS,INVESTORS WANT MORE INDEPENDENT NEDS

19YRS ON BOARD, NO DIVIDENDS, $1.3B INLOSSES AND RE-ELECTED WITH 97% FOR

MONiTOr: STEpHEN MAyNE

date October 22, 2013

venue Company offices, South Melbourne

Attendees Approximately 25

ASA proxies Not available

value of proxies

proxies voted Only by chair on rem report


pre-AGM meeting No

After just 15 minutes of presentations, ASA opened debate by asking about the now aborted merger proposal with Nine. Chairman Max Moore-Wilton confirmed the deal was now “dead” because the Federal Government failed to abolish the 75% reach rule.

Despite his long pedigree with Macquarie, Max distanced himself from Macquarie on questions of whether the investment bank was a seller of its 25% stake. The chair was typically pugnacious during the 40 minutes of exchanges but he may have regretted answering ASA’s question about on-air incidents and a possible “cultural problem” at the company when he responded by saying “S-H-I-T happens”. This ill-advised remark generated more adverse publicity for the company and raises further questions about his tenure, especially after last year’s 43.5% vote against his re-election.

Max was asked to explain why SXL directors have received more protest votes than any other ASX200 company over the past three years. He said there was a perception about a lack of independent directors. ASA explained the history when speaking against the re-election of Chris de Boer. The original Macquarie Media prospectus disclosed a large number of executives and staff who were “Macquarie Bank employees”. However, the board later approved most of these people shifting across to the payroll of Macquarie Media, whilst Macquarie Bank continued to help itself to an estimated $100 million-plus in total management and advisory fees from its foray into the media ownership and management business.

ASA told the meeting that Macquarie has exercised its voting power at the past 3 AGMs to protect some of these directors, a point which was lost on Mr Moore-Wilton who didn’t seem to realise that he would have been ejected from the board in both 2010 and 2012, but for the support of Macquarie.

There was extensive debate about the remuneration report and CFO Stephen Kelly claimed that institutions were obliged to follow the advice of proxy advisers who had recommended against all items of business, thereby triggering a first strike. All three director candidates received more than 20% against, meaning SXL has extended its record run of board protest votes against the directors of an ASX200 company.

The prospect of a second strike and complete board spill next year may be the trigger which leads to the appointment of more genuinely independent directors and perhaps even an independent chair if Mr Moore-Wilton, 70, can be persuaded to retire some time before the 2014 AGM.

SOUTHERN CROSS MEDIA AGM

MONiTOrS: NiCK Bury, STEpHEN MAyNE & lAKBir Gill

date 13 and 19 November 2013 (SVW)

venue Doltone House, Pyrmont, Sydney

Attendees less than 100



proxies voted Yes, poll on some items


pre-AGM meeting No

The old WA News is now truly gone as Kerry Stokes has relocated the headquarters of Seven West Media from Perth to Sydney. This meant the media mogul fronted two AGMs for Seven West Media and its Stokes dominated parent company Seven Group Holdings at the same location in Sydney in the space of six days.

Nick Bury attended for Seven Group Holdings, which is primarily a mining services play through its Westrac business, and Lakbir Gill attended Seven West Media which is being held back by its struggling print operations.

Five resolutions were put to shareholders at the Seven Group AGM. The ASA voted against the remuneration report on the basis that new CEO Don Voelte was overpaid relative to the company’s modest market capitalisation of $2.24 billion.

Executive chairman Stokes claimed Mr Voelte was worth it. The only other item of note was the re-election of Dulcie Boling, who has set some sort of record by not buying a single share after 20 years on the board.

Moving across to the Seven West Media AGM, shareholders were told that Seven had won the ratings for the 7th year straight. However, television advertising revenue was still down 1% for the year to $1124.7 million. Newspaper advertising revenue tumbled 16% to $222.4 million but circulation revenue increased by 0.3% to $68.2 million. Magazines performed the worst with revenue from advertising down 20.7% to $77.5 million and revenue from circulation down 5.3% to $168.3 million.

The ASA queried why Kerry Stokes was replaced by new director John Alexander as chair of the remuneration committee and was told his skills and independence warranted the move. A shareholder queried the re-election of Don Voelte, who CEO hopped from Seven West to Seven Group during 2013. Mr Stokes defended his record at Seven West and pointed to the structural challenges facing all print businesses.

All directors were re-elected with more than 97% in favour, but the real action happened with the proposed rise in the fee cap for non-executive directors. Ryan Stokes, Kerry Stokes and Don Voelte are all executives of Seven Group who are drawing board fees for their non-executive roles at Seven West. ASA opposed this cross-subsidy and many shareholders agreed as there was a 19.6% against vote, although Seven Group was unable to vote.

7 WEST AND 7 GROUP AGMS

STUFF HAPPENS: MACQUARIE’S MEDIA BABYSUFFERS REM STRIKE, MORE DIRECTOR PROTESTS

CHAIRMAN STOKES FRONTS 2 SEVEN AGMS IN SYDNEY IN ONE WEEK

VIRGIN AUSTRALIA AGM

EQuiTy January 2014

MONiTOrS: SAlly MElliCK & KElly BuCHANAN WiTH STEpHEN MAyNE


venue The Emporium Hotel, Fortitude Valley, Brisbane

Attendees Approximately 100





pre-AGM meeting Yes, with chair, NED Samantha Mostyn and two execs

As the business of the meeting began Stephen Mayne raised concerns about the effect of the $351 million rights issue on retail shareholders, including the cap of 40% on any additional shares. The majority of retail shareholders were diluted in Virgin’s 2009 capital raising and now face being squeezed out as Singapore Airlines, Air New Zealand and Etihad compete for influence over the carrier.

ASA noted the net loss of $133 million in 2012-13 and no dividend for the last five years. One other retail shareholder also noted the continued poor returns for retail shareholders.

At the time of the meeting Qantas was exceptionally unhappy with the prospect of Virgin’s latest capital raising. The chair and CEO both expressed their anger at suggestions that had been made by Qantas, denying strenuously any suggestion that the current state of affairs creates anything other than healthy competition which benefits consumers.

Up for re-election, Mr David Baxby took affront on being questioned about his independence as a director and his relationship with Richard Branson; he departed as an employee of Virgin Group on 30 June 2013. Apparently he is now an Independent Director, which was not clear in any of the documentation provided to shareholders. Mr Chatfield conceded that the documentation was an error and that Mr Baxby was now an independent director.

Also up for re-election, Ms Samantha Mostyn was queried on her ability to consider competing influences, particularly with the capital raising arrangements, now that the international airlines have become major shareholders. Her response showed integrity and great confidence in the company and its management and future.

Finally, the board was asked to reconsider raising the cap for retail shareholders to acquire more than the 40% limit proposed in the offer. A positive reply before 10am the following day would have meant that a complaint to the Takeovers Panel for relief for retail shareholders would not be lodged. Such a reply did not eventuate, as was made clear in an ASX announcement the day after the AGM. What followed was a two week Takeovers Panel process which failed to lift the artificial restriction on retail investors applying for additional shares. However, the $69 million retail offer finished 75% short, so our concerns were vindicated as the three foreign airlines snaffled a further 3.88% of the company from retail shareholders.

MONiTOr: JOHN QuiNN

date 31 October, 2013

venue Stamford Plaza Melbourne

Attendees 59





pre-AGM meeting Yes, with chairman Alan McCallum

The Chairman reported revenue of $272.8 million up 3.9% on last year and a profit after tax of $33.5 million, an increase of 19.1%. The operating cash flow of $49.7 million was down 1.3% on 2012. Total dividend per share of 9.5c is an increase of 18.7%. The dividend in 2014 will be partially franked and fully franked in future years. The chairman emphasised that salmon have a 3-year “working cycle” and in most instances a 5-year “capital cycle” hence the need for long term planning.The CEO reported that the strong operating cash flow and lower capital expenditure resulted in a lower debt to equity funding ratio of 33.23%. The EBITDA per $/Hog Kg had increased from $2.24 to $2.70 as a result of higher selling prices (due in part to optimising fish size) and lower costs from the “New Harvest Strategy” and Selective Breeding Programme. Tassal’s strong marketing campaign has been effective and increased domestic consumption. The company imported a small quantity of fish (sold under a different brand) to meet the local demand. The two major Australian retailers, Coles and Woolworths, accounted for 70% of sales, so the company is vulnerable to their market power.The Macquarie Harbour expansion in Tasmania is expected to add up to 2.1 million fish per annum once completed and the cost of production in Macquarie Harbour is $1.50 per fish lower than the east coast.It is notable that the LTI targets are “aligned with the performance expectations underlying the delivery of the Company’s Strategic Plan FY2015”. The minimum hurdles are a 10% annual growth in EPS and a 15% return on net assets (currently 10.6%). The Receivable Purchase Facility with Westpac Bank is lower cost than more traditional forms of borrowing and aligns receipts with peak payments.All resolutions were passed by a show of hands. The Chairman displayed the proxies which were 96% or more in support of all resolutions. This was a quieter AGM than in previous years when major shareholder Allan Gray, the most activist institutional investors in the Australian market, triggered a remuneration strike in 2011 which led to a board room shake-up in 2012 when three directors resigned in protest after Trevor Gerber joined the board as a nominee of Allan Gray.Whilst not yet returning to its pre-GFC highs, Tassal shares recovered to above $3 in 2013 so investors have seemingly been rewarded after some institutional activism shook up the board.

RETAIL INVESTORS DILUTED IN $351M RAISING, MESSAGE SENT IN TAKEOVERS PANEL ACTION

ACTIVIST SHAKES UP SALMON BOARD, INVESTORS ENJOYING BETTER RETURNS

TASSAL GROUP AGM

VIRGIN AUSTRALIA AGM

MONiTOr: 26 NOvEMBEr, 2013


venue The Concourse in Chatswood, Sydney

Attendees 512 shareholders and 162 others

ASA proxies 7.3m shares from 2,474 holders

value of proxies $250 million



pre-AGM meeting Yes, with rem chair and various others

The 88th Woolworths AGM was the first chaired by Ralph Waters and he’s leading a diverse and refreshed board. After two years as CEO, Grant O’Brien has consolidated his leadership and reported on pleasing progress on his 4 main strategic priorities: grow the group’s food & liquor ‘engine room’; maximise value over the portfolio; build new growth businesses and enable a new era of growth.Retired immediate past chair James Strong died unexpectedly soon after the 2012 AGM. His contributions were again acknowledged at this AGM.Although consumer confidence impacted 2012-13 results all divisions increased profit and growth. Costs of the $1.4 billion property and consumer electronics divestments have passed. The Masters home improvements chain is still expected to reach break-even in 2015-16.Financial metrics were all good. Net profit after tax increased by 24.4% and by 8% from continuing operations before significant items. $2.2 billion was paid to shareholders including $500 million from the property demerger of Shopping Centres Australasia. Woolworths’ dividends have grown over twenty years since listing to 133c in 2012-13. NPAT guidance for 2013-14 is for an encouraging 4-7% increase.Board re-election candidates, Jetstar CEO Jayne Hrdlicka and former RBA governor Ian Macfarlane, have heavy workloads beyond Woolworths. Both addressed the meeting and satisfied ASA of their capacity to meet responsibilities to Woolworths shareholders. Resolutions to pass the CEO’s LTI grant and the remuneration report passed with large majorities including undirected ASA proxies, as occurred on all items of business. These documents are complex, especially the calculations of fair value but Woolworths makes them as readable as is possible. Woolworths remuneration practice passes the in principle tests of rewarding only when real and relevant hurdles are passed; not paying excessive remuneration in comparison to peer companies and overall ensuring that shareholders get a fair share of company profit.The resolution to issue rights to finance director Tom Pockett was withdrawn. Mr Pockett’s impending retirement was announced and his contributions were suitably acknowledged by the chairman and CEO.There was strong acclamation from the floor when gratuitously insulting self-appointed ‘corporate terminator’ Jack Tilburn was threatened with ejection if he didn’t keep to time and procedure. More chairs should adopt the firm stand taken by Woolworths chairman Ralph Evans to keep AGMs smooth and orderly.In another first, Woolworths provided ASA with excellent data on the proxy voting. ASA represented 2,474 holders which was 11.12% of the 22,297 shareholders who voted. Sadly, over 400,000 shareholders didn’t participate at all.

WOOLWORTHS AGM

MONiTOrS: JOHN CAMpBEll & pETEr GilMOur


venue Perth Convention and Exhibition Centre

Attendees 537 shareholders





pre-AGM meeting Yes, with Chair, Director Wayne Osborn and 3 execs (inc former WA Premier Alan Carpenter)

Wesfarmers was established in 1914 so the 2014 centenary AGM is set to be an endurance event, given the 2013 AGM lasted for 3.75 hours and a film featuring shareholder recollections is in preparation for 2014. The chairman’s and group MD’s addresses provided an overview of the year’s results and some commentary on subsequent sales levels. The group’s operating revenue increased 3% in 2012-13 with NPAT up 6.3% to $2.26 billion. The final dividend of $1.03 made a total of $1.80 for the year, up 9.1%, and the meeting approved a capital return of 50c per share, with its accompanying share consolidation.

Currently employing about 200,000 people, Wesfarmers is a very different entity from the small farming co-operative it started out as. Shareholders were told that, if they had reinvested dividends and taken up rights issues, a $1000 holding in 1974 would now be worth $294,000, more than ten times the value achieved if the same amount had been invested in the All Ordinaries index.

Apart from ASA questions, most time was spent on safety concerns regarding Coles’ truck drivers and on ethical purchasing policies for garments from third world countries.

Directors Wayne Osborn, Tony Howarth, Vanessa Wallace were re-elected and the appointment of Jennifer Westacott as a new director was confirmed. The ASA queried the past involvement of Howarth and Osborn as directors of AWB and Leighton respectively, and we were assured that they had no part in sanctioning or covering up improper payments. We also asked Ms Williams and Westacott to confirm they were able to devote sufficient time to Wesfarmers from their executive roles for other entities and this was confirmed.

The remuneration report was passed with the ASA support following several years of opposition. However, two recommendations were put to the board by the ASA for a compulsory 2-year holding lock over a substantial proportion of vested shares and for amending the one-third fixed pay/STI/LTI ratio such that the CEO should receive predominantly long term incentive and other executives to move towards a 50/20/30 split. The vote against the remuneration report was 7%, with a similar percentage against the allocation of performance rights to the executive directors and significantly smaller percentages against other resolutions.

WESFARMERS AGM

SUPERMARKETS GIANT POWERS ON AFTERAN AGM WITH SOME UNUSUAL TWISTS

APPROACHING ITS CENTENARY, SHAREHOLDERS ENDURE SECOND LONGEST AGM OF 2013

EQuiTy January 2014

To the ANz Bank for allowing Alison Watkins to retain her ANZ Board position while being the CEO of Graincorp for over three years. The ANZ Board claimed that she was able to adequately fulfil her ANZ responsibilities while in the Graincorp role. This claim was always highly implausible but the implausibility has been confirmed as she has just announced her resignation from the ANZ Board in order to accept the CEO role at Coca Cola Amatil.

To the board of virgin Australia which restricted its 43,000 shareholders from applying for unlimited additional shares in its recent 5-for-14 capital raising at 38c. The $69 million retail offer finished $51.6 million short and these shares will finish up with the 3 government-controlled airlines Etihad, Singapore Airlines and Air New Zealand. The vast majority of non-renounceable entitlement offers allow unlimited “overs” for retail investors, but the Virgin Board restricted this to just 40% of a shareholder’s entitlement.

To the board of FKp, now renamed Aveo Group, who as at the end of the financial year had a board of 9 which included six directors with no equity investments in the company. Making matters worse, the company conducted a heavily in-the-money non-renounceable capital raising late in 2013 and restricted shareholders to applying for $100,000 worth of additional shares. Even though the offer was well over-subscribed, the board still decided to give underwriter Goldman Sachs 2 million shares at $1.30 when the stock was trading above $2. That was more than $1 million worth of capital gain handed straight from Australian retail investors to a Wall Street bank. If more of the directors owned shares, maybe they would better respect the interests of retail shareholders.

To Federal Treasurer Joe Hockey who has so far cost Graincorp’s 16,000 shareholders about $1 billion in lost value by blocking the Archer Daniel takeover bid. The grounds for a blanket refusal were regarded as pretty thin by most independent observers. Surely a few appropriate conditions could have addressed the competition concerns!

To Westpac for its board tenure policy which limits the tenure of any NED to 9 years whilst the chairman may serve a maximum of 12 years. With the average age of male ASX100 directors rising from 59.5 years in 2001 to 64.1 years in 2012, tenure limits are an important tool to ensure boards embrace appropriate renewal.

To Coca Cola Amatil for insisting that Alison Watkins resign from the ANZ Board prior to taking on the CEO role at Coca Cola.

To Ansell for looking after the interests of retail shareholders in their recent capital raising made in connection with a major US acquisition. While our preferred pro rata rights issue was not a practical option because of time constraints imposed by the acquisition vendor, the $100m share purchase plan (SPP) component represents about 23% of the capital raising whereas retail shareholders are only about 16% of the register. In addition, the SPP is priced advantageously for retail shareholders as the lower of the placement price and a weighted average market price during the offer period, less a 2.5 % discount. Many SPP raisings associated with placements are made solely at the placement price.

To Orica for providing, in its online voting system, a specific option for appointing the Australian Shareholders’ Association as our proxy at the AGM to be held on January 31, 2014. Let’s hope that many companies follow suit this year! ASA held $31 million worth of proxies from 504 Orica shareholders at the previous AGM held in January 2013.

Editor’s Note: The December 2013 issue of Equity published a bouquet for Goodman Fielder which should have been to the Goodman Group. Apologies to the Goodman Group.

BRICKBATS BOUQUETS

EQUITY provides a platform for ASA members to contribute their comments for the benefits of other members. Comments included here do not necessarily reflect the views of all members. Please email your contributions to [email protected]. Thank you to all our contributors.

AGl SiTE viSiTOn 27 Nov 13 the Gippsland Group arranged a visit to AGL’s Loy Yang A power station which could be described as the jewel in the crown of AGL’s electricity generating side. We received an extremely thorough briefing on their open cut brown coal mine, the power station itself and AGL’s reaction to the carbon tax debate.The brown coal mine is operated as a separate business and supplies Loy Yang A (AGL owned) and Loy Yang B (owned by an American Company) and sends a small amount of coal to Energy Brix in Morwell for conversion into briquettes (remember them?). The mine manager, John Kienhuis, whose Movember decoration was a delicate shade of pink, soon demonstrated that he was completely on top of the complexities of running a 24/7/365 operation

with only a 20 hour reserve in case of a break down in their coal production. John Stewart, Head of Generation, then took over the floor and explained how he ran the Power Station. It was a most impressive talk, which demonstrated that Loy Yang A ran more efficiently than Loy Yang B station - a newer unit. John had Loy Yang A operating at a high 97% availability which is quite an achievement in such a complex generating facility.Greg Hade, Head of Finance, Merchant Energy, then provided us a picture of AGL overall and in particular the effect of the carbon tax on AGL. He then covered the position if the tax is removed. The consequential disruption to AGL will become worse the longer the removal of the tax is delayed - a complex and thorough presentation.Questions came thick and fast during all three presentations and all were answered competently and comprehensibly. About 80% of the attendees owned shares in AGL, and all of them came away suitably impressed with the company’s operation. The morning finished with a drive around the open cut mine before the bus took us back to the Traralgon railway station in time for a counter lunch at the hotel opposite before catching a train back to Melbourne.26 people attended this meeting, quite a few of whom had braved the major task of catching the train or driving all the way down to Traralgon from Melbourne. They were very welcome, and contributed some pertinent questions to our hosts. By Oliver raymondASA Gippsland Convenor

EQuiTy January 2014

NEWSDESKFArEWEll TO SOME lONG-SErviNG COMpANy MONiTOr ANd STATE CHAirS

The end of 2013 will bring about some changes amongst a number of our State and Company Monitor Chairs. In WA John Campbell will resign his position as Company Monitor Chair and will be replaced by Len Roy; in Victoria Ian Curry will resign his position as Company Monitor Chair and will be replaced by Geoff Bowd and in NSW Michael Perry, who has had the dual roles of State and Company Monitor Chair, will step down from both roles. Bert Godwin will take on the State Chair role and Allan Goldin the Company Monitor Chair role.

On behalf of the ASA Board, the National Office and all members we would like to thank John, Ian and Michael for their outstanding contributions to our association. We will be fortunate to enjoy their ongoing support as they continue in various supporting roles.

NSW GrOWTH iNiTiATivES piCK up pACE

Following board member Betty Clarke-Wood’s visits to potential new-group development centres in Victoria, NSW and Queensland, recently appointed NSW State Chair Bert Godwin has been hard at work formulating a development program in the regions. As a key initiative for NSW in 2014, ASA will reach out to its regional membership base in broadening ASA representation through new group development and membership participation.

Key initiatives are:

• IncreasingthealreadyverysuccessfulNewcastle/Huntermeeting schedules from bi-monthly to monthly.

• EstablishingrepresentationinTareewiththeinauguralmeeting having been held on November 28 and monthly meetings to follow commencing January 2014.

• A February inaugural meeting will establish theWollongong/Illawarra group.

• AkeyelementisalsotheestablishmentofaRuralNSWgroup based in Scone with a roll-out program already booked for 2014. It commenced on December 1 with a half-day event in Dubbo to be followed by Orange in February, Tamworth [March], Glen Innes [April], Mudgee [May], Coonabarabran [June], Singleton [July], Bourke [August] and Moree in September.

‘Clearly, there other regional opportunities we hope to roll-out. It is early days, but the ASA definitely sees the need for membership provision in regional NSW and hopes to widen our reach in the future’ Mr Godwin said. He went on to say ‘the wider Sydney membership base may well be better serviced in time by the establishment of new and easily accessible groups centered on, for example, the Hills district, Parramatta CBD, Penrith/Blue Mountains, Liverpool/ Macarthur, Southern Highlands, St George/Sydney South.

pOrT MACQuAriE GrOup 2013 OCTOBEr MEETiNG

It was with an air of anticipation that members gathered for the October 2013 meeting in Port Macquarie. First, it was an (unofficial) half-day holiday for the ‘Port Cup’ race meeting and, secondly – and more importantly - that meeting just happened to coincide with the visit of John Abernethy of Clime Asset Management to the group for his ‘annual’ economic and investment update – happily for the sixth year in a row.

For the Port Macquarie Group, John has been an intuitive, no-nonsense presenter with a proven ‘track’ record of success on the wide range of subjects, both global and domestic. His views on Europe, Japan and the USA are legendary. They say ‘good luck’ to John as he dons his favourite panama hat on the way out. Strange, though, that the group never seem to get feedback on the results of his investments on the tote at the race course!! Perhaps another win for Telstra.

SHArEHOldErS SurFACE, BiTES EXpECTEd

By the fitful light of dawn in early November a group of intrepid souls braved the rigours of a two hour drive south from Perth. Here their ranks were swelled by locals who, like the above travellers, were dedicated members of the WA Branch of the ASA. The purpose of this expedition was to represent the ASA at the Annual South West Seniors’ Expo in Bunbury. This, the 9th annual staging of the Expo, attracted 8,000 visitors and interest in the ASA booth was high.

Tony McAuliffe, the ASA team leader, reported that business was brisk throughout the day and that he and his fellow ASA members were kept on their toes answering questions and providing information. Although no new ASA members

ASA Chairman Ian Curry (right) with outgoing NSW State Chair and Company Monitor Chair Michael Perry

Shaun Trewin, Central NSW Convenor, and Bert Godwin, NSW State Chair, planning the rural NSW program.

JANuAry OFFiCE OpENiNG: Following our office closure on Friday, 20 December, the office will be reopen for business as usual from Monday, 6 January 2014.

EQuiTy January 2014

were signed up it was felt that the interest shown could well lead to some later memberships.

Visitors to the ASA booth showed a great deal of interest in the way in which the assigning of proxies to the ASA could give them a voice as individual shareholders. The newly produced ASA brochure “Make Your Voice Heard, Don’t Waste Your Vote” was in great demand.

The ASA Expo Team is to be congratulated for the professional manner in which they represented our Association.

TrEASury WiNE ESTATE ClASS ACTiON

Bentham IMF Limited (“IMF”) is proposing to fund a shareholder class action conducted by Maurice Blackburn Lawyers against ASX-listed company Treasury Wine Estates Ltd (“TWE”), for losses caused by TWE’s alleged misleading conduct and/or breaches of the continuous disclosure provisions of the Corporations Act 2001 and/or other relevant legislation.

Subject to receiving sufficient signed TWE funding agreements from affected shareholders, IMF is proposing to fund a class action for shareholders who acquired TWE securities during the period from 17 August 2012 to 14 July 2013 inclusive, and who had not sold all of those securities prior to 15 July 2013. (Note this period may change subject to legal advice).

If you wish to have the opportunity to join the class action proposed to be funded by IMF, you need to obtain an Information Pack from IMF and complete and return documentation by 31 January 2014. Further information can be obtained from IMF:

• www.imf.com.au(onthehomepageundertheheading‘Information Packs’)

• Perthofficeontollfreenumber1800016464

• [email protected]

SOCiAl EvENTS

Christmas social functions offer members the opportunity to meet and socialise with fellow members. At both the Melbourne and Sydney Christmas Lunches Stephen Mayne, ASA Policy & Engagement Coordinator, was the key speaker and delighted attendees with his entertaining update on the AGM season. In summary he stated that in 2013 we have attended more AGMs than in previous years, gained greater media exposure than last year and were generally consistent with the general voting patterns of the proxy advisors.

EQuiTy MAGAziNE iNdEX

All issues of Equity are posted to our website www.asa.asn.au which you can find via the top tab or via the PUBLICATIONS menu located to the left. If you recall reading an article in an article in a back issue, and can’t remember which, you can find out by looking up either the 2012 or the 2013 index prepared by ASA member Mike Caldwell. It’s an excellent resource. Although you will be able to view the index without logging on, to view the full magazine you will firstly have to log on as a member.

EMAil AddrESSES

As time to our ‘go live’ date for our new website and database approaches we would like to encourage all members to provide us with their email address. The new system will enable you to determine how often, what subjects and for which groups you receive email notifications.

EQuiTy January 2014

Buyer beware: the risks of hybrid securitiesrobert drake, senior executive, asic’s moneysmart team

WHAT ArE HyBrid SECuriTiES?

Hybrid securities (including subordinated notes, capital notes and convertible preference shares) are one way for banks and companies to borrow money from investors, while paying interest in return. They are offered by household names and blend some of the features of debt and equity (shares). They are generally traded on a secondary market such as the ASX.

Some hybrid securities make investors take on ‘equity-like’ risks but only give them at best, ‘bond-like’ returns. Some also have terms and conditions that allow the issuer to exit the deal or suspend interest payments when they choose.

Some are very long-term investments and may not be suitable for you if you need steady returns or capital security.

THE riSKS

Hybrid securities have higher risks than most types of corporate bonds. While the conditions, timeframe, risks and interest rates of each hybrid offer differ, some have particularly complex features and risks:

• Market price volatility - Like company shares, the market price of listed hybrid securities may fall below the price you originally paid, especially if the company suspends or defers interest payments, or if its performance or prospects decline. Changes in the company’s share price and in other interest rates may also impact the value.

• Subordinated ranking - Hybrid securities are generally unsecured, meaning that repayment is not secured by a mortgage or security over any asset. If the company issuing the hybrid securities becomes insolvent, hybrid investors generally rank behind senior bondholders and other creditors and have to line up behind them in the queue.

• Non-viability clause - Hybrids recently issued by banks and insurance companies have a non-viability clause. This means that if the bank or insurance company experiences financial difficulty they may be required to convert the hybrids to shares. If the shares are worth less than the hybrids, this could mean a loss for investors.

• Conversion to shares - Some hybrids issued by banks and insurance companies are scheduled to convert into

shares after a fixed period. This is subject to conditions and the bank or insurance company may have the option to redeem or ‘buy back’ the hybrid before this occurs.

• deferral of interest payments - Some hybrid offers allow the company to suspend interest payments for a number of years, leaving you temporarily out of pocket. The security’s market price may fall due to the decision to hold back interest payments.

• Early termination - Some offers allow the company to terminate or ‘buy back’ the investment early but do not give that same right to investors.

• Extremely long timeframes - Some hybrids have investment terms lasting several decades. For example, a 40 year-old investing for a 60 year term would need to live to 100 to see their investment mature. You may be able to sell the security on a secondary market such as the ASX, but only if there is a demand for that security. The risk of a company defaulting on its obligations or eventually facing financial difficulties increases also over the long term.

QuESTiONS TO ASK

Here are some questions to ask before you invest. You can get these details from your financial adviser or by thoroughly reading the prospectus.

• Whataretherisksofinvestinginthishybridsecurity,now and in the future?

• Willthereturnsofferedadequatelycompensateyouforthe investment risks?

• How does the interest rate compare with otherinvestments on a ‘risk adjusted’ basis? Can other less complex, risky or long term investments provide a similar or better return?

• Whenistheissuerallowedtoexitthedealorsuspendinterest payments?

• Whatarethematuritydates?

• Willthisinvestmenthelpyouachieveyourpersonalgoalsand objectives and does it suit your personal investment timeframe and risk profile?

• Canyouexitthisinvestmentifyourcircumstances change?

you might have seen advertisements for hybrid securities issued by well-known companies, banks or insurers, and be tempted to invest. Before you do, make sure you understand their features and risks. They are very different from ‘normal’ corporate bonds.

Further information about hybrid securities and their risks can be found in ASIC’s Report 365 - Hybrid securities, accessible via www.asic.gov.au. For more general guidance on investing go to www.moneysmart.gov.au.

EQuiTy January 2014

By attending you will• learnhowtousefundamentalanalysistoolstocreatea

universeofstockstoconsiderandfilter• gainanunderstandingofarangeoftechnicalanalysistools

andhowtousethemspecificallyfortimingentriesandexits• beexposedtoashareinvestingstrategywhichcombines

fundamentalandtechnicalanalysis• learnhowtoreduceauniverseofstockstoamanageablelist• gainanunderstandingoftheimportanceofriskmanagement• learnhowtocalculatepositionsizebasedonriskfactors• gainanunderstandingoftheimportanceofhavingawritten

planandthestepsrequired

SpeakerSJim Berg – Author and Private TraderCharles Brown – Australian Technical Analysts AssociationElio D’Amato – CEO, Lincoln IndicatorsGary Fraser – Principal, Stop Loss TradingAndrew Height – Partner, Sornem Private WealthAlan Hull – Author and Share TraderSteve Johnson – Chief Investment Officer, Intelligent InvestorMax Knobel – Australian Technical Analysts AssociationJulia Lee – Equities Analyst, Bell DirectRegina Meani – Author and Technical AnalystColin Nicholson – Author and EducatorNick Radge – Head of Research, The ChartistJustin Scattini – Partner, Ord MinnettGeoff Sherwin – Chartered Accountant & ASA DirectorDan Steiner – ACT Company Monitor Chair, ASASteven Weinmann – Stockbroker, Baker Young StockbrokersZac Zacharia – Managing Director, Centra Wealth Group

BOOK TODAY 1300 368 448aSa member early bird ends 14 days prior to each event

Investor EducationReserve your place at an ASA seminar today

COMBINING FUNDAMENTAL AND TECHNICAL ANALYSIS SEMINARSAdelaide, Melbourne, Sydney, Perth, Brisbane and Canberra

to register call 1300 368 448 or register online at www.asa.asn.auSpaces strictly limited, book early to avoid disappointment

By attending this seminar you will be exposed to the strategy of combining two analysis approaches for selecting, managing and selling shares as part of the investing process. Whether you are just starting out or whether you already have some experiences in either fundamental or technical analysis, this seminar will have something for you.

dateSadelaide Saturday 22 March from 9am to 4.30pm

Hackney Hotel, 95 Hackney Rd, Hackney

MelBourne Saturday 22 March from 9am to 4.30pm Batman’s Hills on Collins, 623 Collins St, Melbourne

Sydney Friday 28 March from 9am to 4.30pm Harbourview Hotel, 17 Blue St, North Sydney

pertH Saturday 29 March from 9am to 4.30pm Mantra on Hay, 201 Hay St, Perth

BriSBane Saturday 5 april from 9am to 4.30pm Riverside Hotel, 20 Montague Rd, Southbank

CanBerra Saturday 12 april from 9am to 4.30pm Canberra Southern Cross Club, 92-96 Corinna St, Woden

aSa MeMBerS early Bird . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$125pp (available until two weeks prior)

aSa MeMBer Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$150pp

non-aSa MeMBer . . . . . . . . . . . . . . . . . . . . .$175pp

Includes lunch, refreshments and handouts.

EQuiTy January 2014

location date Time venue Speaker Topic

AUSTRALIAN CAPITAL TERRITORY Weston 04-Feb-14 12.30pm Weston Club,

1 Liardet Street, WestonSouthside Discussion Group

Portfolio review and 2014 outlook

Maquarie 13-Feb-14 12.30pm The Canberra Southern Cross Club Jamison, Macquarie

Northside Discussion Group

The demise of a listed investment company

NEW SOUTH WALESSydney Investor Forum

16-Jan-14 12.00 midday

Sydney Mechanics’ School of Arts, Mitchell Theatre, 280 Pitt Street, Sydney

Steve Johnson, Intelligent Investor

Market outlook for 2014

Sydney - North Shore

17-Jan-14 10.00am Killara Uniting Church Hall, 9 Karranga Avenue, Killara

Sydney North Shore Discussion Group

General investment related topics

Newcastle 20-Jan-14 10.30am Club Macquarie, 458 Lake Road, Argenton

Michael Perry, ASA Review of the 2013 reporting season

Taree 23-Jan-14 10.00am Greater Taree City Library, 242 Victoria Street, Taree

Taree Discussion Group

General investment topics

Sydney - Eastern Suburbs

04-Feb-14 10.30am Meeting Room 1, Mill Hill Centre, 31-33 Spring Street, Bondi Junction

Bondi Discussion Group

Investment topics

Orange 09-Feb-14 10.00am-3.00pm

TBC Shaun Trewin, Morgans & an accountant

Utilising investment structures

Illawarra 11-Feb-14 6.00pm The Builders, 61 Church Street, Wollongong

Zac Riaz, Bridges Current market and business conditions

Port Macquarie 14-Feb-13 10.00am Senior Citizens Centre, Munster Street, Port Macquarie

Led by Convenor Les Smith, ASA


Sydney Investor Forum

20-Feb-14 12.00 midday

Sydney Mechanics’ School of Arts, Mitchell Theatre, 280 Pitt Street, Sydney

Rudi Filapek-Vandyck, FN Arena

The share market: always different, always the same

Sydney - North Shore

21-Feb-14 10.00am Killara Uniting Church Hall, 9 Karranga Avenue, Killara

Sydney North Shore Discussion Group


Wagga Wagga 23-Feb-14 10.00am -4.00pm

TBC Shaun Trewin, Morgans Stockbroking

Investing for growth

Taree 27-Feb-14 10.00am Greater Taree City Library, 242 Victoria Street, Taree

Taree Discussion Group

Investment related topics

QUEENSLANDGold Coast 11-Feb-14 9.30am Robina Community Centre,

196 Robina Town Centre Drive, corner San Antonio Court, Robina

Discussion Group led by Chris Kelly and Mike Glajnaric, ASA


Brisbane Investor Forum

14-Feb-14 11.00am The Melbourne Hotel, 0 Browning Street, West End

Michael Knox, RBS Morgans

Economic outlook for 2014

Toowoomba 17-Feb-14 1.00pm University Open Learning Centre, 27 Jellico Street Toowoomba

Pauline Gordon, ASA member

Innovative Australian companies

Sunshine Coast 18-Feb-14 10.00am Good Life Centre, 100 Buderim Pines Road, Buderim

Troy Derwin, Ord Minnett

Market outlook for 2014

SOUTH AUSTRALIAAdelaide 15-Jan-14 12.00

middayUniversity of Adelaide, North Terrace, Adelaide

Members Social Gathering

SA New Year Lunch

Adelaide 05-Feb-14 10.30am University of Adelaide, North Terrace, Adelaide

Discussion Group led by Pat Doyle, ASA

Current share market developments

Adelaide 12-Feb-14 10.30am University of Adelaide, North Terrace, Adelaide

Discussion Group led by Kevin Parken, ASA

Resource related topics

Adelaide Investor Forum


Scots Church Hall, Corner Pulteney Street & North Terrace, Adelaide

John Dorward, Prescott Securities

Findings from an analysis of SA companies

asa events

EQuiTy January 2014

location date Time venue Speaker Topic

VICTORIAGeelong 14-Jan-14 12.00

middayThe Elephant & Castle Hotel, 158 McKillop Street, Geelong

Geelong Day Discussion Group


Albury-Wodonga 28-Jan-14 10.00am Commercial Club, 618 Dean Street, Albury

Linda Martin, ASA High yielding income stocks

Melbourne Investor Forum


Melbourne City Conference Centre, 333 Swanstan Street, Melbourne

Elio D’Amato, Lincoln Indicators

Opportunities this reporting season

Manningham 11-Feb-14 10.00am Koonarra Hall, 7 Balwyn Road, Bulleen

Manningham Discussion Group

General Investment topics

Geelong 11-Feb-14 12.00 midday

Kardinia Park, Simons Stadium, Geelong

Lindsay Maxstead, Westpac, Transurban & BHP-Billiton

Geelong guest speaker lunch

Ballarat 12-Feb-14 7.30pm Eastwood Leisure Complex, 20 Eastwood Street, Ballarat

Allan Hull, ActVest Pty Ltd

Hedging an income portfolio

Kingston 13-Feb-14 10.30am Longbeach Place, 15 Chelsea Road, Chelsea

TBC The year ahead

Monash 18-Feb-14 10.00am Monash Public Library, Cnr Jells Rd & Ferntree Gully Road, Wheelers Hill

Irani Jeganathan, Centrelink

Centrelink entitlements

Geelong 18-Feb-14 6.00pm St George Workers Club, 212 Pakington Street, Geelong West

Geelong Night Discussion Group

General financial Issues

Bendigo 19-Feb-14 5.30pm Bendigo Club, 22 Park Street, Bendigo

Stephen Mayne, ASA Engagement & Policy Officer

AGMs and company trends

Mornington 20-Feb-14 10.00am Mornington Information Centre, 320 Main Street, Mornington

Davern White, Morgan Stanley

Global economic outlook & Australian sharemarket overview for 2014

Melbourne Evening

20-Feb-14 6.00pm The Limerick Arms Hotel, 364 Clarendon Street South Melbourne

Michael Heffernan, Lonsec Ltd

Is the party over for the blue chips?

Albury-Wodonga 25-Feb-14 10.00am Commercial Club, 618 Dean Street, Albury

Merv McDougal, ASA & Derek Woolcott, Centrelink

Asciano v Aurizon

WESTERN AUSTRALIAPerth South of the River Group

17-Jan-14 10.00am Canning River Eco Education Centre, Cnr Kent & Queens Park Road, Wilson

Anne Pryor, ASA member

2014 market outlook

Busselton 29-Jan-14 9.30am The Goose Restaurant, Geographe Bay Road, Busselton

Gerry McGann, Incremental Petroleum


Perth 04-Feb-14 10.30am State Library Building, Francis Street Entrance, Perth

Members Meeting Members Meeting

Perth Investor Forum


State Library Building, Francis Street Entrance, Perth

Roger Montgomery, Montgomery Investment

Equities

Perth North of the River Group

11-Feb-14 9.30am Paddington Ale House, 141 Scarborough Beach Road, Mt Hawthorn

Discussion group led by Barrie Baker, ASA


Perth Investors’ Corner

20-Feb-14 10.00am 1F, Citiplace Community Centre, City Station Complex, Wellington Street, Perth

Discussion group led by Lorraine Graham, ASA

A focus on companies with strong yield performance

Busselton 26-Feb-14 9.30am The Goose Restaurant, Geographe Bay, Busselton

Busselton Discussion Group


visit www.australianshareholders.com.au for all the latest

NB. Dates, speakers and topics are correct at time of printing but are subject to change. Please check the ASA website www.asa.asn.au for the latest details.

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