BHP’s problem child is not a pretty picture now that it has been spat out into the world with a load of debt and a chairman who is very busy running another company.

It was not a good debut year for the company after their spin-off from the Big Australian cum Moderately Sized Australian-South African dual citizen based in London, errr, Melbourne.

Chairman Peter Smedley, the man who has done so much as CEO of Mayne Nickless, was giving it straight to the shareholders of OneSteel. He noted the company did it tough thanks to the post-GST and post-Olympics slumps, and criticised former parent BHP for tossing them onto the streets burdened with debt. He was upbeat about the future direction of the company, saying that trading for the first four months of the current year is in line with their (rather subdued) expectations and performance is above expectations because of their aggressive cost reduction measures and revenue enhancement programs. He also noted that the company will benefit greatly from that white elephant of the back of Bourke, the Darwin to Alice Springs pork barrel, errr, railroad.

The company recorded an after-tax profit from operating activities of $23.6 million, but after taking into account a net $51.5 million restructuring provision, recorded a net loss after tax of $27.9 million.

The company’s share price has been treading water over the past year, currently hovering around $1.

CEO Dr Bob Every outlined the numerous cost-reduction measures the company was focusing on, and expressed confidence that these would bring the company back towards profitability.

Peter Smedley indicated that the events of September 11 are unlikely to impact the company directly, but there may be secondary effects, such as increased insurance costs.

Come question time, first up was our old friend Jack Tilburn, who by all accounts was at his best (worst?) last week at the Goodman Fielder AGM. Jack outlined his plan to ask his 6 to 8 questions in tranches of 3 or 4.

His first three blows weren’t exactly Kostya Tszyu to the chin of trash-talking Zab Judah. (1) Was it true that the company was exporting steel for no profit. (2) Does the company have any future at all given that (a) it was small by world standards, (b) the world is heading into recession / depression, and (c) the company hadn’t exactly set the stock exchange on fire. (3) Why was there no disclosure of the methodology behind executive remuneration. That of course is a pithy summary of Jack’s first set of questions, which took a good 5 minutes to extricate.

Chairman Smedley replied that yes, the company had sold exports at cost, but the company had done so as it was important to keep production of their Whyalla plant at near full capacity and keep cash flow coming in so that they could service their heavy debt burden. In relation to Jack’s second question, Smedley didn’t share the Corporate Terminator’s pessimistic view. Smedley thought the company was in a very good position provided it could get its balance sheet in order and keep its cost management under control. For the first of many times he talked about the need for the company to “focus on its strengths”, but I’ll be jiggered if he ever specified what these were.

On Jack’s last point, Smedley acknowledged that executive remuneration was an easy one to ask probing questions on and a harder one to justify. He said that the previous owners of OneSteel voted the incentive packages in, so the current board had no control over them. As far as bonus payments were concerned, Smedley said “if you had seen the way your company’s management team worked” in managing the spinout from BHP and the Email acquisition, you would agree that the bonus payments were justified. Somehow one suspects Jack Tilburn would disagree.

After the Corporate Terminator’s assault, Giles Edwards from the ASA took the floor. His first question was how could the company claim that the GST was such a factor in their result when only the residential construction division (representing 12% of the overall business) was directly affected by the GST. Smedley argued that the GST impact was felt in terms of reduced expenditure by consumers.

This is an assertion that has been made by plenty of companies to explain their poor 2000/2001 results, but hasn’t really been borne out by concrete facts. It’s been a little too easy to glibly say “we suffered from a downturn after the GST”, but has anyone conclusively proven that there was such a significant slump in expenditure? Certainly no company has ever set out to illustrate how the GST directly affected demand for their products.

Edwards next compared the lacklustre OneSteel performance against other spin-off-ees Origin Energy and Paperlinx, who had both performed strongly post-spin-off. Chairman Smedley noted that OneSteel had performed well and posted an operating profit, the net loss was due to provisions for restructure. Edwards quizzed the Chairman as to when the company would get out of its ongoing “restructure” saga and into a “growth” and profitability phase. Smedley responded that the measures the company was taking would assist profitability by wiping $14 million per annum off costs.

The ASA’s never-say-die operative then turned to everyone’s favourite topic, executive remuneration, and questioned why the fat cats should get bonuses when the company posted a loss. Smedley justified the bonuses on the basis of the achievements made in the restructure process and the Email joint-bid with Smorgons when OneSteel started well behind the eight ball and were at risk of seeing their biggest customer being taken over by a competitor.

One would hope that when next year’s executive bonuses are being decided and the company’s restructure programs have successfully turned the company profitable that this year’s bonuses will not be forgotten. We’d hate to see execs paid a bonus next year for making the company profitable when they were already paid a bonus this year for putting in place the programs that were intended to bring about that profit.

But that sort of double-dipping wouldn’t happen, would it?!

Edwards’ last question was whether the company’s Whyalla steelworks which pumps 3.2 million tonnes of carbon dioxide into the air every year could possibly be profitable and environmentally responsible.

The chairman made the point that the most efficient and hence environmentally responsible facilities are usually the most profitable. He noted that the plant only produced 0.7% of Australia’s carbon dioxide emissions and the plant is efficient in terms of world standards. He referred to the challenges that might arise if the Kyoto protocol were adopted in Australia, but noted that OneSteel “meets every law directly and if we don’t it is unintentional”.

It is interesting that, being in an industry most vulnerable to unwanted attention from environmental groups, OneSteel has so far managed to avoid much controversy.

After Edwards had his turn, Crazy Jack popped up again and the chairman noted that he’d given Edwards such a long run that he couldn’t deny the Corporate Terminator his remaining questions.

Jack thanked him and noted that “the speakers I have at my meetings like my hard questioning”. You mean he has his own fan club? Some would say that this Tilburn-obsessed correspondent must be the number one ticket holder.

Jack then pulled a favourite old rabbit out of the hat a lengthy recitation of every expense line in the accounts and running commentary along the lines of “administrative expenses – $154 million. That seems a bit high. And of course our old friend ‘other’ expenses – $25 million, whatever that is. Now what are these, thank you very much Mr Peter Smedley?”

Smedley quipped that expenses would have been $50 million higher if not for the board’s cost-cutting program.

Tilburn also queried the $2 million in fees paid to the company’s auditors for audit and tax advice, most off which relating to the Email acquisition. Smedley said that Andersen’s fees were all competitively priced and in the context of the value of the Email takeover, reasonable.

Tilburn did score a concession from the chairman that his question on the “unethical, immoral practice of CEOs speaking to journalists after the meeting” was reasonable. Perhaps the chairman was not referring to the part where Tilburn near enough accused CEOs and their co-conspirators in the journalism caper of insider trading, but he said that the company was careful to not saying anything to the press that hadn’t first been advised to shareholders.

Giles Edwards again took the floor and questioned where the company saw its growth prospects given that it was focusing on the relatively small Australian and New Zealand markets and was apparently making no advances offshore. Smedley gave an altogether unconvincing response that the company “now has to think of a new paradigm now that it is not part of BHP”, whatever that means, and that it is focusing on its “strengths and weaknesses”, whatever the heck they are. Shareholders were none the wiser after the AGM

The election of the board went through with the usual 99% “for” votes, although the ASA’s man Edwards questioned how Smedley could chair the company when he was full-time CEO of Mayne Nickless. Smedley replied “have you been talking to my wife?”

Acting chairman David Meiklejohn gave a glowing appraisal of Smedley’s efforts as chairman and noted that he saw “no evidence of distraction” from Smedley’s full time job.

It is interesting that most employees who sign contracts of employment are obliged by their employer to not have any other jobs. OneSteel shareholders would hope that such a rule applies to employees of their company.

But this rule doesn’t apply to the directors’ club. In fact, outside directorships are encouraged, even though being CEO of a large publicly listed company would have to be one of the most demanding jobs going around. How can someone possibly juggle another job on top of being a CEO? Maybe our CEOs are the super-humans that their salary packages seem to suggest.

The biggest controversy at the meeting was the proposal for the company to change its constitution to allow it to compulsorily sell the shares of the 143,000 shareholders who own less than a marketable parcel of shares. The company proposed to write to all such shareholders, and unless the shareholder wrote back and confirmed they did not wish to sell, the company would sell the shares on behalf of the shareholder.

While one can sympathise with companies wanting to cut costs by getting rid of so many small shareholders, it should be done the other way with shareholders being assumed to want to hold onto their shares unless they indicate otherwise. While shareholder apathy will probably make this less effective in reducing the number of small shareholders, it is much fairer than silence being taken to mean consent. Several shareholders made this point, and at times the meeting turned decidedly hostile. One heckler from the rear of the room was challenged by the chairman to make his point at the microphone and he took a long time to get up the nerve!

The proxies came in more than 99% in favour, so the instos certainly backed this one, but on show of hands there was more than a token minority opposed.

After a pretty lively first up AGM for OneSteel, the board will be hoping for a more placid meeting next year. Only one thing will see to that results.

Under the leadership of the highly capable Peter Smedley, the company has a fair chance of turning it around, but time will tell whether their much-vaunted cost-cutting programs bring home the bacon.

One suspects the company will be a happy beneficiary of the Darwin to Alice Springs railway, for as the ASA’s operative pointed out, it doesn’t have much vision.

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