CSR continues its charmed run of recent years under MD Peter Kirby.

Because plenty of people have slammed Crullers for giving Crazy Jack too much air time, we’ve giving Jack his own chapter (not that he needs it – he’s just indulged himself with 85,000 words on his favourite topic) down at the bottom of the page. If you’re here just to read about Crazy Jack’s rants, scroll down.

On to the mundane stuff.

CSR have had their second pretty good year in a row under the stewardship of chairman John Morschel and MD Peter Kirby after a decade of so-so results and in particular a shocker in 1998. When Kirby took over from Geoff Kells early that year, the company was up the creek with $565 million of abnormal writedowns and very ordinary returns to shareholders. But Kirby and his team have turned that around.

After my usual cursory glance of the accounts before the meeting I didn’t think there was anything too controversial therein, so I came prepared to ask about the question of expensing options in the accounts.

The meeting was pretty happy with the company’s results, with the only real discernable dissatisfaction being the level of dividend payouts (see the Gospel according to Saint Jack, below).

And we have to congratulate CSR for their transparency in reporting and the conduct of the meeting. Every question answered completely and orderly and there was nothing in the accounts to suggest fudging. As an added bonus, the company will post on their website a summary of the key issue raised at the meeting, including the shareholders’ concerns raised in question time.

This surely represents best practice and a practice that other companies would do well to emulate.

One shareholder complained about the reporting of goodwill and referred to a debate which was stirred up by a Professor Walker in the Fin Review, but I haven’t been able to track that down and didn’t really follow what the shareholder’s arguments were.

The chairman’s response was basically that there was a detailed accounting standard on accounting for quarrying costs which they had complied with and so he was wondering why Walker had picked on CSR of all companies for their handling of a difficult issue.

The same shareholder hammered the chairman about the fact that their internal auditor reports to the CFO, rather than to the board directly. I didn’t get his point until after the meeting he argued that the internal auditor partly reports ON the CFO, so they should report directly to the board, rather than through the CFO.

I must confess this was news to me, but this bloke says he was an auditor for 20 years and that’s standard internal audit practice.

The ASA’s Brian Johnson was more vocal than his AC/DC namesake, getting up for just about every item of official business on the agenda except the election of a couple of directors, but he (and by implication, the proxies he represented) was also happy with the result.

Morschel spent a bit of his address looking at the mooted de-merger, saying that it’s just a discussion point at this stage and they really won’t be able to make a meaningful assessment until the government’s de-merger legislation comes through. He said that the main benefit would be in being able to split the “high growth” building materials business from the “high yield” remainder of the business, so that shareholders with different objectives could align themselves with the business which suited their investment profile. That way, the worth of the distinct lines could best be recognised and all that unrecognised shareholder value will be magically uncorked, or so the script goes.

While Morschel strongly stressed that it was only an item for discussion at this stage and several shareholders cited recent de-merger blunders as reason for concern – OneSteel, Origin and Boral cropping up regularly – Crullers senses that CSR are de-merger bound.

Morschel also spent a fair bit of time on their ten (non-exclusive) principles of corporate governance and given the company’s strong results and transparent accounts and AGM, one feels they are doing much more than merely paying lip service to this hot topic. His catchcry was that “if it can’t be done openly, it shouldn’t be done”.

He said he was cautiously optimistic about the year ahead, noting that they had been performing as hoped for the first three months of the year.

When asked by the ASA’s Johnno how the company planned to deal with the difficult climate it faced, Morschel replied that it had done that with its restructuring over recent years. Last year’s strong result in a difficult year proved that they were less exposed to downturns than they had been in the past.

With the greatest respect, Peter Kirby – great MD and lovely bloke – gave an address which was more like reading from the phone book and at this point of the meeting, Crullers’ ludicrously early 5am rise caught up with him as he drifted into zzzzz territory.

If you want to read about the nuts and bolts of CSR’s excellent 2002 result, click here.

Kirby has been instrumental in turning the company around from being a lurching conglomerate with no real focus, to a rolling juggernaut with a focus firmly on Uncle Sam – two thirds of its profits now come from the USA.

His performance over 5 years speaks for itself – both EBIT and return on shareholders funds have doubled in that time.

While one is always cautious about lavishing unqualified praise on CEOs – look at the fall from grace former market darling Peter Smedley has had recently – in the case of Kirby we’re reasonably confident that his results are bona fide and he will continue to deliver.

The shareholders showed their gratitude by unanimously voting back all three directors up for re-election, with only 0.1% of proxies voted against each of them.

The grant of options to Kirby (500,000) and deputy MD Alec Brennan (200,000) got a little resistance, but nothing to write home about. There were about a dozen shareholders who voted against it on the show of hands and 1.5% of proxies, which is pretty bloody low – a contentious option package might have around 10% or 15% of proxies voted against it.

Of course, the absolute howlers, like Southern Cross’s outrageously generous retirement scheme last year, get withdrawn before the meeting.

The vexing question of options

To expense, or not to expense? That is the question.

CSR are hardly the market’s biggest villain when it comes to options packages. The latest grant to the MD and deputy MD that was approved by shareholders today was pretty modest, being valued at about $3.2 million according to the Black-Scholes model, or about 0.3% of EBIT.

But we thought we’d get the ball rolling by seeing how they feel about expensing options given the current debate.

Chairman John Morschel said the company would gladly do it, but he was waiting on business to come up with an agreed methodology that was realistic.

I noted that Coca-Cola had announced on the weekend that they would now expense options, but Morschel said that the situation was far different in the USA from Australian and indeed CSR options, which have a vesting period of 3 years, are much harder to value.

He said they would happily comply with whatever standard is released and, given that they would be such a small cost to the company, there’s no reason to not believe him.

So, Crullers gives this mob a pretty big tick for their recent efforts, as have the market on their latest US acquisitions.

And now for the vaudeville act…

The Tilburn Show

OK, Crazy Jack lovers, you wanted the best, you got the best. The hottest corporate terminator in the land…

The big news is that “The Corporate Terminator”, Jack’s self-funded, self-authored, self-abusing book will hit the shelves in about 5 or 6 weeks.

Actually, that might not be quite correct, as I gather Jack will also be selling it himself via a website he’s about to set up. Can’t wait to see that.

Jack has promised me an advance copy and I’m hoping to serialise parts of it on Crikey, but unfortunately the Mayne Man perhaps doesn’t share my starry-eyed view of the great man.

The cover illustration of Jack is a cracker, with a caricature of him wielding a machine gun Rambo-style and blazing away.

Jack says the book is about 15% short of where he wants it to be, and gave a trademark spray to just about everyone associated with its production – the cover illustrator, the publishing company etc. Only the author and financier were immune.

His performance at the meeting was vintage Tilburn.

He opened up by stating that he had been “a bit bored by the previous two men” (the chairman and MD). He wished he had 45 minutes like they did – and he almost did, clocking up about 15 minutes for a mere four questions!

Jack was one of many unfortunates whose charter bus from Town Hall station to the Convention Centre took a wrong turn and turned up late (as opposed to an earlier bus, which took a wrong turn but still managed to turn up on time), so that gave him a bit of fodder.

He did enjoy the opportunity to walk three quarters of a mile in bright sunshine, but didn’t like the “English maze” that is the Convention Centre and which caused him to “get lost three times”. Nor did he appreciate the numerous doors, which he didn’t know whether to push or pull.

Jack mentioned that he’d been at James Hardie earlier in the week, where you could have “fit the Titanic” there were so many empty seats. Jack recommended the company get its AGM out of the Convention Centre and into a much more Tilburn-friendly venue.

His questions were straight from the Crazy Jack song sheet.

(1) Auditors – $4 million in fees, including $2.1 million in “other” fees which he never likes. Can the company guarantee a “clean, correct and credible audit”. Answer – yes.

(2) Aluminium – a whole lot of figures about why aluminium was the best division in the firm and they shouldn’t be looking to offload it. Answer – the return on investment for aluminium was based on the book value of assets. If it was based on current market value, it would be around 10%, not 30%.

(3) Dividends – “we want more”. The payout ratio is a “lousy, miserable 41%. Best practice is at least 50%.” Answer – I think the chairman skipped this one, or I wasn’t listening properly. And God forbid that would ever happen.

(4) Small shareholders – “I love small shareholders. They generally like me. Some don’t – they’re psychos!” Can we get rid of them? Answer – we’re trying, but of course we can’t compel anyone to sell and we can’t offer outrageously generous incentives to sell. We have reduced their number from around 7,000 to 3,000.

Peter Fray

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