The AGM season is in full swing and here are two recent accounts from the AGL and Tap Oil AGMs.

Sealed section Oct 16

It was a much happier AGL AGM this year as the company returned to their 2000 profit levels and didn’t suffer the carnage of their 2001 New Zealand and Dingo Blue losses.

Chairman John Phillips got off on the right foot by stating emphatically that the company doesn’t issue executive options – “we don’t like executive options”! Cue loud applause.

In that context it was hard to be critical of the company, but naturally I gave it my best shot with three questions.

First, I noted that although the company recorded a net profit of $104 million from their New Zealand operations, their revenue in NZ had halved for the year and if you strip out the mysterious new “Other external revenue” of $209 million they would be looking at another big loss. I asked whether the company could rely on that going forward or whether this profit really was being inflated by a non-recurring item.

The chairman responded that the company had divested itself of most its retail business in NZ hence sales were down – although it was good for cash flow, it was a significant loss-maker. He assured us that NZ revenue was sustainable.

Next, I noted that the company had topped up its investments in a couple of telecoms to the tune of just over $40 million. This was despite CEO Greg Martin’s assurance that they were keen to exit any “non-core” businesses such as these and despite plenty of shareholder disquiet about the company dabbling in the telecoms caper.

The chairman noted that they would be bailing out as soon as it was opportune but the key was to do so at a reasonable price, not to engage in a fire sale.

Finally, I thanked the chairman for raising the issue of corporate governance – which I conceded AGL was pretty good on – but suggested they might want to detail each of the transactions with director-related entities. Realistically, it would be impossible for a company like AGL to not have transactions with director-related entities, but they aren’t listed in the notes to the accounts, there is a merely a disclosure that they are “trivial” and all are on normal commercial terms.

While that might be true, a few more lines wouldn’t hurt. For instance, St George bank, of which AGL director Graeme Reaney is also a director, noted in 2001 that it had some $800k of transactions with AGL (2000: $1.1 million). AGL’s directors sit on the boards of the NAB (Charlie Allen), Macquarie Bank (Mark Johnson), CSR (Carolyn Hewson), Commonwealth Bank and Orica (Tony Daniels) among others.

You would expect that each of them would have at least the same amount of transactions with AGL as St George did, so conservatively there would be a minimum of around $5 million in transactions with director-related entities.

It wouldn’t be a bad idea to let shareholders know exactly what these were.

After I’d had my turn the questions seemed to dry up, the chairman quipping “have those long-winded questions stopped everyone?”!

Long-winded! A bit rich coming from a bloke who’d had the microphone for 25 minutes uninterrupted” and I told him so after the meeting!

The meeting really only got testy when the ASA’s Giles Edwards questioned Charlie Allen’s re-election, cheekily suggesting that he was “over-qualified” because of the numerous directorships he held and therefore couldn’t possibly dedicate the required time to AGL. The chairman took this the wrong way and said some of the remarks were “insulting”, but this was all smoothed over when another shareholder suggested that the chairman had read the wrong inference into Edwards’ question.

There was a bit of mirth when the septuagenarian chairman was facing his compulsory annual re-election. One elderly lady who liked to yell out her contributions without the microphone suggested that “old people have great drive and vitality”. Acting chairman Mark Johnson thanked “Mrs Phillips” for her contribution.

All motions were carried easily, reflecting the shareholders’ contentment with a much better year than the disastrous 2001, with a couple of constitutional changes allowing the company to issue more shares if the need should arise. While the chairman insisted these were only precautions should an acquisition present itself and they had nothing specific in mind, me thinks the company is on the prowl”

ends

Tap Oil AGM

By Petr Oleum-well

Tap Oil’s AGM came and went, with not a whimper of discontent from shareholders, brokers or shareholder activists.

Of the former attending Perth’s Parmelia Hilton’s Fremantle Room, there were about 45 mainly elderly citizens, among whom mingled maybe six brokers in two or three packs. Of the latter, there was not one.

In this company’s case, the mother of your correspondent has doubled her money on Tap in the past 18 months, and this is the only good share tip she has been given. We won’t talk about Matrix Oil, ok?

Read the paper if you don’t know what I’m talking about. Proceedings began virtually bang-on on the scheduled start time of 10am, with chairman John Mumford, a rather softly-spoken individual for one with such sparkingly sharp eyes, introducing the board and outlining the activities to come – ie speeches and votes.

Company secretary Michael Dagostino was then asked to indicate proxy numbers, the total number and those cast to the chairman’s discretion. He reported that Tap had received 103 proxies representing 44.5% of the company’s issued capital of 155 million shares. Of these, 25 were open proxies representing 243,843 shares.

I’d hazard a guess that with on average holding of 10,000 shares, these proxies obviously came from the mum-and-dad, er, the nanna-and-pop investors.

Mumford indicated he’d vote the open proxies in favour of Resolutions 1 and 2 – the only two resolutions to be put to shareholders – to re-elect technical director Ted Jacobson and non-executive director Neale Taylor to the board.

Three resolutions were withdrawn before the meeting, but we’ll deal with that later. With Mumford’s and CEO Paul Underwood’s speeches/presentations out of the way (they weren’t greatly exciting, just summaries of the past year really, and no-one asked any questions afterwards anyway) the voting took place.

Getting that first shareholder to propose the first motion to re-elect Jacobson took a few uncertain seconds, but soon enough two shareholders supported it and it was passed on a unanimous show of hands.

The proxies were a little more interesting. Ninety-eight proxies representing about 66 million shares (I couldn’t keep up with the efficient Dagostino’s recitiation of the exact number) voted in favour of the motion, two proxies for 574,000 shares abstained, and one lonely soul voted his/her 5,000 shares against Jacobson’s re-election.

One can only imagine why, considering that Jacobson and fellow director Peter Lane (TAP = Ted and Pete for first-timers), each of whom owns about 1% of the company, were repsonsible for getting Tap off the ground in 1996.

The company shot from 65 cents to $1.90 in its first year, and then fell back in the oil price doldrums of the late 1990s, but since then it’s fair to say the company’s directors have helped to create wealth for most shareholders.

Maybe the owner of those 5,000 shares – we’ll call him Mr 0.0033% – bought in just before the oil crash tanked, and thought there should be at least one voice of dissent. The result was virtually the same for Taylor’s re-election.

Taylor has actually been on the board for less than a year, having joined to fill a casual vacancy. He got 99 proxies representing 68, 377, 141 shares in his favour, the same two proxies abstaining and Mr 0.0033% against.

Mumford wrapped the meeting up at 10.40am without further (any) comment from the floor, and the march to the tea and bikkies began. Most of the shareholders hung around chatting to each other or directors, while a few suit-wearing latecomers – probably chasing the free feed knowing those suited-types – turned up and hung around looking awkward.

A casual chat with a couple of brokers revealed the existence of some concern about Underwood and Jacobson’s remuneration for the 01/02 year. Both men got bonuses of about $80,000 this year, taking their salaries into the high and low-$400,000s respectively.

This, it was suggested, was getting a tad high for a company whose market cap was less than $300 million, and whose main task was to turn up to joint venture meetings with the operator of its production assets, Apache Energy from the USA. (One could, of course, see some irony in such complaints from highly-paid brokers who don’t do much more than turn up to meetings to hear about companies’ JV meetings. A nan-and-pop would have had more credibilty on this one.)

Still, apparently it wasn’t really worth raising with the board. In this instance, it seems appropriate to bastardise Big Kerry’s words – “If you don’t complain, they don’t explain” – and I’m left a little puzzled by the broking community’s apathy.

The perfect example of how such a principle works is the fact that three other resolutions were withdrawn on October 8, about three weeks after the AGM notice was sent out. Have a stab what these resolutions related to – options, perchance? Spot on. The boys at Tap are in favour of options – “Useful tool if not abused; over-reaction; provide benefits in some circumstances” – you get the drift.

But they sniffed the wind and caught a whiff of poo-poo coming their way if they pushed for the issuing of 100,000 options to a relatively new non-executive director. For what it’s worth, I think the conditions relating to the options issue were reasonably fair. The exercise price was to be equal to the share price at the time of issue, and other than in certain exceptional circumstances (not defined), the options could only be exercised between two and three years after the issue.

If Tap’s share price from the grant date to the exercise date outperformed the Energy Index by more than 105%, then 70% of the options could be exercised, and all could be exercised only if Tap’s share price outperformed the Energy Index by greater than 110%.

Tap’s regular employee option incentive scheme allows for staff to buy options at a price 10% higher than the current share price, so there’s some disparity in favour of Taylor, but these are by no means the most outrageous schemes I’ve heard of. Given the unanimity of the voting on the floor and lack of outraged voices – yours truly pleads guilty again – this, too, probably would have been a pushover, but who knows. We’ll see what happens next year.

Peter Fray

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