Brambles’ AGM finished just after the stroke of midnight in Sydney on Monday night and didn’t Don Argus cop a grilling from angry shareholders in Sydney – and one disappointed but oh so polite chap in London.

Anyone with the faintest of interest in business would have heard of Brambles’ woes of late, with around one third slashed off its share price last week thanks to a very unexpected nasty surprise that its European CHEP pallet business would require A$238 million to fix.

Don Argus fronted the very difficult AGM and I must say, having seen him in action for the first time, that he was either especially contrite given the share price massacre, or his “Don’t Argue” reputation is misplaced.

But we’ll keep the Crikey nickname tradition bubbling along.

The distinguished chappie, Mr Farmer

The undoubted star of the meeting for comic value – as well as several pointed questions – was a Mr JD Farmer, attending the joint meeting in London and looking very much like John Cleese of 20 years ago.

He was the only Pom who asked any questions, but didn’t he make up for his countrymen’s lack of enthusiasm!

His first eloquent spray elicited several belly laughs as he ridiculed Don’t Argue’s defensive address, which Farmer thought was a ham-fisted attempt to cover the company’s “bungling incompetence”, and sympathised with his antipodean brethren who would be eagerly awaiting their post AGM cup of cocoa.

He also lampooned the fact that the company had been in pallets for several years and still hadn’t appeared to have figured out how to run it.

His biggest cheers from Sydney came when he argued against the 2-year notice period to the CEO, the much-maligned Sir CK Chow. Mr Farmer argued that it was an affront to shareholders to argue you needed that to lock in the best people – the company was clearly not performing and Mr Farmer was happy to bid “good riddance” to Mr Chow.

Finally, he mocked the oft-repeated mantra that the company was having trouble keeping track of those confounded pallets – they’d been in the business for 50 years and yet somehow these pallets were just “disappearing into the ether”, as Mr Farmer put it.

Mr Farmer may have heard the huge round of applause he received from the Sydney audience, for he was up again later when there were no other takers in London, suggesting at his second appearance that the company was a “basket case”.

Finally, and to the accompaniment of loud cheers in Sydney, Mr Farmer was up for an encore performance and he saved his best for last. He pointed out that pallets are charged to the customer on the basis of the amount of time they are “out there”, so were all these unaccounted for pallets earning us revenue?

It was a shame that the London shareholders voted to drop the link from Sydney and carry on with business at their meeting – Mr Farmer being the only shareholder there to dissent.

Maybe the company should fly Mr Farmer into Sydney next year so that we can have the benefit of his wit and wisdom for the duration of the meeting – God knows the long suffering Sydney shareholders needed a bit of levity after 4 hours!

The angry investment analyst

From a non-theatrical point of view thought, the most probing questions came from a Mr Hickey in Sydney – and I’m not just saying that because his first comment was to concur with a great deal of what yours truly said, either.

Hickey mentioned that he had a background in the investment caper and he obviously knew his stuff.

He grilled Don’t Argue time and time again and never, in his opinion or mine for that matter, seemed to get a satisfactory answer to the nub of his questions – was the board getting adequately informed by management?

Contrast these words from Don’t Argue in his chairman’s address in the annual report with what we now know about CHEP and you’ll see where Hickey was coming from:

“Revenue growth in CHEP, Cleanaway and Recall has continued strongly, despite slower economic activity in many of our markets. This clearly demonstrates the growth quality of our key businesses. CHEP has been repositioned to realise returns from the heavy investment program of the past few years.

“…For example, the repositioning of CHEP has enabled a greater emphasis on working with customers to understand what truly underpins and fuels the business and on adjusting prices to align with the value of the service provided. Management initiatives in North America in particular are bearing fruit.

“…The 2002 financial results give a good insight into the progress being made in repositioning the business fundamentals of the Group. Already CHEP has been able to capitalise on its global brand and strong relationships with manufacturers and retailers to expand further into supply-chain services.”

Don’t Argue’s response was basically that the company can only keep the market informed of the issues that we are certain about, but this ignored the two main thrusts of Hickey’s spray – was the reporting from management to the board adequate, and were the board’s inquiries of management adequate?

Based on what we’ve seen recently, you would have to seriously doubt both of these.

In a fiery exchange later in the meeting, Hickey asked whether Don’t Argue would request Sir CK to resign his directorship of Standard Chartered Bank given that Brambles was “struggling” and needed all of CK’s attention. (Some shareholders might argue that a little less of CK’s attention could be a good thing!)

Don’t Argue said “well that’s your view” as if to suggest Hickey was going out on a limb. He wasn’t – as clearly indicated by the immediate chorus of voices in support of Hickey’s view.

Crullers gets the Don’t Argue

As I said at the outset, I didn’t think Don’t Argue was the ogre that others have made him out to be, but I didn’t leave the meeting satisfied that my main gripes were answered.

The first was that CEO Sir CK Chow and CFO David Turner had repeatedly thrust nasty surprises onto the market and hence the share price beatings, especially the most recent.

This suggests that either they haven’t been properly observing continuous disclosure requirements or they really have no idea what’s been going on in the CHEP European business.

Whichever of these two is the case, they are not, in my view, fit to continue in their jobs.

Judging by the applause I got (a rarity in itself), most shareholders concurred.

My second gripe was with Don’t Argue’s contention that the current management structure has only been in place 17 months or so, so go easy on the lads.

I repeated some earlier comments that the CHEP pallet business had been around for eons and GKN was a partner in the joint venture that ran it. Sir CK was CEO of GKN since 1996, fellow Brambles board member David Turner was CFO for about as long.

You can’t play the sympathy card now, Don’t Argue! These blokes have had their hands over CHEP for years and it took until the company employed an outsider to do a comprehensive review before the problems in CHEP were unearthed.

Don’t Argue reiterated that they shouldn’t be held to blame and you can only do so much with the information you’re given, but I reminded him that Turner was on the CHEP joint venture executive committee, so if he didn’t get the information he requires, then he hasn’t been doing his job.

Not surprisingly, I got no relief from Don.

My other beefs were with the bonuses paid to Chow (half a million) and Turner ($300k+) and a table that Don’t Argue tried to use to break down the component parts of Brambles’ recent share slide.

This seemed to me – and not for the first time during the meeting – to be spin doctoring, massaging of numbers and “soft shoe shuffling”, as another shareholder noted, of the highest order.

In the table, Don’t Argue seemed to be saying that because the ASX has gone down 7%, that explains 7 percentage points of Brambles’ decrease, and because “high rated growth stocks” have gone down 36%, that explains another 36 percentage points of Brambles’ decrease. The rest of the fall was “Brambles specific issues”.

Don’t Argue said he could show where the numbers came from, but of course we can’t go into that much detail in an AGM.

Whatever!

Another shareholder lambasted Don’t Argue’s graph which showed how Brambles’ share price had outperformed the top ten high growth stocks on the ASX.

But this shareholder pointed out that the graph cut out in September and didn’t take into account the one third plunge in share price last week.

Don’t Argue said “you’ve got to cut it off somewhere”.

Whatever!

A galaxy of shareholder activism stars

It seemed that just about every ASA heavy-hitter was there – chairman Ted Rofe, NSW director Stephen Matthews and the incisive Giles Edwards and John Wilson. Edwards especially and Rofe to a lesser extent seemed to have swallowed their angry pills, but the merry quartet all had a bit of fun at times having a merry dance around Don’t Argue.

Rofe was probably the pick, asking the auditor what they had actually done to satisfy themselves of the existence of these missing pallets. This was pretty well into the meeting, and by this stage Jack Tilburn was probably already penning a new chapter to the revised edition of his book on the mystery of the missing CHEP pallets.

After the auditor gave yet another non-answer to the direct question, Rofe gleefully recited a quote from Henry Bosch following the 1998 BHP AGM where he had said that an auditor had given a delightful recitation of an accounting standard, but had completely failed to answer the question.

Rofe suggested that the plain English translation of the auditor’s answer was “we haven’t checked, we don’t know where they are, and we haven’t got a clue”!

And of course, Jack Tilburn was first up to the microphone with possibly the angriest spray I’ve ever heard him deliver – and that’s saying something.

At one point he was so loud that the punters in London probably could’ve heard him even without the benefit of the video hookup.

No applause for the company

For the first time in my 50 or so AGMs attended, neither the chairman, the CEO, nor CHEP’s new boss, Victor Mendes, were afforded a round of applause after their addresses to shareholders.

This to me spoke volumes, as did the fact that a significant amount of shareholders in the room voted against every single resolution – and there were 18 of the suckers! (Resolutions, that is – there are far more suckers who have invested in this company.)

Even the mundane motions had plenty of votes cast against them, such was the shareholders’ lack of confidence in the leadership.

Hiring pallets – it’s not rocket science

A Mr Heatherton, who said he was in the business of hiring pallets, suggested that if Sir CK Chow hadn’t figured out the pallet business between 1996 and now, he was never going to learn – “it takes my employees about 10 minutes”!

The sacrificial Frog

After being bombarded with questions on who was accountable for the European disaster – it certainly wasn’t the current board, including CEO Chow and CFO Turner – Don’t Argue finally conceded that a French bloke had “left the company”.

A Mr Pilot wanted to know whether he was solely responsible for the running of the joint venture, but – not for the first time – Don’t Argue dodged the question!

The investment community is starting to get more than a little tired of Brambles’ lack of disclosure, and shareholders got their taste of it at the AGM.

Peter Fray

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