With politics out of the way, let’s get down to business. As the economy continued to recover, who made the most of it in 2013? And who has angered shareholders the most? The envelopes, please …
Best ASX performer: REA Group
The majority News Corporation-owned REA Group was the best-performing stock in the ASX200, with a return of 117% in the year to Tuesday, when it announced the sudden resignation of successful chief executive Greg Ellis. It came three weeks after the CFO quit, raising fresh questions about the weird shemozzle that is the Murdoch empire in Australia, from the newspapers to Foxtel to the ailing Ten Network. REA, which runs property website Realestate.com.au, grew tenfold under Ellis and it is not inconsequential in the scheme of things: it now has a market capitalisation of $5 billion, valuing News’ 60% stake at $3 billion.
News Corp has never been one for corporate governance, of course, but Hamish McLennan’s unusual position as Ten CEO and non-executive chair of REA may no longer be tenable — may being the operative word, because News couldn’t care less what anybody thinks. Whether Ellis’ successor can hold onto REA’s dominant market position over Domain, led by property rainmaker Antony Catalano, will be interesting next year — it is a crucial battle for Fairfax Media, which is hoping to sell or float Domain for a motza one day.
Worst ASX performer: Perseus Mining
Dare we say it, we finally got over the GFC in 2013, and the safe haven that was gold has plummeted accordingly. A year ago gold was closing in on $US2000/oz. Now it’s just above $US1200/oz. The woes of the gold sector — Newcrest, anyone? — are exemplified by the worst-performing stock in the ASX 200 over the past 12 months: Perseus Mining, sitting right at the bottom of a bunch of fallen speccy miners with a -89% return. Perseus, which has a disappointing gold mine in Ghana, has fallen month by month and two of its founding directors quit in November. Never heard of the company? Me neither, and we’re unlikely to hear much of it again.
Chairperson of the year: Kevin McCann
You cannot ask more of a chairman than Origin Energy’s departing Kevin McCann. McCann, also chairman of Macquarie, announced he would step down at the annual meeting in Sydney in October after 13 years at the Origin helm. His speech was full of pride and feeling, as was the tribute from CEO Grant King, with whom McCann has had an exemplary, productive relationship over more than a decade since Origin was spun out of Boral in 2000. It is a truly rare double act. The figures speak for themselves: market cap has risen from $600 million to $16 billion, the total shareholder return is 22% a year, compound.
Origin has not only grown to become Australia’s biggest energy retailer and one of its biggest power generators, it is poised to become a serious energy exporter from 2015 when its massive coal seam gas-to-liquefied natural gas plant at Gladstone comes online. Australia is going to benefit hugely from the switch from coal to gas exports — if properly managed, and if fugitive emissions prove controllable — it could make a serious contribution to combating climate change as well. Unlike Santos and AGL (not to mention BG and Arrow Energy), Origin has negotiated the CSG minefield with aplomb, ending up with the best ground and the least argument. “They have pre-solved a lot of problems,” one of the industry’s most trenchant critics admitted to Crikey, half-admiringly. Unfortunately the bitter CSG debate has pushed King into a corner, and his intensifying war on renewables — and dishonest urging for Labor to repeal of the carbon price — are a worrying regression from the best in Origin’s culture.
CEO of the year: Paul Zahra
It is not very often that the resignation of a CEO triggers a reinstatement campaign by institutional shareholders. There is clearly an untold story behind the October resignation of Zahra as chief executive of David Jones. Zahra took over three-and-a-half years ago from rock star CEO Mark McInnes who stepped down after admitting he had made inappropriate sexual advances and touched one of his female staff. Zahra, a 15-year veteran of the venerable retailer, was a safe pair of hands who had the share price coming back in a sluggish and structurally challenged retail environment.
Refreshingly, Zahra was a good CEO, not a rock star CEO. On the day of his resignation, Zahra said he was “simply tired”. Of what, exactly, we would dearly like to know. Certainly unhelpful was the shockingly bad decision of chairman Peter Mason to allow two of his directors, armed with market-sensitive sales figures, to buy DJs shares ahead of their release. Investors smelt trouble and called for Mason to knock back Zahra’s resignation. This is not over.
Worst CEO of the year: Alan Joyce
The market has delivered its own verdict on Irish maths whiz Alan Joyce, who has now had five years in the top job at Qantas. Joyce has been outmanoeuvred by Virgin Australia’s John Borghetti, and is now demanding unspecified government assistance. Qantas shares halved this year, crashing from $1.90 to a recent all-time low of 95c. Virgin’s shares have also fallen — the two airlines are in the middle of a bruising, profitless price war in the domestic market — but the reinvigorated challenger has taken market share off Qantas, particularly in the higher-yielding business segment, and is well-positioned for next year after a $350 million capital raising that lifted the combined stakes of foreign airlines Singapore Airlines, Air New Zealand and Etihad to 67%.
Joyce assured shareholders at the October AGM that Qantas had the “right strategy for a bright-successful future” — so it was a shock to see him declare a state of emergency less than two months later, downgrade profits, cut another 1000 jobs and put all options on the table. Qantas’ credit rating was cut to junk status (like most of the world’s airlines). Attacking Virgin’s capital raising as a foreign takeover by stealth, Joyce is calling for government help — loans or loan guarantees, partial re-nationalisation or relief from the foreign ownership restrictions under the Qantas Sale Act. Yes, there does need to be a level playing field, but is that really the problem here? Is it simply the blowtorch to the belly from earnest competition for the first time since the collapse of Ansett a decade ago?
The truth is Joyce’s strategy is in disarray. Jetstar is stillborn in Asia and cannibalising Qantas at home. The “line in the sand” is broken. Joyce is so out of ideas, he can only think of selling the airline down. There is blood in the water, and the sharks are circling.
Downgrade of the year: QBE
QBE blew up $6 billion in shareholder wealth in a week this month, after announcing its third profit downgrade since the departure of former long-time CEO Frank O’Halloran — another supposed rock star — 18 months ago. Belinda Hutchinson stepped down immediately after three years as chairman and 16 years on the board. QBE will take years to recover.
Deal of the year: GrainCorp (almost)
The $3 billion takeover of GrainCorp by United States crop giant Archer Daniels Midland was a done deal. A year in the negotiating, it was so close to done you could almost taste it. After knocking back two earlier approaches, GrainCorp shareholders were getting a handsome premium at more than $13.20 a share, as drought loomed. Growers were happy, especially after ADM belatedly promised some $250 million investment in up-country storage and handling — taking the total new investment in the network to half a billion dollars. GrainCorp chief Alison Watkins had her next job lined up — a plum post at the top of Coca-Cola Amatil. The competition regulator was happy the deal would not diminish competition (given ADM had no presence here, how could it?). Nobody seriously believed FIRB would be a problem.
They didn’t count on the Nationals rolling Treasurer Joe Hockey, in a shock rejection decision on national interest grounds, which cast doubt on the new Coalition government’s “open for business” credentials. GrainCorp shares plunged back to pre-bid levels (they’re at $8.14 now) and the reliable chairman Don Taylor — outrageously smeared for concentrating on delivering benefits to shareholders, rather than sniffing the breeze in Canberra — is left to pick up the pieces.
Float of the year: Freelancer.com
Job outsourcing website Freelancer.com reminded us that it is actually possible to make money by investing in shares, when it stagged as much as 520% on its ASX debut in November. Sold at 50c each, the shares peaked at $2.60 in intra-day trade and closed yesterday at $1.28. Just like the good old days of the dot-com boom, it has a mildly incomprehensible and frighteningly replicable business model — descriptions are replete with words like “scalable” — and the hype is as much about the track record of the investors, who include Seek founder Paul Bassat, as it is about the profits.
Worst float of the year: iSelect
Despite stiff competition from Nine Entertainment Co. — can we please ditch the spin that Nine was sold cheap, when the opposite is plain? — we can’t go past insurance comparison website iSelect, which offered shares in June at $1.85, never rose above that level, and closed yesterday at $1.33 after immediately missing the earnings forecasts in its prospectus, suffering an Australian Securities and Investments Commission probe, resignation of chief executive Matt McCann, and recording a first strike against its remuneration report at its first AGM. Outstanding!
Green business of the year: Clean Energy Finance Corporation
Set to be abolished by the Coalition in its war on climate action, even though the CEFC is on track to deliver — at a profit to taxpayers, mind you — half the abatement necessary to meet our -5% emissions reduction target by 2020, and the government plans to water down the renewable energy target and has no other credible policy. Too depressing for words.
Lame duck of the year: Wal King (not really)
Spare us Wal King claiming he was a lame duck CEO in his final years after three decades at Leighton Holdings — a period now marred by foreign bribery allegations. King is the least lame duck CEO you could ever meet.
NBN of the year: the one we’re not getting
A hodgepodge of fibre to the premises, fibre to the basement, and fibre to the node, with two overlapping networks of 20-year-old hybrid fibre coaxial cable still used by Foxtel thrown in, and heavy reliance on deteriorating copper wire up to a century old. Only joking! Can we please take the politics out of this and just build FTTP — not in a mad rush, but rolled out sensibly and efficiently in order of greatest need — and then float the NBN? We need it.
*Tomorrow: the best and worst of media in 2013