If Qantas is an indication, it’s going to be a fiery AGM season

Sascha: [00:00:02] Welcome to the Dive. I'm your host, Sascha Kelly, where the podcast that asks, who said business news needs to be all business? Today, Qantas will be holding their annual general meeting. It's a chance for shareholders to hold a mirror to the board and management after months of widespread anger. Whether it be over former CEO Alan Joyce's pay packet regulatory investigation into cancelled flights or lobbying the Australian Government over competition from another airline to bring more flights into Australia. But as capital break, journalist Jack Dolan writes, this feeling is indicative of the full AGM season. It just feels like the stakes are a bit higher and the pitchforks, a little shop are. The themes from the Qantas AGM that will happen today are actually being felt by companies across the board. Pardon the pun there. It's Friday, the 3rd of November, and today I want to know what's so special about AGM season and what of the stories that I should be looking out for to talk about today? I'm joined by Jack Derwin, who is Capital Briefs finance and markets correspondent. Jack, welcome to the dive. 

Jack: [00:01:08] Thanks for having me. 

Sascha: [00:01:09] So we're going to talk about the upcoming AGM season here in Australia. First of all, I just want to get some jargon out of the way. Is there actually a difference between earnings season, reporting season AGM season, or are these just blanket terms that refer to these weeks of companies facing up to their shareholders? 

Jack: [00:01:28] Yeah, well, I guess there is a small difference. So I mean it is a lot of jargon, but AGMs are different kettle of fish. So basically when you talk about earnings or reporting season, as the name suggests, it's kind of when you've got a whole host of companies and they're periodically releasing results during the year showing how they're tracking financially, but it's very much a one way channel. So they release a bunch of numbers. They sort of try and present the best side. And unless you're a financial analyst or a member of the press, you don't actually get to ask any questions as a shareholder. You just sort of see the results come through and you kind of have to accept them on face value. Now, an AGM and annual general meeting is an actual physical conference. It's one of the rare times that a company's management has to face shareholders. So they typically happen in October or November after the full year results are out. And in practice it just means the CEO and board of directors sit up on the stage and they run through how the company is tracking any big developments and hopefully give a bit of direction as to what's coming next. It's also an opportunity for shareholders to sort of hear that first hand, but also to ask questions so they might quiz the CEO on dividends or environmental policies or strategy acquisitions or any kind of burning question. They're fairly wide ranging affairs these days. Q&A is the last kind of important thing that the AGM do, is they have votes on resolutions, so shareholders get to kind of vote on directors, they get to elect them or re-elect them, but they also get to show their support or opposition to the report. So a report is how much the executives get paid. So that's kind of the most closely watched part of these things. If 25% of shareholders vote against it, they get a strike. If you get two strikes in two years, they potentially can still the board kind of force the directors to face an election. The media gets very excited about this. They don't usually amount to much, but it's sort of a symbolic light for shareholders to show they're annoyed. 

Sascha: [00:03:28] Yeah, that's interesting about the 25%. I didn't realise that that was the statistic, the line in the sand. You've mentioned a couple of key points that I want to dig into in just a minute, but first you are covering the meetings that are unfolding over the next couple of weeks. Let's start with one that's unfolding today and the one that you've pinpointed is going to be really closely watched, and that's Qantas. What can we anticipate is going to unfold at this AGM today. 

Jack: [00:03:54] When it comes to Australian companies, I think there's probably no company quite like Qantas to get people really worked up. There's a few reasons for that. We will fly, we will get affected by delays, cancellations, lost baggage, expensive tickets, that kind of thing. And no Australian company has really managed to kind of co-opt a national identity. You know, it's called the Spirit of Australia for a reason. When things are going well, that's great, it's a great marketing strategy, but when things go wrong it really gets under people's skin. And that's kind of what we've seen this year in a very big way. 

Audio Clip: [00:04:27] Angry Qantas shareholders have come face to face with the man they say is driving the airline into the ground.

Jack: [00:04:33] Qantas shareholders. Customers are sort of seething at the moment for a whole range of reasons. You've had Alan Joyce, who's been the CEO for about 15 years, he's finally stepped away and people are looking at Qantas thinking, hey, what does he achieve? But also what kind of state has he has? He left the company And so he was one of the best paid people in Australia. Some years. He pocketed more than $20 million, which is obviously a lot of cash. He's critics and there's quite a few of them think he's kind of left the airline in a bit of a mess. So during his time at the helm of the company, he didn't buy a lot of planes, which means that Qantas's aircraft is quite ancient. The airline, meanwhile, in sort of recent years has gotten in trouble. They got in trouble for sacking thousands of workers during the pandemic, which a high court has ruled was illegal. Qantas appealed that. It lost its appeal as well. Airlines outsource thousands of jobs. It's contracted out services like catering and buses. And that's all contributed to this idea that the customer experience isn't what it used to be, right? At the same time, plane tickets are really expensive, people hurting financially at the moment, and that's kind of added a bit more fuel to this fire. 

Audio Clip: [00:05:44] Yesterday, Alan Joyce copped from senators today from Virgin Australia's boss angered by revelations the government blocked more Qatar Airways flights to protect Qantas. 

Jack: [00:05:55] And the issues are so wide ranging. You've also had this kind of scandal where the Australian government actually stopped Qatar from increasing their flights to Australia in a move that kind of helped Qantas profits, which are at record highs as of August. And it's also kept plane travel more expensive. So there's a lot of anger in that makes a lot of issues to kind of address. So, you know, shareholders today at the AGM, they'll be wanting to see remorse for management. They want to see accountability. They're going to want to see the board sort of put his hand up, own up to some of these mistakes. They're also importantly going to want to see the new CEO, Vanessa Hudson, kind of lay out a plan. You know, how is Qantas going to fix its customer service issues and how is it to restore its brand and how is it going to get back on track? So all of these, I imagine, are going to feature very heavily today. 

Sascha: [00:06:46] Yeah, we'll see lots of headlines I imagine in the next couple of days coming out from that meeting. You wrote, quote, The spotlight burns particularly bright on boards this AGM season and whether they are reining in the worst tendencies of management. And that's why I wanted to stop, because so many of these issues that you were talking about with Qantas, rightly or wrongly, have been kind of attributed to Alan Joyce. And even though he's stepped away, there's obviously just a huge pressure on management to really be addressing a lot of these comments that are away from profits in a way from just dollars and cents. Can you talk about where else this pressure is being seen and other Australian companies?

Jack: [00:07:26] Yeah, absolutely. So in terms of specific companies, for example, we've had major cybersecurity breaches at Optus, Medibank Latitude and others and that all kind of be brought back into the spotlight. Now with AGM season, shareholders are going to want to see that progress being made where customer data has been leaked. What's been done to rectify that, what's been done to protect those companies from future breaches? We also, I think uniquely this year have the interesting issue of companies being grilled a bit more about their political donations. So with the Yes campaign, there was some large Australian companies like Telstra and Commonwealth Bank that have supported the yes vote and made large donations. Some shareholders are asking whether they were right to do so. So that sort of reared its head at a few of these.

Audio Clip: [00:08:15] Head of BHP Australian operations has defended the mining giant's decision to donate $2 million to the Yes referendum campaign, saying BHP its relationship with traditional owners is an important part of its business. 

Jack: [00:08:28] We also have, I guess, kind of ESG concern, so sort of environmental, social and governance concerns about how companies act into sort of the greater responsibilities. So we'll sort of see that kind of rear its head, for example, with the big banks. They're constantly sort of being grilled over how they're financing fossil fuels, coal mines, that kind of thing. And typically at these AGM, you often get activists questioning, you know, are the banks doing enough? Do they need to sort of be, you know, stepping away from fossil fuel industries? Do they need to be financing the green transition, that kind of thing? They'll sort of be seen right across these agencies. 

Sascha: [00:09:09] And we'll have more of my conversation with Jack in just a moment. Welcome back to The Dive. I'm your host, Sascha Kelly. Today we're talking about AGM season. Before we get back into it, a quick favour from me. Would you mind giving us a five star review? Just open up your podcast player right there. You've got it in your hand. Write some lovely words and click those five stars. It really makes all the difference for us. Getting in front of me is right back to my conversation with Jack. Do you think this ATM season is more fiery than usual, or is this the status quo? 

Jack: [00:09:47] It's hard to say. I think there's often a few companies that really feel the scrutiny come AGM season, but this year it does seem particularly pronounced and possibly that has quite a bit to do with Qantas as we sort of talked about earlier. But it does seem like the Qantas story has really highlighted a lot of frustrations which I think are sort of seen right across the board. I think this year we've had the pandemic for a few years. Business was kind of booming, the economy was booming, but now we're sort of entering this new kind of economic period where, you know, things are tough, people are doing it a lot harder financially. Interest rates have gone up, inflation is high. Companies are having sort of the easy run that maybe they were having for a couple of years. And now I think there's a lot more focus on, well, what are you going to do for the next 12 months, for the next five years? How are you going to grow and how are you going to basically help me grow my investment, but also do right by shareholders, customers and wider society? 

Sascha: [00:10:55] Yeah, I think that's such a good point because I know personally I invest, I invest in individual companies, I get the letter, I open it, I go, Oh, that's nice. And then I often put it in a drawer. And so just having this conversation and reminding myself that this is something that I can take part of and that it is something that as a pot owner in a company, I do have the right to kind of turn up and ask questions, even if I choose not to. You know, the onus is on you as a as a shareholder in the company. Before I let you go, Jack, I do want to just ask we've talked a lot about Qantas happening today, but there are a couple of well, I don't want to say highlights, but all the meetings happening in the next couple of weeks, what are some of the key items that you're going to be looking to where you think there is a bit of tension? That's going to be an interesting story. [00:11:41][45.8]

Jack: [00:11:42] Yeah, so there's quite a few one that I'll be keeping an eye on is going to be line ten resources, which is sort of a big Australian lithium producer.

Audio Clip: [00:11:50] The US battery company Albemarle, $6.6 billion takeover bid, the Australian Lithium Play Alliance and could be in trouble. 

Jack: [00:11:57] For quite a few months. It looked like it was going to be bought up by this US battery company called Albemarle. But lo and behold, Australia's richest person, Gina Rinehart, kind of intervened at the last minute. She bought up about 20% of the company and the deal sort of fell over at that AGM. Shareholders are going to kind of be looking, you know, I as to what is Gina up to basically what is she planning? She's just bought 20% of the company. What's her strategy here? But they're also going to want to know what are the company's plans now for a few months. So it was sort of the idea was, well, they're going to be bought up, but now they're either going to have to sort of map out what the strategy is for next year or they're going to have to perhaps look at acquisitions or being acquired. 

Audio Clip: [00:12:42] The competition watchdog has knocked back the ANZ proposed $5 billion takeover of Queensland's Suncorp Bank. The rebels say found it could have a detrimental impact on lending. 

Jack: [00:12:53] Another story we'll be keeping an eye on with Suncorp Bank is going to be bought out by ANZ this year. The Age will see kind of stepped in again at the last minute, stopped it. 

Audio Clip: [00:13:02] We are not satisfied. The acquisition would not substantially lessened competition in the market for home loans and SME and agribusiness banking in Queensland. And there's been some sort of talk around whether Suncorp could merge with a smaller bank and Bendigo and Adelaide Bank name has sort of been thrown into the ring. So that'll sort of be talked about as well. Like I mentioned this sort of a lot of talk around greenwashing and environment at the moment. So ask the financial regulator as sort of being a going around and sort of putting companies on notice. So effectively saying stop saying that you're doing that, you're making all of these sort of grand environmental steps forward when you're not, which is what greenwashing is. So really trying to get companies to walk the walk and not just talk the talk, which I think is very important at the moment. And that comes back to what we were talking about before, which is, you know, when you're a shareholder, you own a company, you own part of it, and we sort of forget that. But if you're a large investor, if you're a large shareholder or perhaps, you know, a big fund or big institution, you own quite a large chunk. So you do get a say, you do get a seat at the table and sometimes these funds. Or institutions will kind of throw their weight around a bit. So we'd seen that a bit this year with Whitehaven. But we're also now seeing it with Magellan, which is basically a big investment manager. So there is a fund which owns part of Magellan and they're basically campaigning for Magellan to kind of revisit its strategy and basically get its act together. So the share price of Magellan is down about it was down about 90%. Things have been looking quite tough for it. And sand and capital, which owns a good chunk of it, is basically saying you need to cut costs. You need to get the performance of the fund back up and running and you basically need to turn things around and you need to prioritise shareholders, the funds and the investors that have sort of stuck with you throughout this kind of tumultuous period. You need to focus, get back to sort of looking at how you're going to drive their investment and how you're going to maybe return capital to them. So they're sort of agitating for a whole sort of range of strategic changes which is going to come to a head presumably at their AGM. So we'll see how that goes and we'll see whether Magellan can turn it around.

Sascha: [00:15:31] Jack, thanks so much for your time today. I really appreciated it. And it's great getting a lay of the land about what's coming in the next couple of weeks. 

Jack: [00:15:38] Thanks so much for having me, Sascha.

Sascha: [00:15:41] And we're going to leave it there for today. I think today was a really good reminder of the responsibility you can have as an individual investor, especially if your name is Gina Rinehart. But in all seriousness, it is a chance for all of us to be involved and not just as I do put that AGM letter in a top drawer and forget all about it, but rather pay attention to the companies that you're investing in. I'm going to be back in your feeds on Monday. In the meantime, why don't you let us know what you've enjoyed of late? A lot of you actually got in touch and said that you really loved the tax episode, which grew a bit. Took me by surprise. So get in touch. Send us an email, a contact@equitymates.com or jump in your podcast player and tell us in your next review. Until next time. I'm Sascha Kelly. Thanks for joining me on the Dive today.