Important highlights from upcoming meetings, provided by Glass Lewis’ global research team
Qube Holdings Limited
Australian Securities Exchange – November 22
A rising tide lifts all boats – just ask Sydney’s real estate agents, who saw an unprecedented 37% jump in industrial land values over 2017. As a logistics specialist with warehouses, shipyards and other investments, Qube Holdings has plenty of exposure to that market. In FY2018, Qube recognised a non-taxable gain of A$163.2 million on the revaluation of its Minto and Moorebank investment properties, which contributed significantly to the company’s NPAT of A$199.0 million and statutory basic EPS result of 12.5 cents per share.
These earnings are non-cash, non-recurring and won’t be realized until the assets are sold – but the company’s executives won’t have to wait until then to benefit, thanks to LTI awards based on an EPS performance hurdle. Although the company bases that hurdle “on statutory earnings excluding certain non-recurring and non-cash items”, the 2014 grants will be allowed to vest in full without excluding the non-recurring, non-cash gains from the Minto and Moorebank properties. Otherwise, it appears they would have lapsed. The committee did exercise its discretion to not allow vesting of 2015 and 2016 grants at this time – however, due to the inclusion of a retesting provision, the awards may still vest down the line.
The board claims that “this approach recognises the contribution of management – both in delivering solid financial performance during the reporting period as well as increasing the value of the properties.” At roughly 40%, the increase in value is right in line with the wider market, leaving investors to ask whether the gains were derived from management value-add, or were simply a result of a logistics company (and its shareholders) having industrial real estate market exposure.
Harvey Norman Holdings Limited
Australian Securities Exchange – November 27
At last year’s AGM, 23.07% of the shareholder votes went against the adoption of Harvey Norman’s remuneration report, falling shy of the 25% threshold for a first strike to be registered. Under the Australian Corporations Act 2001 (Cth), receiving two consecutive “strikes” against the remuneration report will automatically trigger a resolution to spill the board at the AGM of the second strike. The spill resolution will then be passed if 50% of shareholder votes are in favour.
The level of shareholder dissent hasn’t had much of an impact on the company’s remuneration practices in FY2018, which went significantly unchanged. The fixed components of the remuneration package of CEO, Kay Page (who is the wife of the Executive Chair, Gerry Harvey) is around 50% higher than the median for CEO’s of Harvey Norman’s index peers. Furthermore, two other Executive Directors receive fixed remuneration comparable to the median for CEO’s of Harvey Norman’s index peers
Other matters of shareholder concern are also evident at Harvey Norman such as: the unknown size of off balance sheet liabilities associated with supporting the company’s franchisees, and losses arising on non-core investments such as Harvey Norman’s brief foray into dairy farming.
Some context may explain why shareholders might not have the keen ear of the board of directors. At Harvey Norman, five of the nine directors are insiders. The remaining four directors aren’t exactly outsiders, given long tenure, related party relationships or by merit of being the son of the executive chair. The director ranks haven’t seen a fresh face in over a decade since the CFO joined the board in 2007. The board also happens to control 50% of the voting rights. These factors could certainly afford a board feeling well insulated from any outside shareholder dissent.
Although controlling 50% of voting rights can’t prevent a strike on remuneration (particularly where the insider-controlled element doesn’t vote on the issue), it is incredibly strong position from which to prevent a board spill resolution ever passing. Will we see a strike at this year’s Harvey Norman’s AGM? Maybe. Will this spur change by the board of directors? Maybe not.
Cracker Barrel Old Country Stores, Inc.
NASDAQ – November 15
Despite the name, shareholder rights plans rarely sit right with shareholders. They can reduce management accountability by substantially limiting opportunities for corporate takeovers, potentially preventing shareholders from receiving a buy-out premium for their stock. Back in 2015 though, Cracker Barrel’s board and management had an unusually cogent rationale for seeking some protection. In each of the prior three years, the company had been forced to hold contested meetings at the request of its largest shareholder, Sardar Biglari, who was reportedly pushing for full control and repeatedly voted against the CEO, chairman and other directors.
That time around, the Biglari nuisance was enough to convince most independent shareholders to support the board – most. In a sign of just how unpopular rights plans are, independent shareholders representing roughly 7% of participating voting rights joined Biglari in opposing the proposal.
Yet since then, things have been quiet. Biglari hasn’t called any more special meetings, and opposition topped out at a modest 4.3% at the company’s 2017 AGM. The board isn’t taking any chances, but with no barbarians at the gates, will shareholders see a need to renew the protections?