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Corporate chaos, except where it was most wanted

A disappointingly calm AGM amid the storm evidenced by a contractual tussle, a new ‘phrase’, a sales-ban-induced profit warning, and the JSE’s first direct Covid-19 casualty.
Standing tall. Liberty’s virtual AGM went off swimmingly well. Image: Moneyweb

Liberty has certainly had many interesting AGMs during its 60-year history.

There was the one from which an insistent questioner (of founder Donald Gordon) was removed, and another that had to be briefly abandoned when an agitated octogenarian shareholder made a lunge for one of the directors.

Last week’s wasn’t interesting in that confrontational way we in the media tend to enjoy so much, but it was hugely interesting in that it was the first fully virtual AGM held by the group. And it went swimmingly well with solid performances from house-bound chair Jacko Maree and CEO David Munroe, and not one glitch – technical or otherwise – during the 25 minutes.

Read: JSE ‘not in partnership’ with virtual AGM service provider TMS

And sadly, not one question was asked by any of the 50 or so shareholders ‘attending’, which may have been a huge relief to the board but made it a bit dull for journalists.

It was difficult not to hope an unruly dog would come bounding across Maree’s desk as he read out the resolutions ahead of the voting, to inject a moment of chaos into the well-orchestrated event just as the octogenarian had done all those years earlier.

Virtual-only meetings are a necessity this AGM season but they should be discouraged as soon as life returns to some sort of normality; at that stage we should all be ready for the slick hybrid version.

Another first

Another first last week, at least as far as JSE-listed companies are concerned, was Barloworld’s decision to try to use a reasonably standard contractual condition to get out of its agreement to purchase Tongaat’s starch business.

No doubt Tongaat shareholders who studied the recently released circular dealing with the transaction, which was, or is, set to significantly reduce the sugar company’s hefty debt burden, will have spotted the definition of a ‘Material adverse condition’ (MAC).

It largely relates to land claims and property expropriation but, without mentioning Covid-19, it referred also to an ‘event’ that would cause earnings before interest, tax, depreciation and amortisation to drop by 17.5% or more in the year to end-March 2021. In addition, if the ‘event’ caused net asset value to drop by anything over 30% or tonnage to slump by 20% or more, then the planned transaction could be abandoned.

It’s easy to see why Barloworld would contend that Covid-19 represented such an event, although it’s hard to know why it waited almost seven weeks to call it. To be expected, the two parties disagree that a MAC event has occurred, so now it’s down to independent third party experts to determine if Covid-19 represents a substantial threat to the earnings or net asset value of Tongaat’s starch business.

That should be fun given that most companies across the globe have abandoned the practice of providing any ‘guidance’ to analysts because of the high degree of uncertainty.

Could this be an attempt to renegotiate the price, or has Barloworld got cold feet and decided – a bit late in the day – that protecting its cash resources is a better option in these uncertain times?

New profit measurement – ebitdac

On the issue of experts in a time of uncertainty, last week Financial Times reported that some international companies have developed a new profit measurement to deal with Covid-19 – ebitdac: earnings before interest, tax, depreciation, amortisation and coronavirus.

One German manufacturing group added back €5.4million (R109 million) to its first-quarter profits, claiming that’s what it would have made were it not for the hit caused by the Covid-19 lockdown. The concept hasn’t been through the audit profession yet, but given that profession’s increasing flexibility it might be something we’ll have to get used to.

Certainly it would have come in very useful for Distell, which had to warn shareholders that earnings per share for the year to end-June could be as much as 65% lower than in financial 2019.

Read: Distell warns of up to 80% drop in full-year profits

Remarkably the dramatic news didn’t do much damage to the share price on Friday.

 

Distell share price in the past month

 

The challenge for all shareholders in the months, perhaps even years, after the lockdown is to ensure Covid-19 doesn’t become a ‘get-out-jail-free’ card for chronic underperforming management teams.

Zarclear’s announcement that it is planning to delist marked the JSE’s first direct Covid-19 casualty.

The small-cap investment holding company informed shareholders that after considering the impact the pandemic has already had and is expected to continue to have on equity markets for some time to come, “the costs and expenses associated with its JSE listing are no longer justified … ”.

While Zarclear is on the way out, the JSE has enabled the continued listing of Trencor until end-December 2024, although it will be a cash shell as soon as it has completed the unbundling of its remaining shares in container-leasing company Textainer.

The three-and-a-half year extension is a full three years beyond the standard six months allowed for cash shells. Apparently it has been necessitated by the fact that December 2024 is the soonest Trencor will be released from an indemnity relating to its previous complicated structure.

The extension is good news for the JSE and the directors, who will continue to receive fees, but not such good news for the shareholders who will finance the R21 million a year of fees.

Investors were evidently not happy to learn that Adcorp’s CFO is set to quit the group at the end of May, two weeks before the group is due to release its results for the 12 months to end-February. Cheryl-Jane Kujenga had been operating as interim CEO – as well as CFO – for seven months until Phil Roux’s appointment was announced in late April. All in all, a little more interesting than shareholders can cope with these days.

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Funny how those at the top of the “food chain” whether in business or politics, always come out best before the rest when the chips are down!

The whole listing game has become highly questionable. Like a Game of Throwns episode. Rules that never get policed (JSE) and everyone frantically worried about share prices, especially the management, who should be worried about the business and not their share options.

Starting to look more and more like online gaming.

If Covid 19 lockdown is not a MAC event, then it needs redefining.

End of comments.

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