A no-show at the 2002 Fairfax tilt

Fairfax's internal rumblings have been well-documented in Crikey, but chairman Brian Powers and CEO Fred Hilmer presented a fairly positive economic report card on the company's performance over the past year. This year the company's Concise Report was presented in the style of a colour tabloid, continuing on from last year's presentation in the form of a newspaper a presentation which one shareholder described as "kitsch", but which Powers thought novel and entertaining to shareholders.

Profitability was significantly down for the group compared to 2000, a decline which Powers attributed to the post-Olympics economic slowdown. Powers and CEO Fred Hilmer dwelled for some time on the company's re-structuring of its online business, f2, and considered the online business's losses in 2002 will be substantially lower.

I came armed with plenty of questions and a platform for election to read out on behalf of Crikey, but not surprisingly the sprightly Mr Tilburn was first out of the blocks with his patented mix of rambling diatribes, slurs, comic relief and pointed probing.

Crazy Jack first noted that it's "not my job as Australia's leading dissident shareholder to give a pat on the shoulders to Mr Powers or Mr Hilmer" and "I've made special mention of you in my book 'The Corporate Terminator' when you tried to gag me, 05"

One would hope Crazy Jack's publisher has the best defo lawyer in town run the slide rule over his (no doubt lengthy) tome.

In his opening spell of a good 5 minutes, Jack said he had a "couple of Dorothy Dixers and then some dramatic implosions". He pointed out that 'The Australian' was recently named newspaper of the year and opined that the Geoff Clark pieces in The Age and SMH were the most scandalous, sordid, overdone pieces he's come across in his 75 years. "Where were the ethics and morals?" he asked.

He also noted Fred Hilmer's lack of newspaper experience and whether he had any printers' ink under the fingernails or whether he'd ever written an editorial. He asked whether the Board had "run the slide rule" over Mr Hilmer vis a vis his performance. Finally, CJ referred to Fairfax's share price which he thought was languishing when compared to the recent performance of Tony O'Reilly's APN News and Media and which made the company a sure takeover target.

Chairman Powers was relieved that there were very few questions in amongst Jack's spray which warranted a response. Of those that did, he said the Board had regularly run the slide rule over Fred as all good boards should and the board was very satisfied with his performance, also noting that Fred had added substantial value to the company.

Now perhaps my slide rule has a kink in it, but I don't find myself agreeing with the board's assessment of Fred's performance. There are lies, damn lies and Financial Statements, but let's have a look at the 2001 numbers compared with 1999, the year in which Fred joined the Board.

Total revenue is virtually the same in 2001 as 1999, but has dropped 5% on 2000 figures. (In fairness, 1999 appears to be inflated slightly by significant non-operating revenue.) Net profit is a whopping 29% lower in 2001 compared to the 1999 figures. Again, the 1999 figures were bumped up by a $26.5 million abnormal item and a curiously low income tax expense of about 24% of profit, so perhaps some tax timing differences have reversed out to bite them in the bottom line. The all-important EPS has dropped from 23.2 cents to 17.5 cents that's a 25% decline for the mathematically inclined. And return on shareholders' funds has dropped from 18.3 to 11.2 a staggering decline of almost 40%!

Now without wanting to sound like an Alan Jones (or Jack Tilburn for that matter) and recite a whole bunch of potentially misleading (when taken out of context) facts and figures to prove a point, one would conclude that the company's performance has been seriously underwhelming in the reign of Hilmer.

Yes, the board can blame a tough economic climate in 2001, but it ain't getting any easier.

In answer to the Corporate Terminator's other questions, Chairman Powers said that the days were long gone when a newspaper CEO worked his way up through the ranks to become top dog. He noted that the company has consistently advocated open shareholder registers and ownership policies that would allow them to take over or be taken over and was not particularly concerned with the prospect of Fairfax being taken over. Crazy Jack certainly was, as he repeated several times during the meeting "well, we won't be here next year".

Other questioning from the meeting largely concerned the newspapers themselves rather than the company's financial performance. One fossilised shareholder complained about the disappearance of Ginger Meggs amongst other absent comics, one Brisbane shareholder complained that the much-hyped Sunday Sun-Herald goodies never made the Bris Vegas edition, another complained that the print listing the mining stocks in the daily market quotations was too small and that Vice-Regal notices were hard to find.

I then opened up with a gentle loosener before running in off the long run with a few questions from the Mayne Man.

I first asked why their investment in AAP Info Services showed a profit before tax of $102 million in 2000 yet a mere $5 million in 2001. Powers explained that the prior year was due to a one off sale of a business and the investment was now trading just ahead of break-even on its core business.

I then had some pricklies courtesy of the absent Board candidate. First, why did they terminate Steve Harris' employment with the Age (and were slugged with an $800,000 termination payout) when he had increased profits 75% and was a good manager with newspaper experience - exactly the sort of person the company could do with? Powers indicated that he wouldn't comment on individuals' circumstances so that was that.

Next, I mentioned that Fairfax Business Publications seemed to be struggling how much of the $16 million Strategic Publishing acquisition had been written off and is it true that MIS is being published again in India with the joint venture partner refusing to pay us our share of the profits? Powers and Hilmer confirmed that none had been written off and that they were optimistic about the prospects of the Indian venture.

I also mentioned that in 1999 the Chairman had told the AGM that they would like to get another Melbourne based director but this still hadn't happened. He explained that at the time, Sir Roderick Carnegie was not sure of his plans but has since given a commitment to stay on the Board. They are still looking but it is a difficult process to get the right person and find them at a time when other commitments don't preclude them from serving.

Finally, I noted that with CPI Investments (a trust through which Powers owned Fairfax shares) having sold out of Fairfax, it was a bit of a concern to have a Chairman based in America with no financial exposure to the company. Powers noted that he had recently acquired a quarter of a million shares and intended to add to this.

Crikey had also suggested I ask Powers how much time he spent in Australia, but given that Crikey wasn't even present to support his own candidature for the Board, I thought this was a bit rich so kept that one in the kit bag.

Another shareholder took the floor to complain that The SMH was far too biased (towards the ALP) in its election coverage, to which Powers responded that his Labor-leaning friends thought that the paper was giving the Libs an easy run.

Crazy Jack took the floor again for "four emotional, dramatic questions". The first was to get the Chairman to confirm that the company's recent equity raising was to retire debt it was. The second dwelled on f2, a "strange, weird, shocker of an entity". The Chairman spent some time justifying the f2 experience, first noting that those aspects of the on-line business it was compelled to get into (news and classifieds) were performing well and the $50 million or so spent there would return value to shareholders. The other $50-$65 million in discretionary spends were obviously not performing so well. They had exited their finance site with fewer losses than their competitors and exited their shopping site once they realised they couldn't get it to perform profitably. Powers added that their only ongoing risk was CitySearch, which was still losing money, but which could still draw customers from f2's other online platforms and therefore be competitive. Yes, they would have preferred to not lose the money, but didn't regret the investments.

The Corporate Terminator also complained that the "winners" and "losers" columns in the sharemarket pages were a waste of space and then that out of the 6 letters he'd written to the Manly Daily recently, all but one had been published, whereas of the 6 letters he'd sent to The SMH, none made the letters pages. I wonder why?!

The Chairman suggested that Jack might have better luck getting a response if perhaps he was less derogatory and insulting in writing his letters. I don't know about that it seems to work at AGMs.

The AGM then moved to the election of Directors, where Stephen D. Mayne was up against CEO Frederick G. Hilmer and Director Jonathan S. Pinshaw for 2 vacant Board seats.

I got up to read the Mayne Man's platform (re-printed below) and Chairman Powers sarcastically inquired "What, Stephen has laryngitis today?"
"Errr, no Chairman, he's caught up in Melbourne today, 05"

The Chairman then seemed outrage that Crikey wasn't attending an AGM where he's standing for the Board and mumbled something dismissively about Crikey preaching about corporate governance and ethics, but I continued on undeterred. Apart from a few "hear hears" from Stephen's number 1 fan, Jack Tilburn, none of his points gathered much of an audience response. Perhaps future platforms should contain the perennial crowd pleasers fighting against obscene executive remuneration, weeding out dud directors, breaking down the old boys club etc.

One smart arse shareholder got up and asked how many shares Stephen owned which I couldn't answer but suspect it is probably nil! The Chairman then took the opportunity to add that Mayne was contesting some 30 Board elections including those of rival companies which is probably an exaggeration this AGM season, but again, without having a handle on the numbers I wasn't in a position to correct the Chairman.

Crikey drew the Number 1 slot on the ballot paper so the donkey vote probably explains his strangely high "for" vote (just kidding lanky fella) of 18.95%.

Incumbents Pinshaw and Hilmer just scraped in, with whopping "against" votes of 0.69% and 2.69% respectively.

CJ gave impassioned addresses against the re-election Pinshaw and Hilmer, noting in both cases that they cannot be CEO of one company and a Director of another given that they must be working 24 and 7 in their CEO gig. Jack likened this to one of the Waugh brothers ducking off to play a Test match for Pakistan.

The Chairman said that he was pleased that both had outside Board interests from their CEO jobs and said this prevented them from being isolated when focused solely on the one job.

A vote to alter the company's constitution was passed without much dissent, but the final resolution for the company to adopt a proportional takeover rule in its constitution was withdrawn.

Mr Tilburn pointed out that this was "most irregular, unsatisfactory, strange, weird" and something which he had not seen in his 25 years of share ownership.

The Chairman noted that there was substantial shareholder "confusion" about this and he assured the meeting that it was not their aim to have the current board ensconced.

Jack queried who these "marvelous forces" were who had called the company's bluff and caused this resolution to be withdrawn. Was it the instos, small mums and dads shareholders or what?

The Chairman wouldn't reveal from whence this shareholder pressure was coming but said he would like the company to take more time to explain it to its constituency so that they better understand it and vote it through. Yeah, right!

As it stood, the proxies were about 72% in favour just shy of the 75% required to pass a special resolution, so obviously it's more than just mum and dad shareholders who are cranky about this one.

Perhaps the instos are taking an active stance on something for a pleasant change.

Footnote: The reason that Crazy Jack so hates Fairfax is that The SMH's CBD column reported that he was found guilty of insurance fraud and put on a good behaviour bond.

Finally, here's what was said in support of Stephen Mayne's nomination for the Board of Fairfax:

The Mayne platform at Fairfax in 2001

"Good Morning Chairman, my name is Neal Woolrich and I am speaking on behalf of Stephen Mayne who sends his apologies for not being able to make it up from Melbourne today.

Chairman, at the 1999 AGM you said the Fairfax board is looking for a second Melbourne-based director to complement Sir Rod Carnegie and preferably someone with newspaper experience. You said this would hopefully be announced within the year but now two years have passed with no appointment.

Well Mr Mayne qualifies on both counts and is a Walkley Award winning business journalist who has worked for News Ltd and Fairfax in Sydney and Melbourne over the past 12 years.

We've heard much today about the losses suffered by F2, well for the past 20 months Mr Mayne has run Australia's best-known independent news website crikey.com.au which is now cashflow positive and his experience online could be useful for the board.

It is regrettable that the board of a media company that purports to keep politicians honest and act in the public interest, has stooped to some questionable tactics in conducting this contested board election.

You regularly receive updates of the names and addresses of Fairfax's largest shareholders yet would only have this information provided to Mr Mayne if he paid $550. Hardly a level playing field.

And incumbent directors rarely get below 95 per cent of the vote so by unilaterally declaring there was no vacancy for Mr Mayne, you have effectively made it impossible for him to get on the board. There was no need to ride roughshod over the rights of shareholders who may well want to replace the recently departed director David Shein and increase the board from 8 to 9 again.

By doing this you are forcing shareholders to make a choice between Mr Mayne and the two directors up for re-election this year in CEO Fred Hilmer and Jonathon Pinshaw.

As the recently appointed CEO of OPSM Proctor, Mr Mayne believes that Jonathon Pinshaw should not hold any external directorships that distract from his full time job, just like Fred Hilmer should not have remained deputy chairman of Westfield Holdings whilst running Fairfax.

And whilst it is unusual for CEOs to be voted down from boards, Mr Hilmer's performance over this past year has not been good and Mr Mayne advocates that the company expedite the search for a replacement CEO. A vote against Mr Hilmer today would send that message loudly to the board.

The bigger problem with the Fairfax board is the presence of three investment bankers and no-one with newspaper experience.

Mr Mayne passionately advocates maximum diversity in Australia's media ownership and therefore believes that Sir Rod Carnegie, David Gonski and Brian Powers should not be on this board because of their substantial commercial and personal links to Kerry Packer over the years.

Equally, it is not appropriate that Mr Mark Burrows sit on this board when he is the favoured merchant banker to the Murdochs in Australia and recently attended Lachlan Murdoch's birthday celebrations in New York. Should a Fairfax director be doing this? Whose side is he on?

Murdoch and Packer have exercised way too much power in this country over the years and their associates should not be allowed anywhere near the Fairfax boardroom.

Fairfax is a great company and now has a completely open share register for the first time in its history. It is time that it had a board that reflected this independence and electing Mr Mayne to the board today would be the first step in this important process.

Thank you.

Copyright © 2022 The Mayne Report. All rights reserved

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