Public

AusNet Services (AST) 2015 AGM Report

Company/ASX Code : AusNet Services (AST)
Venue :
10am The Arts Centre Melbourne, Victoria
Monitor : Mr Tom Rado
AGM Details / NoM : Thursday 23rd July, 2015
# of Attendees : 46 shareholders/proxyholders plus 71 visitors
# Holdings represented by ASA : 66
Value of Proxies : $2.12 million
# Shares Represented by ASA : 1.57 million
Market Capitalisation : $4.78 billion

Drama at AGM: Revolt by major overseas shareholders

\A previously unseen extraordinary voting drama occurred at an otherwise quiet meeting. The two major overseas shareholders controlling 51% of the equity, Singapore Power and China’s State Grid Corporation, voted against four major items – the remuneration report (giving it a “first strike”), an increase to the non-executive director (NED) aggregate remuneration cap, an issue of shares in accordance with normal ASX listing rules and the re-election of Mr Tony Iannello, an independent NED.

Mr Lim Howe Ran, a representative of Singapore Power (SP), holder of 31.1% of issued equity, made a lengthy address at the meeting calling for frequent board renewal with fresh talents and against the issue of shares, including any rights issues and up to 15% as allowed in the ASX listing rules for DRP, due to their concern of dilution. They did not state specific reasons for voting against each of the four resolutions.

There have been media reports that there was disagreement associated with the expression of interest (EoI) for TransGrid, part of NSW government’s sale of its electricity infrastructure assets and Mr Iannello was the lead director involved with the EoI. It is also understood that State Grid in partnership with Macquarie Bank submitted its own EoI.  SP has indicated that it did not submit an EoI.

The media was quick to speculate that the two major shareholders colluded to sack a respected independent director, and challenge the entire board, to benefit the apparent potential commercial interest of one of them at the expense of the remaining 49% shareholders (although this was promptly denied by SP). We understand ASIC will be investigating this. Nevertheless, it is a shame that 49% of the shareholders are left to the mercy of two heavyweight investors.

The ASA voted in favour of all resolutions except that of granting of performance rights to the Managing Director. We had no issue with the granting of performance rights to the Managing Director after 3 years in the form of shares, provided that there was a 12 months holding lock.  However, this time the lock was removed. ASA voted in favour of the Remuneration Report as it was by and large in line with ASA’s voting guidelines.

We asked whether next year’s forecasted dividends of 8.53 cents will be fully covered by earning per share (EPS); the answer was yes.  Also we asked whether the higher bushfire insurance premium will have an impact on EPS; no, as it will be passed on to electricity user customers.

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AusNet Services Ltd (previously “SP AusNet”- a triple stapled corporate identity)  provides electricity transmission for the whole of Victoria and electricity & gas distribution for part of Victoria. Until 2013, 51% was owned by the Singaporean government through Singapore Power (SP).  During 2013, SP divested 19.9% to China’s State Grid Corporation whilst retaining 31.1% ownership and the public (retail & institutions) continuing its 49% ownership. 

Following SP ownership reduction to 31%, the triple stapled corporate identity was renamed “AusNet Services” and the trust previously managed by SPI was internalised within the corporate identity. With the settlement of the protracted ATO tax liability, it was realised that the tax advantage associated with the complex trust arrangement was no longer an advantage to the company and hence to its securityholders. The corporate identity was therefore restructured to a simpler conventional company at a recent EGM on 29 May 2015 – AusNet Services Ltd.

Over the last 12 months securityholders received a distribution of 8.36 cents per unit, which represented approximately 5.8% on the current approx average market price of $1.45, of which ~ 56 % was franked.
Over the last 12 months the net return to securityholders was ~ 18.5% (capital appreciation and distribution), mainly due to the RBA rate drop to 2%.  Over the last four years the share price rose by approx 65%, principally due to the drop in bank interest rates.

However, although their income and underlying earning were satisfactory, they suffered a number of one-off losses and expenses, including a substantial tax settlement with the ATO and technological set back with their Advance Metering Infrastructure (AMI, i.e. “Smart Meters”) installation.  As a result, the net gearing rose to 66%, the highest in 5 years, due to the NPAT dropping by 87% from last year, and an EPS of just 0.66 cents.  Both the lowest in the last 5 years.

This company is monitored by Mr Tom Rado, assisted by Mr John Whittington.