Outlook, second strikes in focus for AGM season

Investors will be watching for any sign of deteriorating earnings guidance, while IAG, Whitehaven and Transurban are among those facing the prospect of a second strike and board spill.

Exchange operator ASX hosts its hybrid AGM on Wednesday and will likely to face heat from shareholders. Picture: AAP

ASX, Telstra and Commonwealth Bank are among those kicking off the upcoming annual general meeting season, with investors keenly watching for trading updates and any sign of deteriorating earnings guidance, while IAG, Whitehaven and Transurban are all facing the prospect of a second strike and board spill.

Exchange operator ASX hosts its hybrid AGM on Wednesday and will likely to face heat from shareholders over the repeated delays to its CHESS replacement system, a series of high-profile resignations, and its remuneration plan.

The company’s new chief executive Helen Lofthouse in August warned that completion of the financial infrastructure upgrade would be delayed to late 2024 at the earliest as the exchange operator kicked off an independent review of the project, to be completed by Accenture in the coming months. The CHESS replacement project has suffered numerous delays in recent years.

Ms Lofthouse took over from Dominic Stevens in August, who announced his retirement in February after nine years in the top job. Since then, company secretary Daniel Csillag, chief financial officer Gillian Larkins and chief compliance officer Janine Ryan have all resigned.

For the Australian Shareholders Association, much focus at the AGM will be on the resolutions concerning key management remuneration, which it says are not in shareholders’ best interests.

The ASA will vote against both the remuneration report and the grant of performance rights to Ms Lofthouse but says it is currently undecided on the resolutions concerning board member elections and re-elections.

“We feel hat the ASX board skills matrix doesn‘t provide enough information to decide how we will vote our undirected proxies for the director elections and re-elections, ASA CEO Rachel Waterhouse told The Australian.

“So we’re going to decide on the day … we’re going to ask the directors to describe their skills most relevant to the future direction of the ASX and how they believe they will make a difference as an ASX director and then decide.”

Looking ahead to CBA’s AGM, Ms Waterhouse criticised the major lender for shunning the hybrid option and hosting an in-person AGM this year, to be held in Melbourne on October 12.

“The key issue that we’re seeing at the moment is that some of the large companies are putting on a face-to-face AGM and then having a webcast, which is effectively a live recording. They’re not putting on a hybrid AGM,” Ms Waterhouse warned.

“A hybrid AGM really gives the shareholders an opportunity to participate from wherever they are … Definitely CBA is an issue from our perspective. There‘s a lot of retail shareholders that own shares in CBA … they would need to put in their questions in advance if they can’t make it to Melbourne.”

The upcoming AGMs follow a better-than-expected August earnings season, but with economic headwinds on the rise, investors, including the head of the nation’s largest listed investment company, the Australian Foundation Investment Company, will be keenly watching for any indication of consumer tightening and deteriorating conditions.

“We’ll be watching for outlook comments, given there’s been interest rate increases and whether that’s starting to impact the broader economy and the consumer, what they’re doing now,” AFIC managing director Mark Freeman said.

UBS equity strategist Richard Schellbach said he would also be watching trading updates closely, particularly those with a focus on recent sales and signs of consumer stress.

“We think, on aggregate, companies are going to confirm that the consumer out there is still highly motivated to spend, that activity levels are strong,” Mr Schellbach told The Australian.

At the same time, what our survey data is showing is a detachment between the high income consumer and low income consumers … I expect to see (spending) increasingly being driven by higher income earners powering ahead alongside slippage from the lower income earners.”

The market will be most anxious to see updates from businesses exposed to discretionary retail and the housing market, he added.

Aside from the outlook focus, a host of ASX heavy hitters are also bracing for a so-called ‘second strike’ that could trigger a board spill.

Westpac, Dexus, IAG, Whitehaven, Transurban, Best Andromeda Metals and IDP are all on the hook this year after receiving a first strike on their remuneration reports in 2021.

The two-strikes rule, in place for over a decade, kicks in when a company’s remuneration report receives a ‘no’ vote of at least 25 per cent for a second consecutive annual meeting.

If this occurs then a board spill is triggered, which could see the board voted out.

Westpac, whose AGM will be held in December after it closes off its financial year later this month, was hit with a 30 per cent ‘no’ vote at last year’s annual meeting as shareholders vented their frustration over a lacklustre performance and share price slide.

A majority of IAG shareholders, meanwhile, knocked back the insurer’s remuneration report last October, with the company now hoping measures it has taken to better align shareholder outcomes with executive remuneration outcomes will pay off this time around.

Alongside the focus on performance, outlook and remuneration, environmental, social and governance concerns remain front and centre for climate-conscious investors.

Climate activist group Market Forces has lodged a resolution with CBA regarding its fossil fuel lending and exposure and intends to file similar resolutions with Westpac, NAB and ANZ in the coming months.

It follows the climate group lodging similar resolutions with ANZ and NAB in 2020, and with all four banks in 2021.

“Despite considerable shareholder support for those resolutions, against the boards‘ recommendations, none of the banks have come close to meeting their requests,” Market Forces said in an investor briefing this month.

“ANZ, CBA, NAB and WBC’s current fossil fuel lending policies and practices are undermining their stated commitments to the goal of net-zero emissions globally by 2050.

“Each bank continues to finance projects and companies that are incompatible with the International Energy Agency’s (IEA) Net Zero by 2050 scenario (NZE2050), and the Paris climate change agreement. None currently have policies that would stop this practice in the future.”

The language in this year’s resolution to CBA has been honed to focus more specifically on financing that is flowing to new and expanded fossil fuel projects, Market Forces asset management campaigner Will van de Pol said.

“Since last year‘s resolution with CBA and now we’ve actually seen this style of resolution replicated in financial institutions in the US and also in Japan. So it’s definitely becoming more commonplace to see this kind of request to ensure that financing does not enable new and expanded fossil fuel projects,” Mr van de Pol noted.

“We certainly expect to see increased investor support for this resolution this time around.”