Brambles AGM update

Before 2001, Brambles had a long and impressive history of profit growth. Unfortunately, the company has made a habit of disappointing just about everyone of late.

Yet another profit downgrade was released on 21 November. We weren't the only ones caught by surprise as the stock plunged a sickening 30% that day, prompting us to send out a special email update.

So we looked forward to the company's annual meeting on 25 November to see what the board and management had to say. This is what this update is all about – we'll have a detailed review of the stock in the next issue  as, if ever there was a case for a full explanation, this is it.

Explosive

All the ingredients for an explosive exchange were present. Renowned activist, Jack Tilburn, led the 'prosecution' and several representatives from the Australian Shareholders' Association (ASA) were there, including chairman Ted Rofe. The ASA's criticisms were the best we've heard from that organisation all season.

Neal Woolrich from crikey.com.au  was also present, raising a few thorny issues such as continuous disclosure and the appropriateness of several directors retaining their board seats. A few other disgruntled and well-prepared shareholders rounded out the attack.

Chairman Don Argus bore the brunt of the criticism. At one stage he refused to let a shareholder direct questions to one of the independent directors, which makes one wonder why they bothered to show up.

This wasn't your average AGM. A satellite hook-up was also in place so Brambles PLC shareholders could view the action (the meeting began at 9am London time).

Sadly, we can't say the meeting filled us with confidence in the board and management. There seems to be a great deal of finger pointing and backside-covering rather than any pragmatic action or, at least, contrition. This is deeply disappointing.

In this issue's Investor's College (and last) we have been dealing with how to spot below-par management. We have to say that on the performance at this AGM, using the criteria in these articles, Brambles scores very poorly indeed.

Don Argus was extremely fleet of foot in avoiding what, in our view, were specific, legitimate issues raised by concerned shareholders. Again and again he replied 'we'll take that criticism on board' or 'we'll have to agree to disagree on that point'.

Argus may have faced a less hostile audience had he opened by saying that the company had stuffed up in a number of areas and then gone on to describe how those problems were being addressed. That didn't happen.

Egotism

In other words, it appeared to us that egotism was more in evidence than contrition. That, too, is a worry.

Our concerns over management are many but there's no denying that the businesses themselves are first class.

This was one of the few high PER stocks that we decided to stick with. Others like Wesfarmers, CSL and Cochlear we happily advised subscribers to sell. In hindsight, that was a costly error. So, where do we stand? As we said, we'll have a detailed review on the company and its operations in the next issue but on a PER of 14, with a 4.4% yield, the stock looks good value. We're sticking with LONG TERM BUY but you may prefer to wait for the next issue before acting.