Qantas, CSL, James Hardie. The ASA's views on reporting season

Hello and welcome to the Investment Markets podcast, where we aim to discuss investment matters for self-directed investors. I'm your host Darren Connolly, CEO of Investment Markets, and with me today is Rachel Waterhouse, CEO of the Australian Shareholders Association. Rachel. Thanks for joining us today. We have lots to talk about, but before we get stuck in, and for those who may be unaware, can you give us a little bit of background and history about the ASA and its mission?

Australian Shareholders Association, also known as ASA, has been around over 65 years this year. And what we do is we provide independent education, we provide a community for investors, and we advocate for them. And when I say advocate, that's around making positive change with regulation, but also monitoring ASX listed companies.

So you're keeping 300 stocks and CEOs and C-suites honest.

Yeah, so a little bit less, but definitely keeping them accountable.

And how many members are there within the ASA? How many people are sort of tied into your services?

Yeah, overall about 20,000 and members, we have about six and a half thousand. And so they're really looking to us to advocate for them and ensure they have the education to help them in their everyday decisions.

And that's investors throughout all states, all interests, wealth profiles?

Absolutely. So our name says shareholders in it, but it's really about all investors, all investor types. It includes sophisticated, they have shares, they have ETFs, managed funds, the list goes on, but very much they're all across Australia and they're looking to us for support, but also each other for support. So there's a community of investors that get together every month and I think it's around 800 to 1000 get together every month and talk to each other about their investment concerns and decisions and what they're thinking about.

So that's an awesome community that you're able to tap into I guess and give you an insight into what investors are concerned about.

Absolutely and we do hear from them regularly and we hear from them around the member meetings but also calls and emails and it really helps us advocate for them just understanding what their concerns and issues are.

I know, would I be correct in saying there is a very wide range of different types of issues and communications that you see on a very regular basis?

Absolutely. It's often around companies and leaders doing the right thing. And that's where it comes together is, you know, you may have different stocks, you may have different investments, you may be experienced or not, but they are looking for companies to do the right thing and obviously to have good returns.

Now Rachel, we've just seen the end of the FY25 reporting season, which as usual has had some issues. Probably most notably, Qantas has managed to have both a record fine and a record profit at the same time. What were your three main takeaways from the reporting season?

Reporting season, we actually asked our members what they thought of it. Three takeaways. One was that they're very optimistic about the market, given the reporting season. Another being a concern or a surprise around healthcare. And so I think that is CSL potentially not meeting forecast and then the impact and a lot of investors do have CSL in our membership base. The other one really was around disclosure and communication of whether it's appropriate or not. So just looking at that, one of the examples is James Hardy and their forecast was, their actuals are significantly off from the forecast. So that brings to mind questions around how long have they known these? When could they have informed investors? Overall, quite positive around the market as far as what members are thinking, but just bringing through the results. Yeah, very mixed, mixed results.

Maybe just touching on one or two of those stocks, CSL has been sort of a stalwart in a lot of people's portfolios for a long time. Do you think the security holders were surprised by the results?

I think they were surprised and you can see that in the share price movement that happened on the day. So just really surprised about how they were performing, even though it was slightly off rather than significantly off.

But quite a down beat assessment from the CEO at the time.

Yes, definitely. So that, that makes investors think, but as you said, a lot of people have CSL and a lot of people want to hold a portion of that in their portfolio. So I guess we'll see over time.

And James Hardy, which you've mentioned is probably another good example, has been a very large transaction in America, which I think it's probably fair to say institutional investors in particular weren't very enamored with. And then the numbers seem to have fallen off a cliff. Does the James Hardy example link to your point about openness and communication and disclosure? Because it's very hard to think that everything just Everybody woke up on a day and it just fell apart.

Yeah. There must've been early signs and investors do expect that disclosure, regular disclosure around performance. So it is a surprise to just, you know, fall off a cliff, but they do have some history around their communications and approach. And as you said, that acquisition and the inability for shareholders to vote was not just institutional, but retail investors being frustrated by that experience. So I think those two things, in a short period of time make many question whether James Hardy is an investment for them at this point.

And I have to ask, Qantas, so a record fine, albeit not the maximum that they could have got, but also a record profit. So I've seen some analysis that says the fine, the fine effectively has been paid off by the profit. and they're out ahead. Do you think that sends a good signal to investors? And is there still more for Qantas to do?

There's definitely more for Qantas to do, so great results as far as profitability. We've been concerned for some time they're not investing enough in the fleet and that really attracts people to come back and use the service. As far as the fine in itself, it is significant and companies other companies should be looking to that because it's not just about profits it's around the ethics as well and and that was really showing the legalities of a situation and that they did do something that was illegal and we do have concerns around management that are in place now and the CEO was the CFO at the time So we really do need to see that change. It's not all about profits, it's around investing in people, thinking through stakeholders and making sure the right equipment's in place.

Are there any, maybe just touching on that slightly, are there any particular things that Qantas could do that you think would put them back on sort of the pantheon of Australian brands that would restore some of that trust for retail security holders in particular?

Yeah, so they've done some, they have done some really good things too, because when they had the issue, they put together the governance issues. They had an independent report and out of that it had guidelines and recommendations which have been communicated with investors and stakeholders and employees. So it's around continuing to communicate and communicate around what's happening from that governance failure to changes that are positive and making sure the CEO is out and about talking about the strategy, continuing to talk about the fleet and how it's being updated. So I think getting out and about speaking to investors is really important because we we don't want to see short-term profits we really do want to see a business and a strong brand do well in Australia and they do employ a lot of people.

I think time will tell if they continue to follow through on on some of those commitments.

Yeah absolutely.

Rachel so why should good governance matter to retail security holders who typically tend to hold a very, very, very, very, very small sliver of most of Australia's listed entities.

I'll tell you why good governance matters. But then if we just look at the size of retail investors, I think there's a lot of parallels between retail investors and everyday workers that have superannuation. So there's similarities there. But why good governance matters? And it is a word that 10 years ago wasn't discussed very much. Governance is around systems, processes, and leadership. And if you have that the right way in an organization, implementing strategy in an ethical approach, then you're going to have long-term performance. and it's really important for investors to get long-term performance. So you can't get long-term performance if you don't have the right leadership in place, you don't have the right policies that are actually actioned, and you have happy staff serving people well. So that's probably the simplistic way to say why governance matters in an organization.

Yep there have been examples in the market where companies may not have had all may not have ticked all those all those boxes are there any particular entities that you are keeping your eye on so to speak i assume the community in the ASA provides feedback they highlight companies maybe they're not happy with or they think have issues. Are there any particular companies that you're looking at and are trying to hold to account for better governance?

Yeah, so the two that come to mind are Qantas, which we've discussed, and then mineral resources is another one who generally founder-led companies perform extremely well when you look at the research.

There's some good funds on our platform I have to add, so as a little plug that just look at founder-led companies and they do tend to do very well.

They do. And we have a lot of investors that are really interested in founder led companies and when we have events want to hear from them. But the example we've mineral resources and there's quite a lot there to unpack and I'll just keep it short. But the current one is that the CEO and the founder had a loan, a significant loan from the company in 2019 and it's only come to light now.

Six years later.

We've got quite a few questions around how that can happen and we're putting that to the company. And that's everyday investors just looking through the annual report and asking questions.

What is the best way for companies to put in place these risk mitigation activities? What should they be doing?

Yeah, they should have a risk framework and then you go, well, what's a risk framework? So ultimately the company is aware of their risks and then they're figuring out what they need to do to mitigate them. So a risk could be a reputational issue. So for example, Qantas. and the cyber attack, that that's a reputational issue. It's also an impact to the business. So really thinking through what are the risks and making sure that the leadership team are aware of them and trying to mitigate them but communicating well. So we want to hear from companies what their risks are and how they're mitigating it and what their long-term strategy is.

And it's usually always the cover-up that creates the issue, not necessarily the risk itself.

Absolutely. So coverups should just not happen. Ultimately, you know, that's how the paper gets sold because there's lots of stories there. And there are weeks where you reflect at the end of the week as an investor and think all of the companies that have been in the headlines. So for companies, you don't want to be in the headline. You want to really have a strategy in place, have the best stuff you can deliver on it. And that's what investors are looking for.

Headlines are good if it's a positive headline.

Absolutely, but they're very hard to see in the paper.

Maybe not on the back page of paper. I think there's probably a difference between the two. So we've seen just recently ANZ has been in headlines. Does it strike you that there's potentially some issues there as well? Because it's very hard to imagine how people can be informed that they're going to be made redundant inadvertently in this day and age when we all know there are so many processes and procedures around redundancies and strategies and plans.

Yeah. So if we go back to that word governance, really here, systems and processes were not in place to be able to make sure those people were told in the right way, face to face. And I'm basing this off the reports that I've read. But really that's not the approach you would want as an employee. And you've also seen a lot of leakages of reports of staffing. So, you know, things happen. Companies do have to downsize at times, but it's around how you're doing it and making sure the right processes are in place. And if something bad happens, then making sure that you rectify it in an authentic way, as far as the issue itself. as quickly as possible, but just reflecting and thinking about the media. It's really important that your employees are satisfied because a lot of leaks happen and it does seem to be, and I'm not talking about that example, but it does seem to be that maybe it's the people internally that are unhappy. just thinking through how you engage with them. Because generally, again, research shows if there's a strong net promoter score, if customers are happy and staff are happy, you're more likely to have a high performing company.

And stay off the back page.

Yes, absolutely.

Which I think all CEOs would be happy to not to be there in a couple of the columns, which we shan't mention.

Yes, absolutely.

Now, the ASA participates in numerous industry and regulatory forms. And I know you have written a submission for the productivity roundtable that was on in Canberra a little while ago. What's the benefit for retail security holders of doing this, firstly? And then maybe secondly, what was the ASA's position on the productivity roundtable?

Yeah, so what we see ourselves as representing the 7.7 million people that have shares. So it's really important that we're doing the right thing for them. Productivity roundtable for us was a lot around digital financial reporting and to just summarise that. we aren't up to scratch with the rest of the world. And when we have digital financial reporting in place, it will mean investors can do better analysis, can work out all of those sums and information and use AI that's being used more and more in investing. So bringing that together will mean that it's more productive for investors, that they have the right level of information and they know it's correct. quite different. A PDF is all good and I won't go into too much of the detail but really digital financial reporting is needed. We're not the only ones advocating for it. Chartered Accountants is also advocating for it.

It's funny you mentioned that. In a previous episode of the podcast I had a gentleman who obviously is an investment specialist And we were chatting the day after a lot of companies had reported in the US. And I asked how was he staying on top of all of the obviously a lot more companies reporting. And his comment was well I have AI do all the analysis of I can't remember the exact number but a couple of thousand companies Then it presents the analysis and the summary to me when I wake up the next morning. All of that is done pretty much instantaneously and overnight. I have it all sitting on my desk when I arrive in my office. That's huge. That type of analysis would have taken teams of people only 10 years ago.

Yeah, and we're using it and our investors are really interested in it. We've had a few different workshops and they fill up quite quickly. But what we're looking to do with our company monitoring is use AI more. We've got a project on that and the idea is how can we do it more effectively and how can we eventually cover more companies and support investors more?

Maybe just as a side question, of the 300 companies on the ASX 300, how many are actually covered by the ASA on a sort of year on year basis?

Yeah, we cover a lot of the ASX 200. We cover probably half the number of the 300. But what we do is we really focus in on the AGM seasons and the main ones coming up. And that's around the performance of the company, the communications, and we have people turn up and ask questions. So that's our key focus for the year.

CEO's always love people standing up in front of them and raising their paddle and asking a question.

Yes. Sometimes, yes.

Sometimes yes, sometimes No. Can you give me a Maybe just to tease that out a little bit in an example of where you've had people at, at one of those AGMs and raised an issue that was pertinent to the member, to the membership.

There are so many.

I thought you might have a few.

I'm probably going to say Qantas because I attended that two years ago and, um, that was really good because often they, What we did there was we questioned the chair and so we often question the chair around what's in the annual report performance or the CEO and we hope to change things over time. I went to the Macquarie AGM recently and that was very good there. We asked around the compliance and some of the risks, the regulatory risks and how they were being mitigated.

Yes, Macquarie's had a few recent issues in that space. Satisfactory answers.

Yeah, they were satisfactory answers. It's important to speak up and I'd encourage any investor, like not everyone is a fan of the AGM and they can, can be go for four to five hours sometimes. But it's a great way to really hear from the chair and the CEO. You often meet other investors and have a chat to them to decide about other matters.

And you find out they've got similar concerns or similar issues.

You do, you do. And people come from a variety of areas to an AGM. So we advocate for hybrid AGMs, which means, you know, the face to face and the virtual side of it. And not all companies do that, unfortunately.

Do you feel there's an increasing pushback on that for companies wanting to drop the face-to-face side of things?

I think companies often do want to drop it because they see it as holding two events and you know sometimes they don't think enough people are coming along to the AGM so that's from a company perspective but from a company perspective you also see those that take shareholders so seriously that it's the one time in the year and to make sure they engage with them appropriately. So I think, you know, it's a mixed bag, but a lot of the larger companies do really treat it as an important event in the year to meet with retail shareholders.

that actually gets missed just because it's individuals walking into a room rather than large fund managers or superannuation funds for example.

Yeah and I think that's where respect comes into it is really thinking through who owns this company and yes you've got institutions involved, you have super funds, we have retail investors and those retail investors can sometimes own 40-50% of some companies and they need to be taken seriously. But on the flip side, the AGM is important but thinking through engagement throughout the year is more important.

And regular disclosure of things that are happening, the risks as we mentioned at the start, once you're aware that things are happening and it's appropriate to disclose them to make sure that actually happens.

Yeah. Some companies do it really well as far as having road shows where it's not just that AGM, but they meet and greet and they bring the senior executives through as well. So it's not just the chair and the CEO get an opportunity to hear from the head of innovation and different roles.

Any particular people you'd like to highlight has been exemplary in that space?

Yes. Oh,

We've picked out, we've picked out a few that maybe haven't been status.

Yeah, no, I and Zeta have generally been quite good with this. Um, and I'm just, I can't remember the name, but it's a telecommunications based listed company. And we really, we called them out recently saying they were doing a fabulous job because they had a session, I think the Perth Mint around the corner for people to come along and, and to hear from the leadership team. So I think that was a CEO led initiative. So I think companies should be just thinking through their investor relations strategy and making sure they're meeting regularly with investors and retail investors.

Maybe less on the polish and more on the meaning.

Well, a really interesting point, we were talking about AI before, is now some of that polish can be seen through AI. So there's all these tools that you can apply as an investor to see, is the CEO telling the truth? Do they feel confident in what they're saying? And you can see all the emotions and measure that. So being authentic has never been more important than it is now.

And having spent a lot of my career in this space, you can always tell when the investor relations teams have used AI.

Yes. Yes. There's certain words.

Yes. Every single time. And that, that's personally, that, that strikes a chord for me. Not necessarily, not necessarily a good one either.

Yeah. And back to reporting season, another example was Reese, uh, as far as, you know, they didn't have the best results. I've got some issues around the US, uh, very open and honest investors appreciate that you can't always have all the Polish, the spin things aren't always going well. Just say it is as it is.

Yeah, you can have the best results for a long period of time, but that just makes you overvalued. So we won't touch on CBA at all. Maybe just back to the productivity roundtable for a second. What's the ASA's opinion on the roundtable? Do you think it's going to actually make a difference? Or is it another camera bubble talking fest? Sorry, that is a leading question.

Yeah, no, it's a good question. I think there were 800 or 900 submissions that went in. So as organizations and associations advocating, we would really hope that they are listening, but not everyone had a seat at that table. So it really is thinking through the process of, have they taken in everything that has come? We do need to be more productive as a country. So something needs to happen and it will be hard to get everyone to agree. And the consensus, bold, brave decisions will, will be required. And hopefully, you know, they, they can do that. But again, not everyone had a seat at the table.

One of the other concerns for investors has been the proposed division 296 tax. And I know the ASA has a stated position on that. Would you like to just sort of expand on that position and give us a sense of what it is, Rachel?

what we would like is a holistic review of the tax system in Australia. So that's the first thing that we would want. And that is a huge ask, but at some point it needs to be done rather than piecemeal decisions being made. The second part is we don't agree with taxing unrealized gains. And there are many people in the finance world saying it doesn't make any sense. How do you do it? How do you take a tax for something that doesn't have a cash impact? How's an investor going to pay for it? And the other one is around the indexation of it. No indexation, but if you ask someone in the government, they would probably say, we don't have indexation on similar taxes. And it might happen over time, but it's around the confidence. Investors really need the confidence to know what that tax system looks like for the long term so they make decisions that benefit everyone to a point. We wouldn't want to see people taking money out necessarily of superannuation. It's there for a purpose. The purpose is around retirement. and funding retirement and making sure people can self-fund their retirement is hopefully what's required. So yeah we don't seem to be hearing anything at the moment so it's hard to know when this tax will go through.

Yeah I think on the indexation the the comment that I saw from it might have been from Jim Chalmers was that any government, subsequent government, can pass laws to index it or to raise it. I think the challenge is that once the money's in it becomes very hard to sort of to unpick that a little bit. Tax money usually stays sticky in the government's pocket.

Yeah. And the challenge here is there's been some research done from AMP economists that really showed that someone starting out now in a career at 22 is going to be impacted by this. When you think about 3 million sounds like a lot now, but over time, if it doesn't change in the compounding, it will affect more and more Australians. It won't just be 80,000 people. So it's around thinking long-term.

Now that is definitely a slightly disingenuous, it will only affect 80,000. Particularly when I think a lot of the conversation is around this, the difference in the generations in terms of equity. This tax actually seems to be exactly opposite to what the government's stated aims are. Would you think that's a fair assessment?

I guess it depends is the answer because every generation, every individual has their own view on it. We don't really have a view about the amount as such, but it's more just the taxing unrealized gains and taxation. So that's the principle side of that. Fairness will come down to a holistic review of tax and thinking through how it all fits together.

Rachel, how does the ASA identify and monitor all the issues that are brought to its attention? You've got quite a large membership base. There's a lot of people I would assume emailing you on a regular basis. How do you make sense of all that information and really prioritize things?

Yeah. So we have, we have a very small team, but we do have a very large monitoring volunteer base. So we have about 110 to 120 people do that. And we're always looking for more volunteers, but what we have is we have people buddied up and what they do is they monitor a specific company, their volunteers. So for example, it might be NAB. and they will then work through the information that comes into the team. We'll share that with them. They'll meet with the chair of the company and also the chair of the finance audit and risk committee about a few weeks before an AGM. They'll read all of the annual report All of the materials, they'll use AI. They'll have a good search of what's happened over that period of time. And they'll ask some really good questions at the AGM. But ahead of that, they put together voting intentions, which is a, sometimes it's usually a short report, which gives you a sense as an investor of what's happening at that company, what the issues are, what the, what's the voting is on and how we recommend that you vote from a retail investor perspective.

and looking forward through FY26, I haven't processed all of that information being come through reporting season. What are the things that are on your radar for the next 12 months? What are you kind of closely keeping an eye on?

Yeah. So as far as if I think about this AGM season, it will be around performance of companies, any risks of the company, is the CEO appropriately remunerated or not. So sometimes we think that it's maybe not right or not fair, or they need to have long-term incentives. So we'll have a lot

The CEOs are underpaid.

So I would say overpaid is more, more likely, but you know, at times we go, well actually they've created this much value for investors and therefore what sounds like a huge salary may be appropriate, but we go through the whole process that sits around that. Going A lot of it is around communication and really communicating with investors well. And we do look at ESG as well. So how are they communicating the risks? Is their plan appropriate? There's quite a lot to look at and it's very company specific. particular company may have an issue that we've raised with them before and then what we hope is over time it changes. And some of those examples are that the remuneration was short-term focused, we wanted to see it more longer-term cash shares etc equity.

And maybe stepping outside of the individual companies and looking at it, taking a step back and looking at the market as a whole, what are the one or two things that you think companies, Australian companies in general could do a lot better?

Oh, that's a good one. I do think they've got some risks associated, but what could they do better? I think it does come down to a really clear strategy, really clear communication and taking questions from retail shareholders at more than the AGM. I think that a lot of individuals are now holding exchange traded funds. So how do they get to make decisions around companies that they're effectively got a holding of? I think that is a long-term question. There's some developments that are happening in the US and I don't have the crystal ball here today, but I think there's something around individuals being able to really vote make decisions. If we think about Australia here, a lot of us would have CBA, whether that's a direct holding or through an ETF. And if you've got an ETF, do you get to make decisions?

That's a very good question.

Yes. I'd love to have the answer. I'd love as an ETF holder to be able to somehow put my thinking into the mix of the holder of that ETF and the decisions that they make.

Well, particularly with the weight of money and a lot of it retail money now going into the ETF market. And if it follows the way the US has gone, which is substantially larger and more developed, That's going to potentially really change the dynamic, isn't it?

Yeah. And the same could be said for superannuation. You're putting in 12% of everything you own. Do you get to make any decisions? Do you get to be able to, or does your super fund tell you how they're making their decisions? So I think it's that transparency is wherever you have your investments, do you have an opportunity to make those decisions or to say what your wishes are? Even if then it's a collective decision.

Yes. Yeah. I'm not sure too many of those Superfunds do progress down that path to the same extent.

Yeah. Not, not at this point. I mean, there's been significant things such as Origin, whether that was going to delist or not, and Superannuation, they're talking about their view, but often that's all done behind closed doors and you don't know if you're holding Superannuation, you know, the decisions that are being made.

And finally, Rachel, the ASA obviously encourages retail security holders to appoint it as their proxy. Can you just quickly summarize why retail security holders should do that?

Yeah, that means that giving a proxy means that you're giving your proxy to Australian Shareholders Association and we can vote on behalf of you means that we're stronger. We have a very loud voice and we meet with companies and they do listen to us, but the more proxies we have, the more powerful we are. And to give you the confidence, anyone that's listening, is that we come up with our voting decisions based on what retail investors are thinking. So it's not just, you know, me or someone sitting in office going, well, we'll vote this way today. It is a real person that's thinking through the issues, what's best for retail investors. And so therefore give your proxy. And what does that mean? How do you do it? There's different ways, but probably the short way is you can come to our website and there's a section telling you how to do it. You can do that if you're a member or not a member.

So you don't have to be a member to do that?

You don't have to be a member. I would encourage everyone to be a member. But ultimately, if you really want to support retail investors, give us your proxy. You can do a standing proxy, which means you only need to do it once by registry for your shareholding, or you can do it each time there's an AGM.

and many little voices can make large noise I think.

Yeah and that's what we need, we all need to do that as investors really think through because it's easy just to have your shares and not think about it and not be active but is that the right thing to do? If you're invested in a company can you have your say? Yes you can and we can do it collectively together.

OK, Rachel, I believe there's a couple of investor events coming up shortly, some ASA events. Can you just give us a quick introduction to what they are, where they are, and how investors can get involved?

Yeah, we've got two major events coming up. So we've got one in Queensland, the Queensland Investor Summit. We've got a lot of chairs and CEOs speaking. So we've got car sales, we have Life360, we have Yeah, it'd be quite good. Our members really want to hear from chairs and CEOs of large listed companies. And then we have a Melbourne investor conference and that's the 3rd to the 5th of May.

And all details are on the ASA website.

Yeah, the Queensland is up and the other, the Melbourne will be up soon. So you can have a look at that. And then member meetings happen all the time. So if you do want to experience what a member meeting is, You can come along to one, even if you're not a member, just to experience your local community talking about investing.

So if you're an owner, this is your opportunity to really get involved?

Yes, take that step.

Excellent. Thank you, Rachel.

Thank you.

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