The AGM season

Financial Article 537 by Edward Rizzo - May 10, 2018

Following the conclusion of the the annual reporting season for those companies that have a December year-end, it is now the time when these companies convene shareholders for the Annual General Meeting.

Ahead of an AGM, companies are obliged to send an annual report to each shareholder together with the notice of the meeting detailing the agenda as well as an explanatory circular when there are any extraordinary resolutions up for discussion.

I feel it is important for shareholders and financial analysts to not only review the annual report of a company but also attend a company’s AGM since it helps in no small manner to keep abreast of company developments. Annual reports are available online nowadays which also makes it easier for investors to review these reports even if they do not hold shares directly in a company.

During an AGM, most companies deliver detailed presentations on their previous year’s financial performance and some companies also give an explanation on their immediate strategic objectives. During these meetings, time is also allocated for questions from the floor. Shareholders, institutional investors and also financial analysts should take the opportunity to put forward any questions to the company directors requesting clarifications on any contents of the annual report. The investing community and market participants should take on a more activist approach and voice their views should they have differing opinions on certain developments taking place. Attendance at an AGM could also enable investors to obtain more information than generally available in the financial statements since company executives normally provide important indications to shareholders when replying to questions from the floor.

One of the first companies that held its AGM this year was HSBC Bank Malta plc. This took place on 12 April, shortly after the international media report which speculated on the HSBC Group’s future global strategy and Malta being one of the countries which HSBC may decide to exit as part of its new business plan. HSBC Malta had issued a company announcement immediately following this report explaining that the board of directors in Malta did not have any further information which warranted an announcement. This view was re-iterated again during the AGM and moreover HSBC Malta’s CEO Mr Andrew Beane explained during the meeting that the strategy is to grow the business in Malta in the years ahead. The CEO claimed that despite the recent international media report, “the bank is operating on a business as usual basis”.

Companies are obliged to issue an announcement after an AGM to inform the market on the outcome of the resolutions including the composition of the new board of directors. It was very interesting to note that HSBC Bank Malta went beyond the statutory announcement and also gave a brief comment regarding the bank’s strategy as well as a further clarification that no further news is available to the bank in Malta regarding the international media report.

This line of communication should also be replicated by all the other companies in Malta and in my view additional information should be published via a company announcement after the AGM to provide an overview of the main highlights presented by the company executives. Unfortunately, many investors still do not read most of the details in an Annual Report so a brief company announcement providing the main highlights may help to transmit the message to a wider audience.

Another company that already held its AGM is Lombard Bank Malta plc. The bank dominated headlines in recent months as a result of the shares held by the Special Administrator of Cyprus Popular Bank. Although no major information was disclosed during the AGM regarding the agreement reached between the National Development and Social Fund and the Special Administrator in respect of the sale of the 49.01% shareholding in the bank, shareholders present may have been surprised by the Chairman’s comments regarding a possible rights issue in the future. This had also been mentioned in the Chairman’s Statement in the Annual Report which few may have reviewed ahead of the meeting.

Mr Michael Bonello stated in his report that “the Board is examining the possibility of an increase in Tier 1 capital by means of a rights issue. This would allow the Bank to continue to grow while also permitting it to meet possibly even higher minimum levels of regulatory capital”. This is another important development that may materialize in the months ahead apart from the stated objective of the National Development and Social Fund that it will “seek to reduce its shareholding in Lombard in an orderly manner and by agreement with the regulatory authorities”.

This week three AGM’s are taking place, namely those of Malta International Airport plc, FIMBank plc and Bank of Valletta plc. The meeting of BOV taking place today may prove to be interesting following the unexpected announcements in recent weeks regarding the sale of the remaining shares held by the second largest shareholder UniCredit SpA and the notice of a precautionary warrant by an Italian Tribunal for €363 million against BOV.

GO’s AGM will take place next Monday 14 May and shareholders should expect to hear about the plans of the incoming CEO to fend off competition in Malta but more importantly to achieve a higher market share in Cyprus which ought to translate into improved financial contributions to the group. Following the strong increase in dividend distributions in recent years from €0.07 per share to €0.13 per share reflecting the consistent positive financial performance and strong cash flow generation as well as the low leverage on balance sheet, it would also be interesting to see whether the company can comment on its dividend policy going forward.

In last week’s article dealing with the dividend league table, I had mentioned that in the recently published Annual Report of International Hotel Investments plc, Chairman Mr Alfred Pisani explained in his message to shareholders that although it was not technically possible to recommend dividends on the basis of the balance sheet of the parent company based on the 2017 financial statements, the board of directors was considering the issue of an interim dividend to all shareholders later this year. This was repeated once again during a meeting held last week with financial analysts in which the chairman of the company’s audit committee Mr Frank Xerri de Caro also confirmed that the committee is currently looking into the measures necessary which will enable IHI to begin the distribution of a cash dividend. Mr Pisani also confirmed that these findings are expected to be presented to shareholders during the AGM on 5 June. As such, shareholders should eagerly attend next month’s meeting to hear about these recommendations being made.

Another important AGM taking place shortly is of Medserv plc. The company distributed its Annual Report to shareholders this week ahead of the AGM on 28 May. Apart from the customary resolutions, a special business resolution is on the agenda dealing with the authority being requested by the company to disclose information (including unpublished price-sensitive information) to enable any bona fide offeror and their advisers to “make, confirm withdraw or modify any bona fide offer to purchase and acquire a substantial shareholding”. This resolution is required as a result of the recent announcement that the two major shareholders intend to source a strategic buyer to acquire their shareholding in the company which currently amounts to just over 65%.

Although an AGM is convened to approve the historic financial statements, I feel that it is very important that once shareholders and financial analysts attend these meetings, the companies also provide updated key performance indicators and financial metrics achieved during the first quarter of their new financial year. Moreover, these figures should then also be disclosed to the market at large via a Company Announcement. This initiative can also be viewed in the context of the Interim Directors’ Statements that had been obligatory until a few years ago. Some companies had maintained this level of communication to the market while other companies had merely resorted to the minimum prescribed in the Listing Rules.

Company executives need to be aware that public announcements are reviewed by several investors before contemplating an investment. As such, the detail and frequency of company announcements should improve similar to what is done across the international financial markets.

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