COMMENT:

The annual meetings season is gathering momentum and there are at least five interesting ones before the end of September — Rubicon, Heartland Bank, Snakk Media, Turners Automotive, Orion Health.

Rubicon

Rubicon's annual meeting will be held in Mount Maunganui on Monday, a strange venue for the Auckland-based company.

The main item on the agenda is the election of three new directors, Thomas Avery, Ozey Horton and Paul Smart.

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In the notice of meeting, the three are referred to as "the New Zealand Independent Directors" yet Avery and Horton are US residents, according to Company Office records.

Shareholders will be asked to approve a directors' fee increase from $800,000 to $825,000, an extraordinarily high figure for a company with dreadful profitability and sharemarket performances.

The only positive feature of the fee structure is the three new directors will receive their $150,000 individual payments in the form of Rubicon shares, rather than cash.

Shareholders will want to know whether outgoing CEO Luke Moriarty will receive an exit payment and, if so, why? They will also want to know if Deloitte, the newly-appointed auditor, will be undertaking a thorough investigation into company expenses and related party transactions.

Heartland Bank

The main item on the agenda at next week's Heartland Bank annual meeting is the resolution to restructure the company.

At present, shareholders own Heartland Bank which in turn owns 100 per cent of Heartland Australia. Under the new proposal, Heartland Bank shareholders will exchange their shares on a 1-for-1 basis for shares in a new company called Heartland Group Holdings.

The new company will own 100 per cent of both Heartland Bank and Heartland Australia.

Thus, Heartland Bank and Heartland Australia will become sister companies, rather than former owning the latter, and Heartland Group Holdings will be listed on the ASX as well as the NZX.

Heartland Group will own a bank that is regulated by the Reserve Bank of New Zealand (RBNZ) but its Australian reverse mortgage business will no longer be subject to RBNZ regulation.

The group's Australian non-banking operations are growing faster than expected and the removal of this RBNZ oversight will facilitate quicker growth across the Tasman, according to chairman Geoff Ricketts.

The restructuring is expected to be approved by shareholders as it offers greater access to equity through the new ASX listing and increased Australian growth prospects.

However, the removal of RBNZ oversight over the group's Australian operations will increase Heartland Group's risk profile.

Snakk Media

Snakk Media, which holds its annual meeting in Auckland on Tuesday week, is probably best known for Derek Handley's involvement.

Handley's recent meeting with the then Government Minister Clare Curran, regarding the country's Chief Technology Officer (CTO) position, ultimately led to Curran's resignation.

Snakk Media listed on the NZX in March 2013 with Handley, who was chairman, owning 22.6 per cent of the company. There were massive expectations regarding the new listing and it had a market value of $60 million at the end of its first day on the NZX. Snakk Media never achieved its expectations and now has a market value of less than $1m.

Handley started selling shares at the end of 2013 and resigned from the board in October 2015. The latest Snakk Media annual report shows that Handley still owns 12.5 per cent of the company, worth only $101,932 at the current share price.

Many successful people have been involved in failed companies but the problem with Handley is that Snakk Media is his second unsuccessful NZX listing. In 2001, he listed Feverpitch International, which planned to establish a successful on-line betting business.

It suffered huge losses and was unable to develop a viable business model. In 2003 Feverpitch was used as the backdoor listing vehicle for KidiCorp, the childcare centre operator.

Two unsuccessful NZX companies is one too many and his offer and acceptance of the country's CTO position was bizarre, although this has now been terminated.

The only notable feature of the upcoming Snakk Media annual meeting is the nomination of Brent King as a director. King has also been associated with some poorly-performing NZX listed companies.

Turners Automotive

The main issue at Turners' annual meeting, which will be held in Auckland on September 26, is the proposal to raise directors' fees from $440,000 to $665,000.

The company commissioned Strategic Pay to review its board fees and the consultant recommended that chairman Grant Baker receive a fee increase of $40,000, to $150,000.

It also recommended individual directors' fees be raised from $55,000 to $75,000 and a further $75,000 be made available for an additional director.

Baker's position is interesting because parties associated with him own 10 per cent of the company, worth $24.1m at present, and the $40,000 fee increase is loose change by comparison.

Baker has been involved in several listed companies, including 42 Below, Salvus Strategic Investments, Moa Group and Trilogy International, and he is known for his buying and selling skills rather than his willingness to be a long-term owner of companies.

But his Turners' position is probably not working out as he had hoped because of low investor interest, particularly in Australia.

Turners joined the ASX on July 28, 2017 as a foreign exempt listing "to provide the company with access to a larger capital market to support its growth strategy".

However, in the 13-plus months since listing, only 2000 shares have been traded on the ASX, worth just A$6,000 ($6500).

This is a warning to other NZ companies, including Heartland, that an ASX listing will not raise investor interest unless it is supported by a strong investor relations programme.

Turners should use the upcoming annual meeting to illustrate its growth strategy and explain what it plans to do with its ineffective ASX listing.

Orion Health

Orion Health holds its annual meeting on September 28 and, for this columnist, is a strong contender for the NZX's most disappointing company, along with Fletcher Building and Fonterra.

The company listed on the stock exchange in 2014 after raising $125m from the public, representing a 13.1 per cent ownership of the company. Founder and chief executive Ian McCrae had a 50.5 per cent stake and, at the $5.70 a share IPO price, the company was worth $915m and McCrae's holding $460m.

Shortly after listing, the share price reached an all-time high of $6.79 but it has been all downhill since then.

The major problem, in this columnist's view, is McCrae's insistence he remain CEO even though Orion has been unable to retain senior executives and its strategy execution has been poor.

The upcoming annual meeting will consider the sale of 75.1 per cent of Orion's Rhapsody business at an implied value of $205m and the sale of 24.9 per cent of its Population Health Management (PHM) operation at an implied enterprise value of $50m. The cash will be used to buy back Orion shares between $1.16 and $1.26 a share.

Shareholders have little option but to approve the resolution, even though it is a disappointing outcome for a company that promised so much and has delivered so little.
After the transaction Orion will own 100 per cent of its hospitals information systems software business, 75.1 per cent of PHM and 24.9 per cent of Rhapsody.

The company will remain listed on the NZX, but delist from the ASX. McCrae is expected to remain CEO but his position will be mainly due to his controlling shareholding rather than his ability to retain senior staff and deliver on shareholders' expectations.

- Brian Gaynor is an executive director of Milford Asset Management, which holds shares in Heartland Bank, Turners Automotive and Orion Health on behalf of clients.