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Wellard and large shareholder clash ahead of AGM

James Nason, 11/11/2016

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Australia’s largest livestock exporter is navigating more stormy seas this week after one of its largest shareholders revealed it will vote against three resolutions at the Wellard Limited annual general meeting later this month.

Pakistan-based livestock company Butt Nominees became Wellard’s third largest shareholder earlier this year after it gradually increased its stake to 14.4 percent in the three months to September, as the exporter’s stock price continued to fall on the back of tough trading conditions in the livestock export market.

Butt Nominees is controlled by Pakistani businessman Tariq Butt. It has bought livestock from Wellard over the years, but also has competing livestock trading interests to Wellard.

Earlier this week Butt Nominees penned a letter urging Wellard shareholders to vote against three key resolutions at this year’s Wellard AGM, expressing concerns about Wellard’s management, corporate governance and share price performance.

Butt Nominees is calling for shareholders not to vote for Wellard’s preferred candidate as non-executive director, Greg Weller, and vote instead for its representative Tryon Dennison.

Wellard has followed with a letter of its own to the ASX and shareholders emphatically rejecting Butt Nominees’ position.

It has told shareholders the Pakistani-based shareholder and competitor is seeking a seat on its board so it can get access to information that is commercially sensitive to Wellard.

“In the Board’s opinion, it may present difficulties to have a director of a direct competitor on the Wellard Board,” the Wellard statement said.

Despite acknowledging that its FY 2016 results were disappointing and fell short of initial projections, which it attributed to record high cattle prices and the unanticipated major costs of two vessel breakdowns, Wellard maintains its financial and operational results were still superior to most of its competitors.

It has also told shareholders that its decision to adapt and relocate much of its business to South America will pay significant long-term dividends.

Butt Nominees and Wellard had previously been considered to have been on friendly terms, having done business together for several years.

However, both are now publicly at odds following the release of letters to shareholders this week.

Butt Nominees said in its letter that Greg Wheeler is not truly independent and should not be voted onto the board.

It said Mr Wheeler resigned as CFO of Wellard Ltd in July 2016 and became CEO of Mauro Balzarini’s Wellard Group Holdings (WGH), which holds a 20pc stake in Wellard Ltd.

Butt Nominees believes this means Mr Wheeler’s dual role as director of Wellard Ltd and CEO of WGH would create a potential conflict of interest, giving WGH a “degree of control over the company which is out of proportion with its shareholding”.

Wellard said Mr Wheeler has extensive livestock and operational experience with Wellard and brings significant value to the current Wellard Board.

Mr Dennison, the representative of Butt Nominees, had no prior experience working as a Director of an ASX-listed company, and his experience lay in construction of abattoirs, not in Wellard’s principal areas of business activity – livestock trading and shipping, Wellard pointed out.

Butt Nominees also wants shareholders to vote against Wellard’s remuneration report, and to oppose a resolution to approve the company’s executive share option plan.

“We believe Wellard needs to focus on controlling overheads, particularly by reducing headcount among senior and middle management ranks within the company,” its letter said.

“Until such time as the company can demonstrate it is taking positive steps in this regard, we do not believe it is appropriate to implement an Executive Share Option Plan, particularly when little or no information has been provided to shareholders on the performance thresholds, if any, that will be applied to the vesting of any options granted under the plan”.

Butt Nominees said Wellard’s IPO was one of the worst in Australia in 2015, with shareholders seeing shares “decline in value by around 80pc”.

“We believe this decline has resulted from a failure to ensure that the company is appropriately structured and capitalised to weather the volatility that inevitably comes with international livestock trading,” said the letter, signed by Tariq Butt and its Wellard board nominee Tyron Dennison.

“The company (Wellard) will point to high cattle prices in Australia and delayed shipments due to operational and delivery issues affecting the vessel fleet as the primary reasons for its poor performance.

“Granted, absent both those factors, the company would have fared better. But the reality is that both commodity price volatility and operational issues are part of the normal risks facing the livestock export industry, and any company operating in that industry needs to ensure that it is appropriately structured, managed, and capitalised in order to compete differently.”

In its statement to the ASX, Wellard said its financial results were disappointing and were a result of record and abnormally high cattle prices and the costs of two vessel breakdowns.

However, it had still recorded superior financial and operational results to most of its competitors.

A recent diversification move to increase trade from South America would have significant long-term benefits for Wellard, it said.

It said its board had established sound governance protocols and was actively working to have a clear majority of independent directors, with a new independent director expected to join the board in the short term.

Wellard also defended its proposed executive option plan, describing it as important to attract and retain talented people.

“It is a standard tool to enable listed companies to encourage those who perform well, achieve relevant KPI’s and drive company performance. Cost management and right sizing are being actively managed by Wellard and long-term performance incentives encourage rather than detract from this objective. “

Two shareholders hold more shares than Butt Nominees, Mr Balzarini’s WGH (20pc) and Wellard’s Chinese Joint Venture Partner the Fulida Group, which recently acquired a large portion of WGH shares to bring its total to 19pc.

Wellard Ltd AGM will be held on November 29 at the Crown Convention Centre, Burswood, WA.

The full letters from Wellard and Butt Nominees can be viewed here

Kelpie kept on the chain

Meanwhile, Wellard Ltd has also announced that it has pushed back the delivery date of a new ship it is currently having built in a Croatian shipyard.

It follows news revealed by Beef Central last week that Wellard is testing the market to sell two of its five existing livestock vessels.

In a statement to the ASX on Wednesday Wellard announced that its wholly-owned subsidiary, Wellard Ships Pte Ltd has reached an agreement to defer the delivery date for the M/V Ocean Kelpie to the July-September quarter of 2019.

“This will accommodate Uljanik’s (Shipyards) production program and allow Wellard to continue to adjust its fleet capacity to ongoing changes in the cattle supply market in Australia,” the statement said.

“The substantive terms of the shipbuilding contract remain the same. There is no penalty payment and liquidated damages remain in place in case of late delivery based on the new delivery date. All stage payments will be postponed by the same time, enabling Wellard to utilise its cash in other areas of the business.”

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Comments

  1. Peter Vincent, 11/11/2016

    Nothing to see here, nothing at all …… and certainly no surprises after a prospectus which took wishful thinking to new heights. Wellard subscribers are now the proud holders of scrip in a tussle with Slater and Gordon for the worst performing IPO of the year whilst Mauro Balzarini has $13.5M from the sale of his Perth mansion to stack on top of the $144M from the Wellard listing and let’s not forget that Balzarini retains a 30% stake in the business which appears to be functioning on life support.
    But wait, there’s more…… Wellard has extended a $15.8M loan to Balzarini’s WGH to avoid action seeking to recover funds owed to Wellard as a result of divesting the company despite the extensive farmlands owned by WGH remaining untouched.
    Sure, chilli crab and slings at The Raffles would be an attraction for the likes of Tinkler and Balzarini but my guess would be that it’s freedom from extradition back to Australia which holds most appeal.

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