No earnings guidance from Blue Sky with board change underway
Written on the 19 November 2018 by Matt Ogg
The outgoing chairman of Blue Sky Alternative Investments (ASX: BLA) is confident restructuring efforts will help deliver returns, but unlike in previous years the company has not given any earnings guidance for FY2019 at today's annual general meeting (AGM).
Chairman John Kain (pictured), who will be replaced by former Hastings Funds Management CEO Andrew Day on 26 November, pointed to a 17.9 per cent annual return net of fees over the past five years.
It was a figure that drew the ire of at least one shareholder at the meeting, questioning why numbers like this continued to be used, and if returns were so great why was Blue Sky in such strife?
Interim CEO Kim Morison reiterated previous indications that historical records were "not indicative" of how the future might look.
At the meeting, Kain stood by a May claim that the company's fee earnings assets under management (FEAUM) in late March were around $4 billion, even though a short selling attack from Glaucus Research has driven the share price down by 90 per cent in the past nine months.
"As an example, since June 2017 our Real Assets business has increased its FEAUM by more than $500 million, comprising new deployments for institutional clients across a diverse range of agricultural assets and associated water rights," Kain said.
"Of these investments, the media has only reported two investments totalling $65 million."
BLA expects new partners from Oaktree Capital will be aiming for returns that are much higher than 15 per cent per annum. On 7 December, the US company's representative Byron Beath will become a non-executive director at Blue Sky.
Morison, as well as Tim Wilson and Phil Hennessy will retire as directors upon transition to the new board, with the recruitment process for additional directors now "well advanced". At the AGM, shareholders voted for Kain to continue with the company as a director
"As we put 2018 behind us we must work hard to continue to earn the right to retain existing, and win new, mandates," Kain said.
"In recent years, we have given earnings guidance at the AGM. Given the changes underway, both operationally, and to the executive and Board personnel, it is not appropriate for the Board to give guidance on FY19 earnings at this time.
"This year, our reputation has suffered clearly. We have taken the steps to rectify this and are confident that today marks the turning point, from which our reputation can begin to recover and we can focus on the future, rather than the past."
Shareholders voted overwhelmingly in favour of allowing Oaktree to gain an interest of greater than 20 per cent in the group.
One shareholder expressed concerns today that Blue Sky was edging towards penny stock territory, which transpired just before noon AEDT with BLA shares falling 1 per cent to $0.99. However, since then they have risen to $1.04 at 3:19pm AEDT.
Writing the short sell response playbook
When asked whether the board should have seen the Glaucus attack coming earlier this year, Kain said the team had been monitoring short positions but could have never anticipated the extent of the fallout.
"We anticipated that there would be some short activity around us. What we didn't anticipate was the type," the outgoing chairman said.
He added the company had experienced a short campaign against it in late 2016 as well.
"This was the second time that this sort of behaviour's ever happened in Australia before. So when Corporate Travel are going through what they're going through now, they have the benefit of our playbook I think," Kain said.
"I think if you went around the boardroom of every ASX200 company now they'd all have a plan to deal with this they'd all be anticipating. I'm not sure all of them would have 12 months ago."
The executive "begrudgingly" gave credit where it was due to Glaucus.
"It was a bloody well organised. and choreographed attack. We still don't know the full extent of everything that went on maybe we should have, but it was almost unprecedented in Australia," he said.
He emphasised that as the problem arose, the board made what it felt to be the best decisions in the interest of the company and shareholders.
"Our view was our job is to get out of the noise and out of the press; not keep feeding it," he said.
"Eventually it'll die down; we can keep our heads down long enough...by golly we'll lose some skin along the way but eventually we'll win out."
Kain also mentioned that when negotiations with Oaktree became public in July amidst a "feeding frenzy" around Blue Sky, the company was "extraordinarily vulnerable".
He said by the time negotiations got to the pointy end of the deal, Oaktree was probably in a position where it could have extracted more from the arrangement.
"For us to have said 'well,we spent three months negotiating with Oaktree and they walked away from it at a moment when the market had very little confidence in us anyway', it would have been extraordinarily negative for our reputation and our business," he said.
"We might not have had a lot of room to move if you had come to us and tried to screw us on that," Kain joked to Byron Beath.
Business News Australia
Author: Matt Ogg