Qantas AGM 2000 transcript

Stephen Mayne: Good afternoon, Chairman. Just a couple of quick issues. Firstly, congratulations to the Board as a whole for, I think, what everyone will have to agree is a pretty amazing performance. I've actually held your stock twice and last sold out in the midst of the Asian crisis at $2.70 and saw it sprint to $5.00. So I was kicking myself for sure! And I think if you look at the Air New Zealand share price at the moment, you see what happens to a poorly managed airline in the face of all the competition and rising fuel prices, similarly with BA which has, I think, fallen more than 50% in the last couple of years. Just a couple of issues within that broader context, on hedging, I know it's an extremely Byzantine area that's hard to comprehend, but on Page 44, it talks about a foreign exchange hedging loss at the moment of $374 million. I guess the simplest way to ask the Board as to how you performed on hedging, is I guess to ask the Rio Tinto question, which is if you'd done precisely nothing with hedging - which is what they do - how would we have done, compared to the likes of say Pasminco who've blown up 400 million through hedging; Woodside which is selling oil at half the current price because they've completely got their hedging wrong; New Crest has blown up 400 million for their shareholders. So, if we had done precisely nothing on hedging last year, how much worse off would we have been, in other words, how much value has the management added to the profit in the year by hedging and how is that looking going forward.

Two other quick issues: you talked about the importance of the Qantas brand and the question of our ethics and our morals and, I guess... I've been a journalist for 11 years and there's one thing that particularly bothers me about what Qantas is doing and that's our ongoing participation in what's called the 'cash for comment' affair. I just looked at the 2UE website this morning, and we've been paying Alan Jones between $100,000 and $500,000 a year since July 1, 1997. Now our contract expired on June 30th 1999 yet we're still rolling it over every 6 months. We've had a government inquiry, I think the vast majority of the community agree that it's a pretty disgraceful practice that's going on with 'cash for comment'...

{Loud applause}

and put in its worst light, these guys... these shock jocks are basically running a protection racket whereby if you pay them a lot of money, they won't criticise them. Now, the major concern about Qantas is that we're actually double dipping because we're also still paying John Laws between $100,000 and $500,000 a year. Now I'd like some clarification as to what's happened to that contract because the 2UE website says that it expired on the 31st of August this year and yet it's still up on the website, which would suggest we are still paying them some money. So can you tell us whether we are still paying these guys money and why we are still paying them money.

Now as the last issue I would like to cover is the question of succession planning and the Board structure. I guess Qantas has lost... is losing 3 of their key 4 people at the moment in that Mr Toomey, who was principally responsible for the hedging strategy has gone off to Air New Zealand; Gary Pemberton, who I think you would probably have to say is one of the top one or two rated corporate executives in Australia - everything he has touched over the years has absolutely turned to gold; and we're also losing James Strong shortly. It's a fairly sensitive issue, but I'm a little bit concerned about the selection process for the new Chairman. Mrs Jackson was the Chairman of the BHP Audit Committee, during the period when the company wrote off about 3 or 4 billion dollars on some fairly terrible investments, and she's also been on the Board of Pacific Dunlop or had been on the Board since 1992, which has also been one of the poorer performing companies. Now you have to acknowledge that, as Chairman of the TAG, she's done a pretty good job in Victoria and the ANZ Bank has performed well, but I was interested in hearing from - if there is a Deputy Chairman - the criteria around the succession planning for the Chairman's position. And also in letting go of the Pacific Dunlop and BHP Directorships, I understood it was to free up more time to run... to be involved as Chairman of Qantas. If that was the case, I am therefore a little bit concerned that you've subsequently taken on a Directorship of Billabong with Mr Pemberton and also e-Quest and I'm a little bit concerned that, as Chairman, your time will be a little bit stretched.

And just one last point, I know that over the last five years, you have moved your AGMs all over Australia, I think the attendances have broadly gone from 500, to 400, to 300, to 200, to 100 as you've progressively gone to the smaller cities. Now, I just suggest it's probably easier in terms of getting the maximum number of shareholders at your Meetings that you hold them alternatively in Melbourne and Sydney like most major companies do. Thanks for your time.

{Applause}

Chairman Margaret Jackson: Thank you Stephen, I might answer those questions in reverse order because in terms of brands and hedging, I will ask Geoff and Peter to take the detail. So the first is on the AGM. Since listing, I think the philosophy has been that we have shareholders all over Australia and that it was important that we rotated those Meetings. The reality is that we have moved from... the first Meeting was in Sydney, we then went to Melbourne, to Brisbane, to Adelaide and to Perth and now back to Sydney. So each year, we will evaluate where we will have next year. Next year, we've already announced, I think, that it will be held in Melbourne. I think the thing that is important is that as many shareholders as possible get to participate in our AGM. So we'll take those comments on, thank you Steven.

The second is in terms of succession, my succession. The person who was probably the Chairman of the Selection Committee was actually Gary Pemberton and he's not here, so I can't ask him what was he thinking. But, all I know was that he asked me whether I was prepared to consider making myself available to become the Chairman of Qantas. It's a great privilege to be asked by your colleagues to take on the role of Chairmanship. I can only say that I can only presume that my colleagues, who I have sat around the Board table with over the last 6 or 7 years, thought that I had the attributes that might be necessary to lead this company going forward. As I've said it, I think it's a very great privilege, I've taken it very seriously.

And your comment about BHP and Pacific Dunlop was a statement by me to the shareholders of Qantas and to the management of Qantas, that's how serious I was on doing this job. BHP, yes I had been the Chairman of the Audit Committee through a very difficult time and I think what I've learned out of that is that is I'm actually quite a tough Director, I'm not afraid of challenging situations and if you have to make a call, you have to make a call! So, I think I've learned very well from those experiences, but both my involvement from BHP and Pacific Dunlop because of the challenges of those companies at the time, had taken a lot of my time. I probably spent 3 days a week on those two companies, and so I wanted to make sure that I had the time available to serve Qantas.

In taking on the role of Billabong, it's a smaller company. So far I've spent about 2 days a month on Billabong, so I've found a lot more free time. E-Quest is a company that is not a listed company and it has also not been taking much of my time. If either of those companies or indeed any of my other commitments take a significant amount of my time, my first priority is to the Qantas management, Board and shareholders.

The next question is in relation to our involvement with Alan Jones, and I'll pass over to Geoff to comment on that.

Director Geoff Dixon:Thank you, Margaret. Yes, as people know here, Qantas has a long standing relationship with both John Laws and Alan Jones. We've always believed the relationships are very transparent, more transparent than I think the other ones that were revealed during the ABA inquiry. We had continued these relationships because we believe there's a lot of different elements to it. They do personal appearances for us, they promote on air Qantas products - quite transparently, and indeed last year John Laws worked with us to help raise over $400,000 by promoting the Qantas Christmas CD. So we are comfortable with it, we read very carefully the ABA report, we are going to make some changes to the relationship to make sure that it is more increasingly transparent, but we do believe we do get good value and I can assure you, the fees we pay are at the lower end of the $500,000.

Margaret Jackson: And Peter?

Director Peter Gregg: In relation to the question on how much value did Qantas Finance add in the way of hedging. As disclosed by the Chairman, there was a 270 million dollar positive effect from fuel hedging, on a revenue flows of about $4 billion in foreign currency terms over 86 currencies, with a similar amount of cost going out, the net negative was $16 million. So if you want to offset the two, you come in with a figure of around about 250 million dollars. On Page 44 of the Concise Report, it talks about unrealised foreign exchange gains and this again is a very difficult topic to discuss. I would like to explain it as simply as I can and I apologise if it's confusing. Qantas in the past has borrowed significant amounts of money off-shore in currencies in which it has surplus foreign currency revenues. So it hedges that debt with the future revenue receipt it will receive in those currencies. The revaluation of that debt of that debt against the current debt reflects in an unrealised gain or loss, which we identified in the notes to the accounts. Offsetting that, is an unrealised gain or loss in our revenue that we received at the time which we used to hedge that debt. That's as simple as I can make it, I'm sorry.

Margaret Jackson: Okay, that's a complex issue. So Stephen if you would like to speak to Peter after the Meeting if you've got any further query.

Stephen Mayne: Ah yes, just two quick points, Chairman, one general, one specific. I think the Qantas Board has the toughest provisions of any company that I've come across in terms of external candidates standing for your Board. I think you've actually got to round up a hundred shareholders to nominate for your Board. Now the vast majority of the major companies that have like 97% of them, only require one shareholder to nominate you or a much smaller amount. So I guess I'd just like to formally ask that you give consideration for an amendment to your Constitution in future years to enable any external

candidates who'd like to offer themselves to the shareholders an opportunity to do that. Because logistically it's extremely difficult. Probably more difficult than with any other company to actually nominate for the Qantas Board. And specifically on this Resolution I guess my overall concern with the cash for comment relationship is that Qantas is buying favourable coverage from journalists who should be impartial and commenting on things in the public interest. So I'd like to ask Mr Eastwood whether West Australian newspaper is completely free to cover any negative issues with Qantas without any fear of any repercussions because the Chairman of West Australian Newspapers also happens to be on the Qantas Board.

Margaret Jackson: Thank you Stephen. In relation to your first question when Qantas became a listed public company we adopted the standard Corporations Law requirement of 100 shareholders so that's where that came from, it was just out of the Corporations Law. But next time we're looking at our Constitution we'll put it on our list of things to look at. In relation to Trevor's role in West Australian Newspapers, certainly from my understanding of how newspaper operates no executives in the management team seem to be able to influence what is written in the newspapers. And I know from conversations that I've had with editors in the past that is certainly a very strongly held view. So I'm very sure that Trevor in no way would ever contemplate what was written in Western Australian Newspapers in relation to Qantas. So if there are no further questions or comments, the Corporations Law requires that listed companies advise the ASX of details of proxy votes received in respect of each Resolution.

As stated earlier, I consider appropriate to disclose to the Meeting the proxy votes received in respect in this other Resolution as they've been advised to the ASX. On the screen are the details of the proxy votes received in respect of the re-election of Trevor Eastwood. The table shows votes for the Resolution of 275 million, votes against 3.8 million, votes abstaining are 4.6 million, and votes to be exercised at the discretion of the Directors as proxies of 33.6 million and votes to be exercised at the discretion of other proxies of 147 thousand. Would shareholders in favour of the Resolution please raise their white attendance card. Would shareholders opposed to the Resolution please raise their attendance card. Thank you. I declare the Resolution passed. Congratulations Trevor.

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