Quicker than you may realise, it’s that time of the year again where shareholders gather to query management on the business outlook for their investments.
Yes, I am talking about annual general meetings or AGMs.
However, this year will be somewhat different from prior years as most AGMs will be held remotely due to the COVID-19 pandemic.
Only a handful of companies are holding hybrid AGMs that allow a mix of physical attendees and online participants.
However, the physical meetings will have a set quota of how many shareholders can attend.
Fortunately, shareholders can sign up for the AGM and then send their queries to management before the event starts.
It may not be the same as standing in front of the microphone to ask questions while management looks on, but it would have to suffice for now.
And if you’re cracking your head over which questions to ask, here are five important ones you may wish to consider.
1. How is the company coping with COVID-19?
This is probably the very first question management expects to hear.
With the pandemic having such an adverse impact on a wide swath of businesses, shareholders will be anxious to know how the company is reacting to the crisis.
The company should detail its strategies for dealing with depressed demand and how it plans to mitigate its effects.
Management should also shed some light on how the business is adapting to the crisis and the steps taken to turn the business around.
A follow-up question may also involve the company’s competitors.
How are they coping with the crisis? Are their competitors dropping prices or coming up with competing products and services?
If so, is the business under threat from these competitive moves?
The idea is to try to obtain a clearer picture of whether the company has positioned itself to bounce back as conditions improve.
2. Any strategies to improve margins?
Companies should always be looking at methods to increase their margins, whether they be gross, operating or net margins.
There should be a constant focus on reducing costs where feasible, and achieving an improved level of efficiency within the business.
Management should readily propose several initiatives that can improve margins, while also specifying the period for these to work themselves through.
Several strategies could involve enhancing supply chain effectiveness, cutting out middlemen, increasing the efficiency of existing processes, eliminating waste and reducing unnecessary spending on sales and marketing.
There should be a clear, coherent strategy that’s undertaken to ensure the organisation continually improves.
Such a strategy is the hallmark of a well-run business.
3. What is the company’s stance on dividends?
With many Singapore investors focused on dividends, an important point to bring up is the company’s stance on dividend payments.
It isn’t as simple as just asking “will the company plan to pay out more dividends?”.
Shareholders should try to understand the underlying drivers for dividend payments and also management’s intention for either increasing or decreasing the payout ratio.
As businesses learn how to cope with the new normal brought about by the pandemic, the company should also explain how its dividend policy will be affected.
4. What is the outlook for the industry?
The annual report will provide details on the company’s industry or sector.
But asking a general question on outlook may trigger more disclosures by management.
Shareholders may obtain useful information on new products or services launched by competitors, pricing pressure, the overall growth of the industry and other tidbits.
This question is now more important than before as COVID-19 has also altered many industries, with some probably never going back to how they used to operate pre-crisis.
Tailwinds or headwinds should be communicated to provide a frank and candid assessment of industry prospects.
After all, no matter how great a company or its management is, it cannot thrive in a sunset industry.
5. Any plans for mergers and acquisitions (M&A)?
The M&A question focuses more on the long-term growth prospects for the company.
By teasing out information on M&A, shareholders can get a sense of what management is looking for when sourcing for lucrative deals.
Other pertinent information would include the budget for acquisitions, frequency and type of business.
By reviewing a company’s past M&A history, shareholders can also query management on whether such a strategy will continue, or if there have been changes to M&A targets and plans.
Finally, management needs to communicate the benefits of M&A versus organic growth, and also detail how these M&A will help the business to grow.
Mergers could help to increase profits and consequently, its earnings per share, introduce a new revenue stream, or bring in a whole new list of customers for cross-selling opportunities.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.