Here are the results:

Resolution 2 – The re-election of David Coe

For: 124,944,317 (67%)
Against: 61,406,245 (33%)

Resolution 3: The election of Steven Johnson to the board

For:  64,439,988 (30%)
Against: 148,176,728 (70%)

Resolution 4: The election of Greg Hoffman to the board

For: 50,279,728 (24%)
Against: 162,330,138 (76%)

When you consider that the existing board and related family members own 81 million shares, its an massive vote in favour of changing the current board. Excluding the board and related parties, 62% of the remaining shareholders voted against David Coe’s re-election and 49% voted in favour of my election. Both those figures are after an estimated 14 million votes being left at the Chairman’s discretion. No prizes for guessing which way those votes were directed.

It’s an extremely clear message to the board that a substantial percentage of shareholders don’t share their vision. We’ll try and assess the situation over the next couple of days and see what the reaction from the company is. We’re also hoping we can get an audio file of the meeting. If we can, we’ll post it on the site.

Thanks again for your tremendous support. It’s been a very important day for small shareholders.

I’ll write more tonight but, for now, wish us luck.

1.    You’ll need to call the registry, Computershare. But before doing so, please ensure you have the appropriate reference number to hand. This will be your HIN or SRN, which is typically located in the top right hand side of most personalised correspondence from the company.
2.    Call Computershare on 1300 850 505
3.    A computer will ask you to say the name of the company you’re enquiry relates to. Tell it ‘RHG’ and it should then confirm it.
4.    Press 2 for general shareholder enquiries.
5.    Press 0 for ‘other enquiries’.
6.    You should now be speaking with a human being who will ask for your HIN or SRN. Ask them to send you a new proxy form for the annual meeting.
7.    If you’ve already submitted a form and wish to change your vote, the registry will accept the most recently received proxy form.

Thank you for taking the time and effort to ensure your vote counts. We appreciate it.
Here is an image of the correspondence, in case your copy didn’t arrive.
RHG Letter Nov09

Conversely, it could be more if the cost of funding RHG’s mortgage book declines. Encouragingly, there are signs of life in the non-bank lending market; Members Equity Bank recently sold Residential Mortgage-Backed Securities without government support at a cost much lower than RHG’s existing cost of funding. But these factors might only make 10 cents difference either way and, the smaller the loan book gets, the less important they become.

From here, how we realise that value is far more important than how much of it arrives. The cash that RHG’s already banked substantially outweighs what the loan book will provide in future.

The Intelligent Investor’s research director, Greg Hoffman, and I are hoping to get elected to the RHG board at the company’s annual general meeting, on 12 November. If successful, we’ll have significant influence over how this process unfolds. In fact, we’ve already achieved a couple of important concessions.

Chairman John Kinghorn stated in the annual report that if management finds an acquisition, the transaction will be put to a shareholder vote before it proceeds. That’s much better than waking up one morning and finding out we’re the proud new owners of Krispy Kreme Doughnuts.

Kinghorn also said that if an appropriate acquisition isn’t found, capital will be returned to shareholders in the most appropriate manner by 2011. While we’re reasonably confident they’ll find something to spend the money on, at least this puts a time limit on the process.

But if Greg and I are elected, we’ll be pushing very hard for the cash to be returned to shareholders as soon as possible. There’s not much evidence in support of the existing board’s acquisition skills and we believe paying dividends is a vastly superior way of realising the value of this company’s assets.

Value for franking credits

Take my personal shareholding, for example, which includes shares housed in my super fund bought at 16 cents on average. If RHG spends its $1 of cash on an acquisition at a ‘fair’ price, I could presumably sell my shares for $1 each. I’ll then pay 10% capital gains tax on the 84 cents of profit (I’ve held them for more than 12 months) and be left with 91.6 cents of post-tax cash.

On the other hand, if RHG returned the $1 of value as a fully-franked dividend, I’d receive the $1 cash, a $0.21 rebate from the tax office for the franking credits and a capital loss to boot (after paying all the value out as dividends, the shares would be worthless). That $1.21 of cash is 32% more than I’d get selling the shares at ‘fair value’ on the market.

Alternatively, RHG could, for example, offer an optional buyback with a huge fully-franked dividend component. Those shareholders who want out could then exit in a tax effective manner, and those who want to keep their wagon hitched to Kinghorn could leave their cash in the business (although it probably makes more sense to take the franked dividend and reinvest the proceeds at a new, higher, cost base).

RHG has generated a substantial amount of profit in the last couple of years and it has handed a decent chunk of that profit over to the tax office as income tax. If it uses the cash to make an acquisition, those franking credits – $48m as at 30 June and plenty more to come as this year’s $52m tax bill is paid – could be locked in the business forever. That might not make much difference to RHG’s institutional shareholders who are remunerated on the basis of pre-tax returns, but it makes a big difference to us.

1. Write the name Steven Johnson in the proxy box at the top of the page
2. Place a cross against either ‘for’, ‘against’ or ‘abstain’ for each of the four resolutions
3. Make sure you sign it
4. Send the proxy form to Computershare, not to us or the company

If you leave the voting at my discretion, they’ll still get voted, at the meeting, in favour of Greg and me and against David Coe. But, by ticking the boxes when you send your proxy in, you’ll be sending a message loud and clear to the existing board before the meeting takes place. It also means the tally will be included in the Chairman’s address and any public information released about the meeting.

Proxy forms have been mailed to all RHG shareholders and it’s time to get your vote in. Below is an image of our recommendation of how to vote on the form the company has sent. If you wish to support us, please nominate Mr Steven Johnson as your proxy AND vote as indicated below (you can use the zoom option at the base of the image to get a clearer view).

As always, please feel free to ask any questions or make comments.
RHG how to vote

There’s some interesting stuff in the notice of meeting about us and also about David Coe. It seems that being able to raise hundreds of millions of dollars from a gullible public is a measure of success, irrespective of what happens to those dollars after they’ve been handed over.

There is also interesting commentary in the annual report. Chairman John Kinghorn has said that the loan book won’t be profitable by 2011. I don’t know if that means the start, 30 June or the end of December but, based on my numbers, it should be making money well into that calendar year. More importantly, he said that they are definitely going to seek a ‘superior alternative investment opportunity’ but that this opportunity would be ‘submitted to shareholders for their consideration’ and that ‘if, by 2011, the company has not identified a superior investment alternative, then your directors intend to distribute to company’s surplus funds to shareholders in a [sic] optimal manner.’

It seems we’re making progress.

I need to get down to Wollongong for our first Value Fund information night but I’ll add some more about these announcements during the next few days. In the meantime, you can read the announcements for yourself. I’ve also included the resume RHG refused to send out below.

SJ resume

GH resume

Three documents were sent across to RHG’s lawyer late last week and all three were rejected, before his client ‘has even had an opportunity to review’ them. ‘The documents go well beyond addressing the specific requirements of the ASX Corporate Governance Principles and Recommendations’, we were told, and ‘in places transgress over into electioneering – which, as you know, is not permissible under the Advance Bank case.’ I didn’t know. But now I do.

We will, he added, ‘have an opportunity to speak to [our] so-called “CVs” and otherwise promote [our] case to be elected as directors at the AGM.’ But I plan on giving you the information you need to make a decision well before that. I’ll publish our ‘so-called’ CVs to this site tomorrow. For now you can read the corporate governance disclosure below, which RHG specifically asked for, and decide for yourself whether it’s electioneering or not.

We’ve already had some concern expressed by members about us potentially ceasing coverage on RHG if we are elected to the board. We think it’s the only prudent course of action – it’s not possible to write research about a company on which we have inside information. But armed with our prior research and substantially improved communication from the company itself, you shouldn’t have too much trouble making an informed decision about the value of your shares. Comments, as always, are welcome.

Corporate Governance Disclosure

The good news is that shareholders are a lot more likely to receive a dividend now that the CEO owns shares instead of options. Unfortunately, there are still 4 million options outstanding. If I were Glenn, I’d be encouraging the board to wait a couple of years.