Adelaide Brighton (ABC) 2014 Voting Intentions

Company/ASX Code : Adelaide Brighton Limited (ABC)
Registry : Computershare Services
Poll/Show of Hands : show of hands
Webcast : No
Venue :
Adelaide, South Australia
Monitor : Mr Ian Cooper
AGM Details / NoM : Wednesday 21st May, 2014

ASA representatives Bob Ritchie and Malcolm Keynes held a constructive pre-AGM meeting on May 6 with Adelaide Brighton's board chair, remuneration committee chair and executives, including the CEO-elect.

We were assured of an e-mail the day before the AGM providing details of the ASA’s proxies. This will allow us time to consider whether we want to call for a poll on any item. In any case, we indicated we would appreciate all proposals going to a poll.

We discussed pros and cons of a display of proxy information on each item of business at the beginning of consideration of that business.

ASA Position
Not Applicable
Item 1: Financial Report

Financial performance was sound in weak economic conditions. The company reported 17% return on funds employed and we estimated 15% return on equity; not a spectacular performance but a solid base for expectations of future growth in earnings. Performance targets for long term incentives, in the range 5% to 10% pa compound would approach limits of 20% to 25% ROE if continued indefinitely. In global conditions which could generate a credit squeeze unexpectedly at any time, the reduction in debt achieved in 2013 is considered prudent, although there could be risk in assuming zero probability of withdrawal of credit facilities which presently seem ample.

The thirteen years coverage in the performance summary table on the back page is an exemplar in our opinion.

ASA Position
Item 2: Re-election of Les Hosking

Mr Hosking will soon have served eleven years on the board and our association by policy regards directors serving more than 12 years as no longer independent. As there is a majority of independent directors in any case, this is not an immediate impediment to our supporting his re-election. We had an informative conversation about succession planning.

ASA Position
Item 3: Re-election of Ken Scott-Mackenzie

We also will be voting for re-election of Mr Scott-Mackenzie. We appreciate his effective chairmanship during a turnaround period for mining contractor McMahon Holdings.

ASA Position
Item 4: Re-election of Arlene Tansey

Ms Tansey diversifies the board’s talent pool and our only concern was apparent workload, as reported by a number of directorships. Conversation revealed only one other directorship is with a listed company, Primary Health Care. Her directorship of two stapled Lend Lease funds is no more than for a single entity. Her charity board and two advisory board (non fiduciary) directorships each involve only four half-day meetings a year. We will be voting for the re-election of Ms Tansey.

ASA Position
Item 5: Remuneration Report

The report itself is well presented. There is scope for disagreement over our association preferring no STI for a CEO and for payment of STI bonus in cash but we note that the ratio of STI to LTI for the CEO differs from other executives in a way we consider appropriate. Furthermore, given the company’s financial performance and a remuneration scheme which otherwise is compliant with our association’s policies, we will not be voting against adoption of the report over this single difference of opinion.

The growth in earnings per share lower hurdle of 5% pa compound growth could be considered easy when taking into account 2% CPI for just the second half of 2013. While we would prefer a comparison with an indicator more relevant to building and construction, we nevertheless see scope for being uneasy about a 5% growth as a hurdle for attaining half the relevant portion of LTI. On the other hand, the base, as we noted above is 15% ROE and economic conditions are still weak. If economic conditions were to strengthen in some future year and this hurdle were to remain unchanged, we could well change our opinion. In present circumstances, we give this our support, taking the nature of the industry and the mature status of the company into account.

We note an opportunity to improve the LTI hurdles and targets by introducing a gate or filter, particularly for total shareholder return. Achieving median performance in TSR for the designated set of companies (ASX 51-150, less financials) is not a challenging hurdle and, as it is presently written, could provide a bonus for a negative TSR. We suggested no bonus should be available unless TSR is positive.

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