Public

AGL Energy (AGL) 2016 AGM Voting Intentions

Company/ASX Code : AGL Energy Limited (AGL)
Registry : Link Market Services
Poll/Show of Hands : Poll on all items
Webcast : Yes
Venue :
10.30am City Recital Hall, Angel Place Sydney, New South Wales
Monitor : Mr Ian Graves
AGM Details / NoM : Wednesday 28th September, 2016

Exit from Natural Gas exploration and production causes loss of $408 million

This company is monitored by Ian Graves, assisted by David Jackson. The company monitors had a teleconference with Chairman Jerry Maycock. 

ASA Position
Not Applicable
Item 1: Consideration of accounts and reports

AGL’s reported 2016 net profit after tax loss of $408m was the outcome of the decision to exit the exploration and production of Natural Gas. This resulted in significant one-off write-downs and impairments to AGL’s upstream gas assets. Statutory operating cash flow of $1,186m was up 13.6% on the previous year.

This financial year as part of the transition to renewable energy. AGL has announced two new initiatives in renewable energy capacity these being:

•    The establishment of the $2-3 billion Powering Australian Renewables Fund partnership with equity partners QIC and the Future Fund.

•    The development of the world’s largest virtual power plant - this project involves the deployment of 1,000 connected batteries to homes and businesses which will act as the equivalent of a 5MW solar peaking plant improving network stability

Board Renewal 

As part of AGL’s board renewal, Ms Sandra McPhee retired on 30 June 2016 and Mr Bruce Phillips will retire at the conclusion of the AGM.

Ms Jacqueline Hey was appointed in March 2016 and is standing for election at this AGM and Ms Diane Smith-Gander, whose appointment to the Board was announced on 10 August, is standing for election.

ASA focus issues

Although a number of this year’s issues have not received the attention we would have liked, the Board has announced a minimum shareholding policy that a director should accumulate shares over a four year equivalent to one year’s fees. Although not exactly the same as our preference (which is for this shareholding level to be achieved after 3 years), the Board is to be commended on redressing this outstanding issue.

Summary


ASA Position
Against
Item 2: Adoption of Remuneration Report

Last year ASA voted against the remuneration report, mainly because of: 

-    Executive performance being measured against “Underlying profit”.

-    As well the use of a banking system for the Share performance rights.

This year, although AGL undertook a review of its remuneration framework, the report was difficult to understand and retained many of the features that we have previously indicated our opposition to. These being:

-    Executive performance being measured against Underlying Profit, especially as this year’s results were impacted by impairments of $891m. The average STI payout for executives was 127% of target (the highest level in the past few years)

-    CEO’s remuneration being excessive when measured against average weekly earnings (AWE). Mr Vesey’s total fixed remuneration (TFR) has increased steadily from $1.9 million last year to $2.3 million from September 2016

-    Vesting of LTI occurs after 3 years and not 4 years

-    The move to relative total shareholder (RTSR) return as one of the measures for out-performance is good, although the comparator group used for the benchmark, did not meet ASA’s requirements being too broad was not able to substantiate genuine outperformance.

The new LTI plan has moved from the “banking system” to share performance rights (SPR) which ASA welcomes.


ASA Position
For
Item 3a: Re-election of Ms Belinda Hutchinson as a Director

Ms Hutchinson has been a director since 2010 and is a member of three committees being the Audit and Risk Management, People and Performance, and Nominations Committee. She has a Bachelor of Economics, is a Chartered Accountant and a Fellow of the Australian Institute of Company Directors.

During her time on the board, she has demonstrated her alignment with shareholders interests by acquisition of AGL shares, which is 95% compliant with the recently announced NED’s minimum shareholding requirement.

She has had extensive experience as a non-executive director and although her current workload is extensive, being both corporate and not-for-profit, these are within ASA’s guidelines.


ASA Position
For
Item 3b: Election of Ms Jacqueline Hey as a Director

Ms Hey was appointed a director in March 2016 and is a member of three committees being the Audit and Risk Management, People and Performance, and Nominations Committee. She has a Bachelor of Commerce, Graduate Certificate in Management and is a member of the Australian Institute of Company Directors.

She has 3 other directorships as well as 3 not-for-profit organisations and is also an advisory group member of ASIC.

She became a full time director in 2011 and has extensive experience in the areas of information technology, telecommunications and marketing, which are skills that AGL wishes to strengthen to meet what it considers are its future needs.


ASA Position
For
Item 3c: Election of Ms Diane Smith-Gander as a Director

Ms Smith-Gander is not currently a director, but is being nominated as a replacement to Mr Philips who is retiring at the conclusion of the AGM. 

Ms Smith-Gander currently Chairman of infrastructure services company Broadspectrum (recently taken over by Ferrovial), a non-executive director of Wesfarmers, as well as President of Chief Executive Woman & Chair of Safe Work Australia.

Previous Board experience includes roles as commissioner of Tourism Western Australia & Director of CBH Group & Deputy Chair of NBN Co.

Prior to becoming a full time Director in 2009, she had senior executive roles in banking, technology and change management roles as well as consulting. She has an MBA and Bachelor of Economics & Honorary Doctorate of Economics.

With her previous extensive experience in technology, operations large-scale commodities and transformation, she also will add to the skills that AGL is seeking to strengthen.


ASA Position
Against
Item 4: Approval of performance rights under the LTI plan to CEO Andy Vesey

Although ASA acknowledges the significant contribution that Mr. Vesey has made to AGL since his appointment. ASA is opposed to the proposed issue of performance rights, because of:

-    The 9.5% increase to his TFR which is significantly above inflation (see comments earlier)

-    The excessive remuneration that could occur from multiplier effect on the potential total remuneration resulting from the 120% to both the STR and LTI, which would increase the total potential remuneration to more than $7.8 million. This, whilst shareholders have lost equity.


ASA Position
For
Item 5: Approval of increase in the maximum remuneration of non-executive directors

Under this resolution, the Board proposes to increase the maximum aggregate fee pool for non-executive directors by $250,000 to $2.75 million. ASA generally opposes increases in aggregate remuneration but because of the recent and foreshadowed appointments to the Board numbers there will be an additional director during the Board succession process. It is noted that AGL’s current pool of $2.5 million sits at the 40th percentile for companies listed in the ASX11-50. The market median is $2.75 million. 



The individuals involved in the preparation of this voting intention have shareholding in this company. 


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