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Ainsworth Game Technology (AGI) 2015 AGM Voting Intentions

Company/ASX Code : Ainsworth Game Technology Limited (AGI)
Registry : Computershare Services
Poll/Show of Hands : Show of hands
Webcast : No
Venue :
11am Grace Hotel (Wilarra 1 Room)
Level 2, 77 York St
Sydney, New South Wales
Monitor : Ms Carol Limmer
AGM Details / NoM : Tuesday 17th November, 2015
ASA Position
Not Applicable
Item 1: Consideration of accounts and reports

AGI is not currently included in the ASX 200 (it was only a new entrant to that index in recent years). AGI designs, builds and distributes gaming machines. Financial performance over the past 12 months has been sound. NPAT is up 14% at $70.4m with this being their 6th consecutive year of profit growth. EBITDA is up 20% at $107.6m, EPS is up 16% at $0.22 and dividends are unchanged at $0.10 but they are now fully franked. The payout ratio of 46% is within previously stated payout range of 40-60%. Revenue is 1% less at $240.6m and R&D expenditure is down $1m (but maintained at 11% of Revenue).  Their result was positively impacted by foreign currency gains of $25.m ($17.9m after tax). They hold a strong balance sheet position.

AGI’s international operations performed well with revenue growth of 46%, representing 61% of their total revenue. The best regional performer was the Americas. Their number of machines in the Americas rose 32% versus last year. As reported last year, AGI are investing in a new facility in Nevada which is due to open in April 2016. Revenues fell in the competitive domestic market (39% of total revenue) with some of the 35% decline said to be expected given their planned move to a new product platform. AGI expect this position to be reversed in FY16 and beyond with the recent launch of their A600 machine at the Australasian Gaming Exhibition. This machine is understood to be technically advanced and is already approved for sales in their core Qld and NSW markets from which positive feedback is being received.

Progress is being made in their on line and social segment businesses. AGI also recently acquired 40% 0f 616 Digital, a social on line gaming company. Their strategic investments in real money and social platform technology are expected to provide further opportunities to provide their recognised brands to a greater number of users through social and mobile channels.

They have 5 directors, with the Board overall having good background, experience and qualifications. However, there are no females on the Board. Mr L H Ainsworth is an Executive Chairman and there is a Lead Independent NED and the Board Committees are also chaired by independent NEDs. Mr Ainsworth continues to be the major and dominant shareholder as well as providing input into technical design, strategic guidance and company overview. Various related party transactions, succession planning and possible ongoing dierct involvement in running AGI are critical issues related to the Chairman, particularly given his unique position in the industry for over 60 years.  Whilst there is key person risk given the potential loss of a person with such vast experience and reputation in the industry, the Board has stated that they are comfortable with the procedures in place to address this. 


ASA Position
For
Item 2: Re-election of Mr M B Yates as a Director

Mr Yates has been on the Board since 2009 and chairs the Regulatory and Compliance Committee as well as being a member of the Remuneration & Nominations and Audit Committees. He has over 34 years’ extensive experience in commercial and corporate law. As a senior corporate lawyer he has acted for clients in the gaming industry. He holds 22,400 shares in AGI.


ASA Position
For
Item 3: Adoption of Remuneration Report

ASA voted for the Remuneration Report last year on the belief that going forward AIG would be making some changes to their remuneration policies and practices. They are moving towards ASA's preferred stance.

The remuneration for directors is considered reasonable as is the CEO’s total remuneration which is less than last year at $1,340,431 due to much smaller STI payment. The other senior management personnel also have less total remuneration. The CEO received STI of $171,000 this year compared to $510,686 last year. Deferral of 25% has now been introduced. We will raise at the AGM that ASA believes deferral should be set higher (eg 50%) and be into equity. Given the relatively low amount involved can understand why it may be as it is this time. The performance objectives for STI are clearly defined.

LTI plan has 2 performance hurdles, viz EPS (70%) and TSR (30%). 8% EPS pa is the minimum for LTI award and 50% vests at 50th percentile for the TSR – the latter hurdle will be raised as not being robust enough although it only relates to 30% of the grant.

Taking all matters into consideration a FOR vote is proposed on this occasion.


ASA Position
For
Item 4: Grant of performance sights to MD/CEO

AGI did not seek approval for a grant last year. This year AGI is seeking approval for 263,056 Performance Share Rights (PSRs).  Half of these will be tested in 2018 and the other half in 2019 (ie 4 years out).

In relation to the PSRs they are asking that these PSRs be disregarded for purposes of determining number of securities the company may issue within a 12 month period without shareholder approval (refer ASX Listing Rule 7.1). The hurdles are covered under Item 3 above. ‘Fair Value’ is used for the calculation methodology. The values are for 2018 EPS $2.3164 and TSR $1.9974 and for 2019 EPS $2.2289 and TSR $1.920. The shares are worth about $790,000 at today’s market value whereas at ‘Fair Value’ they are currently valued at about $550,000.

The Fair Value methodology will be raised at AGM as not being favoured by the ASA.

On balance, similarly to the Remuneration Report, we intend to vote in favour of this resolution. 


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