Amcor (AMC) 2015 AGM Voting Intentions

Company/ASX Code : Amcor Limited (AMC)
Registry : Link Market Services
Poll/Show of Hands : Poll on all items
Webcast : Yes
Venue :
11am Melbourne Convention Centre (Clarendon Auditorium)
1 Melbourne Place, South Wharf
Melbourne, Victoria
Monitor : Mr Gavin Morton
AGM Details / NoM : Wednesday 21st October, 2015
ASA Position
Not Applicable
Item 1: Consideration of accounts and reports

Profit after tax was US$680 million, up 0.4% including the negative translation impact from the higher US dollar on profit after tax of US$47 million (of which US$24 million relates to movements in the euro against the US dollar). On a constant currency basis, profit after tax increased 7.2% and EPS was up 7.5% to 60.4 cents. Approximately 50% of Amcor’s earnings are generated in US dollars or US dollar linked currencies.

The share price increased from $10.43 in 2014 to $13.72 in 2015. Dividends were marginally increased to 40 US cents per share (paid as 53 AUD cents, up 23.3%).

Amcor made acquisitions in South Africa, Brazil, China and India, as well as new greenfield plants announced in Indonesia and the Philippines. This company continues to focus on delivering improved shareholder value.

The company has a US$500 million on-market buy-back underway with EPS accretion to benefit FY16. This buy-back was 60% complete as at 21 September 2015 (representing 2.24% of outstanding shares). The FY16 outlook is for higher earnings, in constant currency terms.

ASA Position
Item 2: Re-election of directors

Chairman Graeme Liebelt and director Jeremy Sutcliffe have sufficient experience in regards to being Board members of Amcor. 

Mr Liebelt has been a director since April 2012 (Chairman since December 2013) and was previously Managing Director and CEO of Orixa. He is also a director of ANZ, AFIC and Carey Baptist Grammar School.

Mr Sutcliffe is currently Chairman of CSR and a director of Orora. He has been a director since October 2009.

Both have less than 5 directorships in listed companies. Both hold Amcor shares whose value exceeds that of their Directorship fees.

ASA Position
Item 3: Grant of options/performance rights to Managing Director Ron Delia under the LTI Plan

The LTI plan is described in further detail under Item 5.

RoAFE must exceed 16.2%. Maximum at 18.2%. We acknowledge that these are difficult performance hurdles. TSR is compared with Australia and overseas companies. Less than 50% leads to no reward, and the maximum is achieved at 75%. However, our main concern is that Amcor has decided to change the performance period from the current 4 years to 3 years for FY16. ASA prefers to a minimum of 4 years, so as to encourage longer term alignment with shareholders. We believe this is a move in the wrong direction. 

Further, the company continues to use fair value to measure the number of performance rights grants to executives. It is indicated that Managing Director will receive an LTI grant worth 100% of his fixed salary, but when fair value is used (which includes discounting the market value of Amcor shares for likely performance against the hurdles), the actual number of performance rights granted, which is not disclosed in the Notice of Meeting, will likely be a much inflated number. 

ASA Position
Item 4: Grant of share rights to Managing Director Ron Delia in connection with STI plan

This incentive is part of the management incentive plan (Amcor’s STI plan). 

Performance hurdles include EPS, free cash flow, RoAFE and other business goals. If Ron Delia achieves a cash bonus under the MIP, he will, subject to shareholder approval, be granted share rights worth 50% of any payable STI cash bonus. The number of share rights awarded is calculated by dividing the grant value by the VWAP of Amcor shares.

ASA Position
Item 5: Adoption of Remuneration Report

The remuneration policies and practices of Amcor are broadly consistent with ASA’s voting guidelines. The STI is based on safety 5%, EPS, PBIT, RoAFE 60-80%, and priority goals. A portion of the STI is deferred in the form of equity for two years.

The LTI has 50% based on TSR, and 50% based on RoAFE. Management are rewarded for achieving profitable growth and strong returns.

The performance period has been reduced from 4 to 3 years for FY16. The Chairman indicated in our discussions that he believes that the shorter period is more motivational to staff. However, the ASA believes that a longer period encourages longer term alignment with shareholders’ interests. Over the last five years, Amcor has achieved an increase of 239% in share price and 150% increase in earnings per share. This indicates that the STI and LTI have in the past been broadly aligned in regards to increasing shareholder value, so we see no reason for the change in FY16.

Our other concern is the use of fair value to calculate the number of performance rights/options awarded to executives under the LTI plan. As mentioned above, using fair value is not transparent and results in an inflated number of rights being awarded. 

We will vote in favour of the remuneration report this year, but will be looking closely at Amcor’s remuneration arrangements next year.

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