Ansell (ANN) 2015 AGM Voting Intention

Company/ASX Code : Ansell Limited (ANN)
Registry : Computershare Services
Poll/Show of Hands : Poll
Webcast : Yes
Venue :
10.30am Grand Hyatt
123 Collins St
Melbourne, Victoria
Monitor : Ms Fiona Addison
AGM Details / NoM : Thursday 8th October, 2015
ASA Position
Not Applicable
Item 1: Consideration of accounts and reports

FY 2015 was a year of integration, synergy realisations and transitioning into a more efficient structure for Ansell.  It was a strong financial year with the share price growing by 21.5%. This outperformed the S&P / ASX 100 by 6.8%, although the share price has dropped back a bit in line with the broader market over the past 2-3 months.

The benefits of the 2014 restructuring are now evident in the financials.

Sales for FY15 increased by 3.5% over FY14 to US$1645m on the back of acquisitions and strong brand sales growth. Earnings per share (EPS) increased by 11% (based on 'normalised' 2014 EPS).

Earnings before interest and tax (EBIT) increased by 19% and NPAT was up 20%.

Dividends increased from US 39c to US 43c - an increase of 10%. The dividends remain unfranked due to the large tax write-offs from previous years. 

The gearing ratio of 28.4% is relatively conservative compared to other companies in a similar position to Ansell with significant offshore earnings (eg; BHP 34.6%, Orica 50.8%, CSL 62.8%).  

Ansell is a truly global company.  The bulk of the earnings are generated in the US and in Europe. The company is exposed to foreign exchange risks in all aspects of their business.  Whilst currency hedging has been used to even out some of the currency fluctuations, the strong US $ is having an impact on the bottom line.  The CEO and CFO are both located in the USA, but the board Chairman and the Head Office is located in Melbourne. Less than 50% of the shares are now owned by Australians.

The company is focussed on growing the business and maintaining or expanding their position in the market place.  However, the FY16 outlook looks less favourable than FY15, with revenue, EBIT and EPS likely to be affected by foreign exchange rate movements and currency fluctuations.


ASA Position
Item 2a: Re-election of John Bevan as a Director

Mr John Bevan was appointed as a Non-Executive Director in August 2012. He has developed international experience beyond Australia, having held senior management positions in Korea, Thailand, Singapore and the United Kingdom. 

As for his workload, he is currently a Non-Executive Director (Chairman elect) of BlueScope Steel Limited, and as he has only been a Director for three years, he meets the ASA guidelines in terms of independence and workload. 

Mr Bevan currently holds 11,320 shares in Ansell as at FY2015. The ASA supports his re-election. 

ASA Position
Item 3: Re-election of Marissa Peterson as a Director

Mrs Marissa Peterson was appointed as a Non-Executive Director in August 2006. She has developed a wealth of experience across supply chain management, logistics and leadership positions. 

As for her workload, she currently sits on two Boards, as Chair of Oclaro Inc and Director of Humana Inc, and has been a Director of Ansell for nine years. Ms Peterson meets the ASA guidelines in terms of independence and workload. 

Mrs Peterson holds 14,896 shares in Ansell as at FY2015. The ASA supports her re-election. 

ASA Position
Item 3: Grant of Performance Share Rights to the Chief Executive Officer

Approval is sought for the issue of 209,245 Performance Share Rights to the CEO.

Ansell’s long term incentive plan forms a significant proportion of the total package of the CEO. This is worth around $4 million per annum based upon the current share price of $19.62 as at 28/9/2015.

Ansell has set the bar high with their performance hurdles.  The company has performed well, as shown by their Return on Equity of 16.4%.  This exceeded the 'gateway' condition for the awards to vest.  The 'gateway' condition is that the ROE must be at least 1.5 x the company's WACC. For the year ended June 2015, Ansell's WACC was 8.09%.

The long term incentive plan outlines the performance hurdles based upon the growth of EPS over the three year performance period to 30 June 2018. The plan outlines the three hurdles of the EPS as: 

•    a minimum threshold of 7% CAGR whereby 25% of the rights vest;

•    a target of 8% CAGR whereby 50% of the rights vest;

•    a stretch target at 12% CAGR whereby 100% of rights vest. 

The present LTI plan is measured over a three year period rather than four as per the ASA Guidelines. Despite this, the ASA approves the issue of 209,245 Performance Share Rights to the CEO.

Ansell is proposing a number of changes to the LTI incentive program. These will be released later in 2015.  This has been brought on by the negative impacts on EPS due to foreign exchange effects. At present, it appears unlikely that the FY14 LTI plan shares will vest even though the business is growing strongly.  If the currency falls further, then it is also unlikely the 2015 rights will vest.

ASA Position
Item 4: Grant of Options to the Chief Executive Officer

Approval sought for the issue of 150,000 Options to the CEO and 50,000 Options to the CFO.  Work undertaken with remuneration advisers has indicated that total remuneration packages for Ansell executives is out of line with the agreed market benchmarks.  In an attempt to close this gap, it is proposed to issue options to the CEO and CFO.  The Options will be based on a strike price determined by the weighted average five day trading period before issue. The Options will be subject to a 5 year vesting period and a two year exercise window post-vesting. 

A similar grant of Options was approved by shareholders in 2010.  Those Options fully vested in FY14 and FY15.  Option grants were not made between FY11 and FY14.

These 2015 Options are to vest in 2020 subject to continued service. 



ASA Position
Item 5: Adoption of Remuneration Report

The ASA recognises the strong financial performance of Ansell when recommending a vote FOR the remuneration resolution. 

There are several issues of note that are against ASA guidelines. 

The LTI awards are measured over a 3 year period rather than the ASA guideline of a 4 year term, and there is no specific holding lock on the shares awarded under the scheme.  However, the CEO is expected to increase his shareholding in the company to 4 times his base salary over a period of 10 years.  Other executives and NEDs are expected to grow their shareholdings to 2 times their fixed remuneration.  

Apart from the CEO, LTI awards are 50% in cash, however Australian taxation treatment of share based awards are different to the taxation rules in the USA and in Europe.

The LTI awards for the CEO seem high at 400% of fixed remuneration however the base salary of the CEO (US $1 mill) is comparatively low when compared with salaries paid by other similar sized, diverse companies.

The STI awards are based on performance objectives including growth in sales revenue, EBIT, improving free cash flow and agreed personal objectives. The CEO has elected to take 100% of any STI awards in equity. He is able to earn up to 200% of his base salary for meeting maximum performance levels.  Again, whilst this seems high, it is based on a comparatively low base salary.

Overall, the remuneration for directors and executives appears modest for a company the size of Ansell.  The CEO's package is strongly weighted towards equity (approximately 75% overall depending on STI/LTI awards).  His remuneration is very closely linked to the long-term performance of the company and is directly aligned with shareholders.

The individual (or their associates) involved in the preparation of this voting intention has a shareholding in this company. 

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