Ardent Leisure (AAD) 2015 AGM Voting Intentions

Company/ASX Code : Ardent Leisure Group (AAD)
Registry : Link Market Services
Poll/Show of Hands : Proposed poll on all items
Webcast : No
Venue :
10am The Mint
10 Macquarie St
Sydney, New South Wales
Monitor : Mr Allan Goldin
AGM Details / NoM : Thursday 5th November, 2015

This company is monitored by Mr Richard McDonald, Mr Allan McAskill and Mr Allan Goldin. 

ASA Position
Not Applicable
Consideration of accounts and reports

Ardent Leisure is mixture of Australian leisure activities: the largest provider of Ten Pin bowling centres, d’Albora marinas, Goodlife Health clubs, Dreamworld and Whitewater World. It is, however, in the United States that the big growth is occurring. Main Event, which are large indoor entertainment centres, are the star performers with sales growing by 60% and EBITDA by 64%, all in US dollars.

In Australia, Ardent had to close some Health clubs and at the same time, convert more to the new 24/7 model. Growth came through the purchase of new centres and the acquisition of the Hypoxi targeted weight loss business.

Bowling Centres and Marinas remained constant, with the Theme Parks suffering from extreme rain and a cyclone.

The existing Australian businesses are all moving further into the digital age, plus some facilities are being upgraded with new food offerings.

However, the big success story is Main Event which now provides 35% of the Group’s EBITDA and growing very strongly, with 7 new centres to open during the year.

The company this year cleverly sold and leased back three of the existing centres, repeating this move will allow profits to continue forward without tying up capital.

The result of all this activity meant that revenue was up, but overall profit decreased by $16.9 million or underlying profit described as Core Earnings was down by just under $2 million.

The company now enters a very exciting, but challenging new period: starting off as a small company, then through a series of acquisition, growing to being in the ASX150, but still with a very small corporate team. It has to manage both the good continuing business in Australia with the knowledge that the major growth and profits in the years going forward will be in the United States.

ASA Position
Item 1: Adoption of Remuneration Report

The long serving CEO Greg Shaw officially retired in April but continued on until the end of the financial year to ensure there was a smooth handover. With the vesting of some long term incentives, a combination of his normal deferred short term incentive, plus accelerated vesting of other short term rights and his cash entitlement, his total remuneration for the year was $3,416,923.

Deborah Thomas, the new CEO, is on a fixed annual salary of $670,000 which, if incentives are earned will result in total remuneration of $1.4 million.

Short term incentives (STI) is based on approximately 50% financial targets and the rest on KPIs.  For the CEO, 50% of the STI is paid in cash and 50% in equity, vesting of which is deferred over one and two years.  With the exception of the fact that the deferred equity is based on a small fair value calculation, it is aligned with ASA’s voting guideline very well.

The long term incentive (LTI) plan has a gateway hurdle of a minimum return on equity (ROE) of equal or greater than the 2.5x the Australian Government Bond 10 year yield rate. 

Only if this gateway is achieved is 50% awarded based on achieving a hurdle of a compound EPS growth for the performance period exceeding 5%. The remaining 50% is based on relative TSR compared to the ASX200 industrials. There were no share performance rights issued in 2015 and if there were, the number of rights issued would be based on a 5 day volume weighed average price (VWAP).

The two areas of concern in the LTIP is that on the TSR hurdle only average performance is required to earn 25% of the overall LTI bonus and the length of time over which the two hurdles are measured is 2, 3 and 4 years. 

Hopefully, as Ernst & Young is reviewing the remuneration mix we will see the company move to a nice neat 4 year time period, but as overall the incentive scheme seems to work well and is a plan that is changing as the company grows, ASA will vote our undirected proxies in favour.

ASA Position
Item 2: Re-election of Mr Neil Balnaves AO as a Director

Mr Balnaves has been Chairman of Ardent since 2001 (14 years) and has worked in the entertainment and media industries for over 50 years. He has previously held the position of Executive Chairman of Southern Star Group Limited and serves on the boards of numerous advisory and community organizations and is a Foundation Fellow of the Australian Institute of Company Directors. 

Mr Balnaves is well qualified to be a director and the Chairman of Ardent, but being a director for more than 12 years means ASA considers him to be non-independent. Usually, we would be inclined to vote against a non-independent Chairman, but recognising the make-up of the Ardent board, we will vote our undirected proxies in favour and hope that during the course of this term, a decision is made to stand aside after many years of good service.

ASA Position
Item 3: Re-election of Mr George Vernados as a Director

Mr Vernados is a Chartered Accountant with more than 35 years’ experience in finance, accounting, insurance and funds management. His former positions include Group Chief Financial Officer of IAG and, for 10 years, Chairman of the Finance and Accounting Committee of the Insurance Council of Australia.  His other ASX listed non‐executive director positions are IOOF Holdings Limited and BluGlass Limited.

ASA considers Mr Vernados’ finance background makes him well qualified and will vote our undirected proxies for his re-election.

ASA Position
Item 4: Election of Mr David Haslingden as a Director

Mr Haslingden is currently the Chairman of Nine Entertainment Ltd. He owns and operates a network of television production companies in Australian and overseas. Previously, he was President and Chief Operating Officer of Fox Networks Group and Chief Executive of Fox International Channels. 

Mr Haslingden has sat on a number of industry boards in the United States including the National Cable and Telecommunications Association.

With Mr Haslingden’s extensive media and entertainment experience in the USA, makes him a good candidate to be a director and ASA will vote our undirected proxies in favour.

ASA Position
Item 5: Election of Ms Melanie Willis as a Director

Ms Willis brings to the company significant experience in the global financial, investment banking and professional services sectors, with extensive exposure to domestic and international leisure related businesses and is currently a non‐executive director of Mantra Group and Pepper Group. She recently held the position of Chief Executive Officer of NRMA Investments.

Ms Willis has excellent relevant experience which qualifies her to be a director of this company but we note that in a company which has a high percentage of female customers, she is the only female non executive director. ASA happily will vote our undirected proxies in her favour.

ASA Position
Item 6: Issue of STI Performance Rights to CEO Deborah Thomas

This resolution is for the issue of STI share rights. Ms Thomas salary package specifies that if she meets the targets of the STI scheme she be awarded up to 50% of her salary as a bonus of which half will be in deferred equity. The award has been calculated proportionately on the period that she was CEO and ASA is happy with that, as well as her being deserving of the award are only dissatisfaction is with the number of share rights issued were calculated at an approximate 10% discount to the actual market price, however that does not cause us sufficient concern to vote against it.

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

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