Argo Investments (ARG) 2015 AGM Voting Intentions

Company/ASX Code : Argo Investments Limited (ARG)
Registry : Computershare Services
Poll/Show of Hands : To be confirmed
Webcast : No
Venue :
10am Adelaide Convention Centre
North Terrace
Adelaide, South Australia
Monitor : Mr John Worthley
AGM Details / NoM : Monday 26th October, 2015

This company is monitored by Mr John Worthley and Mr James Hahn. 

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

Considering the volatility experienced during the year under review the performance of Argo was positive for shareholders with increase in profit for the year, increase in EPS and increase in dividend. Argo’s total portfolio return of 6.1% outperformed the ASX 200 accumulation index return of 5.7% with the management expenses ratio being maintained at 0.15% of average assets at market value.

During the year, Argo established a wholly owned subsidiary Argo Service Company Pty Ltd (ASCO) to provide management and administrative services to external clients and in particular listed investment companies under Australian Financial Services licence No. 470477. At the end of the financial year, Argo was instrumental in the listing of a new separately listed investment company, Argo Global Listed Infrastructure Limited (AGLI) that listed on the ASX on 3 July 2015.

While three of the Argo directors are also on the Board of AGLI, it is not considered to be a subsidiary. It is a separate entity that will be reported on in the future and is not covered in this report.

ASA Position
Item 2: Adoption of Remuneration Report

We note the 2012 review of the executive remuneration structure and the current policies that are generally in accord with ASA’s voting guidelines with regard to STI and LTI entitlements.

We are uncomfortable with total portfolio return being one of the performance criteria for the short term incentive (STI) and long term incentive (LTI) as they are based on benchmarks that are not available in the public arena. In particular, the measurement of performance includes reinvestment of franking credits for both the company’s performance and the ASX200 Accumulation Index. We have been unable to ascertain the outcome of this comparative measure as the calculations are measured by external parties and are not referred to in the Annual Report. We do however note that other listed investment companies also use this metric.

The other STI hurdle is earnings per share. The STI opportunity is paid 5/7 in cash and 2/7 deferred as performance rights for two years.

Executive bonus remuneration is measured against three levels of performance:

• Total portfolio return, as measured against the ASX200 Accumulation Index

• Total portfolio return, as measured against a peer group of LICs, and

• individual KPI’s

Bonuses were awarded based on these criteria but performance measures not included in the Annual Report for assessment.

We note the resignation of the Senior Investment Officer that occurred during the year and that no appointment to this position has yet been made. Accordingly, the level of remuneration reported is significantly less than the prior year.

ASA Position
Item 3.1: Re-election of Mr G.I. Martin as a Director

Mr Martin was elected as a director in 2004 and has now completed 11 years as a director. Mr Martin is the current Chairman of the company (appointed 2012) and holds three other directorships. Mr Martin’s curriculum vitae includes 30 years’ experience in economics, investment management, financial services, superannuation and investment banking, both in Australia and internationally.

Mr Martin has a strong financial commitment to Argo being the holder of 248,526 shares.

In supporting Mr Martin’s re-election we note that his term as a director is nearing the ASA guidance limit for classification as an independent director.

ASA Position
Item 3.2: Re-election of Ms J.C. Morton as a Director

Ms Morton is an independent Non-executive Director who was elected to the Board in 2011, re-elected in 2014, and is Chair of the Remuneration Committee. Ms Morton is a director of three other listed corporations one of which as chair.

Ms Morton’s business experience includes accounting and financial experience in Australia and internationally, with particular expertise in taxation.

Ms Morton has a reasonable financial commitment to Argo being the holder of 16,439 shares.

ASA Position
Item 4: Increase in the maximum aggregate remuneration of non-executive directors

The Board is proposing an increase in the non-executive director fee pool from $950,000 to $1.1 million.

Non-executive director remuneration for the current year was $909,000 that included fees and termination benefits of $183,200 for a retiring director. Accordingly, ongoing fee levels in 2014 dollars is $726,000 and $748,000 for 2015 allowing for the 3% increase noted in the report. We understand that director fees for 2016 will also be limited to 3%.

While we do not see an immediate need for the increase in the director fee pool, we accept that an increase will be likely within a few years.

ASA Position
Item 5: Grant of performance rights to Managing Director J Beddow

Given the comments above in relation to the Remuneration Report and the performance of the management team for the year, the granting of performance rights to the Managing Director is supported.

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

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