Public

ANZ Group (ANZ) 2016 AGM Voting Intentions

Company/ASX Code : Australia & New Zealand Banking Group Ltd (ANZ)
Registry : Computershare Services
Poll/Show of Hands : Poll on all items
Webcast : Yes
Venue :
10am Melbourne Convention Centre
South Wharf
Melbourne, Victoria
Monitor : Mr John Whittington
AGM Details / NoM : Friday 16th December, 2016

A year of consolidation and redirection with an opaque remuneration report

The company monitor had a pre-AGM meeting with Chairman David Gonski. 

ASA Position
Not Applicable
Item 1: Annual Reports

ANZ under its new CEO Shayne Elliott had a year of consolidation and redirection.  Gone is the “Asian Strategy” along with the very highly paid Mike Smith and recent announcements suggest that, whilst ANZ is not turning its back on Asia, it will only be part of their Institutional Banking strategy.

For the year, net interest income was up 3% to $15,095 million but other income was down 7% to $5,482 million, expenses up 11% to $10,422 million, and credit impairment up 62% to $1,956 million, leading to a decline of 24% in net profit after tax and a decline in earnings per share of 26%.  The Return on Equity declined again (to 10%) and dividends were down 12%.  The Common Equity Tier 1 ratio is now 9.6 (steady from last year) or 14.5 (up from 13.2) depending on the basis of calculation.

The result was based on strong performance in Australia (61% of group earnings, profit up 5%) being offset by steady performance in New Zealand (22% of group earnings, profit flat) and disappointing performances in Institutional Banking (18% of group earnings, profit down 46%) and Wealth (6% of group earnings, profit down 24%).

The franking balance has continued falling this year to $118 million ($593 million in 2015, $982 million in 2014, $1,336 million in 2013) but we were assured by the Chairman that, with the reduction in the dividend payout ratio already announced, ANZ will be able to continue fully franking dividends for the foreseeable future.

ANZ’s high credit impairment (highest of any of the big four Australian banks) is claimed to be due to their business mix, ie more commercial and institutional banking than the others.  It should be noted that ANZ’s Return on Equity and Interest Spread trails both CBA and Westpac.

We are concerned that the ANZ continues to donate to political parties and discloses these donations poorly.  We note that the Chairman believes that political donations to the two major parties (and only the two major parties) is the right thing to do as a corporate citizen supporting democracy.

ANZ’s disclosure of auditor length of service and last tender/review and the rotation of lead partner is poor.

Summary


ASA Position
For
Item 2: Adoption of Remuneration Report

Firstly, the good news.  ANZ has changed its remuneration structure so that some of their short term incentives are now deferred over four years (50% is paid immediately in cash, the remaining 50% is paid as deferred shares which vest progressively over four years).  We applaud this approach but are somewhat perplexed that the long term incentives still vest in three years – a shorter period than some of the short term incentives.  Some of the things we liked last year such as lower CEO pay, use of face value for calculating (some) long term incentives, and key management personnel (KMP) shareholding policy also remain.

The not so good news is that they have decreased the percentage of awards based on absolute total shareholder return so KMP will still get a bonus if shareholder returns are negative but ANZ performs equally as well/badly as other banks.  We have also been able to discover that, contrary to our understanding last year, some equity awards (deferred share rights which seem to have been issued to three of the nine KMP this year) are still issued based on fair, not face, value.

ANZ also still do not provide a table of actual remuneration, the actual performance achieved by key management personnel (KMP) is not disclosed, and some calculations have “interesting” characteristics (eg their calculation of total remuneration is based on 50%, not 100%, vesting of awards).

In saying these things we also think it appropriate to highlight that this year’s remuneration report seems to have been written to achieve compliance rather than genuine communication and transparency to shareholders.  It’s very difficult to get a reasonable understanding of their actual remuneration structure and outcomes without spending considerable time studying it, delving into footnotes, and detailed questioning of the company – none of which is an option for most retail shareholders.

In conclusion, we believe that the level of remuneration is not excessive and the incentives are generally aligned with shareholders so, despite our misgivings about how the information is presented in the report itself, we will support the motion.


ASA Position
For
Item 3: Grant of performance rights to Managing Director/CEO Shayne Elliott

This is for the issue of performance rights with a face value of up to $4.2 million in two tranches.  The first tranche of $3.15 million will be based on the relative total shareholder return (rTSR) compared with a banking (mostly Australian but two overseas banks) reference index.  50% of this ($1.575 million) will be awarded on median or 50th percentile performance and this increases up to the complete $3.15 million being awarded if ANZ reaches the 75th percentile.  The second tranche of $1.05 million will be awarded based on the compound growth rate of absolute total shareholder return (aTSR).  50% of this ($525,000) will be awarded if the growth in aTSR reaches 9% and this increases up to the complete $1.05 million being awarded if the growth in aTSR reaches 13.5%.

The performance period for this award is three years ending 21 November 2019.

This award is similar to last year’s award and we intend to support the motion.


ASA Position
For
Item 4a: Election of Ms Jane Halton AO PSM as a Director

Ms Halton was appointed to the board in October this year, is independent, and has no other ASX listed directorships.  She has had a 33 year career in the public service being, at various times, Secretary to the Departments of Finance, Health and Ageing, and Deputy Secretary of the Prime Minister and Cabinet in the Commonwealth Government.  She has significant experience in finance and public policy and is likely to be able to contribute to the board and we intend to support her election.


ASA Position
For
Item 4b: Re-election of Mr Graeme Liebelt as a Director

Mr Liebelt was appointed to the board in July 2013, is independent, and holds one ASX listed company Chairmanship and two other ASX listed directorships so, whilst he is likely to be fully occupied with these commitments, we do not deem him overloaded.  He is Chairman of the Human Resources Committee so is responsible for the Remuneration Report.  He holds ANZ shares equivalent to 80% of his fixed remuneration so does not fully fulfil ASA guidelines in this area.

As mentioned above we are disappointed in the communication and transparency in the Remuneration Report.  However we believe that Mr Liebelt is well qualified, contributes to the board, and we will support his re-election.



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


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