Bendigo and Adelaide Bank (BEN) 2016 AGM Voting Intentions

Company/ASX Code : Bendigo and Adelaide Bank Limited (BEN)
Registry : Boardroom Pty Ltd
Poll/Show of Hands : Poll on all items
Webcast : Yes
Venue :
11am Ulumbarra Theatre
Gaol Rd
Bendigo, Victoria
Monitor : Mr Norm West
AGM Details / NoM : Tuesday 25th October, 2016

Bendigo and Adelaide Bank suffers profit dip

This company is monitored by Norm West, assisted by Eric Pascoe. The company monitors had a pre-AGM meeting with Chairman Robert Johanson. 

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

The year was one of maintaining the previous financial position. Statutory net profit after tax (NPAT) was $415.6 down from $423.9m. Cash earnings grew to $439.3m - up 1.6%. Cash earnings per share was 95.6c - a 0.5% increase. Statutory earnings per ordinary share were 90.4c, down from 92.5c. Operating expenses were up 1.5% to $886.0m. The full year dividend was increased by 2c to 68c. Total shareholder return (TSR) was assessed at -16.2%.           

Major activity centred around the ongoing changes to meet the Basel 11 benchmarks. The bank is now operating as an advanced bank. The net stable funding ratio is at 115% which is above the new prudential requirements. The Basel111 Common Equity Tier 1 ratio was 8.09%.

Ms Jan Harris was appointed as a director during the year and is standing for election.

All directors owned shares. Remuneration disclosure has improved. Hurdles are straightforward and based on company performance with the exception of the Net Promoter Score for customer advocacy which is calculated from external data. 

In late September, Bendigo agreed to purchase approximately $1.35 billion of standard residential home loans from Keystart Housing Scheme Trust. A share purchase plan was launched in October. Under the SPP, shareholders are able to apply for up to $7,500 of shares at a 2.5% discount to VWAP. 


ASA Position
Item 2: Election of Ms Jan Harris as a director

Ms Harris was appointed a director in February 2016 after a career in the public service, most recently as Deputy Secretary at the Treasury. She is a member of the Audit Committee and Risk Committee and is assessed as independent. She has no outside directorships and her major qualification is BEc(Hons). Ms Harris holds 1,000 shares.

ASA Position
Item 3: Re-election of Mr Rob Hubbard as a director

Mr Hubbard was appointed an independent director in 2013. He chairs the Audit Committee and is a member of the Risk Committee. He has 20 years’ experience in accounting, finance and audit. Mr Hubbard is a non-executive director of three other public companies including Chairman of Orocobre. This brings him up to a total of 5 (the role of chairman counts as 2 under ASA guidelines). This is considered to be a full work load. As Mr Hubbard and the following Mr Hazel are close to being overloaded, the ASA position will be raised and the board will be requested to set some guidance in their corporate governance statement. Mr Hubbard holds 10,387 shares.

ASA Position
Item 4: Re-election of Mr Jim Hazel as a director

Mr Hazel was appointed as an independent, non-executive director in 2010. He has extensive experience in banking and finance and holds a BEc. He has three directorships of other public companies including the Chairmanship of Ingenia Communities Group Ltd. Other directorships include the non-listed Adelaide Football Club, Motor Accident Commission and Coopers Brewery. This suggests a very full workload hence the need for board guidance. Mr Hazel holds 24,172 shares in Bendigo Adelaide Bank.

ASA Position
Item 5: Re-election of Mr David Matthews as a director

Mr Matthews was appointed as an independent, non-executive director in 2010. He is a member of the Audit and Credit Committees. He has extensive experience in agribusiness in addition to his own farming operations. There is extensive involvement with the Community Bank model and he is a member of the Community Bank Advisory Board. Qualification is Dip BIT and he holds 28,361 shares.

ASA Position
Item 6: Re-election of Mr Robert Johanson as a director

Mr Johanson has been a non-executive director since 1988 and Chairman since 2006, a time of 28 years. This is well beyond ASA and ASX guidelines in terms of director independence. He has extensive experience in finance and banking and is qualified with an MBA. The board believes Mr Johanson’s continued involvement is important for the bank’s development and has assessed him as independent. The ASA voted for Mr Johanson 3 years ago but stated we would like to see a clear plan for board renewal and change of leadership. Three years on, there is still a lack of any guidelines in the bank’s corporate governance statement reflecting tenure, shareholdings or workload. There is a majority of independent directors and a good mix of new and experienced directors. However, it is time for a change of leadership.  Mr Johanson holds 204,887 shares.

Should any new information regarding Mr Johanson’s position be presented to the meeting or prior to this item, the above ASA vote may be altered.

ASA Position
Item 7: Adoption of Remuneration Report

Remuneration consists of a base remuneration component made up of fixed base cash and deferred base equity and a variable component of short term incentives (STI) comprising cash and equity and long term incentives (LTI) offered as equity. The underlying principles of the remuneration are published. 

The STIs are subject to a cash earnings threshold and there is a capped level to the awards. In 2016 no STIs were paid. A bonus pool for STIs was established when the Board determined the initial measures were met. However, at the end of the year the set financial and non-financial measures were not achieved and the minimum potential award was nil.

The LTI awards are subject to a cash earnings per share hurdle and a TSR hurdle. In 2016 the EPS test was met but the TSR where it has been tested, was not met. The remuneration table indicated a reduction in total remuneration for most listed long term executives. Base salaries show a mixture of small increase and some decreases. The Managing Director had a higher base salary but a lower total remuneration for 2016. All senior executives bar one newly appointed person hold ordinary shares. There is no retesting for grants.

Last year, we voted against the Remuneration Report noting a number of concerns. Our concerns have been addressed to some extent, although we note there is still a relatively high proportion of executive remuneration not at risk, equity deferral only applies to STIs awards in excess of $50,000 and vesting on the TSR hurdle is quite generous with 60% vesting at median performance. We will continue to look for improvements.

ASA Position
Item 8: Approval of the Managing Director’s participation in the Employee Salary sacrifice, Deferred Share and Performance Share Plans

In 2015 the MD & CEO agreed to extend his employment with the bank beyond 2016. The board proposes new equity grants for 2017 and 2018. This resolution replaces the previous approval for the issuance of shares to a director as approved at the 2013 AGM.

The grants comprise 2 types:

•    Deferred Share Grants

•    Performance Share Rights

The deferred share grants comprise 2 new grants of 76,219 shares each with a two year deferral. The first grant will be made after the 2016 AGM and will have a deferral period through until end June 2018.  The second grant will be made after end June 2017 and will have a deferral period through until end June 2019. The deferred shares are issued at nil cost to the MD & CEO. These shares are part of deferred base remuneration (equivalent to 2/3 of fixed cash remuneration) and are not subject to any hurdles other than continued employment. 

The performance rights grants will also be made in two tranches. Each tranche will be for 76,219 rights.  The first tranche will be granted soon after the 2016 AGM (FY17 Performance Rights). The second tranche will be issued soon after the end of June 2017 (FY18 Performance Rights).

The performance rights are subject to four year performance periods covering 1 July 2016 to 30 June 2020 for Tranche 1 and 1 July 2017 to 30 June 2021 for Tranche 2.

Each grant of 76,219 performance rights (PRs) is divided into 3 “sleeves” 

•    22,865 PRs (30% of the total) will be subject to a “customer hurdle” measure;

•    26,677 PRs (35% of the total) will be subject to an “EPS & TSR” hurdle; and

•    26,677 PRs (35% of the total) will be subject to a “TSR” hurdle.

It is noted that the customer hurdle is a social measure rather than a financial measure but it is based on outside research and is in keeping with the bank’s focus on their Community Bank principles.

It is also noted that 60% of the PRs vest at the TSR performance hurdle of the 50th percentile (previously this was 65%). This is still high for what is considered “average” performance however, when combined with the EPS hurdle, this is quite challenging. We will be urging the company to move vesting under the TSR hurdle closer to where the market is at. The TSR hurdle was not met in 2016 hence the PRs were not awarded.

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

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