Healthscope (HSO) 2015 AGM Voting Intentions

Company/ASX Code : Healthscope Limited (HSO)
Registry : Computershare Services
Poll/Show of Hands : Poll on all items
Webcast : No
Venue :
9.30am Grand Hyatt Hotel (Mayfair Room)
123 Collins St
Melbourne, Victoria
Monitor : Mr Claudio Esposito
AGM Details / NoM : Monday 23rd November, 2015
ASA Position
Not Applicable
Item 1: Consideration of accounts and reports

Healthscope listed in July 2014 after having being managed by Private Equity TPG Capital and Carlyle Group since 2010.

The financial performance was positive, largely meeting prospectus forecasts. The biggest drivers of revenues for Healthscope have been hospitals and International pathology division and despite a modest increase in overall revenue, $140.9m net profit ($183m loss FY14) was mainly due to debt reduction from IPO proceeds and operating cost efficiencies. This figure also includes one off costs of ($12.8m) from the Australian Pathology divestment which was an underperforming business segment. 

In contrast to the Australian market, Healthscope believe that the international pathology market has room for greater growth and cost efficiencies which they intend on capitalising. EPS was 8.6 cents, the final dividend for 2015 was 7cents per share, with a payout ratio of 70%. The dividend remains unfranked due to tax losses for the next two to three years. 

Healthscope derives their business via privately owned hospitals and medical centres Australia wide as well as Pathology services internationally. The future of Healthscope will come from the growing demand for hospital services across Australia and $600m capital will be invested over 10 years to accommodate the demand. With a net debt to EBITDA ratio 2.47, Healthscope would need to ensure a steady rise in income to offset their interest debt and grow their earnings over the coming years.

ASA Position
Item 2.1: Re-election of Ms Paula Dwyer as a Director

Ms Dwyer has been on the board of Healthscope as Chairman since June 2014 with a strong background in investment banking. Her experience includes property, retail and health and she is considered to be independent but ASA acknowledges that her workload is reasonably high as she has two chairmanships and two directorships, one of which is not a listed entity. Overall, she falls within ASA guidelines. 

ASA Position
Item 2.2: Re-election of Mr Simon Moore as a Director

Mr Moore has been a director of Healthscope since July 2014 and was elected by Carlyle Private Equity to take up his current directorship at Healthscope. For this reason, he is not considered independent. TPG/Carlyle group have been involved with Healthscope’s development for five years prior to listing on the ASX and therefore have experience within the market space in which they operate. At present, Mr Moore is Managing Director and partner of The Carlyle Group, Chairman of Coates Hire and Alternate director of ASX listed Qube Holdings Ltd. 

His workload is moderately high but still in line with ASA’s voting guidelines. At present, there are three independent directors out of a total of six board members inclusive of CEO. ASA and ASX policy states that a board should hold a majority of independent directors. The Carlyle Group is a substantial shareholder of Healthscope but it should be noted that their shareholding has come out of voluntary escrow as of August 2015. Healthscope will be looking to re-structure the board in terms of independence.

ASA Position
Item 3: Adoption of Remuneration Report

The 2015 report reflects the arrangements in place prior to listing. For 2016, there are a number of changes from FY2015.The short term incentive (STI) now combines cash and shares and is no longer based solely on financial metrics. The share component will be 30% of the reward with a two year deferral period and the total maximum incentive reduced from 200% to 150% of total fixed remuneration. ASA’s position is that any STI award should not exceed 100% fixed remuneration and should be made up of at least 50% equity. 

The LTI award for both CEO and CFO can be up to 120% of fixed remuneration. It is calculated by dividing the fixed remuneration value by the volume weighted average share price over 5 days following the release of financial results and are issued as performance rights. 75% of LTI is paid out according to earnings per share (EPS) targets that are set annually based on financial forecasts. The remaining 25% is awarded upon first achieving an absolute TSR of 7.5%. 

The relative total shareholder return (RTSR) hurdle then determines amounts vested with 50% vesting at 50% RTSR and 100% at the 75th percentile. RTSR performance period will be determined by independently assessing peer group companies within the ASX 100 index. Healthscope will not disclose the EPS target for senior executives due to confidentiality. The LTI vesting period is three years with no holding lock and no re-testing. ASA’s voting guidelines advocate a minimum vesting period of four years, preferably five for LTIs.

Non executive director’s fees are comparable with other peer companies.

Although some aspects do not meet ASA guidelines, on balance we are prepared to support the resolution.

ASA Position
Item 4: Grant of performance rights to CEO Robert Cooke

Mr Cooke will upon approval receive 697,925 performance rights. The figure was calculated by dividing his LTI opportunity (120% of Fixed Remuneration $1,849,500) by the volume weighted average share price over five days upon release of the 2015 financial results. Given that ASA is voting for the remuneration report, ASA will vote for the approval of this resolution.

ASA Position
Item 5: Appointment of Deloitte as auditor

This is a procedural requirement. A listed company is required under the Corporation Act to gain shareholder approval to appoint an auditor at its first Annual General meeting after listing. 

The individual (or their associates) involved in the preparation of these voting intentions does not have a shareholding in this company.

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