Public

Macquarie Atlas Roads (MQA) 2017 AGM Voting Intentions

Company/ASX Code : Macquarie Atlas Roads Group (MQA)
Registry : Computershare Services
Poll/Show of Hands : Poll on all items
Webcast : Yes
Venue :
10am The Mint (Gold Melting Room)
10 Macquarie St
Sydney, New South Wales
Monitor : Mr Nick Bury
AGM Details / NoM : Thursday 13th April, 2017

MQA continues to perform well, but in 2016 extracted a lot more in management and performance fees than will be distributed to unit holders

The company monitor had a pre-AGM meeting with  Chairman Nora Scheinkestel and Investment Manager Victoria Hunt.

ASA Position
Not Applicable
Consideration of accounts and reports

Financial performance has continued to improve. MQA’s major income producing asset APRR increased its free cash flow from $287 million to $328 million between 2015-16, and overall EBITDA increased 6.3%. Distributions per unit not only increased by about 12.5% from 16c to 18c, but are anticipated to increase again to 20c per unit in the next financial year. The company’s overall return to unit holders in 2016 was 29%.

MQA has moved to take a 100% interest in its Dulles Greenway asset, which should start to increase profitability and distributions as from 2018, being a value accretive investment, and it also receives small fees to manage the M6 Toll road in the UK and its 70% interest in the Warnow Tunnel, which is located in Germany.

As previously stated, MQA does not carry any net corporate debt, only non recourse debt against its assets, which it continues to pay down from free cash flow.

In spite of all its considerable achievements, MQA’s key issue from the unit holder viewpoint remains as its huge fees charged by its manager Macquarie Bank, which reduce the distributions that could otherwise be paid to shareholders, and this issue is addressed under Item 1 below. 

MQA recently undertook a capital raising, via an institutional placement and also offering units to retail holders through a security purchase plan (SPP). Although the ASA’s preferred position is the use of a pro-rata renounceable entitlement offer, at least retail holders received a marginally higher pro-rata allotment of units than the institutions when considering the existing split between retail and institutions. MQA also lifted the cap on the SPP and accepted all applications.

Summary


ASA Position
Against
Item 1: Adoption of Remuneration Report (MARL)

Macquarie Group has reduced its large annual base fee to 1% of its capitalisation (paid in cash) to the relief of long suffering unit holders, as opposed to the previous 1.75% for the first billion of its then current market capitalisation, and 1% for each subsequent billion of the same, that was formerly levied. 

However, Macquarie Group’s additional performance fee levy of 15% of its market capital value appreciation above the mean of the ASX300 Industrials performance over a given yearly period is huge, and markedly reduces the level of its distributions that could otherwise be paid to unit holders. 

For the 2016 year, Macquarie Group received a $29.2 million base fee and a $64.1 million performance fee, being a total of $93.3 million, but once the remainder of its performance fees (due from the 2016 year and to be paid in 2017) are received, it will have received a $134.1 million performance fee and total fees of $163.5 million.

The aggregate of these fees far exceed the total distributions to unit holders of about $98 million. Macquarie asserts that its performance fees are paid in issued shares, as opposed to cash, which is of course both true and an affirmation statement of its confidence in MQA’s future. However the dilutory effect of this practice on unit holders total returns is sobering, notwithstanding MQA’s stellar performance achieved to date. 

MQA’s success has been achieved in a low interest rate environment, and although most of its non-recourse loans are set at low rates well into the future, market sentiment at the very least may adversely impact on its performance going forward in a higher interest rate environment. 

Unit holders remain to vote down MQA’s Remuneration Report, having received substantive capital gains and distributions to date, but its related adverse vote recorded has been much higher in the past 2 years than previously.


ASA Position
For
Item 2: Re-appointment of Mr Richard England as a director (MARL)

Mr England has been a MARL director since 2010, and is an experienced company director. He is chairman of the Audit and Risk Committee of MARL. He is former partner at Ernst & Young. He is also a current Nanosonics and Japara Health Care director. His candidacy is not opposed.


ASA Position
For
Item 3: Re-appointment of PricewaterhouseCoopers (PwC) as auditor (MARIL)

PwC have been MQA’s auditors since inception in 2009, and have regularly rotated their employee assigned to audit MQA. However, as PwC has now been their auditors for 7 years, MQA will be asked to call for tenders for its auditing work, as opposed to simply changing partners after three years.


ASA Position
For
Item 4: Re-appointment of Ms Nora Scheinkestel as a director (MARIL)

Ms Scheinkestel is the current MQA Chairman and has been a director of MARIL since April 2015. Her background is as a senior banking executive in international and project financing. She is currently also a director of Telstra, Stockland and AusNet Services. Her candidacy is not opposed.


ASA Position
Against
Item 5: Re-appointment of Mr James Keyes as a director (MARIL)

Mr Keyes was appointed as a director in 2013 and is Bermuda based. He has a legal background and was also a Managing Director of Renaissance Capital. His competence is not questioned. However he is the Chairman of the Remuneration Committee, which apparently has not sought to challenge the level of Macquarie Group’s management fees levied against MQA, as set out in Item 1, or to have considered unit holders interests in that regard, so his candidacy is opposed on that premise.



The individual involved in the preparation of this voting intention has a shareholding in this company.


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