Public

Magellan Financial Group (MFG) 2015 AGM Voting Intentions

Company/ASX Code : Magellan Financial Group Limited (MFG)
Registry : Boardroom Pty Ltd
Poll/Show of Hands : Proposed poll on all items
Webcast : No
Venue :
Sofitel Sydney Wentworth Hotel Sydney, New South Wales
Monitor : Mr Peter Metcalf
AGM Details / NoM : Friday 16th October, 2015
ASA Position
Not Applicable
Item 1: Consideration of accounts and reports

In 2015 Magellan continued its remarkable growth story by displaying impressive financials. NPAT was up by 110%, EPS by 108%, dividend up by 96% and funds under management up by 55% to $36.4 billion. The company is extremely profitable with the funds management division’s profit before tax coming in at 79% of revenue (73% in 2014) with a staffing complement of just an average during the year of 80. Cash flow was positive after allowing for the dividend and a $50 million seeding of the newly listed Global Equities Fund.

Financial management is excellent with a well thought out dividend policy, no debt and no immediate requirement for new capital. Likewise, governance is of a high order although this year we were concerned to see that the chairman has become a salaried officer of the company. The board of 5 now has only 3 non-executive directors and when one of the 3, Paul Lewis, completes his next three year term the board will have a minority of non-executive directors.


ASA Position
For
Item 2: Adoption of Remuneration Report

Remuneration policies and practices are generally in line with ASA guidelines. Magellan departs from the mainstream with its LTI which is not based on performance hurdles but is a share purchase plan whereby employees and non-executive directors are provided with financial assistance to buy shares in the company. The company claims that its performance imperative lies in achieving superior investment returns for its clients and that hurdles based on earnings per share, return on equity and/or total shareholder return would be counter-productive in achieving that aim.

The total remuneration package comprises a salary (no increases were awarded in 2015) together with a STI which is payable as a bonus solely in cash with 50% deferred for 12 months. The ASA prefers to see 50% payable with equity but we note that 25% of the after tax bonus is directed towards repayment of the share purchase plan loan. The cash bonus is based on an assessment of performance relevant to the individual’s role. The CEO was awarded a bonus of 100% of fixed salary whilst other KMPs received 100%, 90% and one was over 400% based on a percentage of net revenues arising from the results of investment strategies for which that KMP was responsible. The chairman is an executive director and does not receive STI payments.

The ASA is not generally in favour of the loan arrangement that applies to the share purchase plan but given that the loans are on a full recourse basis (which means that all risk with loan repayment lies with the employee) and that the cost of the share purchase plan is negligible compared to the cost of an alternative share based hurdled performance scheme we are prepared to support the loan. Participants are required to pay 25% of their annual bonus by way of repayment and the loan term is limited to 10 years (or 5 years in the case of non-executive directors.)  Shares are not transferable until the loan is fully repaid. Imputed loan interest is paid from the salary package. Outstanding loans at June 2015 total just $7.2 million. The success of the share purchase plan is obvious with all directors and KMPs having share holdings considerably in excess of ASA guidelines. The plan provides a very clear and transparent relationship between executive reward and shareholder returns.

Director’s fees are relatively modest. By way of comparison they are about 50% of that paid by Platinum Asset Management.


ASA Position
For
Item 3: Re-election of Paul Lewis as a Director

Paul Lewis has been a director since 2006 and was last re-elected in 2013. Following the completion of his next three year term the ASA will not classify him as independent as he would have then served 12 years.

He has a management consulting background and has extensive experience in financial services especially on a global basis. He holds a number of other offices but we do not consider that, in the aggregate they would unduly impact on his capacity to perform for Magellan.

He has a substantial shareholding in the company and it is many multiples of his annual fee.



 



The individual (or his associates) involved in the preparation of this voting intention has no shareholding in this company. 


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