Sigma Pharmaceuticals (SIP) 2014 AGM report

Company/ASX Code : Sigma Healthcare Limited (SIG)
Venue :
Melbourne, Victoria
Monitor : Mr Geoffrey Bowd
AGM Details / NoM : Wednesday 7th May, 2014
# of Attendees : 150 holders and 30 visitors
# Holdings represented by ASA : 130
Value of Proxies : $2.4 million
# Shares Represented by ASA : 3.3 million
Market Capitalisation : $672 million

The chairman and CEO emphasised that Sigma had a solid performance in a year which saw an estimated $100 million decline in revenue from the Federal Government’s Pharmaceutical Benefits Scheme (PBS). The company has focused on reducing cost and customer discounts to offset this. Reported Net Profit After Tax (NPAT) increased by $18.7 million to $53.5 million but after allowing for some extraordinary items an operating NPAT of $51.1 million was slightly down on last year. Both the Chairman and CEO portrayed Sigma as a company in good shape, with a strong balance sheet and a strong ability to grow.

The chairman emphasised Sigma’s consideration of shareholder issues as evidenced by fully franked dividends and a share buy-back program. Over a three year period Sigma has delivered a total shareholder return above the ASX200 index. However Sigma has utilised its available franking credits and is unlikely to pay a franked interim dividend this year. A return to fully franked dividends is expected in 2015 and the company will consider alternative capital management initiatives to benefit shareholders.

The chairman expressed disappointment that the recent National Commission of Audit did not consult widely with industry about its recommendations. For example, recommendations seem to be driven by assumptions that the cost of the Government’s PBS is growing at a rate which requires corrective measures. Sigma claims this contradicts the Government’s own 2013-14 Economic and Fiscal outlook which shows downward revisions in projected PBS expenditure growth rates.

The ASA is generally comfortable with the Chairman and CEO assessments of Sigma at both the AGM and in the Annual report.

However, at last year’s AGM the ASA suggested that there was scope to improve the explanation of some factors in the remuneration. In our opinion there was no improvement this year. We do not doubt the integrity of intended alignment between remuneration and shareholder interests and it is commendable discipline that about 95% of Short Term Incentives lapsed this year as ‘stretch’ financial targets were not achieved.  The chairman said that our detailed concerns would be seriously considered as they regretted to hear that we were critical.

An intention to vote against the re-election of chairman Brian Jamieson was written in our voting intentions report as he was well in access of the ASA guidelines for workload. However, Mr Jamieson subsequently relinquished a directorship and although he still has a higher than desirable workload we considered that in view of his importance to Sigma’s ongoing recovery program, we ought to reverse our recommended position and vote in favour of his re-election.

The ASA said that as there was already a poll on remuneration Sigma should consider a poll on all resolutions as the added cost was not significant and all voting entitlements should be accurately counted.

This request was rejected and the non-remuneration items passed on a show of hands. Proxies held exceeded 96% in favour of all resolutions.