TPG Telecom (TPM) 2015 AGM Voting Intentions

Company/ASX Code : TPG Telecom Limited (TPM)
Registry : Computershare Services
Poll/Show of Hands : Show of hands
Webcast : No
Venue :
10am AAPT Offices
Level 23, 680 George St
Sydney, New South Wales
Monitor : Mrs Estelle Renard
AGM Details / NoM : Wednesday 2nd December, 2015
ASA Position
Not Applicable
Consideration of accounts and reports

Yet again, 2015 produced impressive results, completion of the integration of AAPT and strong organic growth in addition to a full year contribution by AAPT. 

EBITDA was up 33% to $484.5m, NPAT increased by 31% to $224.1m, a seventh consecutive year of strong growth, EPS increased by 31% to 28.2 cents per share, full year dividend 11.5 cents up 24% per share.

Shortly after year-end TPG Telecom completed the acquisition of the iiNet Group, followed by two significant agreements with Vodafone Hutchinson Australia (VHA) for a major fibre transmission network. A capital raising on 11 November followed by a share purchase plan for existing small shareholders will be used to reduce debt.

TPG Telecom has 821,000 broadband and 320 mobile subscribers. Mobile subscribers are on the Optus Network through a Mobile Virtual Network Operator agreement but will be moved to Vodafone following the new agreement with Vodafone.

Following a change in telecommunications regulation the much opposed FTTB (Fibre To The Basement) product is now sold through wholesale customers, it was a situation of either structurally separate wholesale and retail or provide the product wholesale only.

The twenty largest shareholders hold 88.39% of the shares.

ASA Position
Resolution 1: Adoption of Remuneration Report

The Remuneration Report has to be viewed in the context of its shareholdings and the industry in which it operates. 

Remuneration is reasonable. 

The CEO, Executive Chairman and major shareholder Mr David Teoh received in total $3.317m of which 30% was performance related. 

Seven key management personnel (KMP) received STI cash bonuses as well as longer term performance rights. The highest total remuneration was $848,000, of which 58% was performance related and 28% was share based.

Incentives are given as follows:

•    Short-term incentive: cash bonuses may be paid to KMPs to reward individual performance and are determined by the Executive Chairman in conjunction with the Remuneration Committee.

•    Long-term incentives: the current structure is in the form of a performance rights plan.  One third of the performance rights will vest following the release of the Group’s audited financial statements for each of the three financial years after the grant date subject to satisfactory performance conditions.  At each vesting date, 30% of the rights due to vest will vest if the holder is still employed by the company (no other hurdle) and 70% will vest if the Group has met its financial objectives and the holder is continuously employed by the company.  The financial objectives that form part of the vesting conditions are determined annually by the Remuneration Committee. Performance rights which do not vest automatically lapse.

It is clear from the above that hurdles for the incentive payments do not meet ASA guidelines: short term bonuses are in cash, a gradual vesting over 3 years does not meet the ASA definition of long term. 

TPG Telecom has a strong focus on staff retention, 30% of the LTI vests on “continuous employment” but this cannot be viewed as a performance hurdle.

The ASA monitor met with Mr Ledbury, Chair of the Remuneration Committee in August, but despite our discussion and review of ASA guidelines the hurdles for short and long term incentives remained unchanged from the previous year. TPG Telecom responded that the current system is successful for retention of critical staff in an industry where remuneration is high.

ASA Position
Resolution 2: Re-election of Mr Robert Millner as a Director

Mr Millner is well-known, very experienced director and owns 7,434,175 shares in TPG Telecom. He is Chairman of substantial shareholders Washington Soul Pattinson Ltd (213,400,684 shares in TPG) and BKI Investment Company Ltd (4,420,000 shares). 

He is also Chairman of a further 3 ASX listed companies: Milton Corporation, New Hope Corporation, Brickworks and a director of Australian Pharmaceutical Industries. The ASA views Mr Millner as totally over committed and will request him to inform the meeting as to how many days per year can he allocate to TPG. The ASA believes that TPG needs his experience but it is a pity that he is so over committed.

ASA Position
Resolution 3: Re-Election of Mr Shane Teoh as a Director

Mr Teoh cannot be viewed as an independent director being the son of the Executive Chairman. Good corporate governance requires a majority of independent directors.  He is Managing Director of Total Forms Pty Ltd, a leading developer of accounting and taxation software in Australia.  One could presume his presence on the board could be succession planning.

ASA Position
Resolution 4: Financial assistance in connection with iiNet acquisition

On 7 September 2015 TPG Telecom Ltd completed the acquisition of the “iiNet Group” having last year also acquired the “AAPT Group”’. The company and certain subsidiaries entered into amendment and deeds for its existing syndicated facility and ancillary facility agreements.

 As required by section 260A(1) and 260B(2) of the Corporations Act financial assistance must be approved by a special resolution at a general meeting thus requiring a 75% or more vote in favour. It can be voted on a show of hands. It is common for newly acquired subsidiaries to provide guarantees and undertakings of the type outlined above.

The key reasons for the giving of the financial assistance described above are:

•    to enable the company and its subsidiaries to comply with certain of its obligations under the Facility Agreements, in particular, the obligation to procure certain subsidiaries to guarantee and provide asset security for the obligations of the TPG Telecom Group companies who are borrowers and guarantors under each Facility Agreement. If such obligations are not complied with, an “event of default” will occur under each Facility Agreement and the funding may be required to be repaid; and

•    it benefits the members of the iiNet Group and AAPT Group to assist the company to raise debt funding as the Company will be able to access better terms on a group wide basis and it is a reasonable and necessary part of obtaining finance on the most favourable terms. Obtaining a facility of this nature without such financial assistance would have been difficult, and would likely have resulted in funding being obtained on more restrictive and expensive terms.

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