Guinness Peat Group
AGM 7 May 2010
Milford Asset Management recommends that shareholders vote against the following resolutions at the 2010 AGM
Resolution 2 – “To receive and approve the directors’ remuneration report, as set out in the 2009 Annual Report, for the year ended 31 December 2009”.
Resolution 3 – “To re-appoint Tony Gibbs as a director of the Company”.
Resolution 4 – “To re-appoint Ron Langley as a director of the Company”.
Why should shareholders vote against these resolutions?
Performance
GPG has underperformed the NZX50 Gross Index in each of the past four fiscal years. In the four years ended 31 March 2010 GPG’s total sharemarket return was a negative 50.9%, including dividends and bonus issues, compared with a negative 11.6% by the NZX50 Gross Index.
GPG v NZX50 Gross Index
| Year ending 31 March | |||||
| 2007 | 2008 | 2009 | 2010 | From 31/03/2006 to 31/03/2010 |
|
| GPG.NZ | -6.0% | -19.6% | -47.1% | 24.4% | -50.9% |
| NZ50G | 10.9% | -15.5% | -25.4% | 26.2% | -11.6% |
Source: Iress
Corporate Governance
The current board members age and appointment dates are as follows:
| Sir Ron Brierley (72) | Non-executive | Appointed March 1990 |
| Tony Gibbs (62) | Executive | Appointed May 1996 |
| Ron Langley (65) | Non-executive | Appointed May 2009 |
| Blake Nixon (49) | Executive | Appointed March 1990 |
| Gary Weiss (56) | Executive | Appointed November 1990 |
Langley, who was appointed in May 2009, was an associate of Sir Ron Brierley at Industrial Equity Pacific (IEP) in the 1980s.
Boards of directors tend to lose their sharpness and vitality if they are not refreshed with new independent appointments. The GPG board has lost some of its earlier freshness and vigor because three of the five directors have been with the group for 20 years and another for 14 years.
Remuneration
GPG’s Remuneration Committee consists of the following;
Sir Ron Brierley (Chairman)
Ron Langley
Blake Nixon
Gary Weiss
Prior to May 2009 the Committee consisted of Brierley, Nixon & Weiss. Thus two of the three members of the Remuneration Committee were executives prior to Langley coming on board last year. This is an unsatisfactory situation even though no director is involved in deciding his own remuneration.
The directors have received the following remuneration in recent years;
GPG’s remuneration & gains on options – Extremely generous
| (NZ$ million) | Sir Ron Brierley | Graeme Cureton | Tony Gibbs | Blake Nixon | Gary Weiss | Total |
| 2009 | nil | – | 2.8 | 2.5 | 3.8 | 9.0 |
| 2008 | nil | 1.0 | 2.7 | 1.5 | 2.3 | 7.5 |
| 2007 | 0.4 | 5.5 | 6.9 | 6.8 | 7.9 | 27.5 |
| 2006 | 1.1 | 3.6 | 3.2 | 2.4 | 2.4 | 12.7 |
| 2005 | 0.4 | 4.7 | 7.5 | 4.5 | 5.3 | 22.4 |
| 2004 | 5.9 | 2.0 | 3.9 | 4.0 | 6.6 | 22.4 |
| 2003 | 0.2 | 3.2 | 3.8 | 3.7 | 4.0 | 14.9 |
| 2002 | 0.2 | 1.2 | 1.8 | 5.4 | 1.8 | 10.4 |
| Total | 8.2 | 21.2 | 32.6 | 30.8 | 34.1 | 126.8 |
| Unexercised options* | 0.4 | – | 0.8 | 0.8 | 0.8 | 2.8 |
| Total | $8.6m | $21.2m | $33.4m | $31.6m | $34.9m | $129.7m |
*The value of unexercised options as at December 31, 2009
Graeme Cureton was an executive director until November 2008.
Total director remuneration was NZ$56.7 million over the past four years even though the company has substantially underperformed the NZX50 Gross Index.
Capital Management Policies
The directors continue to issue a flood of new shares which is having a negative impact on the group’s share price.
Guinness Peat Group – Shares on issue
| Additional shares | Total on issue | |
| 31 December 2007 | 1,274,795,176 | |
| Exercise of options | +1,800,588 | |
| Dividends reinvested | +13,380,191 | |
| 1:10 bonus issue | +128,802,902 | |
| 31 December 2008 | 1,418,778,857 | |
| Exercise of options | +24,965,588 | |
| Dividends reinvested | +31,723,404 | |
| 1:10 bonus issue | +145,435,546 | |
| 31 December 2009 | 1,620,903,395 |
GPG has over 1.6 billion shares on issue, which is a huge number given that investor interest in the company has waned in recent years.
The company has just had another dividend reinvestment offer (1 share for every 35 existing shares) for the 2009 year dividend with this to be followed by a further 1 for 10 bonus issue next month. The maximum number of shares than can be issued under these 1 for 35 and 1 for 10 issues is 213 million shares although around 200 million new shares is the more likely figure.
As share prices are determined by supply and demand, and there is less and less demand for GPG’s shares because of its recent poor performance, then the 200 million new shares are unlikely to assist the group’s share price performance.
In other words the board’s decision to issue more and more shares every year is having a negative impact on GPG’s sharemarket performance. The company should be buying back shares instead of issuing up to 200 million new shares each year.
Value Realisation
The following comments have been made regarding value realisation;
“An obvious remaining challenge within the present cycle is to vindicate the full potential value of our two largest subsidiaries, Coats and Capral. When this is achieved, there will be an incremental boost to the value of GPG shares which should neatly coincide with the imminence of the 20th anniversary of the successful 1990 restructure”.
Sir Ron Brierley, 27 February 2007
“2008 will be a significant year for GPG in developing the challenge of incremental value realisation referred to in last year’s Annual Report”.
Sir Ron Brierley, 28 February 2008
“The Board is working towards a substantial release of value for shareholders in 2010 which will coincide with GPG’s 20th anniversary and my own retirement as Chairman of the company”.
Sir Ron Brierley, 27 August 2008
“We are still focused on returning value to shareholders in 2010 but that must now be qualified by the unprecedented global financial stringency, the repercussions from which are likely to continue to emerge for some time to come”.
Sir Ron Brierley, 27 February 2009
“In 2008, GPG committed to return value to shareholders in 2010 but which was subsequently qualified by global financial conditions in 2009. This objective has now been restored as a top priority and the Board is actively working on proposals for its early implementation.
“There are still technical and other issues to resolve before a more specific announcement can be made. However, it is planned to have a process in place prior to the AGM to be held on 7 May”.
Sir Ron Brierley, 26 February 2010
These are a range of comments over the past few years about a “return of value to shareholders in 2010”. These comments also included a statement that Sir Ron would retire as chairman this year.
The statements about “a return of value” are vague and changeable. The latest comment states that a process will be in place by the AGM rather than a decision made. The directors say there will be “a return of value” yet they continue to flood the market with more and more new shares which is having a negative impact on shareholder wealth.
Previous Annual General Meetings
Shareholder discontent has risen in recent years as reflected by voting figures at Annual General Meetings.
The voting on Resolution 2 has been as follows;
Resolution 2 “To receive and approve the directors’ remuneration report”
| For | Against | Withheld | |
| 2009 | 424,430,051 | 144,630,080 | 55,469,561 |
| 2008 | 477,865,997 | 34,159,793 | 771,358 |
| 2007 | 384,061,452 | 4,222,938 | 18,130 |
| 2006 | 388,088,160 | 46,626,731 | 2,090,177 |
| 2005 | 312,071,657 | 2,366,481 | – |
An unprecedented 144.6 million shares voted against this resolution in 2009.
The voting for the re-election of directors has been as follows;
Re-election of directors
| Year | Director | For | Against | Withheld |
| 2009 | Sir Ron Brierley | 592,167,454 | 5,403,502 | 15,469,261 |
| 2008 | Blake Nixon | 456,151,801 | 19,550,312 | 19,079,940 |
| Gary Weiss | 456,643,391 | 42,836,286 | 1,839,437 | |
| 2007 | Graeme Cureton | 387,713,359 | 584,401 | 4,720 |
| Tony Gibbs | 387,777,671 | 521,363 | 3,446 | |
| 2006 | Sir Ron Brierley | 454,746,502 | 454,953 | – |
| Gary Weiss | 454,294,374 | 504,301 | 6,462 | |
| 2005 | Tony Gibbs | 294,783,836 | 120,541 | – |
| Blake Nixon | 290,627,107 | 4,282,270 | – |
The directors have been reelected by a wide margin but the number of shares voted against them has increased in recent years.
Recommendations
Milford Asset Management recommends that investors vote against resolutions 2, 3 & 4 for a number of reasons including;
- GPG’s sharemarket performance has been poor in recent years
- The company needs a number of new independent directors, who have had no personal involvement with existing directors
- The executive directors’ total remuneration is far too high, particularly in light of the group’s recent poor performance
- The Remuneration Committee should comprise independent, non-executive directors only
- GPG is issuing far too many new shares, particularly when it should be buying back existing shares
- Directors’ should be releasing more details of its “return of value” plans.
This is not targeted at any individual directors; it is an attempt to get directors to respond to shareholder concerns.
Vote No or Guinness Peat Group could become another Brierley Investments.