GO European Focus Fund
Governance for Owners’ shareholder proposals for the
Viscofan 2012 AGM on 23 May
Gavin Morris
Pedro Yágüez
Rebeca Coriat
London, 2nd May 2012
1
Contents
Governance for Owners and Viscofan
1st Resolution: progressive dividend policy
2nd Resolution: board tenure
3rd Resolution: non-executive remuneration
4th Resolution: shareholder directors’ remuneration
5th Resolution: executive remuneration
Annex
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Governance for Owners
Governance for Owners (“GO”) is an investment manager with c.€1bn under
management and the GO European Focus Fund is its flagship product
The GO European Focus Fund aims to add significant long-term value for clients by acting
as a catalyst for corporate change with an agenda based on:
– Strategic issues
– Financial issues
– Governance issues
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Governance for Owners and Viscofan
GO owns 5.045% of the share capital of Viscofan – one of the top three
shareholders in the company
What we like about Viscofan:
•
•
•
•
Leading position in an attractive industry with pricing power, generating cash.
Considerable operational improvements and on-going operational excellence.
Diversified risk profile in terms of products and geographies.
Performed well, but still more potential.
But there is still potential for Viscofan to be more highly rated:
•
•
•
•
•
Make balance sheet more efficient.
Increase shareholder remuneration.
Improve overall governance and disclosure.
Improve board independence.
Implement best practice in executive incentivisation.
Viscofan has already responded to a number of GO’s proposals
•
•
•
Disclosed detailed board remuneration for first time 4/2012.
Proposed NED with China experience 4/2012.
Will be appointing advisers on board remuneration to report at 2013 AGM.
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GO’s proposed resolutions for Viscofan 2012 AGM on 23 May
1st. Introduction of a progressive dividend policy
(payout ratio: 55% in 2013;
65% in 2014).
2nd. Maximum board tenure of 12 years for independent directors
(consistent with Recommendation 29 of Unified Code of Corporate Governance).
3rd. Non-executive directors’ remuneration to be fixed and not
performance-based (consistent with Recommendation 36 Unified Code of Corporate
Governance).
4th. Shareholder directors (dominicales) not be remunerated.
5th. Better shareholder alignment in the remuneration scheme for
Executive Directors (consistent with Recommendation 35 of Unified Code of Corporate
Governance).
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1st Resolution: Introduction of a progressive dividend policy
While Viscofan has increased its dividend in absolute terms in recent years,
the pay-out policy has remained unchanged:
in EUR
2007
2008
2009
2010
2011
Interim dividend
0.19
0.21
0.26
0.30
0.36
Share premium refund
0.25
0.29
0.36
0.29
0.20
0.63
AGM attendance
0.005
0.005
0.005
0.006
0.006
Total DPS (EUR)
0.45
0.50
0.62
0.80
1.00
Pay-out ratio, %
45%
45%
45%
46%
46%
Complemetary dividend
… which, coupled with strong cash generation, has resulted in decreasing net debt
and sub-optimal leverage
2007
2008
2009
2010
2011
Net debt (m EUR)
-95
-122
-91
-60
-61
Net debt/EBITDA
1.0x
1.2x
0.7x
0.4x
0.4x
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1st Resolution: Introduction of a progressive dividend policy (2)
Such is Viscofan’s cash generation that we estimate it will be
cash positive in 2014, despite elevated capex in the meanwhile:
2007
2008
2009
2010
2011
2012 E
2013E
2014 E
Capex
-34
-45
-46
-47
-65
-75
-68
-63
Capex as % of sales
-6%
-8%
-8%
-7%
-11%
-10%
-9%
-8%
Net debt (m EUR)
-95
-122
-91
-60
-61
-57
-33
3
…which will further depress leverage AND result in a declining return on equity
Net debt/EBITDA
ROE
2007
2008
2009
2010
2011
2012 E
2013E
2014 E
1.0x
1.2x
0.7x
0.4x
0.4x
0.3x
0.2x
-0.0x
16.4%
17.2%
19.8%
21.6%
23.7%
21.5%
20.2%
19.4%
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1st Resolution: Introduction of a progressive dividend policy (3)
We have discussed the inefficiency of balance sheet with the management on a number of
occasions and their response has been that it is ‘conservative’. We believe there is ample
scope for the company to introduce a progressive dividend policy and still remain
conservative:
2012 E
2013E
2014 E
2012 E
2013E
2014 E
Pay-out ratio, %
46.0%
46.0%
46.0%
Pay-out ratio, %
46.0%
55.0%
65.0%
Total DPS (EUR)
1.01
1.07
1.14
Total DPS (EUR)
1.01
1.27
1.60
yoy, %
1.4%
5.2%
6.5%
yoy, %
1.4%
25.7%
25.9%
Dividend yield
3.0%
3.1%
3.3%
Dividend yield
3.0%
3.7%
4.7%
ROE, %
21.5%
20.2%
19.4%
ROE, %
21.5%
20.4%
20.1%
0.3x
0.2x
-0.0x
Net debt/EBITDA
0.3x
0.2x
0.1x
47
50
53
47
59
75
1.1x
1.5x
1.7x
FCFE / Dividend
1.1x
1.2x
1.2x
Peers' m edian div.yield
3.1%
3.4%
3.8%
Net debt/EBITDA
Dividend paid (m EUR)
FCFE / Dividend
Dividend paid (m EUR)
… this will contribute to reducing balance sheet inefficiency,
while leaving the company with sufficient headroom to raise
additional debt if needed:
EBITDA 2012 (mEUR)
Re-leveraging to
Headroom (m EUR)
180
1.5x
2.0x
212
302
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2nd Resolution: Board tenure
CATEGORISATION OF EXTERNAL DIRECTORS (from the Spanish Unified Code)
Independent: No former employment with the company; no personal, business or financial
relationship between the directors and the company, its key executives or significant
shareholders; maximum tenure length of 12 years
Affiliated: Non-executive directors that do not fulfil the CNMV independence criteria, as
they are related to a substantial shareholder or have served on the board for more than 12
years
Name
Tenure
GO’s
Classification
José Domingo de
Ampuero y Osma
Néstor Basterra
Larroudé
Ágatha Echevarría
Canales
Alejandro Legarda
Zaragüeta
Gregorio Marañón
Bertrán de Lis
José Cruz Perez
Lapazarán
Ignacio Marco
Gardoqui Ibañez
Laura González
Molero
n/a
Executive
15
Affiliated
14
Affiliated
6
Independent
13
Affiliated
14
Affiliated
3
Independent
2
Independent
Long tenures are problematic:
the supervisory role of the board
may be weakened if it is gets too
close to management
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2nd Resolution: Board tenure (2)
Four so-called independent non-executive directors have served on the
board for over 12 years.
The Code recommends (article 29): “independent directors should not
stay on as such for a continuous period of more than 12 years”.
Governance for Owners believes that long tenures are problematic. The
supervisory role of the board may be weakened if it gets too close to
management.
GO’s resolution proposes: that independent non-executive directors
do not hold such a position for more than 12 years. Governance for
Owners defers to the Appointments and Remuneration Committee
the responsibility for implementing this.
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3rd Resolution: NED Remuneration
•
•
•
Non-executive directors currently receive performance-related remuneration
(“board fees”).
Non-executive directors who are members of the executive committee,
receive additional performance-related remuneration.
The Code (recommendation 36) states: “remuneration comprising (…)
payments linked to the company’s performance should be confined to
executive directors”.
GO’s resolution proposes: that the performance-related remuneration
element be removed from the NEDs’ fees and that non-executive
remuneration should comprise: fixed fees, fixed attendance fees, fixed
Committee membership fees, and fixed Chairmanship fees.
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3rd Resolution: NED Remuneration (2) (see annex)
CURRENT BOARD FEES**
PROPOSED BOARD FEES
ITEM
TYPE
FY 2011
ITEM
TYPE
QUANTUM*
Performancerelated Board fees
VARIABLE
1.5% Net Profit Before Tax/ 8
Fees for NEDs
FIXED
Maximum of 0.15% of Net
Profit Before Tax Per
Director
Board meetings
attendance fees
FIXED
EUR 1,000/meeting
Board meetings attendance fees
FIXED
Audit Cttee. fees
FIXED
EUR 16,000
Audit Cttee. fees
FIXED
Executive Cttee.
fees
VARIABLE
1.5% Profit Before Tax/3
Appointments and Remuneration
Cttee. fees
FIXED
Chairmanship fees
FIXED
Executive committee fees
Falls under Exec Rem
*A cap has been included as Spanish law requires it to be specified in the resolution. Governance for Owners defers to
the Appointments and Remuneration Committee the implementation of these provisions.
**SEE ANNEX ON PAGE 17
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4th Resolution: Non-remuneration of shareholder directors
(“dominicales”)
•
•
•
Governance for Owners understands that two of the so-called independent
directors are connected to the founding families of Viscofan.
Therefore, we believe that they do not qualify as independent directors.
These two board members are also Executive Committee members.
GO’ resolution proposes: that the Bylaws of Viscofan be amended such
that shareholder directors are not compensated.
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5th Resolution: Executive directors’ remuneration
DISCLOSURE AND CURRENT STRUCTURE
Viscofan has, for the first time in 2011, disclosed board members’ remuneration,
as requested by GO at the last two AGMs.
Executive director’s (Chairman’s) remuneration comprises*:
• Board attendance fees
• Other boards within the Group
• Board fee (1/8 of 1.5% of Net PBT)
• Executive Committee fee (1/3 of 1.5% of Net PBT)
(EUR)
11,000
292,449
102,058
299,487
(TOTAL) : 705,449
There is no short-term or long-term variable compensation, with appropriate
targets to align his remuneration to shareholders’ objectives.
*SEE ANNEX ON PAGE 17
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5th Resolution: Executive directors’ remuneration (2)
The Code recommends (article 35): “remuneration schemes with a variable
component linked to the company’s net profit should attract and retain the right
kind of person”.
Governance for Owners believes that executive remuneration should be
structured so as to attract and retain the most outstanding professionals and
align their objectives with those of shareholders.
GO’s resolution proposes: that executive remuneration for (executive)
board members be comprised of three elements:
Fixed salary
Annual bonus
LTIP type scheme
The annual bonus and LTIP would have appropriate targets to ensure
alignment with shareholders’ objectives.
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Viscofan: the case for change
• Viscofan is a significant international company and a potential
constituent of the Ibex 35.
• The adoption of a progressive dividend policy should help improve
the efficiency of its balance sheet and would be well received by
shareholders.
• The company’s governance structures are currently not
commensurate with its size and status.
• We believe that better governance structures would:
– Strengthen the board
– Better align executives’ and shareholders’ objectives
– Increase the company’s appeal to international institutional
shareholders.
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ANNEX. Directors’ remuneration - 2011
Director
Role
José D.
Ampuero Osma
Exec Chairman
Nestor Basterra
Larroudé
NED
Agatha
Echevarria
Canales
NED
José C Pérez
Lapazarán
Board
membership
102,058
Attendance fees
Audit Cttee.
Fees
-
Other Viscofan
Boards
292,904
TOTAL (EUR)
11,000
Executive
Cttee. fees
299,904
102,058
11,000
299,487
-
146,452
558,997
102,058
11,000
299,487
16,000
-
428,545
NED
A*, A&R
102,058
10,000
-
16,000
-
128,058
Gregorio
Marañón
Bertrán de
Lis
NED
A
102,058
10,000
-
16,000
-
128,058
Alejandro
Legarda
Zaragüeta
NED
A
102,058
10,000
-
16,000
-
128,058
Ignacio MarcoGardoqui
NED
102,058
10,000
-
-
-
112,058
Laura
González
Molero
NED
102,058
9,000
-
-
-
111,058
TOTAL (EUR)
816,464
82,000
898,461
64,000
439,356
2,300,281
705,449
E*, A&R*
E
E, A, A&R
E – Executive Committee Member; A – Audit Committee Member; A&R – Appointment and Remunerations Committee Member; * - Chairman.
BACK TO NED REMUNERATION - PAGE 12; BACK TO EXECUTIVE REMUNERATION - PAGE 14
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Viscofan: the case for change
We look forward to your support!
Please do not hesitate to contact us should you have any questions:
Gavin Morris: g.morris@g4owners.com
Pedro Yágüez: p.yaguez@g4owners.com
Rebeca Coriat: r.coriat@g4owners.com
+44 (0) 20 7614 4750
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.
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