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GO European Focus Fund. Governance for Owners’ shareholder proposals for the Viscofan 2012 AGM on 23 May. Gavin Morris Pedro Yágüez Rebeca Coriat London, 2 nd May 2012. Contents. Governance for Owners and Viscofan. 1 st Resolution: progressive dividend policy.
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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
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
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
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.
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).
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: … which, coupled with strong cash generation, has resulted in decreasing net debt and sub-optimal leverage
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: …which will further depress leverage AND result in a declining return on equity
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: … this will contribute to reducing balance sheet inefficiency, while leaving the company with sufficient headroom to raise additional debt if needed:
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 Long tenures are problematic: the supervisory role of the board may be weakened if it is gets too close to management
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.
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.
3rd Resolution: NED Remuneration (2) (see annex) *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
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.
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) 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
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.
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.
ANNEX. Directors’ remuneration - 2011 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
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: firstname.lastname@example.org Pedro Yágüez: email@example.com Rebeca Coriat: firstname.lastname@example.org +44 (0) 20 7614 4750
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