The a2 Milk Company has upped its game in relation to executive remuneration, simplifying disclosures and offering greater clarity to shareholders.
What this means is we now have much better visibility regarding what CEO David Bortolussi gets paid for running the dairy and infant formula marketing company.
The company’s latest annual report reveals Bortolussi received A$5.39 million (NZ$5.86m) in the 2023 financial year, up from A$3.57m (NZ$3.88m) in 2022. That comprised a base salary of A$1.87m, a short-term incentive of A$2.5m relating to the previous financial year, an accommodation allowance of A$226,416 and other equity payments of A$1.04m.
For the first time, a2 has disclosed statutory remuneration, which highlights what was awarded to Bortolussi during the year, as opposed to what was actually paid out. The big difference is that includes performance shares issued as part of his long-term incentive scheme and time-based rights as a transition benefit.
The LTI is subject to performance targets and the shares are vested in the future. In the 2023 financial year, Bortolussi was granted 501,180 performance rights vesting in August 2025.
On an accrual basis, the CEO’s total awarded remuneration came to A$8.28m (NZ$9m) for the June 30, 2023 year.
NZ Shareholders’ Association chief executive Oliver Mander says a2 should get some credit for the improved disclosure and the clarity provided as to what Bortolussi gets awarded and what he actually gets paid.
In terms of the quantum, Mander says neither the amount of base remuneration nor the level of potential incentives that can be earned are unusual for a company looking for executive talent within Australia.
“When it comes to the incentives and bonuses offered, NZSA likes to see alignment between strong returns for shareholders and the level of incentives paid,” Mander said.
“No shareholder begrudges a good CEO being well-paid when they are delivering results that create shareholder returns.
“The metrics used to assess the CEO’s performance include a strong weighting towards financial performance targets – but that does not necessarily link directly to share price thanks to a muted performance by NZ and Australian equity markets over the last 12 months.
“A2′s long-term incentive structure does not link directly to shareholder return – but does link to both earnings per share and revenue growth, both of which would be likely to result in an improved share price over the long-term for shareholders.”
Stock Takes notes David Bortolussi’s take-home pay last year has elevated him to the top tier of the Herald’s CEO remuneration tables, a feat not seen since Jayne Hrdlicka was at the helm.
Jarden has downgraded slightly its earnings guidance for NZME following its half-year result, but still retains a positive view on the investment case for the media company.
Analysts Arie Dekker and Vishal Bhula have reduced their full-year Ebitda estimate to $57m, which falls below NZME’s guidance range of the lower end of $59m to $64m. They have also lowered their 12-month target share price for NZME to $1.18 from $1.26 based on nearer-term earnings weakness.
NZME, which owns the New Zealand Herald, BusinessDesk, Newstalk ZB, the OneRoof property website and a suite of entertainment radio stations, plus multiple regional newspaper titles, recorded a post-tax profit of nearly $2m for the first half, down from just under $8.5m in the first six months of 2022, as operating revenue fell by 6 per cent to $166m.
The company said advertising revenue dropped by 7 per cent to $116m year on year, reflecting a difficult start to the year. However, it expects ad revenue to recover in the second half of the year.
Dekker and Bhula noted in their post-result analysis NZME had been struck down by a dose of the economic flu, which was harder to beat than Covid.
They said the company had executed well over the past four years, overcoming structural headwinds in its traditional business through a tight focus on costs and the successful expansion of its key digital initiatives. The company had come through Covid well, but was not immune to cyclical challenges affecting its subscription and advertising revenue streams.
“We are still cautious about the impact ongoing structural challenges could have in the medium term, and we continue to factor this uncertainty into our longer-term forecasts through print advertising,” the Jarden analysts said.
“Notwithstanding this, we feel incrementally more comfortable on the immediate trajectory, with NZME having meaningfully derisked the business with its debt focus over recent years.
“NZME has demonstrated its ability to get traction, and this does help support our positive view on the investment case, despite more immediate macro uncertainty.”
NZME shares are trading around 92c, having fallen 27 per cent over the past 52 weeks.
Meridian was the last of the big power companies to report its result this week.
With Ebitdaf of $783m, up 10 per cent, its earnings were in line with expectations.
Talks with its biggest customer, Tiwai Point’s NZ Aluminium Smelters (NZAS), over a new supply agreement are dragging on.
NZAS, majority-owned by Anglo-Australian resource group Rio Tinto, has in the past said it may shut the Southland-based facility at the end of 2024.
Brokers Forsyth Barr said the key near-term catalyst for Meridian is a resolution of NZAS contract negotiations.
“We assume a favorable outcome for Meridian, with it supplying less to NZAS and at a higher price, materially lifting earnings,” the broker said.
“Despite assuming a positive outcome, Meridian remains expensive,” it said.
Forsyth Barr has an “underperform” rating on Meridian.
It’s been a mixed bag of results for this reporting season, with some companies reporting better results than expected while others missed analyst expectations.
Craigs Investment Partners rated Skellerup, Spark, SkyCity, Summerset and Air New Zealand as results beats, with Comvita labelled a miss for its messy result.
In terms of outlook, Fletcher Building also received a miss rating, as did a2 Milk and Genesis, while Fonterra, Contact Energy and Ebos got the thumbs-up or a beat rating from the analysts.
Harbour Asset Management portfolio manager Shane Solly said downgrades were now starting to come from companies after being long expected.
Borrowing a phrase from a top CEO, Solly said many companies were facing a “crucible of unknowns”.
Some companies were still facing labour challenges, while others were being hit were rising interest rate costs.
Analysts were having to increase the allowances for interest costs.
Solly said the electricity generators had done their job and delivered okay results, while Ebos had been better than expected.
Those who had missed analyst expectations included Fletcher Building and Vulcan Steel, who were now feeling the effects from the slowing rate of growth in the economy flowing through the building sector.
There was also a greater focus on China-exposed companies like a2. The re-opening of China had been different to the rest of the world, Solly said. It was dealing with an oversupply of property and the effects of deflation.
Solly said China was a risk to the New Zealand economy for the next six to 12 months.
“We have had a downgrade season. The question is, is that the bottom?”
In terms of the quiet achievers, Solly said Summerset and Auckland Airport would fit that category.
Fisher & Paykel Healthcare’s forecast update from its annual general meeting had been softer than expected, Solly said.
That had seen a number of analysts downgrade the stock.
Jarden reduced its target price on the company from $24.50 to $23 and kept its rating at neutral.
Analyst Adrian Allbon revised down his earnings per share estimate for FY24 from 46.1eps to 43.5eps and in FY25 from 62.9eps to 58.5eps on the back of softer-than-expected first-half 2024 revenue and profit guidance and a weaker NZ dollar against the US and euro.
“Management commentary highlights that over the first four months, revenue from OSA masks was stronger, and that from hospital hardware was marginally lower than assumed. On the latter, no change was signaled to the FY24 hospital hardware revenue guide of $115m, but we now assume a lower contribution in our revised FY24 estimates.”
Forsyth Barr analysts Matt Montgomerie and Benjamin Crozier increased their target price from $21.30 to $21.45 and reiterated their underperformance rating.
“F&P Healthcare’s [FPH] AGM guidance update provided little new information to fundamentally change our view on the earnings outlook.
“We continue to forecast strong near-term earnings growth as margins recover and expect FPH will deliver robust long-term earnings growth.
“That said, we continue to believe that a near-best-case long-term earnings scenario is priced by the market (gross margins return to ~66 per cent, Ebit margins return to ~28–29 per cent and revenue growth of +10 per cent). While this is broadly consistent with our expectations, we continue to struggle with the degree of certainty priced. It is not guaranteed this eventuates and recent trends highlight the need for ongoing investment to deliver this growth.”
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