Minority shareholders in NZX-listed Millennium & Copthorne Hotels NZ Ltd have the opportunity to poke a stick at the majority controlling interest in the company at the annual meeting next Thursday, 31 May.
But, as 71% of the ordinary shares & 86% of the redeemable preference shares are held by Hong Leong in Singapore through CDL Hotels Holdings NZ Ltd (via Millennium & Copthorne Hotels plc in London), the minority is not going to win any argument.
Still, the opportunity to offer an opinion on dividends has been presented by a resolution proposed by one shareholder, Howard Zingel, of Tauranga, who argued that Millennium & Copthorne pays a low dividend ratio compared to the wider market.
Looking back over the 26 years since Hong Leong bought the shells of 2 high-fliers brought to earth in the 1987 sharemarket crash, Euro-National Corp Ltd & Kupe Group Ltd, and turned them into (initially) CDL Hotels NZ Ltd & CDL Investments NZ Ltd, lower than average dividends have always been a feature.
In his notice of motion supporting a special dividend – plus bonuses for staff & directors in recognition of their contribution to the company’s recent performance – Mr Zingel says: “Company statistics vary considerably; nevertheless market commentators give a median P:E (price:earnings ratio) of 17.5 to the NZ sharemarket. More simply, the number of years it would take for earnings/share in cents to equal the current share price.
“At a share price of 285c & historic earnings of 27.25c/share, the Millennium & Copthorne P:E ratio is 10.5. A lower than median ratio means investors generally rate the share poorly. The greater the deviation to the median, the more poorly viewed.
“A significant issue for Millennium & Copthorne is the low dividend payout, most easily measured by the times dividend ratio. In the case of Millennium & Copthorne it is 4.5 times against a market norm of less than 2. In other words, our dividend is less than half what investors would normally expect.
“It is acknowledged there are many considerations which go to make investor opinion. Earnings quality & transparency amongst many.
“Millennium & Copthorne is in a sweet spot and the chairman is promising a swift move towards modern governance. In this felicitous state, shareholders require an enhanced dividend and at the same time wish to share the good fortune with other stakeholders.”
Ironically, both Hong Leong’s NZX-listed subsidiaries bumped their dividends up for the 2017 financial year, announcing a 20% increase for Millennium & Copthorne, from 5c to 6c, share, and CDL a 16.6% increase, from 3c to 3.5c/share.
Even so, the Millennium & Copthorne board hasn’t supported another rise, or the bonuses. It wrote in response, in the notice of meeting:
The company says no
The company response was: “The board believes that the company should maintain sufficient cash & other financial resources to ensure that it is able to meet its current & future requirements. This year, Millennium & Copthorne acquired the Millennium Hotel New Plymouth Waterfront and the company is looking to expand its network within New Zealand with suitable properties provided that they meet its investment criteria.
“The board therefore does not consider it is an appropriate time to pay a special dividend and these payments would impose a significant cost on the company. The board also believes that price:equity ratio (PE) is only one metric that may be considered in relation to a company’s dividend policy & performance. Millennium & Copthorne’s policy is to pay shareholders a percentage of net profit after tax, with the current percentage being around 25-30%. The dividend paid out has increased by over 4 times since 2013.”
In relation to the directors’ remuneration, the board said the pool for directors’ fees hadn’t been increased since 1996, but would be reviewed “in the near future”.
In any case, the board noted that, if somehow Mr Zingel’s resolution is passed, it wouldn’t be binding on the board.
The 2 Hong Leong companies will hold their annual meetings at the transformed former Copthorne HarbourCity Hotel, now M Social Auckland, on Quay St – CDL at 10am, Millennium & Copthorne at 2pm.
Attribution: Company notice of meeting.