Just further on the ROE point, the minimum is 16% for any LTI...

Just further on the ROE point, the minimum is 16% for any LTI awards to vest. Then up to 50% coming from relative TSR and up to 50% coming from a minimum of 8% CAGR EPS growth.

Based on how the ROE for FY20 of 3% was calculated, the LTI is on the starting equity for the FY, not average. So for the LTI scheme in FY21 to vest, 16% on the starting equity of 594.2m will mean a minimum NPAT of 95m for FY21. Current guidance is 85-90m and my understanding is management would therefore be ineligible for the FY21 LTI scheme.

Interestingly, the board moved to an annual grant of LTI (based on the previous 3 year period), so perhaps the board anticipated this and that is part of the reason it moved to annual grants. Although, I think the ROE is a flat hurdle within any 3 year grouping, meaning any year in a preceding 3 year period under 16% would mean no vesting, any one able to clarify on this?

"Apart from the temporary reductions in Director fees and executive KMP base (fixed) remuneration implemented from April 2020, the other significant change to remuneration was to amend the structure of the LTI program. For the three-year performance cycle for FY2020 to FY2022 and beyond, the Remuneration and HR Committee has adopted an annual grant of performance rights, the conversion and vesting of which is assessed against performance over a three-year performance period. Annual grants of performance rights have the following advantages:
–Targets can be more rapidly adjusted in response to market expectations or individual years of out-performance; and
–Annual grants mean there is the potential for performance rights to convert and vest annually, driving retention and alignment with shareholder interests more effectively, relative to bullet grant schemes which create cliff-vesting retention risks."

Anyway, I think this is an important consideration because it means there is a lot of incentive for management to hit at least 95m in FY21 and for the reasons above I think that will happen. After all CCP usually under promises and the recent guidance is only 5m below that.

I hope the growth is high quality, but regardless I have every expectation management will upgrade in the third quarter update.

Notwithstanding the interim dividend payment (~24m), starting equity for FY22 could be in the region of 650m+. So again, applying that 16% minimum gets us to a min management goal of 104m+ FY22 NPAT. Not hard if management are able to invest some of the debt head room, however lets hope the discipline is there...