Conygar – A Good Example of What is Wrong with the Remuneration of Directors in Public Companies

PRESS RELEASE 16 (03/01/2012)

ShareSoc (the “UK Individual Shareholders Society”) has been campaigning since it was created for reformation of the way directors of public companies are remunerated and how their pay is set. A good example of how directors can exploit the opportunities implicit in the present system is that of Conygar, an AIM listed property company.

This is a relatively small company (net assets £158m at September 2011 year end) but where the directors paid themselves a total of £3.5m in that same year (including a profit related bonus of £2.7m). In the last five years the company has paid out a total of £12.8m to the directors in salaries and bonuses, with the main element being bonuses.

How are the large bonuses achieved? By payments based on a remuneration policy which was introduced (by the directors of course) which includes a profit-sharing plan that pays out “20% of any increase in the adjusted net asset value” over a previous high watermark, that being adjusted for various factors such as capital raising.

This is of course a very generous plan to begin with. But there are other aspects of this company that give enormous cause for concern.

In 2009, the company took over The Advantage Income Trust (“TAP”) at a significant discount to NAV. As the assets of this were revalued in the next accounts, there was a large profit generated which was the main cause of the bonus in that year of £4.7m paid to the directors.

In September 2009 the company raised £68m in a placing at 105p (a slight discount to the share price at the time) to fund the above acquisition and other deals.

In 2010 and 2011 the company bought back shares (for example 200,000 shares at 108p in December 2010 which is of course at a higher price than the placing).

How was the bonus of £2.7m for last year calculated? This is a question that shareholders have not really got a clear answer to as yet. Has the company really generated profits over the years from its operations to justify the bonuses paid?

At a meeting with some shareholders on the 15th December it was suggested by the directors that the profits on which the bonus was calculated were £19.7m over a two year period, including £1.2m from share buy-backs. How does a share buy-back generate a profit (or improvement in Net Asset Value)? In essence it cannot. Any cash on the balance sheet that is used to purchase shares should surely be treated as an adjustment to the capital so far as the bonus calculations are concerned? A share buy-back might improve earnings per share, but the value of the underlying property assets does not change, nor does the income from those properties. It is surely a mirage to claim this is a profit? And even if a profit per share might nominally appear as a result, it is not down to the skills or effort of the management.

There are also substantial reductions in the liabilities on the balance sheet during the year due to the conversion of preference shares to ordinary shares and the upward valuation of a derivative financial instrument. How were these treated in the change in Net Asset Value figure used to calculate the bonus?

Also shareholders are not clear that there has been a substantial improvement in the value of the underlying assets in the last two years. What other adjustments have been made is the other question to be answered?

Annual General Meeting on the 5th January and Voting Recommendation

The Annual General Meeting of Conygar is on the 5th January 2012. ShareSoc urges all shareholders to attend this meeting to hear what the directors have to say on this matter. Will shareholders get an answer to the questions posed above? We will see. But ShareSoc advises shareholders to vote against the Remuneration Report regardless.

ShareSoc’s Remuneration Policies

ShareSoc believes that changes in remuneration should be approved by shareholders in advance, and we oppose aggressive bonus policies as evident at this company. See our submission to Vince Cables consultation on Executive Pay on this page of our web site www.sharesoc.org/consultations.html (response submitted on the 3rd November).

For further information, please contact:

Roger W. Lawson,
Chairman,
ShareSoc Telephone: 020-8467-2686
Email: info@sharesoc.org

Note any members of the press who wish to receive a complimentary copy of our informative monthly newsletter should send a request to info@sharesoc.org . Our newsletters cover not just the affairs of our organisation but contain general financial news and commentary. An example of our past newsletters is available on our web site. You can also follow ShareSoc on Twitter from @ShareSocUK.

About the UK Individual Shareholders Society (ShareSoc)

ShareSoc represents and supports individual investors who invest in the UK stock markets (and who own as much as 30% of the shares in UK public companies in aggregate). We are a mutual association controlled by our members with “not-for-profit” articles and incorporated as a company limited by guarantee. The organisation is financed by member subscriptions, donations from supporters and by the services it provides to members. Associate Membership of ShareSoc is free and is open to everyone with an interest in stock market investment. More information on ShareSoc can be obtained from our web site at www.sharesoc.org .

Post Date: January 3, 2012

Group description:	SIGnet Taunton is a new group with around 10 keen members at present, with a range of investment styles and experience. We welcome new members.
Meeting Type/Venue:	In person meetings at a golf club near to the centre of Taunton.
Meeting Frequency/Timing:	We meet on the first Monday of every month at a golf club near to the centre of Taunton, 11am until 3pm with a lunch break.

Group description:	An online group for those who are new to investing, or have only been investing for a few years. Including topics such as: – What is a share or a bond, why and how to buy them. – Comparing funds, unit trusts, Investment trusts and exchange traded funds. – Portfolio management and diversification. – ISAs, pensions, SIPPS and how to save tax. – How terms such as PE ratio and dividend yield are used to value a share. – How to use technical analysis or charting.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Monday of the month at 7:00pm.

Group description:	An online group for those who already have some experience in investing. Covering topics such as finding companies to invest in, financial statements and ratios, valuation / margin of safety, analysis of companies and investment trusts and exchange traded funds.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Wednesday of the month at 7:00pm.

Group description:	The Equity Income Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on dividend paying Investment Trusts, though there is also discussion around individual shares.
Meeting Type/Venue:	Meetings are held online.
Meeting Frequency/Timing:	Meetings are held every 6 weeks on a weekday between 7 and 8:30pm.

Group description:	The Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on all types of income generating financial instruments, from stocks through Trusts and Funds and ETFs to retail bonds. Meetings involve presentations from members, who are also expected to lead discussions from time to time, as well as discussions on what has been bought and sold since the last meeting.
Meeting Type/Venue:	Meetings are in-person in a venue in Central London.
Meeting Frequency/Timing:	Meetings are usually held on the last Thursday of every other month, starting with an informal lunch around 1pm followed by discussions until around 5pm.

Group description:	A welcoming group open to all types of investors. Typical meeting content is to have a deep dive presentation on a topic selected by the participants and a session on buy/ sell/ key lessons learnt last month.
Meeting Type/Venue:	In person at a friendly pub close to Piccadilly Circus
Meeting Frequency/Timing:	Monthly during the evening on the first Wednesday of the month.

Group description:	Our group is a broad church that contains investors of varying experience. Our members’ backgrounds are diverse and include corporate banking, engineering, teaching and the leisure industry. We generally pick a discussion topic for every meeting, e.g. housebuilders or the defence industry, and members are invited to research and discuss different aspects or companies within that industry. We also discuss stocks and investment trusts that we have bought, sold or are interested in and the reasons behind our decisions, and try to make sense of the ever changing investment environment. Discussions are robust and challenging but we are a friendly and approachable group who welcome investors of all levels – we just ask that you contribute, at whatever level you can.
Meeting Type/Venue:	Our meetings are held in a private room at a nice pub near to South Ealing tube station (Piccadilly Line), not far from Ealing Broadway (District, Central and Elizabeth Line).
Meeting Frequency/Timing:	We meet every 2 months, usually on a Wednesday morning at 11am.

Group description:	All levels of experience welcome. A typical meeting agenda includes: – Macro Environment – Trades: Members review existing positions and identify securities with promising TA entry patterns or setups and with suitable risk/reward. Any security, long, short, futures, options may be considered. The convener takes actual positions in trades and maintains his own detailed ledger, accurately measuring performance of individual securities and cumulative activity. Members are notified by e-mail prior to the entries or exits that are decided upon. Following each meeting an updated copy of the ledger is circulated together with the next meeting agenda. Members may wish to maintain similar ledgers of their own but there is no obligation to do so. – Technical Analysis: Techniques and systems used in trades. Members can request discussion of particular aspects of TA.
Meeting Type/Venue:	Online via Zoom
Meeting Frequency/Timing:	The first Tuesday of every month from 7 to 9pm

Group description:	Open to all investors / people with an interest in investing. Typical meeting will involve members talking about recent purchases, successes, failures and possible future purchases. Also with occasional visiting speakers or members making presentations on a topic of interest.
Meeting Type/Venue:	We aim to meet on the last Tuesday of each month in a private room at a pub in Playhatch. Start time 7pm with members encouraged to meet up around 6pm for a bite to eat / drink before hand, if their diaries allow.
Meeting Frequency/Timing:	7pm on the last Tuesday of the month. Meetings likely to last about two hours but with informal ‘overspill’ before / after.

Conygar – A Good Example of What is Wrong with the Remuneration of Directors in Public Companies

PRESS RELEASE 16 (03/01/2012)

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