When 48% of shareholders rebel against a company’s remuneration report, most chairmen scuttle into the shadows muttering empty words about seeking further engagement with investors. So Andy Higginson, chairman of Morrisons, deserves some credit for coming out fighting after more than half of investors either voted against the proposal or withheld their vote. Morrisons “fundamentally disagrees” with the assessment by proxy voting agency ISS that executives’ new performance targets aren’t stretching.
The argument here is slightly technical. Chief executive David Potts is being incentivised to get Morrisons to produce £800m of cash over the next three years. Is that demanding? It’s hard to tell, since comparisons are distorted by disposals and one’s view of how past working capital improvements should be regarded.
But, actually, that little squabble is beside the point. The rest of us can concentrate on the indisputable fact that Potts has just had his long-term incentive package increased by £510,000. It seems a lot, especially as his pre-bump package was worth a potential £4.8m in total, which ought to be enough to get him out of bed in the morning.
Why does Potts need a carrot worth an extra half a million? At this point, Morrisons’ argument descends into the usual pleas about what a good job Potts is doing and how an LTIP set at “only” 240% salary was subpar for a FTSE 100 chief executive. It’s true that Morrisons’ trading, and the share price, have revived on his watch. But, come on, the risk of Potts, 60, being poached by a rival is minimal.
The board might also remember what the man himself said in January. “Our improving performance is entirely due to the continuing hard work of the Morrisons team of food makers and shopkeepers,” said Potts. Entirely due to the whole team? Then don’t annoy everybody with a top-up that just looks greedy.
It’s not just sofa sales that are sagging: shoppers are growing uncomfortable
It is rarely wise to read too much into a sofa retailer’s view of the trading outlook. Furniture and carpet stores have always seemed peculiarly vulnerable to hot weather, cold snaps, late Easters, and most other supposed plagues of the shopkeeping game.
All the same, DFS’s warning that it will miss full-year operating profit forecasts – it now expects £82m to £87m compared with £94.4m a year ago – is rightly being taken as a worrying sign for the sector.
DFS blamed “customer uncertainty regarding the general election and the uncertain macroeconomic environment”. Well, maybe. Precise explanations of why the consumer mood may have shifted are usually impossible. The election was only a week ago, even though it feels like it happened in a different age.
The big-picture backdrop, however, is easier to describe. In real terms, wages are falling. In the three months to April, wage growth was 1.7% whereas inflation was 2.7% in April, and has subsequently risen to 2.9%. That represents a fundamental jolt to consumers’ spending power. Nor does it seem likely that increased personal borrowing can fill the gap. Savings rates are already at historically low levels.
Thursday’s retail sales figures tell a similar story – sales volumes were down 1.2%. There are relative winners in these trends, of course. Supermarkets, and even a few clothing retailers, may be happier if punters decide to eat out less. But the general downturn in consumers’ mood tallies with what many retail bosses have been expecting for months. Do not be surprised if we see more profit warnings.
London Stock Exchange should review delisting rule after Fusionex saga
Farewell, Fusionex International. Never heard of it? Few people had until recent weeks. This small Malaysian software company was just another tiddler on the Alternative Investment Market (AIM) until founder, chief executive and 41% shareholder Ivan Teh decided investors in London weren’t giving his company the love and valuation he thought it deserved. A delisting was proposed and was duly passed on Thursday, with 85% shareholder support.
What’s the problem? Standard Life, for one, feels it has been unfairly outmanoeuvred. One can only agree. Fusionex shares were 130p before the delisting proposal; now they’re 35.5p.
The reason for the collapse in the share price is obvious. Few UK funds are even allowed to hold stock in unlisted Malaysian entities, so were obliged to get out if there was even half a chance of the resolution passing. That made the delisting more likely to happen, because it strengthened Teh’s hand. The effect is a take-private on the cheap.
No rules have been broken, it should be said. Rule 41 of the AIM says a company merely has to give proper notice of its intentions and secure a 75% majority.
In other words, in the view of the London Stock Exchange, which regulates AIM, investors knew the risks, or should have done. Besides, it says, on equivalent US exchanges, the delisting threshold is a two-thirds majority.
Yet such a lofty view feels completely wrong. AIM can boast many successes – online retailer Asos and tonic firm Fever-Tree – but the Fusionex saga shows the lightly regulated market at its worst. Minority investors have been exploited. The LSE, if it values the reputation of AIM, should review rule 41 immediately.
