Small Talk: Small firm, big bonuses and little explained

In an era of mounting concern about executive excess, it isn't only large companies that stand accused of overpaying their directors. Take Conygar, the Alternative Investment Market-listed property company, which a group of small shareholders complains is "a good example of how directors can exploit the opportunities implicit in the present system".

Conygar, which invests in residential and commercial property all over the UK, paid its directors just over £3.5m during the 12 months to the end of September. Some £2.65m of the total payout came from a profit-sharing scheme which entitles senior Conygar executives to a 20 per cent share of any increase in the net asset value of the company's holdings over and above a previous high-water mark. The company's chief executive, Robert Ware, received a payment of almost £1.2m under the scheme.

Should a scheme that pays out so much to the executives of a small company – it had net assets of £158m at the end of September – be based on such a crude yardstick? The value of Conygar's assets depends as much on factors beyond the company's control – the state of the property market – as on the decisions taken by its executives. As it stands, the plan takes no account of performance relative to a benchmark, or to the returns posted by Conygar's peers.

However, says David Stredder of the UK Individual Shareholders Society (UKISS), which represents private investors, there are also other problems with Conygar's remuneration plan. He complains that a string of corporate actions, including a takeover of a company whose assets were subsequently revalued, a placing to raise funds, and a series of share buybacks, has artificially raised Conygar's net asset value per share. In effect, he says, Conygar's directors got bonuses not justified by the performance of the company's assets.

"Has the company really generated profits over the years from its operations to justify the bonuses paid?" asks Mr Stredder, pointing out that board remuneration at Conygar over the past five years has totalled almost £13m. "Shareholders are not clear that there has been a substantial improvement in the value of the underlying assets in the last two years."

Mr Stredder and other Conygar investors put some of these points to the board at the AGM last week, but maintain they haven't had complete answers to their questions – not least, he says, because shareholders were limited to a single question each.

Still, all Conygar's resolutions, including a request for approval of its remuneration report, were passed comfortably at the annual general meeting. And the company insists it has done nothing wrong. "The bonuses do look generous but not compared to the peer group," says a spokesman for Conygar, who says peers routinely pay their directors up to 2 per cent of the total value of assets under management each year.

Conygar also points out that the board paid itself no profit-share at all last year. And it says it told UKISS in December that the effect of the share buyback, at least, had been excluded from remuneration calculations.

Aim float next to Belvoir, lettings agent on the move

Under the impression that Britain's housing market is stuck in the doldrums? That may be the case with residential sales, where prices are flat, mortgage approvals still way down and transaction numbers paltry, but the lettings sector is booming.

Rented properties now account for 14 per cent of privately owned housing stock – around 3 million homes – a 40 per cent increase on a decade ago. There is little prospect of the trend reversing, with housing affordability still poor given high deposit requirements and constrained mortgage lending conditions, and landlords increasingly attracted to the sector by rising rents and lower house prices.

Enter Belvoir, one of only handful of lettings agents that operates on a national scale. It will today announce its intention to float on the Alternative Investment Market in an offer worth £6m to £8m that will see it raise £3m of new funds.

Belvoir wants the cash to step up the pace of its expansion, both through acquisitions and further franchise deals. The business is run on a franchise model, with 145 franchisees having so far signed deals to operate under the Belvoir brand in their local areas. The company reckons there are another 360 territories around Britain where it could open a franchise, and aims to move above 200 within five years.

Increased financial firepower will help it to realise that ambition, enabling it to set up offices in new territories that can be sold as mature franchise operations, as well as to help fund and support start-up franchisees.

The company's chairman, Mike Goddard, founded the business in 1995. Now 63, Mr Goddard, who also spent 17 years as an RAF wing commander, insists he "will stay on as chairman after the IPO" and see his company through its next phase of expansion.

Belvoir, advised by Seymour Pierce, certainly has some advantages: in a hugely fragmented marketplace, it is one of only a tiny number of better-known brands, its franchise model offers leverage and economies of scale, and, with a strong presence around its Midlands base, it has particular room for expansion in London and the South-east.

Above all, argues Mr Goddard, the lettings sector has been relatively recession-proof. "Our experience over the past 15 years has been that, boom or bust, the rental market continues to grow."

Profits before tax in Belvoir's last full year were £1.4m on turnover of £3.3m, and the company is on target to beat those figures in the current year, as management service fee income (it takes 12 per cent of franchisee's earnings) continues to grow.

Expansion will have to be managed carefully, however, with scope for setbacks if management takes its eye off the ball. The growth in the lettings market will also encourage rival agents to be more aggressive. Then there's the risk of landlord supply growing more quickly than tenant demand, which would hit rents. Even so, for now at least, lettings is in the sweet spot of the residential property market.

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