Finance directors floating new companies on AIM, the junior division of the London Stock Exchange, cash in on investor appetite for new business on the alternative market
Over the past year, 522 new companies have listed on AIM and, according to
Big Four firm Deloitte, FDs have taken advantage of the IPO boom.
In a special report on directors’ remuneration at flotation, Deloitte
analysed the executive remuneration of 67 companies listed on AIM between
January 2005 and January 2006 and found that, when listing, FDs and other
executives were earning £294,000 from share options alone. This compared to the
£500,000 share option gain made by chief executives.
The use of share options to reward FDs for flotation, however, was far more
popular on AIM than the main list, where long-term incentive plans were the
reward scheme of choice.
James Ferguson, AIM partner at Deloitte, said the preference for share option
schemes on AIM suggested that the smaller companies on the junior exchange were
more optimistic than their main market counterparts.
‘The increasing use of share options by AIM companies is the result of a
number of factors, including the fact that companies coming to AIM are arguably
more optimistic about the prospects of share price growth than companies already
listed,’ he said.
Ferguson added that AIM companies could be less concerned about the
accounting costs of granting share options than larger businesses.
‘The potential accounting costs of granting options pre-IPO may be less of a
concern for companies seeking to list on AIM than for established listed
companies,’ he said. ‘In addition, companies coming to AIM typically tend not to
want to have performance targets attached to their pre-IPO awards.’
The recent dip in stock markets, however, could affect the share bonus from
future flotations on AIM. Aidan Farrell, European equities director at Insight
Investment, said the stock market slump was likely to lower the price of IPOs
going forward, which would have a knock-on effect on the value of share options
granted to FDs and other directors. Although this was bad news for executives,
it was good for investors.
‘You can get some extremely attractive companies with good structural growth
and profitability on the rise, but coming at a reasonable valuation because the
market gets so nervous about taking on new stocks, particularly in a market
where it is very uncertain as to what the future direction is,’ Farrell said.
Philip True, portfolio manager at Credit Suisse, played down suggestions that
the market news was bad, saying that he expected the market to recover and
‘We’ve had a re-pricing of risk, a realisation that things don’t go up in a
straight line forever. I think we’re probably through the worst of that now, but
we could still get some wobbles around individual data points on inflation or
growth,’ he said.
True added that the current market slump could actually provide an
opportunity to profit.
‘The initial stage of investor fright is to chuck everything out,’ True said.
‘So that will provide opportunities where perhaps you have an individual stock
that has a good business franchise, more solid long-term growth prospects,
particular pricing power in its market and that definitely provides good
opportunities to put more into that sort of stock.’
BAE Systems has completed a programme of measures to address the £3.1bn
funding deficits in its principal UK pension schemes. The defence company has
increased annual contribution rates for employees and the company.In addition,
employeeshave agreed to changes to benefits to reduce future liabilities. The
company has agreed additional one-off contributions of cash and assets to the
schemes. The revised funding arrangements include contributions by the company
totalling £1bn comprising the transfer of assets and cash.
The chief executive of struggling IT company iSoft, Tim Whiston, has resigned
from the group following a series of accounting problems that plagued the
company. Shares in the company – a software supplier for the controversial NHS
national programme for IT – have fallen from around 400p in January to 55p this
month, as the aggressive accounting policies iSoft had been using came to the
surface.Whiston said he had decided to quit because his presence had become a
‘source of negative speculation’ for the company and was an ’unhelpful
distraction to those within it’.Whiston was formerly the finance director of
iSoft before his promotion to the role of chief executive. John Weston, the
chairman of the group, will take over from Whiston until a replacement is found.
Geoffrey Martin, the FD of metal components maker Melrose, demonstrated his
confidence in the company after forking out £78,000 to purchase 57,000 shares at
139p per share. Late last year, Martin bought 28,000 shares at 123p each. The
company has been trading well on the back of strong demand in Asia. Trading in
Europe and the US, however, has been slow.