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Aveng execs get R17.7m in bonuses

Troubled construction group says board approved incentives for top trio that were ‘based on clearly defined performance criteria’.

Eric Diack sat pensively as he waited to start Aveng’s AGM in a boardroom at the construction company’s campus at Jet Park near Johannesburg in late November.

There were about 20 people in the boardroom, but as crowded as it was no one was sitting next to Diack. He was parachuted into the role of executive chair in late August 2017 when then chairman Mahomed Seedat resigned. A month later he became interim CEO when Kobus Verster suddenly departed.

Diack found himself presiding over a company that had gotten itself into a world of trouble.

Its share price had crashed from just under R18 from  where it was five years ago to its current level of 2c, and it incurred a R401 million operating loss for the 2018 financial year.

Aside from having to deal with a difficult local construction sector, Aveng also wrote off R2.3 billion relating to the Queensland Curtis Liquefied Natural Gas project in Australia.

It is not the only large construction group facing a difficult time. In the past year two giants of the sector – Basil Read and Group Five – entered business rescue.

Read: Construction industry in survival mode

With all this hanging over the group, it’s not surprising that despite the crowded boardroom, the AGM was unusually silent. Diack, a former Anglo American executive, who has sat on numerous boards, could sense the awkwardness and joked about it. 

The room chuckled and from there the meeting rapidly proceeded to pass nine resolutions in just under 20 minutes.

All the resolutions were passed by a margin of over 90% – except for one.

It’s a non-binding resolution on the approval of the remuneration report, and passed with only 62% of the vote.

Diack said that as this resolution was not passed by 75%, as stipulated in the King codes of governance, the board would consult with the shareholders who opposed it and explain it to them.

Considering how senior executives were compensated, it is understandable that some shareholders were reticent about approving this resolution.

The top trio – Diack, CEO Sean Flanagan (a former non-executive who was appointed chief executive in February 2019) and financial director Adrian Macartney – collectively earned about R17.7 million in bonuses, which was way above the R4.2 million these positions paid out in the 2018 financial year.

The R4.2 million figure paid in the 2018 financial year was to Daick, which was on top of his R6.9 million salary.

The group defended the 2019 period’s incentive payments, noting that: “The 2019 short-term incentives were based on clearly defined performance criteria that were agreed between the board and the executives in advance.”

The 2019 Performance Incentive Plan lays out how the executive chair, CEO and FD got the R17.7 million in bonuses for, among other things, not breaking the company’s loan covenants, the quality of its audit opinion, retention of key staff, the disposal of non-core assets, as well as major interventions to “protect the balance sheet”.

Source: Aveng

They received these cash bonuses despite the group seeing revenue fall R30.6 billion to R25.7 billion and increasing its operating loss to R1.1 billion for the year to end-June 2019. It did, however, manage to reduce its long-term borrowings from R2.68 billion to R1.45 billion, improving its debt-to-equity ratio from 127% to 87%.

Read: Aveng institutes legal action against SOE for non-payment of R50m

The 2019 incentive plan prioritises improving the balance sheet ahead of increasing profit. It effectively matches the goals of its turnaround plan, which prioritises reducing debt, raising capital and disposing of non-core assets.

This has seen it, among other actions, raise R460 million in a rights offer, renegotiate its debt repayments, and get R1 billion through the disposal of non-core assets, including the sale of its Jet Park offices.

Source: Aveng

Aveng said in a statement that given the precarious financial position of the group, it needed Diack’s experience to guide it through this period. For this, he needed to be properly compensated.

“At the time of appointment of the executive chairman, the company found itself under significant stress. The board agreed on several specific near term key performance indicators [KPIs] that were designed to ensure the continued existence of the company. This required a significant personal commitment and experienced leadership capable of delivering the required turnaround. The incentive paid reflects the extent of the achievement of these KPIs.”

It also pointed out that to date it has not received any communications from shareholders regarding concern over its remuneration report.

Read: ‘New-look Aveng will be profitable’

 

Aveng share price

 

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R6.9 mil per year is hardly a very good salary for guys like Diack. He is worthy of his little bonus.

Sorry Chris, but if your company is not surviving and close to closing its doors then those in charge should say, I will not take any bonus going forward to help the company.

Agreed , VPII , it appears to me that if the top 3 stayed home the company couldn’t do that much worse and still save itself 17 bar . When top exec’s like this act with such a short term greedy mercenary like approach , then you know the rot has set in deep . So much for them setting the bar for staff morale as well !!

Agreed VPII

They should have been awarded with shares which could only be sold in 24 months.

Just bleeding it dry.

But only when the company returns to profitability. He should get nothing now and double it then

Chris I am not fully in agreement with your statement, sorry. As a share holder and former employee of AGLTA, I feel that an incentive for achieving their KPI’s to some extent, is fair, but does it really justify this value? Again it seems to be only a select few whom benefit from an incentive scheme, whether KPI’s are completely met on time or not.

Make no mistake, they are the ones with the plans, experience and expertise to help save the Company, but they can surely not achieve this single handedly.

Tom DeMarco made a statement about Management which reads “Get the right people. Then no matter what all else you might do wrong after that, the people will save you. That’s what management is all about.” It is the people that makes it work, not just Management or Executives for that matter.

Please note my concern for what it is, it is not criticism against the Executives, merely a concern that the people who made this happen are neglected.

Sickening case of greed.
I do not believe that any board member should be legally permitted to qualify for any bonus whatsoever when a loss occurs in any year.
These guys walk away as fat cats whilst shareholders and rank and file employees suffer.
I am aware that a close friend was offered an extra years work in Gauteng when he reached 65. He chose to retire not resign having worked at LTA, Grinaker-LTA and Aveng for 25 consecutive years. Having opted not to work an extra year it seems that Aveng assumed he was choosing to resign and he received absolutely no retirement benefits and advised to claim UIF.

Methinks it’s time to ”rip the poepol” out of the chicken before the fire sale starts next year.

Incentive bonus for anybody at a company (after it’s share price dropped from just under R18 from where it was five years ago to its current level of 2c, and it incurred an R401 million operating loss for the 2018 financial year, is diabolical!

Criteria such as showing up to work on time at least 3 out of 5 days per week; always wearing a suit and tie to work; and avoiding the temptation to dip into petty cash to finance the occasional Streetwise 3 lunch I suppose.

Agree. Something seriously wrong with the criteria!

Group Five and Basil Read went bust. Aveng didn’t. Maybe these guys are turning it around?
Who knows?

I must disagree with the previous comments. I think the execs have done an excellent job in slowly turning around a very difficult situation. They are executing the plans , staying true to the master plan and deserve their salaries and bonuses as they work even harder facing fierce headwinds. MD and Moolmans profitable , we await the sale of Trident Steel ( 250-400 mill ) and the share underperforming due to the Aton overhang as they sell at any price. Most analysts have the share as a buy or strong buy with one year target prices around 15c. I for one am looking forward to 2020 results turnaround. Ignore and lament at your peril…..#AEG

Question is: Do they have skin in the game? Will they be using the bonus to buy more shares? If not, I am unconvinced the ship is turning. But I like your counter cyclical view. Too much debt, with little to no margin of safety. Construction companies famous for overstating NAV. Most likely…… company insolvent.

I guess these days a salary of R6.9mil a year is just not enough of an incentive to go to work everyday.

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