Circulated to the board of Stobart Group 13th June 2019 at 11:38 am before the release of the 2019 Annual Report
Stobart Group Ltd
(Company No: 39117)
P.O. Box 286
Floor 2, Trafalgar Court,
St Peter Port
STOBART GROUP LIMITED (the “Company”)
NOTICE REQUISITIONING WRITTEN RESOLUTIONS OF THE MEMBERS OF THE COMPANY
In accordance with section 183 of the Companies (Guernsey) Law, 2008 (as amended) (the Law), we the undersigned, being members of the Company representing more than five per cent. of the total voting rights of all members (the Members) entitled to vote on such resolutions, require you to circulate the following resolutions that may properly be moved and are proposed to be moved as ordinary written resolutions of the Company:
- that the remuneration report of the Company and related details (the Remuneration Report) be fully disclosed to the Members including, without limitation, the full details of the Stobart Aviation Incentive Plan (SAIP) (including full details of all participants, valuations, draw down mechanisms and any changes since the 2018 AGM of the Company);
- that the Remuneration Report be tabled to a meeting of the Members, which meeting will be the 2019 AGM of the Company or if additional notice is required as soon as possible thereafter, and that a resolution be also tabled at such meeting requesting the Members to approve the Remuneration Report (or not); and
- that the board of directors of the Company disclose to the Members the names of each director of the Company who has been found by a Judge of the High Court of England and Wales to have breached the duties to act for proper purposes in the connection of the transfer of 5.3m shares.
The terms of section 185 of the Law (Expenses of circulation) are noted. Should the Company require payment of such expenses please advise the signatories hereto of the reasonable sum of such expenses to be deposited with the Company and the relevant payment details.
At the 2017 AGM I decided to stand down as the CEO of the Company after almost a decade in that role. At the time of my departure, Stobart Group had a business with a market capitalisation of £1.04 billion, a share price of 296p and an annual dividend at 18p per share with a sustainable dividend policy.
When handing over, the agreed 5-year strategy for the Company was designed to take the business to a £2 billion market capitalisation and the 18p dividend to be maintained until 2022 through £300 million of cash generated from non-core asset sales and cashflow from the Infrastructure & Investment division, this would allow the 3 main operating divisions of Energy, Aviation and Rail to finance dividends after 2022.
It was not until the publication of the Annual Report for the 2018 AGM that I became aware of some grave failings in governance; that the Remuneration Committee of the Company had approved a starting valuation of £160 million for the purposes of the Stobart Aviation Incentive Plan (S.A.I.P.) and the 75% award to Warwick Brady to be paid in cash reportedly could be worth over £18 million before salary and other bonus & long-term incentive plan awards.
The business at that time operated the Stobart Energy Incentive Plan (S.E.I.P.) which had previously been approved by shareholders at the 2016 AGM. This plan clearly rewards the participants in shares or cash but importantly did not allow board members to be recipients.
However, the S.A.I.P. was not placed before shareholders like the S.E.I.P. for approval of Shareholders nor were there full details set out in the relevant Annual Report. Furthermore, the bonus is awarded to Warwick Brady in cash.
At the 2018 AGM the Chairman Iain Ferguson stated that Mr John Coombs, the chair of the Remuneration Committee, would circulate full details of the S.A.I.P. to all shareholders. Nearly a year later, no such disclosure has occurred.
Shareholders should also be aware that in November 2018, Mr Coombs acknowledged that there had been inadequate disclosure in respect of the Remuneration Report or rewards and that a report by the Company to the UKLA was forthcoming which admitted that adequate disclosure had not been made in the 2018 Annual Report. It is not simply disclosure that shareholders require. It is the right to vote on such a bonus through a remuneration report proposal and the remuneration policy itself.
Given these governance failings, it will come as no surprise to shareholders that the share price is now trading around 101p – a decline of 65% in 2 years. The market capitalisation has declined from £1.04 billion to £374 million. The dividend was reduced from 18p to 6p (- 67%).
It appears that Warwick Brady has focussed on the Aviation Division of the business to the neglect of the rest of the business, potentially because his bonus is aligned to the aviation performance. Previously he had stated it was his intention to reach 5 million passengers annually achieving £10 EBITDA per passenger.
In most recent statements only the passenger numbers were disclosed with no reference to EBITDA per passenger. The number of current passengers passing through London Southend Airport are clearly not achieving anything near £10 EBITDA per passenger, as the accounts demonstrate. The actual figure is £2.36 underlying EDITDA per passenger.
The board allowing Warwick Brady to place such focus on the Aviation Division for his personal gain has clearly come at a high cost to shareholders. To allow a bonus of £18 million (in cash) to be paid by simply achieving the passenger numbers or a sale of the aviation assets is not in the interests of shareholders. It is my view that this is the reason the S.A.I.P was not placed before shareholders to vote upon, in the same manner the S.E.I.P. obtained shareholder approval at the 2016 AGM.
Mr Coombs, despite attending the 2018 AGM and having heard that details of the S.A.I.P. would be circulated to the shareholders of the Company, has not disclosed or procured the disclosure of this detail to the shareholders. This non-disclosure notwithstanding his obligations to uphold standards of governance. One would have thought that having recognised the Remuneration Committee had breached the disclosure rules, and Mr Coombs felt it necessary to report to the UKLA of such a breach, that all the details of the S.A.I.P. would have been circulated to all shareholders without the necessity for this proposed resolution.
Iain Ferguson, Warwick Brady, John Coombs and Andrew Wood (all being directors of the Company) were found by the High Court to have each breached their fiduciary duties to act for proper purposes.
The High Court held that around the time of the 2018 AGM the four directors procured the transfer of 5.3million shares from treasury to the Employee Benefit Trust of the Company to vote those shares in their favour. None of these directors have appealed this decision.
These are directors of a Public Limited Company. At the time the company was a FTSE 250 company, although in June 2019 the company fell out of the FTSE 250. In light of any disclosure in relation to proposed resolution 3, the shareholders are invited to consider whether it is appropriate to re-elect the board of directors of the Company at the 2019 AGM.
It is my view that the business departed from the agreed strategy simply to allow benefit under the S.A.I.P. and the results are for all to see. This business requires a CEO who will deliver the agreed and sensible strategy and create value for shareholders with proper governance standards and oversight.
In addition, the shareholders, in accordance with any disclosure in relation to resolution 1, are invited to vote against the remuneration policy of the Company including the S.A.I.P.