Unsatisfactory Avast AGM, and Designated Accounts

I “attended” the Avast (AVST) Annual General Meeting today. This was of course held on-line using Zoom with only one director in physical attendance (Warren Finegold) who chaired the meeting. Zoom seems to be becoming the de facto standard for on-line meetings.

The Chairman of the company, John Schwarz, gave a brief presentation backed up by some slides. To summarise, it was another strong year of growth and profitability. A new CEO is now in place. EBITDA was up 8% with strong cash generation and hence there was a steady reduction in debt. They added 400,000 paying customers making a new total of 12.6 million. There were numerous new product releases and dividends are up 8.1%.

But nobody could raise questions at the meeting. In addition, although shareholders could submit questions in advance, these were not answered at the meeting. Overall this was a totally unsatisfactory way of conducting an on-line AGM.

Votes were taken on a poll to be declared later, but the proxy counts were quickly flashed on the screen. I noticed Belinda Richards managed to get 13.7% of the independent shareholder votes against her. I wonder why.

The whole meeting was over in 15 minutes.

Apparently customers of The Share Centre have been notified that there are new terms and conditions which cover the future use of designated nominee accounts. This will be a major step forward in investor protection and shareholder enfranchisement. Most brokers, like the Share Centre, use only “pooled” nominee accounts where your holdings are jumbled up with those of all their other customers. It relies on the brokers sorting out who owns what, which can sometimes prove to be not at all easy if a broker gets into financial difficulties. Designated accounts contain both the broker and end customer identification on the share register and hence are by far preferable.

It will be interesting to see how they support such accounts, and whether it will be affected by the proposed merger with Interactive Investor. This was approved by a vote on the 8th April but there has been no further news.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Unjustified Remuneration at Greggs and Avast

The markets seem to be settling down from the Covid-19 panic even if the impact on company results is far from clear. But it has given me time to read the Remuneration section of a couple of Annual Reports.

Firstly Greggs (GRG). Their Annual Report is a masterpiece of explaining why the company has been so successful of late – to quote from it: “Cheers to a record-breaking year. Since 1939 we have been on a roll….”. But it was clearly written before all their stores were closed.

Their Remuneration Report consists of 28 pages which is way too many. CEO total pay last year was £2.5 million – up by 46%. They did have a very good year but EPS was only up 32%. But the board appears to consider pay is inadequate so this is what the Chairman of the Remuneration Committee (Sandra Turner – why are they often women?) has to say:

Annual Bonus: The current policy allows for a maximum individual policy limit of 125 per cent of salary for the Chief Executive and 90 per cent of salary for other Executive Directors. It is proposed that the individual policy limit will be increased to 150 per cent of salary for the Chief Executive and 125 per cent of salary for the other Executive Directors. PSP: The current policy allows for PSP awards of 115 per cent of salary for the Chief Executive and 95 per cent of salary for other Executive Directors (150 per cent in exceptional circumstances). It is proposed that the new policy will provide for awards of 150 per cent of salary for the Chief Executive and 125 per cent of salary for other Executive Directors (with awards up to 150 per cent possible in exceptional circumstances)……

The Remuneration Committee is aware that the changes outlined above incorporate increases to reward opportunities under both the annual bonus scheme and the PSP, and that there are understandable sensitivities around increasing executive pay levels in the current political, economic and regulatory climate. However, the Committee wishes to ensure that the Executive Directors are appropriately rewarded for their contributions to the next stage of the Company’s growth, and we have been concerned that the pay opportunities under the existing policy no longer reflect what is appropriate or competitive for the leaders of a successful FTSE 250 company. We believe that the revised award levels are required to ensure that the policy is fit-for-purpose for the next policy cycle and will ensure that Executive Directors are appropriately incentivised to deliver and drive the business forward and are rewarded for success. As noted above, for 2020 we are not increasing all elements of pay for the Chief Executive and the Finance Director to the maximum levels permitted under the new policy, but we wish to retain a suitable level of headroom.

It is also important that we have the right structure in place as part of our succession planning processes. Should we need to recruit externally at senior levels during the policy period, we would like to have headroom in relation to the annual bonus and PSP opportunities in order to be sufficiently competitive in the market. Even taking into account the proposed increases, we believe that when compared against the market more broadly, the pay for the Executive Directors remains at below mid-market levels and total remuneration is positioned appropriately, thus demonstrating an ongoing focus on restraint”.

You can see how the pay is being ratcheted up and telling us it is below mid-market levels is no justification. No everyone can be above the average. Greggs undoubtedly employs many low-paid workers. Their figure for “All Colleague Costs” only went up by 11.4% last year. Clearly another example of the better paid getting richer, while the poorer are not equally benefiting from the success of the company.

Am I suggesting the lower paid in the company should be paid more? Not necessarily. But the increases at the top are not justified, however good a job they are doing. I suggest shareholders should vote against the new Remuneration Policy and Performance Share Plan (PSP) resolutions even if they consider last years Remuneration Report is acceptable.

The Remuneration Report of Avast (AVST) is only 16 pages. The total pay of the CEO, Andrej Vicek, in 2019 is given as $6,933,411 but he was only made CEO through part of the year. The vast majority of the total pay comes from the value of an LTIP. The former CEO received even more.

Some 95% of shareholders voted to support the Remuneration Policy in May 2019. The company’s excuse for the high level of pay is this: “Our Directors’ Remuneration Policy has been designed to incorporate the best practice features of the typical UK pay model while setting reward levels, particularly long-term incentive opportunities, at a level that recognises that we source talent in a global market and in particular from the US where pay models are different to the UK”. But this is a UK listed company and many of its operations are not in the USA.

But the CEO has made a token gesture by indefinitely waiving his annual salary and bonus (not including the portion related to his Board fee) for a nominal annual salary of $1. He has also notified the Board of his decision to donate 100% of his Board Directors’ fee ($100,000 per annum) to charity. He will continue to receive an annual LTIP award, calculated as a multiple of his (waived) base salary.

Avast was originally founded as a co-operative in Czechoslovakia but listed in the UK in 2018 after taking over AVG. How times change!

I will be voting against the Remuneration Report at this company and I suggest other shareholders should do the same.

 

 

 

 

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Avast and Renishaw Announcements, and BBC News

Avast (AVST) issued an announcement this morning covering a trading update and what they are doing about the Jumpshot operation. Avast is primarily an anti-virus software company with a product named AVG although they do have some other products in addition. They sell AVG using the freemium business model, i.e. most “customers” acquire the free version but some pay to upgrade to the priced version. They have 435 million users worldwide. A couple of days ago Avast was hit by an article in the Daily Mail that suggested they were selling user web browsing history to other companies via a 65% owned subsidiary called Jumpshot. The suggestion in the mail article was that the data might not be sufficiently anonymised even though no names or other identifiers were disclosed. The share price of Avast fell sharply as a result and has fallen further today. That’s after another announcement from the company that it was immediately shutting down providing information to Jumpstart and will incur a cash charge in the range of $15m-$25m in the current financial year. It will not affect the 2019 financial results.

Because AVG monitors web access to ensure safety against virus threats, the software can record web sites visited and usage information such as page clicks. That is exceedingly valuable to marketing organisations such as Omnicom (whose name the Mail article mis-spelt) so that they know what sites are being visited and in what volumes. The Avast announcements make clear that no personal information was disclosed and they were always compliant with laws such as GDPR. Perhaps there was a concern that AVG users were not being informed about the data collection although they introduced a specific opt-in in July 2019.

The CEO of Avast, Ondrej Vlcek, has issued a letter in which he apologizes to all concerned – see  https://blog.avast.com/a-message-from-ceo-ondrej-vlcek .

Is this something that should concern AVG users? As a past but not current user of that software, I am not sure I would be. A product that is free to most users (over 90% of them with AVG) often has some “monetization” associated with it. So Facebook users for example disclose personal information and then get targeted with relevant advertisements which the company relies on for its income and profits. This hardly seems to be much different. Providing anonymised information to third parties should not be an issue so long as it is properly handled and anonymised, and there is no suggestion it was not.

This story seems to be very similar to the allegations against GB Group (GBG) which I commented upon recently – see  https://roliscon.blog/2020/01/20/share-price-fall-at-gb-group-over-data-misuse-claim/ where again a Mail article exaggerated the possible problems and the writer seemed to have limited knowledge of the technology being used and the legal background, effectively trying to make a story that might grab people’s attention. That cloud soon blew away when people came to understand the real facts. GBG did not even bother to comment on the allegations.

The actions by Avast have certainly been vigorous though in countering any reputational threat and with Jumpshot only representing about 4% of Avast revenues of about $862 million, it does not seem to be of great concern. Indeed their response is a good example of how to face up to such threats as opposed to the problems faced by Boeing of late and how they handled the 737 Max safety issue (latest cost to Boeing $19 billion) where they initially discounted the seriousness of the problem. But investors who purchased the Avast shares based on “New Year Tips” from at least two publications only weeks ago won’t be too happy on the events – and that included me.

Avast expects 2019 results to be in line with expectations, but for 2020 they only expect revenue growth of “mid-single digit” after adjusting for the Jumpshot impact and with a weighting towards the second-half due to deferral of product releases. I suspect it may take some time for investors to regain confidence in the company.

Another announcement this morning was a half-year report from Renishaw (RSW) which I do not hold. It made for grim reading – revenue down by 13% on the previous half year and statutory profit down by over 80%. The interim dividend was held as before but the directors waived their rights to the dividend which has reduced its cost to the company by over 50%. But the share price has barely moved, presumably because the poor “trading conditions” were highlighted in a previous trading statement.

One aspect that investors need to consider though is that a major proportion of Renishaw’s revenue comes from the Asia-Pacific (APAC) region that includes China. The coronavirus outbreak in China is already being forecast to reduce growth in China and I suspect if the outbreak is not contained it could have a much bigger impact. This might surely affect Renshaw where APAC revenue is 41% of its overall revenue. Stockopedia still reports Renishaw as having a prospective p/e of 49 for the current year to June which does not seem to take the business risks into account.

Other news is that the BBC is cutting staff and refocusing its coverage to appeal to younger consumers. Apparently the BBC employs 6,000 staff in its news service which seems an astonishingly large number. They are proposing to cut 450 but will we notice?

Fran Unsworth, head of its news division suggested they need to do more on digital provision rather than “linear” broadcasting. But there is the suggestion that the affluent, well-educated parts of the BBC audience are “over-served” to quote today’s FT. That sounds like the BBC might move down-market to be more populist – rather like the Daily Mail perhaps with lots of click-bait stories? With BBC news already being dominated by human interest sob-stories and biased political commentary it can surely not get much worse. That is why so many of the “well-educated” perhaps object to paying the TV license fee.

The BBC certainly seems to have lost its way of late. I complained to them recently about one news story and was fobbed off with poor excuses. A complaint to their “regulator” OFCOM obtained no result at all either. The BBC does not adhere to its Charter and their regulator is a toothless poodle. The BBC surely needs substantial reform and they need a better regulator.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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