There was a new contract in Q1 of this year with Hampshire Hospitals NHS.
Also, the Hereford and Worcester (an existing customer) Flow contract expansion gives us exposure to a new sub-market (mental health and community care).
In any case, business 101: it costs less to sell to existing customers than to new ones.
— Let’s talk about Kate and pay cuts. It’s been a restive desire of some for a while it would seem.
In the past FY, Kate’s salary came to $536,964. (This is made up from her salary + 12% from bonuses. See p.35 of FY23 AR for specific numbers.) So after tax she’s taking home about $313k.
Obviously she earns other benefits (some of which are taxed differently e.g. super, and others of which may be only paper gains e.g. share payments) so her total remuneration is higher (at over $700k). But again, (a) post-tax, it broadly comes to around $400k. (b) We’re thinking through her taking a salary cut, so it’s the salary figure (and related bonus) we need to single out. Hence I’m using the $536k figure and not the $700k one.
Let’s say (quite fancifully) that KQ forfeited her entire bonus (63k) and then took a 20% pay cut (94k): ALC would save $157k. Whilst every dollar of saving ostensibly helps (and should be encouraged where actually beneficial), our operating loss last FY was $3.6m. Would things be much different if the loss had instead been only $3.45m? What if we had made pay cuts across our executive staff and only lost, say, $2.6m last FY (and probably lost much of the executive at the same time)…would the SP and company fundamentals be in a significantly healthier shape today?
If we argued for more modest pay cuts than the 20% hypothetical used here, we’d be making even less of a difference to the bottom line whilst still alienating key employees. Is that the best solution to our current financial situation?
With this hypothetical 20% pay cut, KQ’s new pay would be $379,289. This comes to about $230K after tax. Can we attract and retain the necessary talent with this amount? (Granted, her total remuneration would be higher - accounting for super, long service leave etc. - but again, after tax, it doesn’t make too much of a difference to the person on the end that we’re trying to attract by offering these benefits).
My point is: (a) While director salary cuts might send a nice signal (at least to some share holders), they’re not the solution to the company’s financial short comings. They’re not remotely making the difference between being profitable or loss making.
(b) Equally, and objectively speaking, the remuneration for ALC’s various directors’ isn’t disproportionate. In FY23 the directors oversaw a company that made $40.4m in revenue and $29.0m in new sales. Only $1.8m (or 4.4% of that revenue or 6.2% of sales) went back to them. Indeed, a rough comparison of CEO remunerations across (very) vaguely comparable companies bears this proportionality out (see below).
ALC - CEO Kate Quirk - $536k in salary and bonuses while revenue was $40m with an annual operating loss of $3.6m.
RAD - Riccardo Canevari - $1.1m in salary and bonuses (p.20 of company’s FY23 AR) whereas revenue was $6m and pre-tax loss of $34m (p.34).
M7T - Mike Lampron - $777k in salary and bonuses (p.52 of FY23 AR) whereas revenue was $30m and a pre-tax operating loss of $6m (p.62).
ARX - Brian Ward - $652k in salary and bonuses (p.46 of FY23 AR. Note: ARX reports in NZ$, my figures here are rough conversions to AUD) whereas revenue was $58m and pre-tax loss was $0.3m (p.61).
BMT - Tim Kelsey - $505k in salary and bonuses (p.54 of FY23 AR) whereas revenue was $22m and pre-tax loss was $6m (p.40).
VHT - Teri Thomas - $475k in salary and bonuses (p.37 of FY23 AR. Note: VHT reports in NZ$, my figures here are rough conversions to AUD) whereas revenue was $32m and pre-tax loss was $10.2m (p.50).
IME - German Arango - $316k in salary and bonuses (p.32 of FY23 AR) whereas revenue was $19m and pre-tax loss of $4m (p.41).
(The irony in the calls for pay cuts are not to be missed though. People go to work and like to earn more money because it’s in their interest. Here, some want KQ to go to work and achieve more contract wins and generate more revenue, and reign in costs whilst making less money. Alas, when all is said and done, these calls simply do not align with human experience.)
— With all that said, the criticisms of other posters here are on-point: the remuneration report (p.35 of the FY23 AR) still raises concerns.
1. The YOY remuneration increases for the executive (e.g. it rose from $1.6 to $1.8m from FY22 to FY23). These rises may be reasonable (and annual pay rises are entirely unsurprising) but are they warranted given our largely stagnant performance? What performance goals are they tied to? The pay increases here are something to keep an eye on over the very-long-term. If the company becomes profitability - if - then it’s not so much of an issue.
2. CFO Matthew Gepp’s $312,474 in salary and bonuses (or roughly $194k post-tax). On one hand this is very reasonable (and arguably cheap) pay for this position; on the other hand, is it a wasted $300k?
It’s hard to make a judgement with limited information, but it’s difficult to see his performance as anything other than decidedly poor. I’d like the CFO to give an account for his decisions (I.e. afford someone natural justice) before I rush to conclusions. (I.e. I’d simply like him to explain why he made certain decisions regarding ALC’s cash flow management and staff numbers especially when faced with repeated NHS delays. What information was he acting upon at that time? And, in that context, were those decisions reasonable?)
I say this because he has TWICE given EBITDA advice to market and then had to walk that back. And the CF situation was handled such that we required a desperate CR last year. It would also seem our hiring and firing strategy was previously unfit for our budget and $6m of cost cuts have now been brought upon us. I would rather pay someone an extra, say, $100k (so an extra $60-70k post-tax) to attract a quality CFO, be $3.7m in the red (as opposed to last year’s $3.6m) and get the talent we need to become a profitable business.
ALC Price at posting:
5.1¢ Sentiment: None Disclosure: Held
(20min delay)
