Richard Graham email regarding Performance Rights

Has IFM Board Inadvertently Announced <5% Growth Guidance P.A. for Next 3 years?‏


Dear Infomedia Board AGM Watchers,

We would like to bring your attention to an ASX market release from Infomedia last night. (Attached)
It is an announcement for the issuance of 826,000 Performance Rights to unspecified senior management.
In the annexure, it sets out the condition that has to be achieved for vesting to proceed.

That condition is related to EBIT growth, all by reference over FY2015: for FY16 5% over FY2015, for FY17 10% over FY2015, and for FY18 15% over FY2015.

The table below demonstrates that on a Year-on-Year Basis, the average growth required for vesting is 4.77% p.a..

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6
0			FY 2015​	FY 2016​	FY 2017​	FY 2018​
1		EBIT Reference Values​	$17.34 M​	5%​	10%​	15%​
2		EBIT Vesting Benchmark​		$18.21 M​	$19.07 M​	$19.94 M​
3		Actual Year on Year Growth $​		5.00%​	4.76%​	4.55%​

This may not be the Board’s growth figure going forward, however according to this announcement, senior management will be rewarded for an average 4.77% growth p.a. for the next 3 years.

What we can say, is that in business it is normal to reward management with free stock, for the achievement or overachievement of a growth goal. If that norm is applicable at Infomedia, then we would say, this is the growth figure.

It is also worth noting the following exclusion in the announcement: “For the purposes of this rights issue, extraordinary financial costs associated with the replacement of the Company’s Chief Executive Officer will be excluded” [from EBIT]. Presuming $250,000 for these costs, spread over three years, the growth for investors reduces to 4.33% p.a.

While the actual cost to shareholders for the rights issue can only be known on the day of vesting, if the share price was, for example, $1.11 (the average closing price for the past 12 months) at that time, the cost to shareholders would be $917,000. This cost is also excluded from the investors’ growth percentage result.

Following the dismissal of Mr Pattinson as CEO, the Board has been asserting that it is making changes to achieve substantial growth. If 4.77% or 4.33% is their idea of substantial growth, then there is a profound mismatch between their intentions and investors’ expectations. If that isn’t their growth figure, then what is it, and why then is management being rewarded for 4.77% p.a.?

Regards,

Richard