Incoming Dawn chief faces myriad problems
Distribution and Warehousing Network (Dawn) is not the company it once was. The supplier of construction and building materials has never recovered from the global financial crisis.
It admitted as much when it recently announced that new CEO Edwin Hewitt would replace Stephen Connelly on April 1. Connelly is to become executive deputy chairman.
SA’s dreadful economy is also keeping it in a rut. The share price plunged more than 31% on the JSE recently, mainly as a result of its R350m rights offer — at a heavy discount of R1 a share. It has signed a R200m bridge loan with Investec to fund working capital requirements that will be fully repaid from the proceeds of the rights offer in early April.
Lower oil and mining resources prices, currency volatility and political and economic instability in SA, Mozambique, Zimbabwe, Zambia, the Democratic Republic of Congo and Angola have all taken a toll.
In SA, delays in government water projects have been an obstacle to growth, along with poor general infrastructure markets. Meanwhile, floods of executives have left the group. The latest is chief financial officer David Austin, going at the end of June 2017. He joined the group in October 2016 after leaving aluminium maker Hulamin in March 2016.
Most recently, Dawn said it would appeal against a Competition Tribunal decision that one of its subsidiaries had colluded with Sangio Pipe from 2007 and 2012. It had bought 49% of the polyethylene pipe business in 2007 and the remaining 51% in June 2014.
Dawn would appeal once a penalty was determined by the tribunal. Hewitt says Dawn disputes its finding on key grounds, including that it failed to take into account facts that showed that its subsidiary and Sangio were not actual or potential competitors and that it failed to assess the 49% share acquisition against commercial and economic variables.
There are reasons why remuneration committees should not use comparisons with sports stars to justify pay packages for executives. An obvious one is that it’s a lot easier to measure an athlete’s contribution, even in a team. But executives often claim credit for economic conditions and bull runs in equities. The market for athletes is much more freer than the one for executives where cronyism may determine supply and demand.
This week, the UK’s Barclays and Standard Chartered added another reason, reminding us of just how inappropriate the comparison with sports stars is. The banks are planning to lower the targets for awarding long-term bonuses to top executives. Imagine that in sport. It is rather like Usain Bolt being allowed to run a distance 10m shorter than his competitors.
According to The Financial Times, Standard Chartered has lowered the threshold for its return on equity target to below the bank’s cost of capital. This means its CEO will be rewarded for losing money. And over at Barclays, the long-term incentive for CEO Jes Staley will pay out if the bank hits a 7.5% return on tangible equity, far below the bank’s double-digit profit target.
The banks say low interest rates in the UK justify reduced targets and claim they are still a stretch to attain. Investors aren’t convinced and some say the targets will remain low after the interest rates improve.