Is the summary dumping of chief executives without explanation contagious? Just a few weeks ago Sir Martin Sorrell was deposed without warning at media and advertising group WPP (WPP) and the rest of the board was widely castigated for not saying why, apart from hints about his behaviour.
Now, in an entirely unconnected case, supplier of specialised technical products and services Diploma (DPLM) says Richard Ingram has stepped down from his role and left the board with no more explanation than that the board believes that a change in CEO is in the best interests of the company and its shareholders.
This has clearly come completely out of the blue. Ingram’s departure after only four months in the job is immediate and non-executive chairman John Nicholas has had to step into the breach until a replacement is found. The shareholders who own the company are entitled to better.
So, too, is Ingram, hailed as “a proven successful business leader” by Diploma directors when his appointment was announced. Does he get a payoff? Has the board decided he is not up to the job after all? This seems surprising given that his departure coincided with a perfectly acceptable trading update.
We are told that the group has continued to trade robustly in the second half of the year to 30 September and remains on track to report results for the full year in line with expectations. Revenue is set to increase by an underlying 7% with margins remaining steady.
The shares have been on a strong run since the middle of March, hitting a new high around £14. There is nothing in the public domain to suggest that shareholders should get out now. On the other hand, I wouldn’t put my money into a company whose directors cannot trust their shareholders with the truth, whatever it may be. We should be told.
Hays Raises Final and Special Dividends
As a shareholder I was delighted with annual results from recruitment group Hays (HAS), where profits jumped 17% in the year to June on the back of increased net fees and revenue. Net fees topped £1 billion for the first time as no fewer than 22 countries beat their previous best performance.
While Australia and New Zealand just pipped home territory for best outcome in Hays’ more established areas, the rest of world business was the standout performer with excellent profit growth of 51%, despite significant investment. Only Germany disappointed slightly with growth of a comparatively sluggish 4%. In the UK, Hays says conditions remain "uncertain but stable".
Such results merited an 18% increase not only in the final dividend but also in the special dividend, still leaving scope for further investment in key growth markets where Hays sees opportunities to grow market share, notably Germany, France and the US. Headcount should increase 3-5% in the first quarter as Hays recruits the graduates who will help to take the business forward.
For some reason unfathomable to me as a long-term shareholder, the shares fell 5% on the results to 192p, leaving them little improved over the past 12 months, which have shown great progress.
I therefore took the opportunity of topping up my holding at 193p and was rewarded the next day when they opened 10p higher. The shares are a buy at anything below 200p.
Costa Sell-off Preferable to Spin-off
There are few greater pleasures for an investor than seeing one of your holdings jump on an announcement. Such was the case for me with the 17% leap in Whitbread (WTB) shares on news it was selling Costa Coffee for £3.9 billion, a far better outcome than spinning it off. I hope the activist investors badgering the board will now back off a bit. If you’re in, stay in.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice, nor are they the opinions of Morningstar.
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