Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Renewable Power & Light-questionable bonus arrangements

Renewable Power & Light plc ('RPL'), the renewable power producer, began trading on AIM this week. The Placing, at 70p per share, raised £40 million and went to a quick premium.

Renewable Power & Light was established in 2006 to become an independent power producer, generating "green" or renewable power. The Company's power generation activities will be based on the use of renewable fuels, such as biodiesel, and renewable power generation technologies. Initial operations will be located in the United States, but the Directors expect the Company to pursue opportunities across North America, South America and Europe. The group has completed the acquisition of two cogeneration plants in the United States and intends to convert these plants to run on biodiesel.

It also intends to build a biodiesel manufacturing facility to provide greater control over cost and quality of fuel supply.

I met with the company during the IPO roadshow and was quite interested in the offering.
However, what really put me off were the Director's remuneration packages.

The Executive Directors appear to be remunerated via a separate service company that they control, no doubt because it is preferable from a US tax perspective. The pay rates were, in my opinion, somewhat over generous, which I always find peculiar in the case of a startup where management are also material shareholders. However, I could have lived with this. What I found particularly galling are the additional bonuses that appear to be triggered in the event of deals going through or simply operations coming on stream.

I can't understand how these are necessary or appropriate. Surely it is a fundamental responsibility of the Directors to ensure that the power plants come on stream-it is supposed to be a power company after all!

US related IPOs like RPL seem to be awash with strange arrangements like this where the interests of management are not necessarily aligned with those of the new supporting shareholders.

But good luck to RPL, the concept looks good.


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