Fletcher King – earning power and directors pay for performance

Fletcher King did not make a loss in the recession, which is quite a performance since its business depends on the health of the commercial property sector (it helps property owners with valuations, rating reviews, finding investments, etc.).
I’ll look at four and one-half years of numbers to gain an impression of the earnings power of this business (with a share price of 49p the MCap is £4.5m):
Profit and loss account

£’000s	Interims to Oct 2015	2015	2014	2013	2012
Revenue	2,963	3,380	3,653	3,031	3,105
Less Employee benefit expense	(1,754)	(1,843)	(2,017)	(1,641)	(1,673)
Less Depreciation	(17)	(36)	(44)	(43)	(46)
Less Other operating expense	(610)	(1,057)	(1,083)	(1,085)	(1,012)
Produces operating profit	582	444	509	262	374
Add profit on disposal of ‘available for sale investment’	590	–	174	–	–
Income from investments	10	4	13	11	11
Finance income	5	13	15	19	10
Totals to Profit before tax	1,187	461	711	292	395
Tax	(242)	(102)	(169)	(65)	(115)
Profit to equity shareholders	945	359	542	227	280
Earnings per share	10.26p	3.9p	5.89p	2.46p	3.04p

Observations:
• Revenue was flat at a little over £3m per annum until the last half-year when revenue rose 62% – this is before taking account of the extraordinary profit achieved on selling the property in SHIPS14 at Leadenhall Street.
• “Other operating expense” has barely moved over the four and a half years. Commendable.
• Employee benefit rose in the high profit year of 2014, and again in the latest half-year. For the first six months of last year it was £968,000. In the first six months of the current year it was £1,754,000.
• Operating profit rose over the four full years from £374,000 to £444,000, and then rocketed to £582,000 for half a year.
• The headline profit after tax and eps are strongly influenced by the one-off profit in 2014 due to the selling of FK’s stake in SHIPS06 and SHIPS11 (SHIPS are discussed in Newsletter dated 6.8.15). Then, in the first six months of the current year the SHIPS14 sale doubled the overall profit and provided cash for an 8p special dividend.
• The strangeness of the decision to hold £4m of cash is highlighted by the return it generated, a whole £5,000 per half year (‘finance income’), i.e. 0.125%. This quantity of shareholders’ money should produce a minimum of £320,000 per year for equity holders – they hold RISK capital in the firm. A service-type of business such as this does not need this cash pile.
Staff pay in more detail

£’000s	Interims to Oct 2015	2015	2014	2013	2012
Employee benefit expense	(1,754)	(1,843)	(2,017)	(1,641)	(1,673)
Operating profit	582	444	509	262	374
Earnings per share	10.26p	3.9p	5.89p	2.46p	3.04p
Dividend for first half	1p + 8.75p	1.50p	0.75p	0.75p	0.75p
Dividend for second half	unknown	2.25p	2.25p	0.75p	0.75p
Total dividend	9.75p+	3.75p	3p	1.5p	1.5p
Fletcher’s salary and benefits	unknown	134	131	129	128
Fletcher’s bonus	unknown	147	240	86	123
Goode’s salary and benefits	unknown	122	112	112	110
Goode’s bonus	unknown	147	240	86	123
Dickman’s salary and benefits	unknown	115	105	105	102
Dickman’s Bonus	unknown	104	25	119	67

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