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SCMP Reporter

EVER since Selwyn Mar resigned as president of the Sincere department stores group in December last year, he has taken every opportunity to shine the spotlight on his old company.

  His split with the firm came during a row over a $115 million bonus payment made to directors after the $1 billion sale of the firm's old Central flagship store.

 Last week, Mr Mar raised the pressure on his old colleagues by dismantling the Sincere company's annual report at the shareholders' annual general meeting.

  He and fellow shareholder Ian Robinson, a consultant and retired accountant, kept the usually swift Sincere annual meeting running for more than two hours.

  'We have questions running from page two to page 55,' Mr Robinson said at the start of the meeting.

  The dissident shareholder attack homed in one three areas: board duties, bonuses and performance.

  The board of Sincere comprises executive chairman Walter Ma, executive directors Philip Ma and John Ma and non-executive directors Ma King-wing and Eric Lo.

  Excepting Mr Lo, all men are descendants of the original founders of the company.

  Between them, the Ma family members only control between four and five per cent of the company.

  Decisions of the board can never be effectively challenged by shareholders because of the company's unusual structure.

  After questioning by Mr Robinson, it emerged that Mr Ma King-wing was ruled not independent by the stock exchange, and that the board was seeking another non-executive.

  Mr Robinson attacked the board over the appointment of previous non-executive director Robert Low.

  Mr Low was jailed for corruption in Hong Kong in the early 1960s.

  He did not disclose his conviction on his stock exchange director's declaration and was forced to resign.

  Mr Robinson said it was the board's responsibility to check the backgrounds of the directors it appointed.

  Mr Walter Ma said that because Mr Low was senior partner at a Hong Kong law firm and already a company director, background checks were not thought necessary.

  Then Mr Robinson and Mr Mar moved on to bonuses.

   The issue of director bonuses at Sincere made headlines in 1993 after more than $100 million was paid out after the sale of Sincere's flagship store in Central.

   After an outcry, $66 million of that was repaid in 1994.

  That same year, directors paid themselves $20 million in bonuses when ordinary operating profits were but $66 million.

  These parries were deflected by Mr Mar who said that bonuses had been approved by shareholders.

  Mr Mar did not say it was virtually impossible for shareholders to have their way, should they diverge from the will of the board.

   Sincere has a shareholding structure which effectively precludes takeover. Sincere holds 48.09 per cent of associate company Sincere Life Assurance and 40.67 per cent of Sincere Insurance & Investment.

   Sincere Assurance holds 31.89 per cent of Sincere Co. Sincere Insurance & Investment holds 13.17 per cent of Sincere Co.

   Sincere Assurance holds 36 per cent of Sincere Insurance while Sincere Insurance holds 21.8 per cent of Sincere Assurance.

   The structure makes it virtually impossible to take over Sincere without the support of the chairman, who gets to vote both associate proxies.

  If any shareholder did decide to get stroppy about director bonuses, then a proxy vote controlled by Mr Ma could put a stop to the protests.

  The most recent financial year has been very hard for the retailer.

   Mr Ma's boast on performance was that 'in seven years, shareholders funds have grown from $300 million to over $2 billion'.

  This statement is true enough but says little about management's ability to make the company perform.

   The big jump in shareholders funds did not come from exceptional performance at an operating level.

   The first big leap came in 1990 when a property revaluation took fixed assets from $282.6 million to $952.85 million.

   Looking at annual reports, it appears that much of the growth in funds is due not to operations at all but to Hong Kong's property market.

   Mr Ma admitted that sales of buildings and operations did not always look like good ideas.

   Referring to the group's most contentious deal, an arrangement to sell Sincere's headquarters in Central and take a 30 per cent equity stake in the Lee Theatre development, Mr Ma said: 'Some people might say we have been selling ancestor property.'   Mr Ma's justification for the deal was that no amount of trimming would make Sincere's old store fashionable again and the group had to find new customers. To that end, the Causeway Bay store was renamed 'Signature' and aimed for a high-end, young customer. The Sincere customer was wealthy, but old.

  The birth of the store did not appear to go smoothly.

        Three separate teams of interior designers decorated a floor each.

  For the current fiscal year, the company recorded net profits of $80.35 million, which looks impressive in a year which Mr Ma warned would be tough from Signature start up costs.

  The bottom line does not tell the whole story. At an operating level, Sincere lost $177 million of which $72.64 million was lost trading securities.

   The result was saved by a $276.28 million exceptional item from the sale of Sincere's recently renovated and refurbished old store in Mongkok.

  Even that profit is not all that it might seem. The firm sold 60 per cent of Sincere House, Mongkok, but a $133.14 million portion of that was funded by the company in the form of mortgages issued by it to buyers of units in the building.

  The past six years has seen operating profits of $39.91 million in 1990, $44.22 million in 1991, $47.66 million in 1992, $61.2 million in 1993 and peaking in 1994 at $66.29 million.

   That makes total operating profit over four years $259.28 million, while remuneration to directors was $129.88 million, a ratio of 50 per cent.

   Dividends were paid out at a ratio of 44 per cent of operating profit.

  Add the fiscal year to the end of February 1995 and the picture changes.

   Operating profit falls to $82.17 million while remuneration climbs to $152.17 million and dividends to $148.61 million.

   Remuneration is then 185 per cent of operating profit and 102 per cent of dividends.

  Sincere's share price has suffered heavily, and not just since Mr Mar started his well-informed attack on the firm's strategies.

  Mr Ma says the company has now hired independent consultants to advise on director remuneration, but he refused to name them.

  The change may start the bridge building process, but before the share price really starts to move, the board will have to show the Signature concept has paid off.



Investors have Sincere misgivings