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Aeon Investment Management (Pty) Ltd

PRI reporting framework 2020

You are in Direct - Listed Equity Incorporation » Outputs and outcomes

Outputs and outcomes

LEI 12. How ESG incorporation has influenced portfolio composition

12.1. Indicate how your ESG incorporation strategies have influenced the composition of your portfolio(s) or investment universe.

Describe any reduction in your starting investment universe or other effects.

Our starting investment universe has largely remained unaltered because ESG incorporation has been a part of our investment philosophy since inception. Governance factors have contributed to our disinvestment in stocks such as Blue Label Telecommunications and have helped us to avoid investing in stock such as Tongaat Hulett Ltd and EOH Ltd.

Negative screening applied as the sole method of ESG integration is not effective. Relevant and continuous engagement with company management teams on their ESG risks allows investors to have a better understanding of their business, raises awareness of risks that companies had not considered and allows for a more holistic approach to ESG integration in investment philosophies.

Specify the percentage reduction (+/- 5%)

0 %

Describe any alteration to your investment universe or other effects.

Besides an increased attendance of macroeconomic-focused broker meetings, there has been no alteration to the investment universe.

Select which of these effects followed your ESG integration.

12.2. Additional information.[Optional]


LEI 13. Examples of ESG issues that affected your investment view / performance

13.1. Provide examples of ESG factors that affected your investment view and/or performance during the reporting year.

ESG factor and explanation

 

Blue Label Telecoms - Governance

The following governance issues were apparent within Blue Label Telecom's structure:

Remuneration Policy & Committee

  • Restraint of Payment awards granted to Mr Brett Levy and Mr Mark Levy

Succession Planning

  • Disclosure of a thorough succession plan for the executive team and the key-man risks for the current executive team.
  • The lack of diversity within the board of directors

Related Party risks

  • Audit committee membership.

Cell C Depreciation Accounting Policy

  • The “extension” of the longer useful life of Cell’s Network and Equipment is incorrect especially when compared to peers.

Auditors

  • External auditor tenure, related parties and subsequent auditor independence

Board Independence

  • Disclosure of the assessment criteria used to determine board independence

 

ESG incorporation strategy applied Integration

Impact on investment decision or performance

After extensive unsuccessful engagement with Blue Label's management over the past year, Aeon Investment Management found the ESG risks associated with Blue Label to be significant. In addition, we also conducted financial analysis and decided to disinvest in Blue Label Telecoms Ltd.

ESG factor and explanation

 

Intu Properties -  Leadership & Board Governance

 Aeon Investment Management drafted engagement letters to Intu Properties’ board of directors. We expressed our concerns regarding Intu’s poor risk mitigation measures and subsequently their incapable management and leadership team. We expressed our concern with the hiring of an internal candidate as CEO. We believe that an external candidate would have added a different and new perspective to the company. We also attended an unproductive management meeting with other investors where members of the executive team were unable to answer questions regarding capital structure, capital allocation, past and future property transactions and share incentive schemes. We found that when these questions were posed, they were immediately side-tracked by the CEO when he continuously insisted that Intu already has the “full support” of the current major shareholders for the current strategy.

 

 

ESG incorporation strategy applied Integration

Impact on investment decision or performance

Aeon Investment Management has been aware of these issues and has been engaging with management and the board since August 2018. We have written two letters to the board and met individually with senior management when they visited Cape Town in early 2019.

We then halted any purchases of Intu Properties shares.

ESG factor and explanation

Aspen Pharmacare Holdings Ltd

Aeon Investment Management's main reasoning for disinvesting in Aspen was mainly based on poor fundamentals after an analysis was conducted, however there were some governance concerns which contributed to the final outcome.

 

ESG incorporation strategy applied Integration

Impact on investment decision or performance

After a thorough financial and ESG analysis, and engagement with management, Aeon Investment Management has disinvested from Aspen Pharmacare in its Active Equity Funds.

ESG factor and explanation

Woolworths Holdings Ltd

 Aeon Investment Management attended a remuneration meeting with Woolworths’ board members to discuss their current implementation report, the methodology used when incentivising executive directors and the overall operations of the business. A better understanding of Woolworths’ incentivisation was achieved.

ESG incorporation strategy applied Integration

Impact on investment decision or performance

Aeon has remained invested in Woolworths Holdings Ltd.

13.2. Additional information.[Optional]

Aeon Investment Management is not invested in Steinhoff International and has no investments of Steinhoff in the  Active Equity Funds, over its 10-year history. The counter has been an internal investment committee debate many times. There were a few reasons for not having comfort in the stock.

Weak cash flow conversion. Unexplained continuous low tax rate and the sustainable low tax rate. Uncertainty in share dilution due to the use of convertible bonds and a number of share issues for acquisitions. Lack of transparency in organic growth metrics (continuous mergers and acquisitions). Lack of transparency by management by not allowing public questions at investor presentations and general lack of respect towards the investment community. Sporadic negative legal challenges news events by an affiliated German individual.

Governance trust was the biggest driver in not holding Steinhoff International on behalf of our clients. Aeon Investment Management continues to exclude Steinhoff International holdings in its portfolio.

 


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