The investment group’s rebel shareholders want answers to a long list of questions. A list which is likely to fuel the battle for a long time to come

ANOTHER WEEK and yet more questions face Philip Lynch and the board of investment group One51 about the way it conducts its business affairs.

On Wednesday the rebel shareholders, led by former One51 waste executive Gerry Killen, tabled a series of queries relating to the payment of tax-free patent income to nine executives of the group.

The dissidents want to know why 40 per cent of the €4.96 million tax-free royalty payment, which relates to a patent for a paint-tin lid developed by a company called Protech Performance (which One51 acquired), was paid to these executives.

They have been on the trail of this money ever since their so-called “campaign for change” became public earlier this month.

With the assistance of their legal advisers, Byrne Wallace, the rebel shareholders have traced the payment of this money from One51 through Protech, which developed the patented technology, and then on through a number of companies called Chandela (see graph).

They have focused on two companies: Chandela Investments Ltd and Chandela Nominees Ltd, which they believe are not part of the One51 group of companies.

Chandela Nominees, by their estimation, disbursed the money to the nine executives.

Killen and his fellow dissidents, who include John Hegarty, the One51 metals executive currently suspended on full pay, now want answers as to how this money was spent, and on who controls Chandela Investments and Chandela Nominees.

Killen believes this money belongs to shareholders.

The dissidents want to know who the creditors are mentioned in the Chandela Investments Ltd financial statements of June 30th, 2009, and whether the €2.14 million “cash at bank” represents the remaining funds from the €4.96 million “purported licence fee” from Protech.

They sent 14 questions to chairman Denis Buckley. In essence, they want the identities of the executives who benefited from the payments made public.

They also want to know why these payments were not disclosed to shareholders, and why such an “elaborate structure of companies” was put in place to make the payments.

“Please explain why the company has stated that the Chandela structure is a matter of group tax planning, and that all Chandela costs sit within the group structure, when this is not the case,” they wrote.

They also want to know why the underlying patent was moved from a wholly owned subsidiary of One51.

Questions have also been lodged about the redemption of shares by Lynch in 2009, possibly to the tune of €340,000.

To date, One51 has largely kept its powder dry. Privately, the company has been telling journalists there are “no funnies” in this. It is likely to save its rebuttals for the annual shareholders’ meeting, to be held next Wednesday at the Shelbourne Hotel.

When contacted yesterday, a spokesman for One51 declined to comment on the identities of the nine executives who received the tax-free royalty income.

He said Chandela Investments and Chandela Nominees were both part of the One51 group, and the structure of the payments formed part of the company’s normal tax planning.

One51 released strong interim results yesterday, timing the release for the run-up to the agm, no doubt to help soothe the nerves of anxious shareholders, particularly co-op investors who have been observing this public spat with growing unease.

The results showed a 26 per cent rise in turnover and a 14 per cent increase in earnings before interest, tax, depreciation and amortisation (Ebitda).

One51 said the results were “ahead of budget”.

The results failed to satisfy Killen’s group of dissidents.

“While the results announcement points to an increase in turnover and Ebitda, the results are unaudited and shareholders can take no comfort that they represent a true and fair reflection of the first-half performance of the group,” a statement from the campaign for change said.

“The results statement indicates that the group’s investment strategy has yielded dividends of €4 million. The fact remains that three-quarters of its investments are minority stakes with no possibility of providing a meaningful return to the group or its shareholders in the short to medium term.”

The rebels want One51 transformed into a coherent greentech/cleantech environmental services group, with non-core assets – such as the Irish Pride bakery – sold off. They hope this will restore the share price, which has collapsed in the past couple of years.

In its interim results yesterday, One51 said more than 75 per cent of its investments were “in the wider clean technology sector”.

This cut little ice with the campaign for change group. “The fact remains that One51’s ‘cleantech’ operations are comprised of a medley of disparate niche businesses, from animal rendering, to skip hire, hazardous waste management, glass bottle, paper and cardboard recycling, metals trading and many more.

“There is no ‘beating heart’ in the form of a waste management business to truly create synergistic opportunities for this niche range of businesses and to deliver a return on the capital employed.”

According to Killen, One51 has failed to address the core issues of concern to shareholders, including standards of corporate governance, financial transparency, and the absence of a clear business strategy.

This week the campaign submitted three nominations for election as independent directors of One51 when the agm rolls around next week.

These are Killen, ex-Beamish Crawford chief Alf Smiddy, and former Ibec director of European affairs Peter Brennan.

Killen and his supporters have made the running to date in the battle with Lynch and One51.

But Lynch is a wily businessman who has bettered many rivals – both from within and without – over a long and successful career. He is sure to put up a strong defence of his stewardship and the strategy being pursued.

Next week’s agm is unlikely to signal the end of the row. Killen, who has €500,000 personally invested in One51, has said he will call an extraordinary general meeting if necessary to pursue his campaign for change.

This is a battle that has some way to run.