Principal Conference Partner Reserve this Date!

2016 NZSA Investor Conference and AGM Bigger and Better than ever - not to be missed!

When: Saturday 3rd September 2016. 9:30am – 3:45pm (Doors open at 8:30am)

Where: North Stand Lounge, Eden Park, Walters Rd, Auckland.

Climb, Continue or Crash - Where to for the capital Markets? • Where are we in the cycle? • Is a fragile and fast changing world about to spoil our party? • How are companies exposed to global markets responding? • Mitigating the risk - what strategies might work.

Fantastic presenter Line-up

• Brian Gaynor Executive Director, Milford Asset Management. • Shamubeel Eaqub Independent Economist. • Tony Carter Chairman, Air NZ and Fisher and Paykel Healthcare. • Patrick Strange Chairman, Chorus. Director MCY and AIA. • Peter Harris Managing Director, CBL Insurance. • Tim Bennett Chief Executive Officer, NZX Ltd. • Brian Cadzow Co-founder and Director, Vista Group. • Mark Cairns Chief Executive Officer, Port of Tauranga.

FREE to NZSA members - Includes Buffet Lunch ($20 p.p. donation at door) (Non-members $60 including lunch) August 2016 Tarnished Crystals In this Issue iamonds, sapphires and we would not have modern emeralds are examples electronics. So they should be of crystals that we call the basis of a good business, Tarnished Crystals 2 AWF Madison AGM 23 D jewels. Most people like jewels. especially if you are at the FMA review of corporate governance Restaurant Brands AGM 24 They sparkle nicely and indicate leading edge of development. disclosure 5 Energy Mad AGM 24 Financial Advisors or Sales Agents? 6 Goodman Property Trust AGM 25 a certain wealth. Some even Many people who piled into Your nominations for the NZSA Beacon Caught on the Net 26 consider them an investment. Rakon when it floated in 2006 Award 7 Branch Reports obviously thought the crystal Transparent Accounting at last 7 Auckland. 28 oscillator maker could be the NZ Government joins Future Directors 8 Waikato 31 jewel in their investment crown. Company Meetings Bay of Plenty. 32 This was not a startup. It had Virtual attendance at the Xero AGM 9 Taranaki 33 been around in various forms for Kiwi Property Group AGM 10 Wellington 33 decades. The Robinson family as Property For Industry AGM 11 Canterbury 34 vendors received about $68m MHI International SGM 12 Members’ Issues including two private place- T&G Global AGM 13 Residential property syndicates 34 ments. Later institutional place- Sky TV SGM 14 Auckland Education Courses 35 Quartz crystals on the other ments and an SPP increased the PushPay Holdings AGM 14 Upcoming Events 35 Augusta SGM 15 hand are not as spectacular, but funds raised by a further $82m. Nuplex Special Meeting 15 they are very important in the Initial demand was high, and Ryman Healthcare AGM 16 production of oscillators. These the price soared from $1.60 Stride Property SGM 18 clever little devices control to well over $5 in 2007. Last Wynyard Group AGM 19 the timing in everything from Friday, it was just 21.5c. Mainfreight AGM 20 watches to GPS receivers and So how did the Rakon go from Scales Corporation AGM 21 cell phones. Without them, a glittering jewel to a tarnished Moa AGM 22

ISSN 1179 -4275 crystal, and what is to be done? two directors are independent. way, the company made a disas- compensated at three times the In our view, a significant part We think it is significant that the trous foray into China, setting level of executives in similar of the problem has resulted two other recent independents up a very expensive operation sized companies. We are told the from having three Robinsons as (Peter Springford and Herb to get into the mass market, board was obliged to offer the directors, and a culture that still Hunt) both resigned long before rather than sticking to higher increase under the (unchanged) thinks of Rakon a family firm. their use-by date. It is now public margin, higher specification terms of employment. Brent and It is not! It is a public company knowledge that Sir Peter Maire products. The end result was Darren did not have to accept, with 77% of the shares held who holds 5.6% is frustrated. a write off of nearly $64m and and should not have done so. by other investors. And those He has a track record of building major retrenchment. Mistakes To any investor, a freeze means investors are fed up with dismal international technology occur and this was a big one, no extra dollars! results year after year. companies, not once, but three but not a fatal blow. And still, NZSA has had extensive discus- MD Brent Robinson, Sales times, yet seems unable to get every year management says sions with the Chairman, the MD director and brother Darren, and any traction at Rakon. “next year” or claims that the and a number of larger Rakon father Warren constitute 50% Make no mistake, Rakon works in latest investment will be “the shareholders. It is quite obvious of the board despite holding a tough industry. Many products next big one”. Shareholders are to us that the board is deeply only 23% of the shares. Every that were once premium have still waiting. divided. It is equally obvious member of the current 6 man become commoditised and Over the last five years, Rakon that the MD sincerely believes board was there at the IPO. Only prices have tumbled. Along the has been profitable in only one, that only he and brother- Darren a feeble $3.2m in FY2015. In know how to navigate the Rakon 2016 it recorded yet another ship. Given the track record and loss, adding to the $100m plus financial results since listing, of shareholders’ money that had that is a view unlikely to be already gone south in that time. shared by most investors. Despite this appalling track You would think that a commer- record, the MD and Sales cially minded CEO in this Director were not fired. Instead situation would be scrutinising they received an average 23% every dollar. In the 2016 annual salary increase in 2016! This report we see that sales dropped was despite a pledge at the 2012 14%. To the company’s credit, AGM that directors’ fees and cost of sales also dropped 27%. the Robinsons salaries would Gross margins actually grew be frozen until the company to a healthy 42%. However, achieved a $25m EBITDA. It operating expenses ballooned has never even come close. from 35% to 42%. Included As Brian Gaynor pointed out in this was a sharp rise in the in his Saturday column, the selling and marketing ratio to Robinson brothers are already 9.2% of sales. Research and

The Scrip August 2016 3 development also expanded to nearly 11% matters and leave the company in breach of of sales. We are told this level of R and D is NZX’s two independent directors requirement. more than double the norm for electronics We would clearly hope that the Chair considers businesses. the longer term interests of shareholders in the circumstances. So what is to be done? NZSA is not So what is to be done? NZSA is not in the business of running public companies. MD, Brent Robinson is a very clever technology in the business of running public However, it is plain that change must come person. The question arises as to whether he companies. However, it is plain from the top. Both the board and senior is the appropriate person to continue as CEO, that change must come from the management need re-vamping if there is to be given past and present performance. We note a cultural shift at Rakon. The company exists that successful family firm, Michael Hill, has top. Both the board and senior for the benefit of all shareholders, not just the had a CEO from outside the family firm for management need re-vamping chosen few who enjoy extremely generous years. Warren Robinson who founded the salaries. The irony is that any improvements business 50 years ago, is now in his eighties. would actually benefit the Robinson family the It must surely be time for him to step aside to most. allow some board reinvigoration. Darren Robinson is the sales manager as well Rakon could be sold or taken private. Brian as a director. We struggle to see how a brother Gaynor suggests someone (or the Robinsons) and son could be held properly accountable could offer 40c per share. That is better than for the sales performance when he sits on a 21.5c, but remains a dismal outcome for The irony is that any improve- board where his father, his brother and himself many shareholders. On the other hand, if the ments would actually benefit the represent 50% of the directors. At this year’s company undertook a review of strategy and AGM, Darren is up for re-election. NZSA will operations and trimmed every cost (including Robinson family the most. be actively opposing this and will be writing to potentially selling its stake in non-core all shareholders seeking proxies. Even before “Thinxtra”), it should be able to deliver a doing so, we have been overwhelmed with sustainable profit of at least $3-5m. This pledges of support from angry shareholders. would enable a dividend of 2-3c, and drive Chairman Bryan Mogridge is also up for the price up. 40c per share would still yield re-election. It is inevitable that he will need 5-7.5% and shareholders would still own the to move aside as the board is refreshed. company! With a new-look, industry experi- Bryan is an experienced and capable director enced management and board, who knows (not withstanding his tenure at PGC). If he what is possible in the future? expresses a willingness to facilitate the top Perhaps the humble quartz crystal might still down changes that are necessary, then we turn out to be a jewel in drag? think he should stay in the short term. If not, John Hawkins then shareholders will expect him to be voted Chairman down as well, even though this will complicate

The Scrip August 2016 4 FMA review of corporate governance disclosure he FMA has recently Companies need to disclose their 5. Remuneration. 9. Stakeholder Interests. reviewed 45 listed and Code of Ethics and also how they 37% of information provided. 19% of information provided. unlisted companies ensure compliance with the Code T Only 41% disclosed they had a The FMA comment in this area and measured their disclo- is achieved. policy and only 21% published was; sures in their annual reports 2. Board Composition and the policy. This is extremely and websites against the FMA The FMA encourages companies Performance. disappointing from the Associa- handbook Corporate Governance to think about their interac- 55% of information was provided. tions point of view and demon- in New Zealand Principles and tions with stakeholders including strates the need for more rigorous Guidelines. Improvement is required in the employees, creditors, customers following areas; and robust requirements around and suppliers. The contributions The review considered the • Demonstrating the Chairper- transparency in this area. of these stakeholders play an information provided by the son was independent. 6. Risk Management. integral part in building compet- companies in respect of each of • The Board had a professional itive and profitable companies. the 9 Principles and determined 50% of information provided. development programme. Providing clear disclosure of by percentage the compliance Given the fundamental nature of • The Boards performance stakeholder interests can be levels. this area and the need for appro- evaluation process. in the long term interest of priate governance oversight of Overall listed companies were • Disclosure of the Boards companies. found to provide a higher level management it is disappointing. Charter. Grant Diggle of disclosure than unlisted 7. Auditors 3. Board Committees Editor: We also noted Grant’s companies and the FMA recom- 59% of information provided. mends that unlisted companies 56% of information provided. comment to the NZSA board: The FMA comment was that look to improve their performance. There was a marked difference “Having run a similar review this was relatively low given against the previous Securities The report said that the FMA between the disclosure of 77% of companies had Audit Commission Principles in a will continue to work with NZX, listed companies and unlisted Committees. former life,… I have to say that NZSA, Institute of Directors, companies especially around 8. Shareholder Relations whilst the results have improved and the New Zealand Corporate the Audit Committee and its over time it has been a case of Governance Forum to encourage composition. 43% of information provided. slow and painful progression. all companies to improve their 4. Reporting and Disclosure. A disappointing result suggesting It is disappointing that in areas disclosures. Directors need to focus more 64% of information provided. such as Remuneration, Share- attention to this area. The FMA The findings against each On average 78% of listed holder Relations and Stakeholder comment was “Companies Principle were as follows; companies provided the required Engagement there is still a wide we reviewed appeared to face 1. Ethical Standards. information compared to only gap between what is required challenges with disclosures on 30% of unlisted companies. and what is delivered.” 44% of the handbook information shareholder information”. was provided.

The Scrip August 2016 5 Financial Advisors or Sales Agents? inancial advice has been under advisers, but many, many more operating of adviser. The descriptive terms, RFA, broker, scrutiny recently in two telling under the umbrella of the banks and insurers. and QFE, it found, are even misleading. NZSA Freports by the Financial Markets To many of us the obvious problem is around recommended that the distinction between Authority (FMA,) the Ministry of Business the poor investment returns provided by life agent operating within the restricted product Innovation and Employment (MBIE). Insurance and bank products, i.e. low accumu- portfolio of a bank or insurer, a broker paid The full reports are available on the lated bonuses. However, the FMA pointed out by commission for buying and selling, and a respective websites. this is sometimes related to high churn rates as financial adviser who puts the interests of the The first investigated 4 years of data agents try to move clients into new policies to client first should be clarified. MBEI agreed. from the main insurers in New Zealand. capture the higher up-front commissions. The They have recommended removing boundaries Of about 1 million active life policies, additional hazard is that the new policy may between classes of advice and personalised they found that less than half were be affected by pre-existing conditions, or the advice, to allow Robo-advice - digital platforms sold by Registered Financial Advisers cover may not be as complete in the new policy subject to regulatory oversight by FMA. They or Authorised Financial Advisers. These as the old one. The FMA will now be paying also see the need for all advisers to put the are the category of adviser who have to more attention to agents whose clients change consumers’ interests first, and to simplify take into account a range of products policies more frequently. disclosures. However, the main advance was and the financial circumstances of the The second report using similar data reassessed to insist that agents selling a limited range of buyer. The other policies were sold by the Financial Advisers Act. In a snapshot of the financial product be called “agent”, and to be Qualified Financial Entities; such as market as outlined above it broke down the distinguished from AFAs and Financial Advice banks or insurers. Employees within categories, and located the various propor- Firms. No doubt it will take time to adjust the these QFEs are really sales agents acting tions of the participants. Only 15% of AFAs Financial Advisers Act, but NZSA has published on a variety of commission structures are in in sole practice; the others are housed its endorsement of the findings in a press including up-front, trailing, bonuses, in QFEs or broking firms. MBIE also found statement. and soft rewards like overseas trips. that 80% of consumers wanting financial Alan Best So there are about 8000 financial advice don’t know how to find the right sort

Advisor Type Approximate Activity Number We found this QFE (Qualified Financial 2600 in 56 large 56 Banks and Insurers giving advice on company products chart of sellers Entity) companies but not investment planning interesting RFA (Registered Financial Personal advice on Life Insurance but not investment in 6420 Adviser) bonds, equities, derivatives, or managed funds AFA (Authorised Financial Qualified to give personalised advice on a full range of 1860 Advisors) investment products and plans

The Scrip August 2016 6 Your nominations for the NZSA Beacon Award

ach year NZSA presents our • Simon Challies. His consistent Beacon award to a person who focus on good service to Ryman Ehas acted as a shining example Healthcare residents has year to all stakeholders but particularly after year grown shareholder to shareholders. value. Recommended The criteria appear on our awards • Joan Withers who has champi- and bear repeating in summary: oned board diversity, and guid- reading ed the listing of a Government • Leadership in corporate practice NZ Shareholders • Bravery in taking a stand on owned business Association corporate governance • Tony Carter who has champi- • Ignoring self-interest - recognis- oned best practice with excel- ing the concerns of all stake- lent results in Air New Zealand holders and Fisher and Paykel Health- • Treating small shareholders with care, the respect due to business There is a strong element of owners altruism, zeal, and commitment • Working within the rules to as well as hard-nosed common ensure fair outcomes for stake- sense to these winners. So we holders urge members to take a look at • Taking actions that warrant spe- their share portfolio, and pick out Transparent Accounting at cial recognition from sharehold- those who might qualify. The board ers. will make the final selection, but We do not include politicians and as always we take careful note of last members suggestions. government officials in our selection, n this book Bill has ignored the accounting standards and but rather practising directors and Send your nominations to ea@ instead asked the simple questions, and then explained chief executives and advocates. nzshareholders.co.nz or directly to how any investor might find the answers in an annual That’s still a pretty wide net to cast! the Chairman or any other board I report. Recent winners have included: member. • Rob Fyfe for his humane leader- Nominations will be accepted up to You can buy this book at: ship at a time of crisis, and his 24 August. www.theaccountingjungle.com marketing flair. John Hawkins

The Scrip August 2016 7 NZ Government joins Future Directors he Government is joining an effort to promote more That contrasts with the state sector, where 43.4 percent of diversity in New Zealand boardrooms. The Future board members are women. The aim is to reach 45 percent. TDirectors scheme is being extended to include state Last week the Directors Institute called on New Zealand sector boards. companies to lift their game, The Minister for Women, saying that board diversity Louise Upston, says is “critical” to maintaining public sector boards and a competitive and vibrant committees will benefit economy. It released a from the initiative and guide to help companies it will help to develop a improve their performance larger and more diverse in this area. pipeline of talent. The Future Directors initi- The initiative was launched ative has so far helped 17 in 2013 by The Warehouse private sector companies founder Sir Stephen place 20 people on Tindall, Vector chairman their boards. Four more Michael Stiassny and Des companies are hoping to do Hunt from the Share- the same. holders’ Association. Auckland International Institute of Directors’ Airport, Fisher and Paykel Chief Executive Simon Healthcare, Mercury Energy, Arcus says: “The need The Warehouse and Vector for diversity of age in the are among the companies boardroom reflects the taking part in the initiative. rapid changes in the business landscape.” Applicants do need senior management experience but there “The dividend that diversity pays is bringing different is no age requirement. perspectives and more robust decision-making, effective risk Des Hunt management and better company performance.” But New Zealand companies appear to be lagging behind. Research by the Institute found that 77 percent of the top 122 NZX companies had less than 30 percent of women directors on their boards. Thirty-nine companies had no women on their boards at all.

The Scrip August 2016 8 Company Meetings New Zealand listed companies now usually post AGM presentations by the chair and CEO, on their website. Our commentaries therefore concentrate on the flavour of the meeting and the questions raised by shareholders. We encourage members to use the company website, before attending the general meeting, to see what has been said previously, and to familiarise themselves with the latest news. Comments are those of the attendee, who will often be a shareholder in the company, and are not necessarily NZSA policy. Run your cursor over the report heading for a link to the company website Virtual attendance at the Xero AGM or the 2016 AGM, Xero obtained a waiver a notice of meeting or annual report”. Clicking attended the meeting, to download (from from NZX allowing it to hold the meeting on the voting card box brought up second Apple App Store or Google Play Store) a Foutside New Zealand. Xero’s intention box for the shareholder’s details (share- voting app to their mobile phones and vote was to provide Australian based share- holder number and FIN or proxy number) to using this. holders with an opportunity to directly attend be entered. The voting card then came up Stan Malcolm, Head of Strategy and Business a Xero AGM in Sydney. A key part of Xero’s and shareholders could cast their votes. This Development, and one of the founders of Link proposal, and a significant reason why NZX was very straightforward. A great feature of Market Services, told me that Link completed was agreeable to the waiver was that, for the this voting process was that, for those partic- the development of their online AGM portal first time, Xero proposed to hold a “hybrid” ipating online, voting cards were available mid-way through 2015. Spark was the first AGM. Utilising a platform developed by Link from one hour before the AGM commenced company to trial it by offering online agm Market Services, shareholders who could not through to five minutes after it closed. access for their November 2015 AGM. Z attend the meeting in person were able to Shareholders could fill out their cards at any Energy was next, for their June 2016 AGM, participate remotely through an online portal. stage during the meeting. Even after votes and Xero was the third company to take up The mail out of the Xero Notice of Meeting were lodged, they could be altered if share- the opportunity. A further twelve NZX listed included a “Virtual Annual Meeting Online holders had a change of heart, up until five companies are expected to offer online AGM Portal Guide” which was well laid out and minutes after the AGM finished. access to their shareholders this reporting easy to follow. As a backup to ensure that In the same way, asking a question was easy season. any issues could be remedied, Link also to do. Shareholders could click on “Ask a Link Market Services also provided some operated a phone line to assist shareholders question”; choose the subject category from interesting statistics on the Xero meeting: to get set up for the virtual AGM. a drop down box; type their question and • 56 people attended the physical meet- Once shareholders logged in to the site, the submit it. Once a question was answered, ing, with a further 320 attending online “face” of the portal incorporated two screens a right of reply was possible by submitting a including four analysts, two media repre- – one for the live video webcast and the further question. sentatives and 154 Xero staff. second for the presentation slides. Beneath Another interesting feature of this meeting, • Virtual attendees logged in from 15 dif- the screens were three boxes - “Getting a again provided by Link Market Services, was ferent countries including USA; China; voting card”; “Ask a question” and “Download an option for shareholders, who physically Philippines; UK and of course New Zea-

The Scrip August 2016 9 land and Australia. The Australian team. The CFO presented on the company’s online attendees included one person revenue and growth model, noting that the Kiwi Property Group AGM th from Ayres Rock. outlook was consistent with the full year 29 July • Of the 56 shareholders who were guidance previously given. The company physically at the meeting, 21 voted was managing the business to break hairman Mark Ford welcomed about 50 with polling cards and 31 used the even on cash flow. Mr Lark’s presentation shareholders to the meeting in Reading mobile app to cast their votes. focussed on the company’s key markets, CCinemas, Lynmall, New Lynn, Auckland. He I found the online portal to be a convenient, growth potential and the quality of the commented on a year of expansion with diversity efficient and effective way to participate in product. The CEO commented on a range between office and retail properties with a bias Xero’s AGM. While I spend work time on a of areas including the recent Amazon Web towards Auckland, but further developments in computer, I do not see myself as particu- Services migration which was due to be Wellington in Government-occupied offices. He larly technology “savvy” and expect many completed over the next few months. forecast an increase in dividend per share to 6.75 cents in 2016/17 compared to the current year’s NZSA members will benefit from online The company’s focus was to exceed 1 6.6 cents. AGM access when these opportunities million subscribers within a year and to come up. The downside is the foregone become a $1 billion plus revenue business. Chief executive Chris Dudgeon commented on an chance to interact with other share- The company is excited about the UK, increase in profit after tax of $135.6 million to a holders, directors and managers before Singapore and South African markets, so total of $250.7 million. A major feature of this was and after the meeting. The upside is that whilst the US is an important, it is not all asset revaluations of $175.8 million compared to virtual AGMs will result in many more about the US. $58 million in the previous year. Capitalisation rates used in the valuations were described as shareholders being able to participate in There were many questions from the “firmer’. the meeting than would otherwise be the floor, including: on when a dividend would case. be paid (not in the foreseeable future), Cash flows from operations increased by 7.4 % to the Wells Fargo arrangement (seen by the 95.4 million, with major items being a reduction The Meeting itself company as a positive endorsement in the in interest and finance charges of $13.7 million US as retrieving bank feeds had been an following the most recent share issue, offset The AGM was the company’s ninth AGM issue), recent price increases to the product by an increase in tax paid of $11.1 million as and first AGM held in Australia. There were (not BAU), the company’s UK market previous tax losses were extinguished. The share no questions on the resolutions, each of share and legacy issues, slow adoption of issue also contributed to a reduction in gearing to which were passed. The proxies displayed the product in the US, measures by the 30.3% (defined as interest bearing debt to total on screen showed a 15% against vote on company to effect a better outcome for assets). Average interest rate paid was 4.88%. the options grants. The NZSA represent- shareholders (conscious and measured ative voted open proxies in favour of all In addition to the Wellington projects, major devel- investments, financial discipline) and resolutions. opments during the year included the purchase of whether a US float was on the cards (not 50% of the Base centre in Hamilton, and planning Each of, CEO Rod Drury, CFO Sankar currently). for the expansion of Sylvia Park to accommodate Narayan and Chief Marketing and Revenue Martin Watson international companies H&M and Zara, the Officer Andy Lark gave presentations. The erection of an eight story office building, and a CEO detailed the leadership structure and second level galleria of shops. Total cost estimate

The Scrip August 2016 10 was $180 million with completion in th 2018/2020. When finished, these projects Property For Industry AGM 15 June would result in Sylvia Park being a true utting capital to work was the theme poll. With 94% of all proxies held by the town centre with full amenities. of chairman Peter Masfen’s address to chairman in favour, the outcome was pre A questioner from the floor asked about shareholders attending this meeting destined. In discussion on an increase in the proposed bond issue. Chairman Mark P at Eden Park. For those at a distance, the directors’ fees, four shareholders spoke Ford said that this had been deferred meeting was also web cast – sort of - (sound against an increase. As NZSA proxy holder because of uncertainties following Brexit. and slides only). Copies of the presenta- I spoke and voted in favour, noting that It would probably be reconsidered as tions and the ‘web cast’ are available on the increase covered the appointment of markets stabilised. the PFI website. a further director and allowed the raising On behalf of NZSA I asked what “firmer” Mr Masfen emphasised a 17.25 cents per of the chairman’s fee to a more realistic capitalisation rates meant when revaluing share profit after tax – this includes gains on market level. assets. Chris Dudgeon confirmed that property revaluations, 7.42cps in dividends Peter Masfen, John Waller and Susan it meant they had fallen, in the current and 9.38% average annual shareholder Petersen spoke to the meeting on their year from an average of 6.9% to 6.6%, returns since listing. More than once during re-elections. Ms Petersen acknowledged her thus contributing to part of the increase the meeting he made the point that the experiences as a member of the Wynyard in asset values. He thought that although directors adopted a conservative approach board as they addressed the problems in so-called “cap rates” are linked to interest to growth and did not want to move too that company. There was no discussion on rates, they would probably stabilise at fast for their own good. the re-election of these three directors. about the current level. Simon Woodhams, General Manager of On the resolution for the Board to set the A motion to increase directors’ fees from PHI Management, provided an overview of auditor’s fees there were brief queries from $665,000 to $720,00 was put to the the company’s billion dollar portfolio, 86% some who did not understand the purpose meeting. This would increase Chairman’s located in Auckland. He told us about client, of the resolution. Polling results show remuneration to $155,000, other Directors Sistema Plastics, moving out of Penrose +99% voting in favour – other than the to $90,000, plus extra for committee after a short term lease and the success resolution to increase directors’ fees, which work ranging from $6,250 to $20,000. the company was having in the opportu- only gained 97.25%. Justification was given as a change in nities of re-leasing the property. After 50 minutes (10 minutes more than the regulatory landscape, and alignment In response to a question by me, he last year), seemingly well satisfied share- with the market. Overwhelming proxies in produced a slide of the properties leased holders were able to enjoy ample refresh- favour ensured the resolution would pass. to Fisher and Paykel Appliances. F&P are ments and talk to directors and senior Jane Freeman and Mary Jane Daly were closing down production in New Zealand. management of PFI Management. re-elected as directors. However, they are part of Haier and the Bruce Parkes Bill Jamieson leases are backed by their parent. F&P will retain some presence on the site and the rest will be sub-let or re-leased. On to the resolutions – all decided by

The Scrip August 2016 11 MHI International SGM 23rd June 9am meeting, and a smaller-than- The second resolution allowed the primary NZSA also clarified the tax issues. The expected gathering passed by poll listing of the company on the ASX under company would continue charging its trading Athe two resolutions, by which the the new ticker code MHJ, while retaining subsidiaries for the use of the Australian- company will move its primary registration the NZX listing as a secondary listing. held intellectual property. The scale of the to Australia. The company used the occasion NZSA members were well briefed by the charges has been approved in writing by to pay tribute to the work of 2 directors Gary email pulse of voting intentions before the both IRD and ATO. The dispute with the IRD Gwynn after 18 years and Lady Christine Hill meeting. Nevertheless, several questions was not over the scale of the fees, but the a key director since the company’s inception, were raised: way the IP transfer was funded in Australia, and also the Company Secretary Wayne Why did the company make the default regis- and it was this that led to the determi- Butler. This gave a strong signal that the tration of all NZ shareholders as Australian, nation that the scheme was tax avoidance. board refreshment is almost complete with and ask them to opt out to remain with The High Court decision of the previous 3 independents (2 Australian, and 1 inter- Computershare NZ? No satisfactory answer day in which the IRD was judged not to be national New Zealander, Rob Fyfe.) Emma was given, though it was clear that manage- bound by previous decisions, affected only a Hill quickly vacated the chair to Rob Fyfe ment’s Australian contacts preferred that small part of MHI’s claim, and the company because of the Hill family’s interest in the position. About 6% of the register was was still confident of a positive outcome. first resolution. currently held by Australian residents at the Because the dispute was over a completed Shareholders were advised that the family’s date of the meeting, though subsequent transaction in the past, and was provided interest would be altered from the straight Australian buying has pushed the price up. for under the tax pooling arrangement, the company confirmed the NZ subsidiary up 52.89% held by Hill HoldCo, to 42.89% With the reluctance of New Zealand investors was profitable and that imputation credits held by Hill HoldCo, and 5% by Emma Hill’s to sell their shares, and the demand by would be available henceforth. Although interests plus the remaining 5% by Mark Australian Institutions for large parcels, not explicitly stated during the meeting, the Hill. The resolution allows the family total coupled with the Company’s statement that CFO confirmed to us afterwards that the of 52.89% of the company to be held by it had no immediate plans to raise capital, move to Australia would enable a higher MHI Australia, the new ASX listed holding many attendees could not see much point level of imputation credits to be available company, without altering the number in the move. The company however saw the going forward. This confirmed our original of shares or controlling interest that the move as a logical expression of being based understanding. family previously held in MHI New Zealand. in its major market, with access to a much The real purpose was to allow the family larger shareholder base in future, alongside By poll the second resolution was passed to retain its controlling interest, without its head office and closest advisors. However with 100% of the Hill Family votes (class1,) being caught by the Australian Capital Gains it will inevitably be, as John Hawkins pointed and 99.4% of the others, (class 2.) Tax. The Hill family was present during the out a very small fish in the larger pond. In discussions after the meeting, CEO Mike discussion, but took no part in it or the vote, Although annual meetings would be held Parsell confirmed that the transactions were and the resolution was duly passed in a poll in Australia, the company was prepared to all about potential, not the state of the books by 99.32% of those entitled to vote. hold shareholder meetings in New Zealand. at present. MHI is getting its ducks in a row,

The Scrip August 2016 12 because it may need to move quickly if Emma and Roe story which features established North American bases, shops take off. because Australian retailers have generally had difficulty Mike believes that the Australian and Canadian markets expanding in this market, and the Michael Hill brand is are the plums, but established competitors may make it well known in Australia. necessary to expand more quickly than they have in the Alan Best and John Hawkins past. Australian investors are very interested in a retail T&G Global AGM 21st June t was an interesting experience to catch up with the new-look Elections and Accounts were passed quickly. Turners and Growers as proxy holder for a small number of NZSA One questioner asked about the special commission rebates accorded Ishareholders, - not surprising however, that the number was small, to Zespri and was assured that normal commissions applied, without because since the acquisition by German Baywa of 73.68% of the infringing any anti-competitive regulations in either USA or Europe. company, the 3 largest shareholders Baywa, Bartel, and Tiger, now Another wanted a clear dividend policy, but was told that earnings own over 95% of the shares and no other shareholder even reaches growth had to be confirmed before a clear pattern of dividend distri- 1%. Inevitably trading (liquidity) in the shares is constrained. butions was announced. Outside the meeting I asked independent directors, Rob Campbell NZSA asked about the difference between the large capital expend- and Carol Campbell (no relation,) how the majority shareholder was iture of $57m and the operating cash flow of $22m, and the potential managing. Both were very complimentary about the support the for further capital investment. Sir John Anderson said that the board company was receiving, and its transition into a global fruit and was comfortable with the capacity of the company to handle the vegetable trading enterprise. In the last year Baywa has foregone long term borrowings which had risen from $168 to $215m, and to dividends to support the acquisition of Rianto and Great Lakes Tomato provide for further growth. A further questioner asked about the risk growers, and increasing investment with Vizzarri Farms Australia to of Brexit, and was assured that different agency arrangements and market asparagus around the world. currency hedging between UK and Europe meant that a separation With 17000 employees, in 3000 locations across 34 countries, Baywa would not impact trade severely. is eminently capable of developing this business. The company has Happily, another shareholder allowed Sir John to backtrack and certainly upgraded its presentations, from the Annual report through request Rob Campbell and Carol Campbell speak to their elections the overview booklet, to the GROW video (Grounded, Resilient, Open after the event. Both spoke convincingly about the support of the and Willing) which was shown during the meeting. German company and its open and transparent methods. At present Characteristically Prof Klaus Josef Lutz spent a few brief minutes it seems Baywa is happy to maintain the NZX listing, and to develop introducing the board and then handed over to Deputy Chair and the global reach of T and G Global’s growing and marketing expertise. independent Sir John Anderson. He was equally brief leaving the Alan Best report on operations to CEO Alistair Hulbert. Operating profit moved from $20m to $30m, and Net assets from $277m to $321m with increases in all areas. We gained the impression that the strategy was clear and that the business had plenty of growth potential.

The Scrip August 2016 13 Sky TV SGM 6th July PushPay Holdings AGM 14th July onsidering that shareholders were voting he Chairman opened on a positive to the cost and time it takes away from to sell Sky TV to Vodafone, there was a manner confirming the company focussing on the USA. Peter Huljich stated Cvery small turnout at the Pullman Hotel Thad surpassed its key goals and the cost or resource was not great consid- in Central Auckland. Partly this may have been continued to deliver phenomenal growth. ering the upside benefit of getting the due to the 10.30am start, with a combination Revenue from continue operations up Australian Institutions on board. of traffic congestion and little nearby parking 713% or $14.97m Many Australian and USA fund managers discouraging participation. Annualised Committed Monthly Revenue are not mandated to invest in New You had to be quick though, as the whole (ACMR ) up 445% or $29.08m Zealand. I can only assume they are keen process lasted just 17 minutes. Independent to keep the share price up so when raising Total Merchants up 278% or 3,766. Chairman Peter Macourt gave a brief rundown further funds it keeps the cost down. This on the proposal, which was to be achieved via Average Revenue per Merchant (ARPM ) was confirmed when he stated Australian an interlinked series of three resolutions: up 30.96% or $643 per month. and USA fund managers are more actively 1 Approval for Sky to purchase Vodafone Staff Headcount up from 68 to 215. investing and understanding opportu- NZ, The CEO said the company has remained nities in the tech space and finding a 2 Approve the raising of up to $1.8b in new focussed on gaining market share in the fair valuation for the company. Pushpay debt and USA faith sector. The company now has intends to raise another US$30 million in 3 Approve the issue of sufficient shares to around 1 to 2% of the USA faith sector the coming year. Vodafone (in part payment) to give them market. This includes 4 of the top 10 Pushpay says it has noticed a number of 51% control largest churches and 24 of the top 100. direct competitors have started comparing Shareholders had clearly decided that there The CEO stated the company would break their products directly to its own but is was little option if Sky TV was to have a long even in 2017. I raised the questions confident it is fending them off. term future. Only two questions were asked. why they hadn’t included the cost chart When it came to the resolutions, the One related to information that was already in alongside the sales numbers so we could chairman read them out and asked people the documentation sent to shareholders and see if the gap was closing. He replied by to record their decisions and then put the other to whether the bond interest would saying the numbers were in the annual them in the box. Then without giving be paid as normal - answer yes. report if you wanted to check this out. anyone the chance to ask questions, he And that was it! The resolutions were all decided Pushy continue to refine their growth closed the meeting. The success of the by poll with 99.96% in favour of each with strategy focussing on attracting larger company short term will be to continue to NZSA voting its discretionary proxies in favour Merchants which have the resources to increase sales and start to make a profit as already signalled to members. The deal maximise implementation, which in turn before the competitors have a chance to remains subject to various regulatory hurdles, increases engagement and leads to higher get established. the most significant being OIO approval. retention. Des Hunt John Hawkins Another goal this year is to list on the ASX. I questioned the reason for this due

The Scrip August 2016 14 Augusta SGM 25th July Nuplex Special Meeting 7th July his meeting was called to gain approval here was widespread doubt at the We also wondered why Emery Severin the for the sale of the Finance Centre in final meeting of Nuplex shareholders Managing Director was seated amongst TAuckland, Augusta’s last directly Tas they voted to accept the scheme the independent directors who had recom- owned property. This Centre comprises four of arrangement with Allnex Belgium. There mended the scheme on the podium. He properties built by Chase Corporation in the had been a hiccup before the meeting. Some stood to receive $10m pay out largely from heady 1980s. They have seen their best days, shareholders complained that they had been the early vesting of his incentive plans. We Auckland’s prime office accommodation has approached by Computershare on behalf of questioned his role both before and after moved closer to the harbour and tenants are Nuplex to vote in favour of the resolution. the meeting, and it was clear that he was going to be subject to significant disruption NZSA immediately followed up with both there to supply information if necessary. as the CBD rail loop tunnelling moves up Computershare and the company and the The directors assured us that all staff Albert Street. The sale price is above current instructions to telephone staff were clarified stood aside from the decision, and Emery market valuation. so that shareholders were asked only if they confirmed that he had not voted his shares After opening the meeting, chairman, Paul had received all the information necessary on the resolution. Duffy, handed over to Executive Director, for them to vote. As a scheme requires 75% Chair Peter Springford’s address was Mark Francis, to provide an overview of the of votes cast, and more than 50% of shares commendably brief. He emphasised the proposal. Mr Francis’ presentation is available issued, to be in favour, telephone follow up 3-stage negotiations resulting in improved on the NZX and the company’s websites. In is justified, but not telephone canvassing. offers. He also explained that the Scheme brief, the sale of the four properties is progres- The second issue arose at the commencement was a basic requirement for the Boston sively scaled and not due for completion until of the meeting when The Chair announced private equity group Advent who needed a April 2019. This allows Augusta to continue that the of the 188,592,999 shares on issue, bankable scheme agreement to raise the to receive rental income while it build up its 143m had already been voted by proxy or cash to pay out shareholders promptly. He fund management income stream. This sale directly in favour of the resolution, while made it clear that when they had gained the is the culmination of a move by Augusta into only 2m had been voted against. (97% best possible price, they felt obliged to give a Funds Management business. of votes plus 76% of shares issued,) and shareholders the choice rather than reject Potential risks were clearly identified in the there were only 95000 abstentions. The the offer. notice of meeting. Those risks have been scheme was therefore fait accompli, but And so to the discussion. The keynote was addressed. Both Mr Duffy and Mr Francis the discussion flowed until a shareholder John Hawkins’ address which canvassed expect dividend rates (fully imputed) to be asked for the overhead to be shown again the main points made in the NZSA voting maintained. and further comment was curtailed. That intention emailed on 29th June. John also is the wrong way to conduct an important Sixty nine percent of the company shares assembled several quotations from recent company meeting, and NZSA will continue were voted on this resolution – 96.23% of Nuplex reports in which the directors gave to push for voting results to be declared those votes were in favour. a positive view of the company’s prospects. after shareholders have had a chance to He compared the weakness of Nuplex Bruce Parkes challenge and discuss the resolutions. independent directors with the strength and

The Scrip August 2016 15 subsequent success of Comvita shares issued at 23c in 2009, and th in rejecting an overseas offer. His retained a listing on NZX for the Ryman Healthcare AGM 27 July conclusion that Nuplex was being company. The chair indicated that yman’s 2016 AGM was in Kerr attributed this long-term sold off too cheaply at the very this was simply not acceptable to keeping with the profes- success to a commitment point that it seemed to be capable the buyer. He also indicated that sionalism we’ve come to “the holy trinity: happy of greater international expansion, although there are no similar R to expect from this company. residents, happy staff and evoked spontaneous applause. investment opportunities on A webcast is available on happy shareholders”. (Trinity Other questioners clarified the NZX, there are many on overseas Ryman’s website. surveys have shown that satis- exchanges, - small comfort to interest payments due after Both the Chairman and MD faction has lifted this year.) retail investors who concentrate delays in the EU approvals. These apologised for not having Since the initial capital raising on NZ investments. at .075 c/share/day amounting to held an AGM in Whangarei of $25m in 1999, growth 75c/day for 1000 shares, did not There was a feeling of frustration before now. The area was an has been self-funded from affect shareholders’ decisions. One at the inevitability of Nuplex’s important one to the Company; re-invested profits combined questioned the true independence delisting –success at aiming 400 of the inaugural 1,400 with conservative debt. $400m of the directors who assessed the globally results in 1800 employees shareholders in 1999 were has been paid out in dividends offer. It was clear that although with only 100 working in New from there. since 1999. The balance of the scheme bound them to Zealand. This is followed by Chairman, Dr. David Kerr, the profits has largely been secrecy, sale of their personal an offer from a larger interna- introduced each Board Member re-invested in development, shares, and a $10.5m break fee, tional player, without the oppor- and summarised their skills. therefore have been free of tax they were truly independent up to tunity to seek better offers, and He stressed that they were all under the applicable rules. This the time they decided to seal the a meek acceptance by investors subject to an annual review situation is unlikely to change documents, but then they were dominated by fund managers, of and held regular discussions in the foreseeable future. bound in. a short term profit. on succession planning. While Workloads continue to be heavy It was shown in the booklet that There was the added knowledge Dr. Kerr has been on the Board with four new villages due to the merging of Allnex and Nuplex that based on Australian since 1994 and Chair since open this coming year, but was a good fit, and so it was experience, schemes inevitably 1999, he reassured share- not at the expense of quality. asked why Nuplex had not offered go through when supported by holders that there were healthy Others are in the pipeline for for Allnex. The Chair answered directors, and that private equity challenges made between the Auckland and Melbourne. A that in 2013 when Allnex acquired dealers will take the cash out of board and management team new site in Auckland’s Hobson- Cytec coating resins, Nuplex had the company to repay the bank; and he always endeavoured to ville has been purchased. not fully recovered from the GFC then relist the group in a public act independently. Alistair Duncan & Kristine problems, and the acquisition of offering. Good bye Nuplex. Where Profits and dividend growth Bartlett (of the successful a much larger enterprise was too can we now invest for the next have continued for 14th Terranova Homes Equal Pay risky. Some questioners inferred round of growth? consecutive years. This is case) were there on behalf that a much better outcome would Alan Best expected to continue with of the “What Is Equal Pay” have been achieved if an offer had unprecedented demand. Dr. campaign. They challenged the allowed some profit taking on the

The Scrip August 2016 16 Board and the directors up for re-election to Keeping abreast of digital technology is on resolutions at the 2015 AGM, Ryman had account for their personal action on lobbying critical to communication. Ryman is rolling investigated the possibility of electronic voting the government about under-funding the out the use of tablets for residents and staff. but were not yet convinced that the technology sector. Dr. Kerr explained that the Company The myRyman app gives the Company a could meet their needs. Subsequent voting had joined forces with the Government and point of difference (so they won’t be looking was done by show of hands. All reports the Union to work on this issue and would at licensing it for use around the world); it were received and resolutions passed by the support whatever was agreed. While keen to ensures residents (and their families) have majority of shareholders present with 98% of see the Government step up, Ryman would, access to information and entertainment. proxies being in favour of the resolutions. in the meantime, do its own thing. The new electronic medications system 1 The Board and Staff were congratulated for Ryman is making a concerted effort to Chart makes for greater safety and efficiency. their continuing high performance. As for the improve staff relations by: Brandon Park in Melbourne is now on track future, the 2016-17 year trading is in line with a Recognition – by new award pro- with Council issues resolved. (While these expectations to date. Growth is expected to grammes and showing support for have been lengthy, some NZ developments continue for many years hence with residential families of staff when they are in need have experienced similar delays but share- demand expected to triple in the next 30 years (e.g. fundraising for families of Fijian holders have been unaware because of the due to the aging population. Auckland and staff affected by the 2016 cyclone). number of villages in the pipeline.) There Melbourne are still well under-supplied. b Good remuneration – already higher are more opportunities for land purchases Fiona McKenzie than the sector’s norms, Ryman in- in Melbourne now that market is cooling and creased staff compensation by 10% the Board expects the pace of rollouts to over the last 2 years. They made sure match NZ’s within a few years. staff felt their rate was fair in compari- Property demand in Auckland and Melbourne son to their colleagues. (Note: Direc- meant that the gap between the price tors’ increase was 9% over the last 2 residents were selling their homes for and years, so this is in keeping with the the price of a Ryman unit is still significant, percentage increase for staff). leaving residents with healthy cash sums. c Staff share purchase scheme. The gap was less marked in some other d Training and leadership programmes – geographical areas. helping staff to earn more by increasing Ryman intends to raise the bar on the food their skills. offered in its villages. e Full rosters – so there are no under- staffed shifts. One shareholder asked whether residents f Tools – ensuring staff have what they could share in the capital gain made on the need to do the job: units. David Kerr replied that, with current • Stylish but practical new uniforms. levels of demand and Ryman’s full disclosure • New technology to help reduce paper- of the terms, there was no reason to change work and free staff to spend more time the model at this time. Ryman residents at play with residents. Following NZSA’s question on poll voting

The Scrip August 2016 17 Stride Property SGM 30th June his was yet another shareholder stapled security arrangement. Stride chairman Tim Storey and Investore meeting held at the difficult time At the meeting, the representative from chairman Mike Allen about these matters Tof 9am at Rydges Hotel in Central ACC attempted to block the proposal as and would consider any further action Auckland. Clearly the company had not a way to pressure the Investore IPO to once the IPO was complete. expected many people to turn up, but adopt better governance, the logic being Another speaker suggested that Stride despite the hour, the small room was that if the constitutional changes failed, could have simply bought the additional jammed to overflowing with 60+ share- Stride would have to make changes to assets and managed them internally, which holders and the board wedged in a corner, Investore to be able to get the necessary would have also retained the PIE status. almost on each other’s laps. support. The chairman made the point The chair said that the current balance The purpose of the meeting was to consider that the ACC approach was unrelated to sheet was not capable of taking on the a special resolution (75% majority the direct business of the meeting, but additional burden without raising further required) changing Strides Constitution to in the interests of full and free discussion equity, and the board considered the allow a separation of the property owning allowed ACC to proceed. structure chosen gave the best financial (Stride) and property management (SIML) The ACC concerns were mainly around the outcome for Stride at the lowest risk. divisions. The effect was threefold. poor board structure, conflicts of interest The resolution was passed on a poll with Firstly, the two divisions could be “stapled”, inherent with the management structure 82.4% in favour. Of the 17.6% opposed, a structure that is new in New Zealand, but and the unfair contractual arrangement ACC was 8.1%. common in Australia. Although separate that made replacement of SIML as Investore has subsequently been success- entities, the two are linked in such a manager all but impossible, short of gross fully floated with the IPO heavily oversub- way that a shareholder buys into both and continuing negligence. scribed. We note that despite their objec- when acquiring Stride property stapled Both NZSA and ANZ Equities spoke about tions, ACC did take a shareholding in securities. this manoeuvring making similar points, Investore. NZSA continues to have serious Secondly, it preserved the PIE status for the namely that the deal was good for Stride concerns about the structure of this property side which has a tax advantage Property shareholders and that it had to offering and expects to see further moves for shareholders on the 33% rate. be viewed in that light. Members will know over time, to make improvements. Finally, it provided the framework to allow that we emailed a briefing paper about John Hawkins for the IPO of Investore, a “big box retail” Investore and highlighted the very issues property offering consisting of some of that concerned ACC. Stride’s existing assets and a number NZSA spoke saying it agreed with ACC of supermarket assets purchased from about deficiencies with Investore, but that an Australian vendor. Investore is to be was something that potential investors managed externally by Stride Investment would have to weigh up when considering Management (SIML,) and this will signifi- the IPO. We also indicated that we had cantly boost the Strides profits via the already had robust discussions with both

The Scrip August 2016 18 Wynyard Group AGM 20th June rriving at the Stamford Hotel to attend Wynyard’s strategic direction and were was subdued possibly because he had to save the Wynyard AGM, we had to walk restructuring the business. It expected to some energy for shareholder’s questions. Apast a lady dressed as Wonder Woman make annualised savings of $17m. Amazingly, one of the Fund Managers voted – apparently her presence was part of a The Directors had also taken a 20% pay against Fiona Oliver being elected to the campaign to raise awareness of a potential cut and employed NZ First Capital as their Board. Later, when questioned, he explained class action being taken against Wynyard by investment banking partner. As though to having females on Boards is a definite must two fund managers. Other than the enter- forestall the question, the Chairman reiterated but having the “right ones” is imperative. He tainment factor it would have been difficult that the Board had confidence in CEO, Craig believed that there were plenty of talented for shareholders to understand the link Richardson, who had worked tirelessly, was woman who would have been better suited between Wonder Woman and Wynyard. the leading salesperson, and was receptive to the role. The newly appointed Chairman, Guy to guidance. Although Mr. Haddleston The Chairman stated that there would be Haddleton, was well aware that the Wynyard spoke of People, Product, Performance and no change to the guidance figures provided AGM could be contentious. He was in total Passion, it was a struggle to feel any passion to NZX and cash was in line with forecast. control of the meeting, and in some instances radiating from the staff at the meeting with The Chairman acknowledged the work of the his manner bordered on curt, particularly the exception of recently appointed director, two retiring directors, Susan Peterson and during question time. The Chairman pulled Richard Dellabarca. Perhaps stormy waters Richard Twigg. no punches - simply put, Wynyard did not of the past few months had taken its toll on Questions from Shareholders: execute a solid game. He advised the number management and the Board. 1 Had the $27m contract that was meant of shares for which he held proxies and There are four new Directors on the Board, to have been signed last financial year indicated the direction he would vote. That and as Wynyard is a technology company the been signed yet? (No but Wynyard tends to curtail discussion. All five resolu- speeches for election needed to be inspiring is hoping this contract will have pro- tions (re-election of one director, election of and invigorating – they were not. gressed before the end of 2016) four new directors, and auditor’s remuner- During these, Richard Dellabarca advised 2 Whether future share placements would ation) passed by a show of hands. that he had spent six weeks working at penalise retail shareholders like they After thanking Dr. Murray Horn, who Wynyard before accepting nomination, and had in the past? (Wynyard is not looking resigned because of ill health, the Chairman seemed genuinely excited about Wynyard’s to raise any capital in the foreseeable summarized the problems: a rapid deterio- prospects. By contrast, Fiona Oliver was going future.) ration in cash, global market disruption, not to challenge management; had a high level 3 Why when Wynyard is a technology having an investment banker as a partner, of commitment; would be an independent company did their website look like a and government contracts not closing as director; and had international corporate Modelling Agency or Real Estate com- expected. The Board had addressed these: and business restructuring experience, but pany promoting a particular salesperson it had been strengthened, implemented she showed no passion at all. Martin Riegel’s as Craig’s picture and pose appeared on new processes, and been more involved speech was beamed via a video (with sound every page (Wynyard had to be careful in the organisation . It had also refocused issues) as he was overseas, and Guy’s speech about who appears on their website due

The Scrip August 2016 19 to potential security issues but th the Board will look into the Mainfreight AGM 28 July matter) hair, Bruce Plested, said the year ended in which they collect in one country and deliver 4 Why did Wynyard cancel the March 2016 was a game of two halves. to Mainfreight in another, avoiding the use of SFO contract? (Wynyard CEO The first half profit after tax, was a disap- outside companies. Employing the right sales – The SFO wanted features C pointing 2% below the previous year. However, staff will be critical in developing overseas. For and functions that are not after bringing on some subs in the second half, example, Atlanta with a population similar to needed in the market) they succeeded in gaining a 12% increase on NZ’s, has a sales staff of 3, while NZ has 80. 5 How many staff report to CEO, the corresponding period, giving an annual Sales of software to customers which allow Craig (25 salespeople on aver- increase of 6.3%. The momentum begun in them to track each shipment is more than a age) the second half and appears to be continuing bonus, because it ties in the customer to the 6 Several shareholders wanted in this current year. Mainfreight system. Don also emphasised the the Board to give them reas- Bruce then used the platform to make some distinctive Mainfreight culture, which differed surance that they retain their telling observations on NZ’s social economy. from the governance rule book, (professional shareholding. Most did not He was concerned that the uneducated were directors with multiple directorships need not want any more issues of capi- forming an underclass of net takers from the apply) and emphasised deep immersion in the tal. economy, that the teaching profession needed activities and people of Mainfreight. It takes And one lingering unspoken raising in status and remuneration according commitment to become familiar with 239 question: If the organization could to results, that the continued pollution of our branches so that questioning is constructive make annualized savings $17m beaches and rivers was intolerable, and that we and adds value. when they needed to, just what need a capital gains tax like other countries to Asked by the NZ Super fund about the need were they spending money on over help deal with speculation on land and homes. to replace ageing directors, Bruce Plested the past 12 months? He also challenged the audience to vote for said they take risk and general corporate Jenny Miller an energetic mayor and business oriented governance very seriously but have their own councillors to deal with Auckland’s growth. way of dealing with this. They are looking for Don Braid CEO, gave a forward looking view of new directors but will insist on candidates who the company, pinpointing the areas in which fit the culture, and have the right mix of inter- they would improve. EBITDA was up in NZ national business activities. 5.5%, ASIA 27.3%, Europe 19.4% but down I congratulated them on an excellent report in Australia (8.2%) and the USA (2.2% ).The and performance, but suggested they may new premises completed in Epping, Melbourne, want to look at adjusting their director’s fees Hamilton and Christchurch, were stimulating more regularly as it has been some 5 years sales in those areas, and allowing a reduction since last reviewed. in capital expenditure in 2017 However, Des Hunt Mainfreight now operates in 21 countries, and the big opportunity is coming from networking,

The Scrip August 2016 20 Scales Corporation AGM 4th June hings commenced with a promotional compounded growth since the IPO and sustainable competitive advantage as we video with emphasis on Mr Apple and the return on capital of 15% which is their only produce .07% of the world’s apples? Tthe slogan ‘Pure Delight.’ Presenta- objective. He also spoke about their strong A: Of course we do, otherwise we would tions and annual results are available on aspirations for staff education and training not be here. We have premium apples far the company’s website. and the importance of health and safety. better than anything else in the world. We The Chairman, Jon Mayson introduced We then watched another brief video on believe that our strategy is working and Weiyong Wang CEO of the new 15% share- the five point stars branding of Mr Apple. we can continue to demand good prices. We back our management team; if their holder China Resources Enterprise, who The chairman then presented the resolu- growth plans are big, we’ll back them. would be invited to stand for the board in tions which were voted by poll with the the next AGM. Mark Hutton, Chair of Direct results appearing on the NZX. Both Mark Q: Are you putting money into your own Capital, which has sold its shares will Hutton and Alan Isaac gave a brief address varieties? A: Yes. We currently have one in remain on the board as an independent to support their re-election to the board. the pipeline now. director. He added that he will be standing Q: How will the Chinese board membership Q: Are the board looking for other opportu- down at the next AGM, and be replaced affect the directors’ fee pool? A: “they will nities and how much diversifying into other by Tim Goodacre. He also announced Liz be included in the pool”. crops? A: We use a virtually integrated Muller joining the board under the Institute model which is very important and we’d Warren Walpole, NZSA member (and of Directors’ Future Directors programme. have to find another product as good as Mr shareholder) presented the NZSA positive Mr Wang then took the floor, commencing Apple. We do look but the criteria are high. statement about resolution 3 (to increase with a video showing the scale of this the directors fee pool by $40,000). Q: Are you storing Fonterra’s powered very large company. He said that China milk? A: No, only frozen and chilled goods, Q: Are you tracking on budget to June 30th? Resources are placed at 115 within the however mozzarella cheese is stored. Fortune Global 500 and they are striving to A: We are comfortable with our position. Q: How to you protect crops from weather improve this standing. Although his words Q: Do they see opportunities in Australia? events? A: In Hawkes Bay we are well were sometimes indistinct, we heard A: There are opportunities but the issue spread against this risk. that they have seven million customers is getting into the retail programme as daily. The attributes of Mr Apple, namely Australians are very parochial. Hopeful The Chairman concluded by stating “good freshness, crispness, its rosy colouring that consumer demand will bring results. fortune favours the brave but we are not reckless. There is always risk but we can and clean, green growing conditions under Q: Over a 25-year period, does the company overcome most” clear blue skies will be highly appealing to see itself as a growth or dividend stock? A: the Chinese consumer. We have opportunities to diversify but also Barbara Duff Andy Borland then spoke of the highlights we want to ensure that shareholders are over the past financial year and its very rewarded provided we do well. healthy statistics. He emphasised the Q: NZ has the best apples in the world record EBITDA and NPAT and showed their – do you believe this? Does NZ have a

The Scrip August 2016 21 Moa AGM 29th July oa began brewing in 2004. In 2010, PE First, the venue, Moa’s headquarters in for speciality brews and contract brewers firms Pioneer Capital and The Business Ponsonby/Grey Lynn is in an area of near used for efficiency in volume production of MBakery bought in and expanded 24-hour parking grid lock. Public transport the main craft beers. The analogy was offered operations. In 2012 the company listed in an is limited. The functions/tasting room where of Jackson Road being the prep school and IPO that closed early 125% oversubscribed the meeting was held was far too small for the contract brewing the college. There was no at a $1.25 listing price. From there on it has number attending. It was down to standing answer when one ‘moa hunter’ asked where been downhill. Further capital was acquired room only on the stairs and foyer. Many of the university would be. through a rights issue in 2014 at 38 cents a those inside had no view of the proceedings Independent director, Ashley Waugh and share. Going as low as 28 cents a share, the or could hear questions. The chairman’s non-independent, Allan Scott, up for current price is up to 88 cents, seemingly address included a reference to use a micro- re-election, spoke to the meeting. Of the driven by a report from one Australian phone when asking questions – there were six directors only two are independent. I analyst and a buying spree by Executive no microphones. asked that they consider changing the ratio Director, David Poole. At this year’s AGM we Other than Craig Styris, no director came to of independents to share the load. The were told not to expect the company to turn the meeting space pre meeting. We could response focussed on choosing people with a profit in the next 3-5 years. see them looking down from the mezzanine appropriate skills. Post meeting, Mr Waugh Moa has the knack of attracting media floor. The atmosphere was rather unwel- told me that they are looking for someone coverage. NBR, Stuff, The NZ Herald and coming. They looked worried that they would with international marketing skills and would Share Trader all covered the AGM in a week be eaten by the ‘moa hunters’ below. like that to be a woman – if they could find of numerous AGMs that struggled to attract Addresses from chairman, Ashley Waugh someone with the appropriate skills. He is any mention. and CEO, Geoff Ross, along with slides are also open to appointing an associate director With 1625 shareholders (Moa likes to call available on the NZX and Moa websites. Videos under the Institute of Directors’ programme. them moa hunters) Moa seems to have of planned promotions are not. As the result On the auditor appointment and fees attracted many younger proselyted beer of ‘moa hunter’ feedback at the meeting, resolution, one ‘moa hunter’ asked that the drinkers to their ranks. The attendance at at least one of them will probably never be auditor address the meeting to justify their this year’s AGM would tend to confirm this. aired. In brief, we were told the company fees. Mr. Waugh allowed this and the Price For once, those with grey hair were definitely is getting its inventory under control; sales Waterhouse representative acquitted himself in the minority. Moa says it is still in a devel- have improved both in New Zealand, through well in his impromptu address. A first for him opment phase. When it comes to running a shift to selling through FMCG (super- and not something I have seen before. AGMs, progress is still wobbly – even with the markets) and internationally. There is too All three resolutions, voted by poll. passed training wheels still on. The company wants much competition in the Melbourne market, with 99.7% of the votes in favour. There ‘moa hunters’ to advocate for their brand. Sydney offers better prospects. were 25,407,135 votes cast – just 53.77% Getting ‘moa hunter’ support will have to go The company no longer plans to build a of the 47,254,884 shares in the company. further than offering a free tasting at the end new brewery – an initial reason for the IPO. General discussion was time for a vigorous of the AGM. Instead the Jackson Rd brewery will be kept exchange with ‘moa hunters’ whose questions

The Scrip August 2016 22 were mostly perceptive and challenging. Mr Waugh th called a halt, on the pretext that we were cutting down AWF Madison AGM 27 July on the time available for product tasting, well before we wo types of chairmen presided which health and safety measures were done. over meetings this month – one are embedded, and the integration Moa hunter and NZSA member, Jenny Miller, set the Ttype is careful and methodical of the Christchurch franchise into tone saying, as a female, she found the ad in one of reading from an approved scrip, an in-house operation. Alex Parks the videos we had been shown “a bit bitzy and really and the other less formal, at ease new COO of AWF showed graphi- unacceptable.” She also said the board could do with a in his position, and familiar with cally the drop in lost hours, placing female addition. Justine Ross, wife of CEO Geoff, got the board, staff and content of his 9000 employees in work, training into the discussion by saying that there was a woman material, - making the occasional 125 cadets, and commitment to behind the man and (in her case) there was constant minor gaff, but recovering rapidly. long-term growth. Steve Jackson discussion in their home on how women perceive Ross Keenan is of the latter variety, COO Madison spoke of the oppor- marketing and she hoped there were similar discussions and it encourages a more relaxed tunities in his 7 business units, in the homes of other board members. Another (male) atmosphere. Ross shed light on the and the recent changes in the job moa hunter weighed in that he had questioned female tough second half which saw total market. shoppers in supermarkets who told him that they liked earning decline from 20c to 16c per The election of Julia Hoare (audit Moa beer but found the branding “very misogynistic”. In share and operating cash flow from and risk,) and Ted Van Arkel (for his response Mr. Ross said that, “Moa’s marketing needed $6m to $2m. The added diversity last term,) were unopposed, and to speak to a number of different audiences. Some may of the customer base to 4000, with discussion and questions sought not be appropriate to some targets but we hope that none above 11% of revenue, had elaboration on debt collection, the other pieces of our communication are appropriate to a created debtor control problems. difficulties of recruiting overseas, more female-orientated target,” However Ross was encouraged by pressure on gross margin, and In response to questions we were told there is no the new breed of management, staff shares. However the most intention or need to raise further capital and the never out of touch with operations, aggressive question was a business is not for sale. No Moa employees, other than even while seated on an aircraft written one. Has AWF failed in Mr Poole, have recently bought shares – although there overseas. He was also encouraged the residential and commercial is a staff share scheme. There has been no increase in by the new gender balance of construction market in Auckland? Australian ‘moa hunters’ joining or increasing holdings the board, (3male + 3 female,) The answer appeared to be similar during the recent share price increase. including future director, Rachel to the Council’s, the Government’s, Hopkins. In depth experience is still Given the post meeting crush of ‘moa hunters’ and and the industry’s – No quick fix. provided by Simon Hull, founder of other attendees enjoying their company’s product, We’re working on it. AWF, and Wynnis Armour, founder meaningful conversations with Moa directors and senior Alan Best of Madison recruitments. management was a little difficult. However, from what I observed, ‘moa hunters’ were assiduously taking the New CEO, Simon Bennett spoke opportunity to make their views known. of the strengthened leadership, shared services and systems in Bruce Parkes

The Scrip August 2016 23 Restaurant Brands AGM 22nd July Energy Mad AGM 28th July estaurant Brands holds its AGM in Written questions, comparing the he meeting was run (and quite tightly controlled) Auckland every 2nd year, so that performance of Dominos with Pizza Hut by the chair, Dr. Brent Wheeler, who introduced Rthe 60% of shareholders outside a completely different type of franchise, Tthe board. The MD, Chris Marden, gave a brief Auckland get an occasional chance to low staff wages in the fast food presentation highlighting the turnaround in operating participate. Shareholding has been industry, acquiring KFC independents profit from a big loss of negative $2.9 m in 2014/15 over relatively stable over the past five years in NSW, delivery services in Restaurant negative 895k in 2015/16 to now a small plus ($348k in because of the growth in dividends Brands group, also forestalled possible 1Q2016.) The presentation showed that the company from 17c to 21c/share, and a generally discussion from the floor. strategy focuses at this stage on the Australian market improving market position. The recent After Danny Diaz valediction, Sue – installing as we speak an Australian sales office. You purchase of the KFC NSW franchise Suckling’s re-election was well can view it on https://www.nzx.com/companies/MAD/ has seen shares on issue increase from supported, though she aims to retire announcements/286364 97.8m to 102m with the Copulos family shortly after 10 year’s service. We Board elections: The chair introduced the candidates interests accepting part payment in suspect that Stephen Cupolos is really and wanted to go immediately to the elections. The shares, and then buying more on too heavily committed to contribute NZSA rep managed to get these directors to at least market. NZSA members can get a clear much to the RBD board, but his stand up, introduce themselves and answer questions idea of past performance from the 6 experience and contacts over a wide by themselves. Andrew Plympton gave us an overview year trend statement in the annual range of Australian businesses, and of his several other board sports and voluntary report ( RBD website – corporate info – his detailed knowledge of the KFC commitments. David Jarman was quizzed on his role company reports,) or on the graphs in franchise in NSW (he was the owner,) in South Canterbury Finance. It appeared he was one our members’ webpages. should prove useful. Vicky Taylors CV of the people trying to make the best of a bad hand Whether it was the thorough presen- looks to be a good fit for RBD, and she dealt, rather than one of the people who brought the tations or the anticipation of drinks, spoke convincingly. company into trouble. He has relevant experience in pizzas, wraps, and finger-licking, Even the resolution increasing the finance and accounting. questions and comments from the directors’ pool to $400,000 elicited no After the elections there followed a lively Q+A session floor were in short supply. After all the objection after the publication of the with most shareholders involved and asking questions. share price has climbed steadily from independent report. After all the smell Q What is the current financial situation and cash $2 in July 2012 to over $5 today, and of that lunch was too tempting to ignore position? the fully imputed dividends of 21c/ any longer. share do tend to make shareholders A The company traded last quarter, cash positive and Alan Best complacent. To the 3500 NZ staff we the cash position is now better than it was at the time can now add 2000 Auzies, and incre- of the annual report; mental profit growth is occurring in Q: What is the sales strategy, why are NZ sales contin- all franchises despite the competitive uously flat … market conditions. A: The company emphasised that they are not in

The Scrip August 2016 24 the business of selling to consumers. th Their focus is to sell into the Australian Goodman Property Trust AGM 27 July market where energy saving products his year, Goodman Property Trust took an eye on it. are taxpayer subsidized, they do not its peripatetic AGM road show to the Another unit holder asked about the ratio of focus on the New Zealand market Pullman Hotel in Auckland. Shareholders, the distribution of operating earnings and/ which is different. T overflowing the venue, listened to addresses or whether cash earnings was a preferred Q: Why still high inventory write offs by Trust chairman, Keith Smith; then CFO Andy measure. The answer was an intention to move (4.4% of total turnover in 2016) and Eakin, and CEO, John Dakin from Goodman to a distribution of 80% of cash earnings. inventory? NZ, which manages the Trust. Copies of these The only other unit holder comment came from addresses, overheads and a video of the A: They don’t manufacture themselves, one gentleman who wanted the share price to proceedings are available on the Trust’s web but buy from factories in China. Fast be lifted to above $1.50. technological changes force them site. Retiring independent directors Keith Smith and to obsolete some of their inventory; John Dakin said they believe the best returns Peter Simmonds stood for re-election. Mr. Smith Customers commit to orders as late will be delivered through industrial and was re-elected with 99.8% of the vote and Mr. as possible, pushing the obsolescence business park properties in Auckland and their Simmonds with 99.9%. In line with but a little risk towards the supplier. strategy was to refine and renew the portfolio better than my directed proxies would indicate. with greater investment in the city’s industrial Q: Given that they are a very small Both are long term directors. I asked if there sector. The objective is on building a premium player in a huge market – what is their was any board policy around length of service property business featuring a high quality moat? and was told no. The response slid around portfolio underpinned by a strong balance sheet A: They became very good in identi- length of service and focused on picking the best and robust capital structure. fying opportunities in the B2B market. person and skill set for the job. Never the less, “The re-balancing is a deliberate capital Q: Which of the directors have Energy post meeting discussions with directors, legal allocation decision that reflects the positive MAD bulbs installed in their own house? advisors and senior management suggests our investment characteristics of industrial property point was taken on board and is part of ongoing A: All of them except David Jarman and the stronger economic drivers in New board debate. (who just joined the board); Zealand’s largest city,” Dakin said. “Around The post meeting refreshments, which seem Q: How do they see the potential for 68% of the portfolio is now invested in indus- to be of high interest to most who attend this company in say 3 or 5 years? trial and business park property and we expect meetings, were more than adequate in quality this weighting to increase further over time.” A: The Australian market is huge and and quantity - although the crowded room More than 70% of current assets have been EM’s penetration tiny – and there are a made access a little perilous. Standing between constructed in the last 10 years. large number of other regional markets a hungry unit holder and a sausage roll is no around. At question time I asked whether they antici- place for the faint hearted. pated any change in leasing behavior when IFRS Heiko Mueller-Cajar Bruce Parkes 16 is introduced in 2019. This requires leasees to bring leases on to their balance sheets. The answer was, no - so far, but they are keeping

The Scrip August 2016 25 Caught on the Net

Are safe haven assets safe anymore? far better to buy a wonderful company at a Assets that include Treasury notes, high- fair price, than a fair company at a wonderful quality dividend stocks, and low-volatility price.” Provided the company is truly mutual funds have all seen spooked investors wonderful, it is fair enough that the market rush into their supposedly safe embrace. values it at a substantial premium to the Overpaying for what used to be safe assets average PER. However, even star companies creates lots of risk in them to the point where and market darlings occasionally disappoint, they may be classed as trash. Suzanne and you don’t want to be there when that happens. More Woolley discusses this in a Bloomberg article banking – divorcing payments from private More The global case for strategic asset bank deposits and even putting an end to allocation and an examination of home The causes of systematic risk and ways banks’ ability to create money. More bias to prevent them Why most traders lose money and why A research paper from Vanguard Investment While the full facets of systemic risk are still the market requires it Strategy Group discusses how many investors unclear Franklin Allen, professor of finance at This Vantage Point Trading article by Cory tilt their portfolio away from market cap, Wharton, points to six things that lead to it: Mitchell says that 95% of traders lose money either consciously or unconsciously and offer banking panics; banking crises due to falling and offers suggestions on how individuals a framework for considering the benefits of asset prices; contagion; financial archi- can escape from herding behaviour and global diversification. More tecture; foreign exchange mismatches in create above average (or below average) the banking system and behavioural effects Central bank digital currency: the end returns. More of monetary policy as we know it? from ‘Knightian uncertainty’ — or uncharted How to prepare for market routs waters such as the recent referendum on the Central banks have long issued paper In times of high volatility, staying level ‘Brexit’. His paper, “The Interplay Between currency. The development of Bitcoin and headed and calmly working through the Financial Regulation, Resilience and Growth” other private digital currencies has provided process will keep you ahead of the vast discusses some of these causes and offers them with the technological means to issue majority of investors says Nathan Bell, Head potential solutions. More their own currency. But should they? Marilyne of Research at Peters MacGregor. The key Tolle, in a Bank Underground post she argues Is there value in ultra-high PER stocks? is performing your research and valuation that taken to its most extreme conclusion, Yup, says the Clime Investment Management estimates ahead of time when your emotions CBcoin issuance could have far-reaching blog and offers five Australian stocks to are unbiased. consequences for commercial and central consider. They quote Warren Buffett, “It’s More

The Scrip August 2016 26 Identifying a good IPO What to do when your holding gets At last, we get a CEO who will work 24x7 There are signs of further IPO activity on the crushed and will not expect or get a bonus. A word NZX so an article from David Walker, Senior When there is a significant fall in the market of warning from Simon Hathaway, president Analyst at Clime Investments, on what to what do you do? Do you buy more, continue and global chief retail officer at advertising look out when considering an IPO. He uses holding or cut your losses and sell? At the time agency Cheil Worldwide, “as we all seek the float of Shaver Shop on the ASX as an of Brexit, Livewire asked 5 fund managers automation in operations, we must not lose example. Since listing, despite a lukewarm what process they followed when the stock in sight of the fact that our customers are reception from analysts, Shaver Shop has their portfolios suffer a significant fall. More human” More traded mostly just above listing price More Market Risk: what you should know Earnings Shenanigans - are your profits being manipulated? What is a reasonable return? The Alert Investor offers a 101 on the Mark Burgess, former CEO of the Future different types of market risk and how you Its reporting season and companies have Fund shares some interesting case studies on can manage those risks. More strong incentives to present the most positive picture possible of their financial health. investor expectations and what he believes Bosses take bigger share of top British Hugh Dive from Aurora Funds Management is a reasonable return today. More firms‘ profits offers insights in to what a company can do Basic Income: A sell-out of the Chief Executives at Britain’s largest to dress up their financial results and what (American) dream companies had a pay cut last year. But profits tricks to look out for. A word of caution - if We are seeing more commentary about fell further, continuing a decade long trend you can’t or won’t read the financials, this schemes to give everyone a guaranteed of bosses taking a rising share of corporate will not be of much help to you. More income. David Freedman, writing in MIT profits. However, Reuters reports that some Bruce Parkes Technology Review, presents a case against politicians and reform campaigners claim such schemes. His basic conclusion is that that shareholders are to blame for failing to the time is not right - at least in America - hold companies to account. More where, he says, there are plenty of jobs and Is the DAO the beginning of the end for the country is not rich enough. More the conventional chief executive? Seven ways to tell whether a private Watch out CEOs. Disruptive technology is equity backed IPO should be avoided. coming your way. A decentralised auton- Mark Humphrey-Jenner, Associate Professor omous organisation (DAO) is essentially an of Finance at the University of NSW, offers investment fund without humans making seven factors for investors to consider investment decisions. Instead of a hierar- when deciding whether or not to invest in a chical management structure managed and PE-backed IPO. His final comment - while regulated by humans, a DAO using block- investors should always examine each IPO chain technology and automated formalised on its merits, there is no reason to avoid governance rules enforced through software. PE-backed IPOs per se. More

The Scrip August 2016 27 Branch Reports

Branch Contacts Auckland Andrew Reding [email protected] We recognise that branch reports in our newsletter do not adequately represent the expertise and preparation of those presenting to us. Waikato John Davies [email protected] The work of these professionals who give their time is appreciated by Bay of Plenty Jane Lyndon [email protected] all who attend. Members are encouraged to refer to the individual Taranaki Grant Langdon [email protected] company websites for the latest news and disclosures. Wellington Martin Dowse [email protected] Canterbury Robin Harrison [email protected]

Auckland. Upcoming Auckland Branch Meetings All at Alexandra Park Convention Centre, Green Lane. 7pm tea & coffee – 7.30 pm start Company Visits Dates for 2016: August 24th Comvita (open to first 20 to Wednesday 14th September Featuring NZX’s new NXT market, with Mark Peterson, register) Head of NZX markets, analysis from Edison and examples of NXT companies Please register with Wednesday 16th November Speakers to be advised Fiona Gray – [email protected] Please mark the dates in your diary and have your questions ready for the speakers

Meeting 15th June - More informative audited financial statements – is undergoing end result is a new and improved auditor’s Audit Reports dramatic change around the world. A more report that provides more transparency By Liz Stamford, Audit and Insolvency informative auditor’s report is the most about important aspects of the audit, and Leader, Chartered Accountants Australia visible change in auditing in more than 50 better describes what an audit is and what and New Zealand. Liz’s presentation may be years. the auditor does. viewed in the members section of the NZSA The New Zealand Auditing and Assurance Preparing for change website. She sent us this summary of the Standards Board (NZAuASB) released its The most significant change is a new presentation. suite of new and revised auditor reporting requirement for auditors of listed issuers Introduction standards in October 2015. This was the to include ‘free text’ in their audit report culmination of a process that started in 2006 The auditor’s report – the principal commu- explaining their “key audit matters” (KAM). with international academic research on user nication from the auditor to users of the The auditor will explain what matters were perceptions of the standard audit report. The

The Scrip August 2016 28 of most significance in the audit of those there will not be some incremental effort (and Changes at a glance particular financial statements for that cost) to implement these changes, particu- For FMC (Financial Markets Conduct) particular year and comment on how each larly in the first year. However, the auditor’s reporting entities considered to have a matter was addressed in the audit. communication of those matters should add to higher level of public accountability: Which matters are included, and how they investors’ confidence in the entity’s financial • New section for key audit matters and the auditor’s work are described are the reporting and the audit. (just listed issuers for first two years) judgement of the auditor. As application of the Some of the positives already being seen and • Inclusion of the name of the engage- new standards unfolds, there will be a variety reported are that Key Audit Matters: ment partner of styles emerging. What and how each • Assist investors engage with the entity on • New section within the opinion, com- auditor chooses to report will differ. Although audit and accounting matters by provid- menting on the other information this is not what our markets are used to, it ing helpful ‘hooks’ which investors can included in the annual report for should be viewed positively. By experimenting use in discussions with directors. which the final version has not been and allowing diverse approaches (within the • Provide useful sign-posting to important obtained confines of the standards), auditor reports will disclosures in the financial statements. For all entities: provide a range of information. Investors will • Offer investors a greater insight into the • ‘Opinion’ section presented first, fol- be able to determine, through real examples, auditor’s work and how the auditor has lowed by ‘Basis for Opinion’ section what works best for them. Feedback through perceived and addressed risks of material • Explicit statement of independence the AGM or the entity will help hone the infor- misstatement in the financial statements. and compliance with relevant ethical mation flow in the market. There is an inter- • Provide additional understanding for requirements, plus identification of esting example from the UK where similar investors of the judgemental areas in which standards were followed standards have been in place for a few years. financial statements. • Enhanced description of the auditor’s The UK Investment Management Association • Help investors be better informed and responsibilities, including for going now gives awards for the most insightful and have a better appreciation of the roles concern, and the key features of an innovative auditors’ reports. Something to of directors and auditors and how they audit think about here perhaps. interact • New wording to describe the direc- For all audit reports, whether for listed issuers What to expect next tors’ responsibilities for going concern or otherwise, there are other changes to the • New section if there is a material un- The changes are effective for years ending 31 format and content of the audit report. A certainty related to going concern and December 2016, but the NZX early adopted brief overview is provided in the box to the it is adequately disclosed in the finan- the new audit report format for their 31 left. cial statements December 2015 financial statements. So far • • New section within the opinion, The cost-benefit equation this is the only one in New Zealand, although commenting on the other informa- The new auditor’s report represents one of there may be more early adopters for the 30 tion included in the annual report for the biggest changes in auditor reporting and June 2016 reporting season. which the final version has been • communications in decades. The combined KPMG’s audit report for the NZX included a effect of the changes to the audit report is materiality figure which is not a requirement not insubstantial. It is difficult to argue that of the New Zealand standards. The number of

The Scrip August 2016 29 “key audit matters” reported in early Members’ Visit 7th June - Metro Performance Glass auditor’s reports in the Australian an I recommend something here? If you market has been quite varied and the haven’t already been out to the Highbrook matters included have been notably Business Park in East Tamaki, then find the specific to the entity. Both these situa- C time to go in the near future. This state of the art tions imply a good application of the business park, developed by Goodman Property standards, and reflect the auditor’s Trust, is home to such successful manufacturers judgement and the particular circum- and exporters as Fisher and Paykel Healthcare. It’s stances of the entity. There is no beautifully landscaped, environmentally aware and right or wrong number or answer, nothing like the polluting smokestack industries of and no prohibition on including other old. information such as materiality. Any questions arising are an appropriate One of the newest residents of Highbrook is Metro part of the process, and subsequent Performance Glass. The company has built a futuristic glass manufacturing business there and we dialogue with the entity or auditor is a had the privilege of touring this facility in June. This is a company and facility that can compete with valuable part of the information flow. glass window and door manufacturing from China. Their dynamic C.E.O. Nigel Rigby stated that there are “Not many glass plants around the world like this one”. We encourage innovation so that audit reports are insightful and unique, Before being divided into groups and touring the plant we were addressed by Nigel. He said their and we challenge our markets and building was planned in 2012 and is “Two football fields long”. At their Highbrook site 4-5 previous regulators to support and embrace sites operated by the company were consolidated into one. He added that “All things glass are these differences. made here” and they have the latest technology. Metro has over 50% of the glass market in New Zealand. The commercial sector is a real growth area for them and they have $27million of forward Noel Thompson’s comment: Questions work. Retrofit double glazing is currently 5% of revenue and they want to grow this. There are from the floor concerning key audit 1.4 million homes in New Zealand and if Metro could matters emphasised that the Audit supply 14,000 homes per year that would be a good perspective is different from the revenue stream independent of building cycles. business perspective held by the Directors. This is going to be an inter- The company is seeing “Record growth”. Over 90% esting time for Auditors and we need of new homes are now using double glazing. The to scrutinise all new Audit Reports to company is investing in product leadership. “Devel- determine the effectiveness of the opers are going to need digital printing on glass”, reporting regime. • and Metro Glass has the technology to do it. Another development in the near future will be the use of photovoltaics in glass. The company motto is “Global technology to New Zealand first”. What differentiates Metro is a broad product range plus a fully automated plant. Nigel mentioned that much of the technology for the new plant was purchased during the G.F.C. This enabled Metro Glass to purchase much more sophisticated equipment than would otherwise

The Scrip August 2016 30 have been possible, because of the on glass so the company has to be Waikato depressed equipment prices. The competitive. They want an increasing Presentation by Bill McDonald, CEO of Arvida Group economics of manufacture are share of the commercial market and daunting. The company can produce Nigel emphasized that they are very s investors looking for maximum returns we look 70-80 double glazed units per hour – conscious of not being a “Boom/bust for solid, growing companies, but for some of us “A bit more than the Chinese”. Nigel company”. Aentering our ‘golden years’ and thinking about moving to a retirement village, we can have a dilemma. said their ambition is to do 100 per Their basic glass lines are sourced I need to say I own Ryman shares. hour, or even 120, 130 or 140 – and in China and Thailand and currently win contracts on throughput. In 2016 there is a glut of glass in the world. Arvida Group has been in operation for just over a year the company revenue grew 10% Metro is a direct importer – they after a successful IPO, and acquiring a number of aged year on year reaching $188 million. don’t use agents. care facilities throughout New Zealand. The revenue was Dividends declared were 7.6 cps fully $82.5 million which was 19% ahead of IPO forecast of This visit was incredibly popular with imputed for a gross dividend yield of $69.5 million The net profit after tax of $24 million for Auckland members, and as I was 6.6%. 80% of the company’s shares their first financial year exceeded the IPO forecast profit limited to 25 attendees I ended up are held in New Zealand. of $10.6 million. Care fee income generated $62.1 million with a long waiting list, so I may and was mainly derived from government sources. The Christchurch commercial sector repeat this visit in the near future. is “Cranking up now” and the 10,000 Highlights included: Fiona Gray square metre Christchurch Hospital • Sales momentum built, and high occupancy in aged is going to be the biggest build in care facilities maintained New Zealand. The new Auckland • $19.1 million gain in the fair value of investment convention centre is going to be properties a $400 million build. Housing has • Total Assets up $108 million to $461 million not caught up with our needs; • Final dividend lifted to 1.10 cps, total net dividends during the G.F.C. there was a loss of 4.25 cps ahead IPO forecast. of infrastructure and Auckland I would have enjoyed this good news but if I had bought needs 13,000 homes per year. into one of Arvida’s villages I may have felt aggrieved. Other points that Nigel noted are Each village operates independently with its own that sales follow a nine-month ‘character, personality and identity’ Villages are either lag after the issue of residential purchased and adapted or expanded or built from consents. New Zealanders like a scratch. As at 31 March 2016 Arvida owns 21 facilities, customized product and Metro is a 1,246 aged care beds and 908 retirement units with a distribution company as well as a 94% occupancy over 2,100 residents. glass company. Nigel said they are aiming for “Ultimate flexibility in Current strategic initiatives for 2016-2017 include manufacture”. • Investing in improving the skills and expertise of vil- lage management and staff to enhance the care and Most of Metro’s customers are services provided to residents and fabricators. There are no tariffs The Scrip August 2016 31 • Introducing time and attend- and support work negotiations Bay of Plenty. ance and improved payroll since October 2015 and as yet is systems, as well as further de- unresolved. However, McDonald has We have had a couple of 23 young growing companies velopments to their IT systems said. “(We’ve) looked at where we’re very good Friday Afternoon since launch late 2014. They to underpin their continued positioned in terms of minimum Discussion Group Meetings – charge a fee of 7 ½ % to growth. wage . . . (we’re) well above the Friday, 30 June 2016 Michael Snowball Effect if offer is They report being more balanced minimum wage and also above the Franks, CEO of Seeka was successful in raising finance. in their ratio of Occupational Rights sector average.” our guest speaker. His Investors are kept informed Agreements [ORA] to beds compared The current Nursing Home Median presentation was similar to with the young company with other aged care providers Hourly Rate by Job gives the what was presented at the required to produce quarterly and appear to be moving towards following hourly rate for the sector. AGM for members who didn’t reports & an annual report having all ORAs for their residents. attend that event. and sign up to a shareholder Registered Nurse (RN) $24.78 communication package on Rather than having the villages in Allen Smith also gave a most Senior Caregiver $16.44 how they are going. outlying areas of a town or city they interesting presentation on are wanting more integration with Primary Care Registered Nurse Investing in the USA market Snowball Effect have a local communities providing cafes, (RN) $23.15 from his experience. process to stop fraudulent activities online and it is easy chemists etc. Arvida is mindful Clinical Nurse Manager $30.23 The Meeting was very ably to invest with them online of the changing demographics of Caregiver $15.56 conducted by Ian Greaves. aged care with people living longer without too much hassle. So while it would be really great to Friday, 29 July 2016 Simeon in better health and with different The meeting was very ably own shares in this company I have Burnett, Co- Founder & CEO needs than perhaps previously. conducted by Ross Sheerin a lot of sympathy for the carers and of Snowball Effect was our and those present were very Arvida’s stated vision is to improve the residents who are supporting guest speaker, following on happy with our new speaker the lives and wellbeing of their such massive profits. from Josh Daniells in April system as even those hard residents by transforming the last year not long after the Marie Hutchinson of hearing at the back of the ageing experience and providing company had listed. They room could hear every word! individual holistic care for their specialise in online capital residents rather than the typical raising options through Money Week 5 – 11 institutional care. Their villages are public offers, private offers, September 2016 outwardly oriented and not gated. and wholesale offers. They Bay of Plenty Branch will Their espoused values include: are licensed equity crowd- again be running an “After 5” being passionate, innovative, funding providers – offer seminar on 8 September at authentic, nimble and flexible, with to the public without a Club Mount Maunganui with fairness and a can do attitude. prospectus, providing capital two guest speakers. The NZ Aged Care Association of up to $2m per company Jane Lyndon [NZACA] has been representing per year. Arvida and all its other members They have raised capital for to resolve the equal pay care

The Scrip August 2016 32 Taranaki Wellington t the end of June, we had ather than talk about Wellington this month (except to a mid-winter dinner at the congratulate the Hurricanes on making the finals) or the ANew Plymouth Club. We weather I will talk a little about where I am. had about 55 or 56 people attend R This branch update is brought to you from your correspondent in so we are hopeful that we might Vietnam. accumulate some new members from it. The guest speaker for the Capitalism is alive and well Vietnam! With a population approxi- evening was Mr Kevin Murphy who mately 90 million, 65% are farmers and the remaining 35% urban is the Managing director/CEO of the population are all small business people. Every house, street Taranaki savings Bank (TSB Bank). corner, vacant lot is a business selling food, drink and anything He gave an interesting talk and else you can think of. Apparently there is no paper work needed presented us with a few facts that to start a small business – it is only when it gets a bit bigger that many of us as locals were unaware the red tape kicks in of. The Bank has been in existence The people are friendly and hold no grudges against the French since 1850 and the first depositor and Americans who both fought and lost wars in Vietnam last walked from Mokau to make that century. Now they are welcomed as tourists, and there are a lot deposit, by my reckoning that is at of them – but not as many as there are Chinese tourists. While least 80kms. Vietnam shares a border and a lot of history and culture with China, the Vietnamese are very wary The TSB Bank is the 6th largest of China. in New Zealand after the Four Vietnam also has a population of 40 million scooters. The scooter is the primary means of transport Australian owned banks and our for both the rural and urban populations. own Kiwibank. TSB Bank is 100% Scooters haul freight, animals, trailers, and domestically funded- i.e. they people - anything. I often see scooters carrying do not and never have relied on four people, I haven’t seen five yet but I’m foreign funding to support the hopeful I will. Road rules – apparently Vietnam growth of the bank. This domestic has them but they are more of a guideline funding is very nearly all obtained and traffic flows is governed by a simple rule from the retail sector and that of thumb - give way to anything bigger than differentiates them from the larger you, ignore anything smaller. It does seem to trading banks. work and traffic flows well, however the road Our next event is scheduled for the toll is about 4 x NZ’s rate (given the lack of 18th of August and it is a presen- protection provided by a scooter that’s not too tation from Ryman Healthcare bad I guess). Grant Langdon Must go now – happy hour is about to kick in. Martin Dowse

The Scrip August 2016 33 Canterbury he main focus for the branch in the past few weeks has been the promotion of the Members’ Issues association in Nelson and Dunedin. The fact Tthat the Canterbury branch has such a wide and Residential property syndicates dispersed membership has long heralded the need for more branches and this has prompted ichard Moore drew our attention crowd funding platforms to raise up to the support of initiatives in Nelson and the push to The Ownery and Property Mogul $2m per annum, without producing a full for more members and a branch in Dunedin. Jean Rwebsites. He was concerned that PDS – Product Disclosure Statement. The Gorman has led the way in Nelson with consid- inexperienced investors may be lured in. Ownery makes light of the problem of erable support from national and local support These are effectively residential property selling such shares, by suggesting they from Christchurch mainly through the efforts of syndicates, whereby investors are invited could be bought back by the syndicate, Tim Kerr. to put up as little as $500 for shares in a or offered to other subscribers on the Considerable effort has been directed at a promo- house, or $500 in each of several houses. website. Most homes in Auckland sell at tional evening in Dunedin which culminated in a There is an up-front fee of 4.5% of the above CV. The risks particularly in the presentation at the Otago Settlers Museum on subscribed value – ie $31500 on a $700k current market are that property prices Wednesday 27th July. The evening attracted 48 home. The houses will be managed by are over-inflated and will correct, and people and resulted in five new members with the the promoters for no more that 1.5% of otherwise like that of buying any rental possibility of more to come. The evening required the capital value plus GST, and the rental property that for reasons of tenancy, considerable effort as it had to be organised income may provide a dividend after the or other disaster, rental income may be remotely from Christchurch. deduction of company tax. irregular or interrupted, while holding costs continue on a regular basis. We are The efforts in Nelson have been progressing The promoters say it is a chance for new currently at a high point in the residential steadily and are the result of the commendable buyers to put a foot on the property property cycle. efforts of Jean Gorman who is on site and thus ladder, without affecting their right to able to direct things at a local level. obtain a first home loan or use their The FMA website has this to say about Kiwisaver as a deposit on a first home. property syndicates: What is a property The branch AGM held earlier in the month resulted This is a way of beginning an investment syndicate? A property syndicate pools in a new committee which is only just getting into in residential property when homes are money from individual investors to buy gear. A formal meeting has yet to be held and a currently 10 times the median wage. The property and share the rental income. programme for the next year will be discussed and potential diversity of shares in several Property syndicates enable you to invest set. Should new branches be set up in Dunedin properties held by the syndicate lowers in commercial, residential and indus- and possibly Nelson the Canterbury membership the risk of holding just one. The platform trial property by pooling your money will be seriously depleted and this will need to be aims to advertise several houses which with other investors. They typically offer addressed will not be mortgaged, but be debt free to higher returns but can be riskier than Max Smith the shareholders. other forms of property investment. It’s The Financial Markets Conduct Act allows also important to note that high returns

The Scrip August 2016 34 aren’t guaranteed and your money will usually be locked in. Whether the syndicate is offered on a crowd funding platform, or through a managed syndicate the risks surrounding the quality of the property, the costs and the liquidity of the investment are similar. The Ownery platform has been available for the last 3 months and there is little sign yet of investor activity. Although such schemes are available overseas, perhaps New Zealanders are Upcoming Events more aware of the costs and the risks. •

For more information go to Branch section of NZSA web- Auckland Education Courses 2016 site 2016 Western Springs Community College will run two more education courses in 2016. August 18 Taranaki Branch meeting Website: August 23 Waikato Branch meeting www.leisuretimelearning.co.nz/businessandfinance August 24 Auckland Branch Comvita visit Our courses are right for new investors, for current investors who need more knowledge, and for those who want to understand their Kiwisaver investments. September 3 National Conference and AGM

September 8 Bay of Plenty Money Week Course1. Investing for your future – general investing principles - 2 x seminar 2hr sessions Commencing 26th October 2016; Tutor John Hawkins September 13 Wellington Branch meeting Price $66.45 incl GST; plus $20 for the NZSA course book September 14 Auckland Branch meeting

September 20 Waikato Branch meeting Course 2. Sharemarket basics – understanding how and why to invest in shares. October 11 Wellington Branch meeting Commencing 7th November 2016; Tutor Jacquie Hagberg – 2 x 2hr October 18 Canterbury Branch meeting sessions Price $64.55 incl GST; plus $20 for the NZSA course book

Tell your friends, family, and work colleagues about these informative courses. You don’t have to be an NZSA member – just keen to develop your understanding

The Scrip August 2016 35 NEW ZEALAND SHAREHOLDERS ASSOCIATION INC PO Box 6310, Wellesley Street, Auckland 1010, Phone (09) 309-9768 Website – www.nzshareholders.co.nz Chairman John Hawkins [email protected] 021 640 588 Secretary/Treasurer Chris Curlett secretary-treasurer@nzshareholders. 021738032 co.nz Governance Issues Grant Diggle [email protected] Legal & Regulatory Gayatri Jaduram [email protected] Legal & Regulatory Daniel Wong [email protected] Auckland Issues Andrew Reding [email protected] AGM Co-ordination Max Smith [email protected] Company Research Martin Watson [email protected] Co-opted Associates Proxy Co-ordination Jacquie Hagberg [email protected] Corporate Liaison Des Hunt [email protected] (9) 521 6117 The Scrip Alan Best [email protected] (9) 524 0317

Disclaimer

Comments or information contained in this newsletter or other editions of The Scrip, or within courses conducted by the NZ Share- holders Association including related course books, should not be construed as providing investment advice under the provisions of the Securities Markets Act of 1988 or its Amendments, or the Financial Advisers Act 2008. The point of our activities is to provide you with Editor Alan Best the tools needed to enable you to assess investment proposals, and decide for yourself. Layout Bruce Parkes

ISSN: The National Library has allocated the International Standard Serial Number 1179-4275 to The Scrip so that researchers will have access to our material.