Sharesoc Informer

Number 43—August 2014 ShareSoc Informer

Click on any index item below I am not sure to go directly to the article in Editorial that it will ever a digital edition. totally replace Our cover page photograph in this supermarket In this Edition edition is of that iconic City building, shopping in the Gherkin. It’s now up for sale. To terms of  Oxford Tech VCTs you about £650 million apparently. speed of There is only one defect I am told—in selection and  Tesco’s new leader winter ice and snow sometimes price compari- freeze on the top, then slide down the son. They  Voting at Majestic Wine sides hitting people below. surely need more tools to  Active Managers and We have articles on the Oxford help the shop- Monks I.T. Technology VCT campaign and on per, and warn- Hargreaves Lansdown’s about face ing messages  High pound hits profits on corporate action charges. Both such as “do successes for representations by you really  Good News from ShareSoc. want to buy Hargreaves Lansdown this?” for the There is an article on Majestic Wine inexperienced.  Delays in SIPP transfers where I recently did some internet shopping. As a shareholder I thought There is some feedback on the  Participation in Share- it best to sample their wares, and results of the Member survey on class holder Class Actions their system seemed to work well. actions on page 7. Thanks to everyone who responded on that.  TR Property IT Another article is on recent events at Tesco. But my experience of internet And note we have lots of events com-  Are tips useful? shopping at another listed supermar- ing up for Members—see page 14. ket chain proved to be less than per- fect. I managed to buy one banana Roger Lawson  Controlling Bankers ShareSoc Deputy Chairman instead of one bunch, and the yogurt Email: [email protected]  Alkane Placing & AIM pot I bought was enormous. and other regulatory changes Quotes of the Month

 CCLA opposes most “It’s time to check out of Tesco as profits are likely to fall”….. John remuneration reports Ficenec in the Daily Telegraph, and “Dave Lewis knows nothing

 Book Review—Shredded about retailing, but maybe that doesn’t matter, because as a lead- (Goodwin & RBS) ing supplier he certainly knows how to win price wars and perhaps that is the big issue now facing Tesco in the UK”…. Nick  Future ShareSoc Events Bubb also in the Daily Telegraph. See article on page 3 on Tesco.

 New AGM Reports “Companies creak as rising pound takes its toll”…….Headline in the Daily Telegraph. See article on page 4.

See the last page for “Wine company board dodges potential pruning”…….Headline in publisher and contact the PIRC newsletter on events at Majestic Wine (see page information plus terms 3). of use.

ShareSoc formed a "Shareholder Oxford Action Group" with a committee Technology of interested shareholders to make representations on this VCT matter and protect their interests.

Events at this company may not We also pushed for changes to have affected many ShareSoc the corporate governance of Members, but it’s worth leading these VCTs including changes in with this story as an example of the directors. how effective a Shareholder On the 12th August the boards Action Group can be in terms of of these companies announced obtaining some changes. major changes, with two new The Oxford Technology VCT directors (Alex Starling and Rich- (OXT) and Oxford Technology 3 ard Roth) on OXT and one new VCT (OTT) previously had their director (Robin Goodfellow) on VCT status withdrawn by HMRC, OTT. although this has now been Alex Starling will become the temporarily "set aside". The latest Chairman of OXT and Robin ShareSoc Deputy Chairman news at the time of writing is Goodfellow will become the Roger Lawson had this to say on that the VCTs have received a Chairman of OTT. the above changes: "I welcome response from HMRC to their these changes and the appoint- appeals. HMRC indicate changes Lucius Cary, the fund manager, ment of Robin Goodfellow, who are required if VCT status is to will resign as a director at the was one of the Shareholder be retained and they have speci- forthcoming AGM but we under- Action Group committee fied 40 days for a response from stand is remaining as fund man- members, is particularly the company. The latter are ager and will advise the boards appreciated. considering whether they can when necessary. comply.

I think these changes provide a Note that ShareSoc has issued I do not consider it advisable that sounder footing for these compa- some new and revised voting he should remain on the boards nies in the future, although their recommendations for the forth- of any of these companies. small size is still a concern and coming AGMs of these compa- we encourage the boards of nies on the 27th August which Apart from the corporate govern- these companies to consider a are available from the ShareSoc ance issue of having the fund merger. I hope that these chang- web page dedicated to this cam- manager on the board, as I said es will also help with the appeal paign. in a previous note on this subject: to HMRC as it should demon- "clearly [these VCTs] have been strate that the boards of these Editor’s Note: The above article, run in a similar way and it is only companies will continue to which is based on past news and fortuitous that they have not strengthen their internal process- press releases, understates the faced the same difficulties. All es to avoid the kinds of mistake amount of effort that has gone in these VCTs have demonstrated that led to the loss of VCT status. behind the scenes to persuade poor performance over the many This campaign has achieved a the directors of these companies years they have been in exist- clear success for shareholders (including Lucius Cary) that some ence”. It is a common failing of whatever the outcome of the changes were necessary. VCTs that they are dominated appeal to HMRC and I thank Tim by the fund managers and often But it is noted that Mr Cary says Grattan for leading this campaign appear to be run more in their he intends to remain a director of to date". interests than that of investors. VCT 2 and VCT 4.

The new CEO is to be Dave He also received some no doubt Lewis who joins from Unilever heartfelt plaudits such as "done a where he has worked for 28 huge amount...", "achieved a years, mainly in personal care great deal", "the board are deeply products markets. So the new grateful" and "an outstanding CEO does not have a strong achievement" to quote from the retail background? Yes that's RNS announcement. But appar- right - he does not! ently not quite enough to justify his retention. Shareholders in Tesco admits it Flogging personal care products Tesco might not agree with the to supermarket buyers is surely a praise as the share price of needs a new very different background to con- Tesco has moved from 400p to vincing retail consumers to buy 282p during Mr Clarke's reign. leader food (and a few other products) But it perked up 2% on the day in your shops, however strong the news was released. On the 21st July Tesco announ- his general management skills ced that CEO Philip Clarke is might be. However the positive impact on departing. The statement includ- the share price soon evaporated ed a further profit warning which Mr Clarke is getting 12 months after the media commented on a mentioned that the overall market pay in lieu of notice, but appar- possible move by the new CEO is weaker and trading profit in the ently payable from when he ends to "take a bath" over all the things first half of the year is below a transitional period in six months he might identify as needing expectations. It's surely an time from the 1st October - so change, and a possible rebasing acceptance that Mr Clarke had effectively he is getting 20 of the dividend. Clarke was criti- been given long enough to turn months notice. Plus he will cised for holding onto the US around the business, but had remain Chairman of the Tesco operation too long, and not start- ultimately failed (he has been in joint venture in China (pay for ing a more aggressive price war the CEO role since March 2011). that is not disclosed). to challenge the discounters.

The company subsequently with- Everyone reading this is encour- Voting without drew those resolutions because aged to make sure you vote and knowing what being an AIM company they don't find out what you are voting for legally need them, and it was a and why! for at Majestic mistake to include them. But the amusing thing is that at the AGM A full report of the Majestic AGM Wine the Chairman said that both reso- is on the ShareSoc Members lutions got large majorities in Network, including a review of Last month Shareholders at favour on the proxies returned. the wines below available from Majestic Wine were given a Majestic as a result of sampling proxy voting form that included It is clear that a lot of sharehold- their wares. two common resolutions - a vote ers therefore voted without read- on the Remuneration Report and ing the resolutions or under- a vote on Remuneration Policy. standing what they were voting But there was no description of for. the Remuneration Policy in the Perhaps they simply had abso- Annual Report. Shareholders in lute faith in the directors' recom- the company no doubt found this mendations? Surely only when somewhat baffling. They might shareholders vote, and take the therefore have voted against the trouble to understand what they second of those resolutions on are voting for, will shareholder the basis of not knowing what democracy really work. they were voting for.

However you would be wrong to Monks Investment Trust Active Manag- jump to the conclusion that the (managed by Baillie-Gifford) held ers and Monks managers did so much better by their AGM recently and share- wearing out shoe leather visiting holders were not happy with the Investment numerous companies and doing performance of the trust. They in-depth financial research. They have under-performed their Trust simply avoided the big mega- benchmark over one, three and 5 caps. With more than a quarter of years even though they are an the FTSE-100 accounted for by 5 active manager using a bottom- The FT's fund management sup- large stocks, and companies like up stock picking approach and plement recently reported that Shell, BP and HSBC having a seem to be focussed on a portfo- "90% of UK active funds beat the tough year, simply by avoiding lio of over 60 small to medium market". This headline might sur- larger companies you could out- cap international growth stocks prise you because historically it is perform the indices. or special situations. known that active fund managers often trail their benchmarks and Of course this is a problem when There is a full report on the AGM comparable index tracking funds, the indices are size weighted and and the background to the com- simply because of their higher a preponderance of large compa- pany on the ShareSoc Members management costs. nies have an overbearing influ- Network. It will not make happy ence on them. This is why some reading for shareholders in this But the headline was based on people argue for using "equal company, and is another exam- data from S&P which showed size weighted" or other index ple of the directors of some that even taking into account forms to construct portfolios. investment trusts staying too long fees, most UK active equity fund (4 out of 5 more than 9 years in managers beat the UK stock But just avoiding the mega-caps this case) which ShareSoc has market last year. is not sufficient to achieve perfor- been commenting on elsewhere mance. of late.

The high pound (currently over This is another High pound $1.70 to the pound) is having a very international hits company big impact on companies such as business (they Croda. In the six month figures sell antibodies profits revenue in constant currency primarily). Alt- terms is up 2.5% and operating hough they said There have been numerous profit is up 0.4%. But in sterling that adjusted reports recently from UK listed revenue fell 4.5% and profit is profit before tax will be slightly companies which have spelled down 5.0%. ahead of consensus expectations out that the high pound, particu- for the year, they did spend a lot larly against the US dollar, is hav- A lot of smaller and specialist of time talking about "constant ing a major impact on profits. technology companies export a currency" revenue growth and in Below are a few such reports that large proportion of their sales so sterling terms it looks like reve- we have covered in our blog. we are likely to see more such nue will be somewhat below fore- reports. This is one reason why cast. Abcam do have some of Croda. On the 22nd July Croda share prices of these companies their costs in dollars which may issued their interim results for the have been drifting down in antici- have protected the profit figure. six months to June. Croda is a pation in recent weeks, and The Abcam share price rose on speciality chemicals company Croda fell another 2% after the these figures, possibly in relief and less than 10% of its revenue aforementioned announcement. that they had not been more arises in the UK. A very substan- impacted by the high dollar rate. tial proportion comes from the Abcam. Another company USA and from other dollar reporting on that day with a Continued on next page denominated sales elsewhere. "Trading Update" was Abcam,

Allegedly this was because of a But the negative exchange rate High pound very good fourth quarter which move has put a stop to more hits company resulted in the adjusted e.p.s. share buy backs as cash flow is being ahead of forecast. The not as high as expected. In addi- profits (Cont.) company also reported an excep- tion the company plans to dis- tional profit of £26.3m on its hold- pose of some older products - ing of Delcam shares which was which suggests more downsizing Renishaw and Glaxo. The 24th the subject of a takeover bid dur- to follow on from disposal of July saw final results from Ren- ing the year. This made the over- some of their OTC products. The ishaw (RSW) and interims from all, statutory, results look good of share price declined 5% on the GlaxoSmithKline (GSK) which course. day of the announcement, but reflected the same issue. Howev- had also been in decline for the er, the currency impact in both At GSK, turnover declined on a last few weeks. The looming companies was not the main "constant exchange rate" (CER) threat of legal action over bribery impact on the subsequent share basis by 4%, but declined 13% at in China does not help of course, price move. real exchange rates. Core (i.e. plus general pricing pressure in "adjusted") earnings per share markets such as the USA. Earn- At Renishaw, profits would have was down 12% at CER but 25% ings seem likely to be flat as been £6.8m higher on top of an at actual rates. This appears to against the previous year at best. "adjusted" figure of £70.1m for be mainly down to below budget the year, but for the currency sales of Advair - not yet replaced Comment on GSK: It's a case of impact. Last year’s correspond- by new drug Breo. two steps forward, one step back ing figure was £79.2m, so under- in the long term recovery of GSK. lying profits fell sharply and more The company put the usual posi- If they continue to underperform than accounted for by the curren- tive spin on the numbers - a good despite claiming to have a great cy impact. Did the share price pipeline of new products, expect drug pipeline, they may end up fall on these dismal results? No to maintain leadership in respira- with a bid if they are not the share price actually rose 23% tory products, etc, careful, like AstraZeneca. on the day of the announcement.

Getting a clear picture of the But even at constant exchange This simply demonstrates how financials and prospects is of rates, profits were down and many major UK companies gen- course difficult because of the revenue showed minimal growth. erate a large proportion of sales numerous "adjustments" to the Judges Scientific fell in sympathy and profits from overseas. accounts. This half year included on the day as they operate in the £101m of restructuring costs and same field (that was after a very Investors should perhaps look at £47m of legal costs which were substantial fall in the share price their portfolios to see if they have treated as "exceptionals". Like earlier in the month after a profits companies likely to be affected SSE which was commented on warning that included mention of by the exchange rate, but it may in a previous newsletter, GSK are adverse currency movements). be a bit late to react unless you serial offenders in presenting think the pound will rise further. their figures in the best light pos- The Daily Telegraph reported on Unfortunately forecasting the sible, but with repeated excep- the 8th August that £1.5bn had direction of exchange rate move- tionals, the story becomes both been wiped off the year-to-date ments is a mugs game so far as repetitive and unjustified. profits of a string of top multina- this writer is concerned so wheth- tionals. It reported damage er it will move further up or Spectris and Judges Scientific. across a wide spectrum of UK reverse direction I would not like On the 25th July Spectris companies including Cobham, to say. But at least it is a good announced interim results which Barclays, BAT, Diageo, Merlin, time to take a vacation in the showed earnings down by 10% Compass, Rolls-Royce, BAE, USA for UK residents. over the prior year, apparently GKN, Meggitt, IMI, Aggreko and primarily down to adverse Weir. currency movements.

It mentions that they "listen Coming soon will be: carefully to their feedback" from clients and invest heavily in - A stock screening tool. improvements. - Watch lists that will synchronise Some of the latest changes that between PC, smartphone and may be of particular interest to iPhone Apps. readers include the following ShareSoc did of course complain (refer to the HL web site for the publicly about the introduction of complete list) : a fee of £10 to vote shares in an - Removal of the recently intro- HL nominee account, and we did duced corporate action fee in- have a meeting with HL to dis- Good news cluding the charge for voting cuss this and how to make it eas- shares. ier for investors to take up their from rights. The latter remains to be - Free live share prices. tackled but the £10 charge was Hargreaves particularly obnoxious. - An on-line tax centre to help Lansdown with tax returns. It is good to see that HL have been listening to both ShareSoc Hargreaves Lansdown (HL) have - Customised log-out time-outs and their clients. issued a press release announc- so you can make it longer than ing changes to their Vantage ser- 15 minutes (let us hope other on- vice. line stockbrokers copy that!).

Such delays are enormously prej- Delays in SIPP udicial to the interests of inves- and ISA tors as your portfolio is effectively frozen for the duration of the transfers transfer.

I commented on the delays in One of the complications that transferring a SIPP from Har- arises is because with SIPPs and greaves Lansdown to another ISAs your shares are not held in provider in the May ShareSoc your own name, but in the opera- Newsletter, and we published tor's nominee name (as part of a A ShareSoc City some letters from other members pooled nominee). Fund holdings seem to be even worse than Lunch Club? on similar problems in the June direct shareholdings. So the Newsletter. It has been suggested that transfer is complex and in ShareSoc run a luncheon club to I thought readers might like to essence paper based. Oh how discuss investment topics in the know that the original SIPP trans- much simpler it would be if the City of London with possible guest fer has now finally completed. It holdings were in your own name! speakers. We have identified some actually took over 5 calendar suitable venues but really need someone to help to organise these months to get all the portfolio My complaint on this matter has meetings. If any Members would holdings to transfer (this being an now been sent to the Financial Ombudsman who have forward- care to assist please contact me on "in-specie" transfer as it is 020-8467-2686 or send an email to called). ed it to the Pensions Ombuds- [email protected] man as they apparently deal with This is clearly a ridiculous period pensions. of time when there were no particular reasons for the delay. Roger Lawson

Most often the legal action is tak- Clearly they can also result in Participation in en in the USA, where a) legisla- current and previous sharehold- tion protecting shareholders is ers that participate gaining some Shareholder more rigorous; b) more lawyers restitution. ShareSoc itself might are prepared and able to pursue also benefit financially and other- Class Actions such cases on a “no win, no fee” wise. Any such financial gains basis, meaning plaintiffs take no would improve our ability to sup- The topic of shareholder class financial risk themselves; and c) port and broaden our member- actions is a controversial one. defendants costs are not recover- ship – remember that ShareSoc Before ShareSoc participates in able from plaintiffs. Note that is a not-for-profit organisation. any more such actions on behalf there is no such thing as a “class of our members we therefore action” in English law, but there is Another argument in favour is conducted a poll. This was a rarely used concept of “Group that if we do not participate our emailed to Members to obtain Litigation Orders”. members might lose out if other your views on this subject. shareholders do pursue such an Arguments in favour of pursu- action and succeed. What is a class action? ing class actions Arguments against share- A shareholder class action is a The primary argument in favour holder class actions legal suit where a number of of pursuing such actions is that shareholders join together to they are one of the few ways of There are two principal ethical seek compensation for losses holding errant managements to and practical arguments incurred as a result of actions or account and improving corporate against pursing such inaction by a company in which governance. they have invested. actions:

1. Effectively, such suits could 2. Inevitably legal fees in such Most commentators on the pro- be considered as shareholders cases will be high, and some proposals were in favour of suing themselves, as any restitu- portion of any settlement will end ShareSoc participation, as a tool tion must come mainly from com- up in lawyers’ pockets. Of in our armoury for defending the pany funds! It is possible that course, this means that legal rights of the individual sharehold- some recompense can be firms are keen to encourage such er and enforcing a high standard obtained directly from manage- actions. Hence, rather than of corporate governance. A cou- ment, but in most cases settle- shareholders solely benefiting ple of commentators responded ment of such claims is likely to be from any company funds they that they were in favour of ac- covered by insurance that their succeed in extracting, some pro- tions against board members and employer provides. Nevertheless, portion of those funds end up auditors, but opposed to actions simply the fact of having to with the lawyers, whilst the value against companies. Unfortunately account for their behaviour in of the company assets that it is the experience of ShareSoc’s court, and the reputational impact shareholders own may be board that it is rarely possible to thereof can act as a deterrent reduced by the full amount of pursue the former, in law, without against bad behaviour. the settlement. also pursuing the latter.

What actually makes matters Results and comments ShareSoc’s board will now con- worse for current shareholders is sider any specific class action that previous shareholders may An overwhelming majority of proposals, and act as and when participate to recoup historic loss- respondents voted in favour of appropriate. Note that such ac- es, meaning that funds can be participation in class actions, tions may take a very long time to transferred from the company where deemed appropriate by resolve and might require consid- which existing shareholders own, ShareSoc’s board. Of the erable effort to pursue effectively. to past shareholders. respondents, 77% were in favour, 17% against and 6% “Don’t Thank you to all those that know”. participated.

Typically for an Investment Trust I have been pleased to see that TR Property IT the directors’ fees are insignifi- several trusts have recently cant in relation to total costs. On moved away from performance Members Letter the other hand if you had made fees. With the experience of pay- the comparison between man- ing away so much, and at the The following letter was sent by a agement fees and dividends, end of your first year in the Chair, ShareSoc Member to the Chair- readers might have begun to this would seem to be a good man of TR Property Trust: wonder whether the Trust was time to review the fee basis. being run for the benefit of the Dear Ms Burton, Shareholders or the Manager. I am sending a copy of this letter to the Editor of the UK Individual I was unfortunately unable to In the past I have challenged Shareholders Society’s maga- attend your AGM last week and Peter Salsbury about the fee zine. Knowing that organisation’s so I am writing instead to express basis at AGMs without getting a views on performance fees I am my horror at seeing that your per- convincing answer. I also recall sure that he will be as interested formance fee formula has result- speaking to you on the subject as I will be to see your reply. ed in a payment of almost £10 after an AGM when you assured million. This, of course, was on me that you thought performance Yours sincerely, top of the Managers’ regular fee fees were effective. Nevertheless of £4.7 million. I note that you Roy B. Colbran you will be aware that there is a did not think it significant enough considerable body of opinion that to mention in your Chairman’s Note: there is a report on the holds that performance fees are Statement although you do show AGM on the Members Network. simply a way of paying the man- elsewhere in the report a com- Below is an extract of the ager twice for doing his job. parison of Directors’ Fees and key points from the dividends. response received:

From Caroline Burton: “The performance and they have sig- The Board will always act in what board is aware that some inves- nificantly higher Ongoing Charg- it sees as the best interests of the tors do not like performance fees; es for retail investors and, in shareholder.” however, this board believes that some cases, charge a substantial this is the best structure for a up-front fee. Editor’s comments: specialist trust such as TR There is no evidence that perfor- Property. The average base management fee for TR Property over 10 years mance fees improve a manager’s Performance fees are only paid has been 0.67% of average NAV performance and there is suffi- when the outperformance hurdle excluding performance fees and cient reward for success already has been exceeded; therefore, 1.16% including performance embedded in the fixed percent- the manager is rewarded for fees. Over that period, the NAV age fee of the funds assets—if success. has outperformed the benchmark the assets grow the manager by 75.15% on a compound basis, gets a higher fee. You rightly say some investment equivalent to annual outperfor- Performance fees are in essence trusts have dropped performance mance of 3.22%. fees recently, usually this has always complex, difficult to been replaced by a higher base The fee structure enables us to understand, ineffective and fee that is paid regardless of per- retain the best fund managers unnecessary. formance; this board prefers to and support in a very competitive The overall level of charges at reward out-performance. sector, with the aim of delivering TR Property (for what is a spe- the shareholder long term outper- cialist fund) may not be unrea- In addition, we monitor the performance, I believe the perfor- sonable, but a fixed fee would be formance and charges of open- mance figures support this ap- better.. ended funds in our sector, none proach. of these match TR Property's

Is this a plausible theory that they Of course, not all tips do work Are tips would be just as well or maybe out. A tip is intended as part of a even better off. It's a bit like the balanced portfolio. A person sug- useful? argument about passive versus gesting to buy does not know active investing. Whether to buy what you already have in your Upon recently perusing The Irish a tracker or to pick active fund portfolio. How a buy or sell tip is Times newspaper, I came across managers. used is what gives it it's value. an article which stated that tips in A trader and long term investor magazines and other sources are Tips can be very valuable and may use a tip differently to a essentially worthless. These from certain sources very accu- trader only, or long term investor sources were apparently inade- rate. It is not uncommon for one only. How to use it properly quate to equip investors with the source to be saying buy a share requires a certain degree of skill knowledge to make informed de- and for another source to be say- and experience, which can only cisions in investing. It digressed ing to avoid it. Both usually give be obtained with time. even further to say, on average, their rationale for their decision. an investors performance was no 15 stocks is frequently highlight- better than chance. To accept Tips can sometimes be misun- ed as all that is necessary for the this literally, one could only con- derstood by people. Tips intend- ideal portfolio, and not to over clude that they were better off to ed as long term are sometimes trade. If long term investors cease spending a small fortune purchased without full under- adhered to this advice, they on literature and sources of infor- standing by the reader, with sub- would not need many tips. As mation. Instead, divert their funds sequent disappointment, if the they would soon have a full blindly, in addition to their already share price then dips in the short portfolio and would not existing level of investment, in term buy or sell very much. just randomly chosen shares.

Of course, a lot of people do not Researching and educating one- adhere to this advice and fre- self about investing is responsi- Controlling quently have a lot more than 15 ble. Besides the financial side of stocks and trade often, inclusive it, researching stimulates the Bankers of over trading. mind, educates about world events and economics and gives Controlling bankers is a key Trading is different in that traders a sense of being in control of theme of a public consultation are constantly scanning for op- ones financial security. What issued jointly by the Bank of Eng- portunities to make a quick buck. price do you put on that? land Prudential Regulatory Au- Though their decisions are fre- thority (PRA) and the Financial quently based on news feeds, Jack Conroy Conduct Authority (FCA). The charts and expectations, as op- proposals aim to make bankers posed to published tips. more accountable for their actions, and includes provisions

Of tips purchased by myself in to claw-back bonuses and jail the past few years, (mostly ob- reckless executives. Politicians tained from Investors Chronicle), mainly welcomed the proposals they have generally done pretty when they were announced, but well. One very well, in that it dou- bankers have not, which may not bled in less than a year, and one be surprising. exceptionally well, in that it went up by approximately 600%. If you have any views on these (Investor's Chronicle tip). Just issues, please advise ShareSoc one disappointed, and even that or respond directly yourself to the one I still have good expectations consultations. of it for the future.

It is being done using a "Cash In the case of Alkane, the CEO Alkane Plac- Box" arrangement because the has justified it on the basis that number of shares to be issued the company was competing to ing—What a (15.2% of the enlarged share acquire the relevant businesses capital) would normally require against a private bidder and any Wheeze! shareholder approval, i.e. the delay would prejudice the deal. calling of a General Meeting. On the 17th July Alkane Energy The "Cash Box" process involves Shareholders in Alkane will have announced a placing to raise the creation of a new subsidiary to decide for themselves whether £8m to fund the acquisition of company into which cash is the circumstances justified these three power response compa- injected and the company then actions, but there surely seems nies. The placing was at 36p, buys the shell at an artificial little point in having rules about when the closing price the previ- price. Shares in the company share issuance and consent by ous day was 39.5p indicating a are issued to the placees in shareholders if ways around discount of 9%. But as with all exchange for shares in the new them are allowed. Does the end such placings, the news had got subsidiary thus technically ena- justify the means is the question? around the market beforehand, bling the company to claim it has That and the general problem of so it was more like a 15% dis- not received cash from the issue placings in AIM companies, count to the share price before of shares in the company. the news spread. which prevents many sharehold- What a wheeze one might say! ers from participating, should So what you may ask? It's just But other companies have used it surely be reviewed. Unfortunately another placing that prejudices such as Ocado, Great Portland one of the difficulties is the Pro- private shareholders who were Estates and Drax. It tends to be spectus Directive as mandated unable to participate (there was used when companies are in a by the EU which is totally inap- no "open offer" in this case). But hurry and it also saves them the propriate for small cap compa- there is one aspect of this placing cost of an EGM. nies. that is unusual.

Corporate Governance Code that These changes are surely benefi- AIM and other main market companies have to cial for investors, but it seems "comply with or explain", but odd that information on signifi- regulatory many do not use any specific cant shareholdings and number code. of shares in issue can still be as changes much as six months out of date. In future they will also need to Effective from the 11th August, include at least the last three Other prospective regulatory there are additional requirements years Annual Reports (previously changes under AIM Rule 26. That Rule only the latest) and they will also covers what information is need to update information on Effective from the 6th October, required to be published on a the number of securities in issue share trade settlement is moving company's web site - for example and significant shareholdings at to T+2 (currently T+3), which the listing prospectus and last least every six months. means you should get the cash Annual Report. In future a com- credited to your accounts on a pany must disclose what corpo- In addition there is a new require- share sale a day earlier. rate governance code the comment to indicate whether the The FCA is also consulting on pany is using, or not as the case company is covered by the City the abolition of the requirement may be. Currently AIM compa- Code on Takeovers and Mergers for companies to issue interim nies often refer to the Quoted which provides significant addi- management statements (i.e. Companies Alliance (QCA) Cor- tional protection for investors. quarterly reports). This is in antic- porate Governance Code for Most foreign registered compa- ipation of it being dropped from Small and Mid-Size Quoted Com- nies are not so covered. the EU's Transparency Directive. panies, some use the main UK

They opposed 81% of Remuner- One other interesting titbit of CCLA Opposes ation Reports and 82.3% of information in their quarterly re- Remuneration Policies. They say port was this comment: Most Remuner- they "have long adopted a rigorous approach to executive remu- "On our calculations the major ation Reports neration" and take notice of their [oil] companies are generating clients concerns about excessive free cash flow of US$5bn each CCLA is a low profile fund man- pay. year, however they are paying ager which specialises in manag- away dividends of US$40bn. On ing the funds of charities, faith Is it not a pity that few other insti- this basis the dividends flows to organisations and local authori- tutional investors take a similar investors, which a major support ties. It's owned by it's clients and line? If they did, the public con- for current share prices, are not has about £5bn under manage- cerns about excessive director sustainable over the long term". ment in a range of funds. The pay in public companies would emphasis is on low cost, good surely soon disappear. Investors in mega-cap oil compa- total return, long term investment nies may care to examine the in their main funds. Note that CCLA is no slouch per- accounts of these companies formance wise. They delivered carefully. Their latest quarterly report 17.3% total return in the Chari- makes it very plain what their ties Investment Fund last year, approach to shareholder engage- beating their benchmark. ment is on the issue of remuneration.

ShareSoc Golf Day 19th September 2014 Directors vs Investors

Set in 205 acres of spectacular parkland with history dating back to 861AD and situated 3 miles from East Croydon, within the M25. Entries drawn out of hat on Friday 12th September, groups of Director and Investors

Selsdon Park Hotel and Golf Club

Coffee & Bacon Baps on arrival (10.30am for 11am first tee off), 18 Holes Golf, 2 course Dinner, at £68 per person. Prizes for Nearest the Pin, Longest Drive, winning Individual and Team.

Limited places available – book your place now by emailing: [email protected]

Sponsored by

It's certainly worth reading if you They had their savings guaran- Book lost money from investing in RBS teed after the debacle of North- Review shares as so many people did. ern Rock. It was institutional Indeed many who relied on the investors, many of them over-

past reputation of the company seas, who were withdrawing Shredded were impoverished, including billions of pounds before the by Ian many former RBS staff who were "recapitalisation" of RBS and encouraged to buy shares in the other UK banks. How the compa- Fraser rights issue in 2008. That was ny, and the country, got into that

the biggest ever rights issue for situation is what the book covers. This book is a comprehensive any UK public company at the and accurate history of what time, but even that was not suffi- I am sure that the company's went wrong at the Royal Bank of cient to prevent the bank from lawyers and those representing Scotland (RBS) - the largest subsequently needing to be the various shareholder groups bank in the world at one point. bailed out by the Government. who are pursuing a legal action The title is taken from the nick- against the company in respect name of the former CEO Fred One of the aspects of the affair of the rights issue in 2008 will be Goodwin, otherwise known as that is brought out in the book is poring over the book. But it may "Fred the Shred". There is little to that there was a "run on the help the plaintiffs more fault in this book, other than it is bank" but not from retail deposi- than the company and too long at over 500 pages. tors. its former directors.

As some readers will be aware, Page 298 of the book summaris- Obviously one of the things the this writer was involved with one es most of the possible key omis- book covers is the acquisition of of the shareholder action groups sions from the prospectus. I list a ABN-AMRO as many people for RBS for a couple of years so few here: a) it understated RBS's blamed the failure of RBS on the have some understanding of the exposure to exotic credit deriva- poor quality of the assets of that issues and the financial position tives; b) it understated RBS's bank, i.e. the suggestion being of RBS at the time of the rights short term funding requirement; that RBS were duped into buying issues - we spent some effort in c) it failed to mention that £11 a pig in a poke, having done little looking at the latter of course. billion in cash from the sale of La due diligence on the assets. Salle had been delayed and d) But in the last three years, more did not disclose $11.9bn of emer- But the author downplays the information has come out. Share- gency loans from the Fed. importance of this and suggests holders of RBS are particularly that ABN-AMRO was not such a annoyed at being allegedly On the first point, the author sug- bad bank. Integration of the bank duped into investing more gests that RBS, Fred Goodwin was a problem though, partly money in the company in 2008 and other executives consistently because of the clash of cultures based on what they claim was a misled the market on the compa- between the way RBS operated false prospectus. A prospectus ny's exposure to sub-prime lend- and the way ABN-AMRO did. must be accurate and not omit ing, and provides some evi- significant information that would dence. The company also failed The latter was a larger and more affect an investors view of the to mention in the prospectus that geographically diversified bank. company's financial position and the FSA had specifically required Yes it had some poor quality prospects. In other words it must RBS to have a rights issue to assets, but so did RBS. The not present a misleading picture strengthen its capital base - sure- complexity of the deal where of the situation of the company. ly a very significant matter - and there were three parties to the But in the case of RBS share- the book provides evidence of acquisition, with RBS leading, did holders claim it presented far too the directors misleading state- not help. rosy a picture. It did not suggest ments on this—or "bare-faced this was a desperate bail-out as lies" as the book calls them on Continued on next page they believe it was. page 292.

The hubris of Fred Goodwin at So Adam Applegarth at Northern Book Review that point, and his management Rock got a lot of the blame, quite - Shredded (Cont). style, were factors in this debacle wrongly in my view. Like many of course. The book covers his accidents, there were a whole But as is well known, RBS was background and career and series of contributory causes. already declining financially gives a good picture of his char- These are: the sub-prime mort- before Fred Goodwin decided acter - dictatorial and disliked by gage crisis in the USA, the failure to compete with Barclays for his staff. He allegedly distorted of debt rating agencies to do ABN-AMRO. It's capital ratios the culture of the company, so their job properly, the reliance on were already poor and cash that everyone seemed to live in short term money market funding flows heading in the wrong direc- fear of arguing with him. Not a which dried up, the lax regulation tion. Reliance seems to have healthy management culture of the financial sector both in the been placed on the profits com- needless to say. It makes for UK and USA, the low capitalisa- ing from ABN-AMRO to help good reading if you want to sell tion and high leverage that was finance the acquisition, when in books, but the intelligent reader permitted in banks and other fi- reality the reverse was what might realise that the failure of nancial institutions, the actions of actually happened. The book RBS was down to a number of Government in failing to provide covers this area well and why factors, not just Goodwin’s lead- liquidity in the markets when RBS persisted when it could ership. It's easy to personalise necessary, and a few have backed out. financial disasters by focussing other factors. on the leadership.

One area the book covers well is This gave the Government un- Yes I still get asked about that. the failure of the Bank of England precedented powers to intervene to provide liquidity to UK institu- and restructure banks, thus The answer is no of course as is tions which meant the UK suf- impacting those who financed very plain from this book. RBS fered more from the worldwide them by both equity and debt. was effectively destroyed and is financial crisis than almost any Hence no doubt the corporate in the process of being substan- other country. Sir Mervyn King run on the bank mentioned near tially downsized. Problems still (now Lord King) did not seem to the start of this article. The failure remain. A "good" bank may listen to RBS and other banks on of the Bank of England to step in appear from the ashes in due this point, in the same way as he at much smaller banks to provide course but it will be a very differ- hesitated over Northern Rock temporary liquidity for solvent ent bank to the empire built by until it was too late. The "moral banks, even on onerous terms, Fred Goodwin. hazard" of bailing out banks no doubt dismayed investors. The full story has yet to be told, seemed to be his concern, but and no doubt more will come out eventually he and the Govern- In summary, this book will make from the court case on the pro- ment were forced to act. interesting reading for all those affected by the failure of RBS (it spectus because all the dirty Indeed the events seem to have effectively ended up being linen will be uncovered in public been driven partly from political nationalised in all but name by unless there is a settlement imperatives from Gordon Brown the Government). But the story before it gets to court. and his advisers (even Chancel- could have been told in a lot But this book certainly is a good lor Alistair Darling seems to have fewer words. It only really gets contribution to the history of been a minor player as is evident exciting towards the denoue- events. from his own book). Few seem to ment of the story. realise that the events at RBS Roger Lawson were contributed to by the legis- It should of course be read by all lation brought in by the Govern- those investors who are still hop- ment after the nationalisations of ing RBS will "recover", by which they mean their investment will Northern Rock and Bradford & Bingley. return to it's former value.

At the start of the call our Chair- Members man, Stan Grierson will summarise Guaranteed Conference Call ShareSoc’s recent activities, there- Votes for All after directors will participate and

ShareSoc is keen to engage with its be available to answer questions Guaranteed Votes for All—that’s members. We appreciate that it is and discuss matters of concern. the title of a document we will be not always easy for all our mem- Stan will moderate the call. launching at a meeting to start a bers to get to our members’ meet- campaign on shareholder rights on It would be helpful for management ings, which are the primary forum the 14th October in London. At pre- of the call if you could submit any for discussion about the issues we sent most private investors pur- questions or issues you’d like to are tackling on behalf of our mem- chase shares in nominee accounts. raise in advance of the call by send- bership, and the services we offer. With a very few exceptions this ing an email to Mark Bentley at means that they have no automatic [email protected] . Therefore, we would like to offer our rights to vote, to attend General Full Members the opportunity to Please make sure you include your Meetings of companies or even communicate their wishes and con- name in any email. receive information on the affairs of cerns via a telephone conference the company. The nominee system call. This will take place at 7pm on Time permitting, there will be an disenfranchises the vast majority of th 10 September and the call is ex- open forum after the pre-submitted private shareholders. pected to last for up to one hour. questions have been dealt with. Dial-in information will be sent via Go here for more information and to email to Full Members. register attendance at the meeting: www.sharesoc.org/shareholder- . rights.html

FUTURE SHARESOC EVENTS

10th Sept 2014— Members’ Conference Call with the Directors—see above.

17th Sept 2014— ShareSoc Company Seminar - company presentations in the City of London from interesting small/medium cap companies. See www.sharesoc.org/seminarsept2014.html For more information and to register.

19th Sept 2014—Inaugural ShareSoc Golf Day. At the Selsdon Park Hotel and Golf Club near Croydon - Tee off at 11.00 am for 18 holes followed by dinner. Book your place now. See page 11 of this newsletter for more information.

26th Sept 2014— Meeting for Bradford & Bingley Shareholders. On the sixth anniversary of the nationalisation of the company, a meeting for former shareholders in Bradford. More details and how to register are available here: www.sharesoc.org/events.html

14th October 2014— Guaranteed Rights for Shareholders—a Meeting to launch a campaign on that issue. See above for more details or go to www.sharesoc.org/shareholder-rights.html

See the Events page of the main ShareSoc web site for up-to-date information and links to regis- tration pages where relevant for all of the above, and future events as they arise.

In addition the following companies have been mentioned in blog Submitting posts, or elsewhere on the Mem- bers Network: AGM Reports

Hargreaves Lansdown ShareSoc welcomes reports for Majestic Wine publication on Annual General Meetings from Members, or from Monks Invest. Trust anyone else who wishes to contrib- National Grid ute them, as they are often not available from anywhere else. New AGM Media Corporation Some recent ones are listed to the Reports Renishaw left. GlaxoSmithKline Please post them on the ShareSoc This section lists all new company Croda Members Network in the AGM AGM/EGM Reports on the Abcam Forum—if you have any difficulty ShareSoc Members Network (in doing that them simply email it to: the AGM Forum) that have been Tesco [email protected] . added in the last month. Alkane Don’t worry about adding such Majestic Wine Use the site search function of the reports to the index—ShareSoc Members Network (on the top right will do that. Monks Invest. Trust of all pages) to search for past Northern 2 VCT reports on companies.

National Grid Halfords Recommended Reading List Bloomsbury Publishing Don’t forget for those keen to gain Paypoint an education in investment matters TR Property Trust that there is a “recommended read- ProVen VCT ing list” on our web site at this web page: www.sharesoc.org/reading_list.html It covers books both for the new

investor and the experienced.

Further suggestions for inclusion in the list are welcomed.

Company News and AGM Reports on the Members Network Members should note that ShareSoc now publishes most of the topical news on companies that we become aware of in our Members Network rather than in this Newsletter. This is simply because there is a lot more than we can fit into this monthly magazine while keeping it to a manageable size. Also of course it can appear more promptly on our web sites than in this Newsletter so the Newsletter will focus on the really important matters, on more general articles, on educational topics and on background briefings.

New AGM reports in the last month are listed in this newsletter—it’s worth checking the list above to see if you hold any of those stocks—and recent ones are noted on the News page of the main ShareSoc web site (bottom right). In addition those companies mentioned in the ShareSoc blogs are also listed in this newsletter. Members are encouraged to contribute their own AGM reports or other articles on particular companies, or of a more general nature, to the discussion forums on the Members Network web site (accessible from a link from the home page of our main web site. If you have not yet joined the “Members Network” then please do so now. It’s the main way in which we communicate with members. All Full Members are sent an email inviting them to “join” the Net- work when they first register as members but if you have mislaid it, then send an email to [email protected] to receive another one. Also don’t feel shy about posting your views on there—it’s a private network only open to ShareSoc members so your comments won’t become public.

Join as a Full Member Address Changes Third party mailings

If you receive this Newsletter for Don’t forget to notify the ShareSoc Note that sometimes free because you are an Associ- Membership Secretary of any change ShareSoc sends emails to ate Member, but would like to support our of postal or email addresses (do that members that promote third activities financially and have a say in the using the Contact page on our main party events or offerings. If management of the organisation (Full Mem- web site). you do not wish to receive bers have a vote and elect the board direc- such emails, let us know and tors), please consider becoming a Full Not that we write to people usually but we will stop them. Do not Member. Full Members receive a lengthier if an email address stops working, then simply click on the opt-out version of our monthly newsletter. It only we do send a letter and paid subscrip- function in those emails or costs £38 per year. You can pay via tion reminders may also be sent by your membership may be debit/credit card online or via cheque post. terminated. if you prefer. Sign Up for Full ShareSoc Recommended Reading List. Don’t forget for those keen to gain an Membership Now! Support ShareSoc with a Donation Areeducation you finding in investment ShareSoc matters membership that there of value? is a “recommended Just producing reading this list” on our web site at this web page: And get full voting rights in the organisa- newsletter alone, apart from the other activities we undertake, does take considerablewww.sharesoc.org/reading_list.html effort and some expense. But we hope it is of value to you. tion plus other benefits. Click here: It covers books both for the new investor and the experienced. Further www.sharesoc.org/membership_options.html Go to this page of our web site for more information on donating: suggestionswww.sharesoc.org/donations.html for inclusion in the list are welcomed.

News Pages & Blogs Social Networks Keep an Eye on Events

Don’t forget that ShareSoc helps to The News page on our main web organize a number of events each site (www.sharesoc.org/news.html ) month—these are listed on the contains not just a list of ShareSoc Events page of our web site news, but also a list of the last ten The ShareSoc home page (www.sharesoc.org/events.html) “tweets” that we have issued via (www.sharesoc.org) contains links where you can sign up to attend, or Twitter. That list is effectively a to our Twitter, Facebook and invite other people. summary of all the last blog posts LinkedIn pages—see the bottom containing topical news and com- left hand corner of that page. This You need to keep an eye on those ment thereon. The Blog (which is makes it easy to sign up and follow pages to pick up new events. replicated in the Members Network) the news or add comments. contains topical articles.

Publication and Contact Information

ShareSoc Informer is published by the UK Individual Shareholders Society Ltd (“ShareSoc”), a “not-for profit” company limited by guarantee and registered in England No. 7503076. All members of ShareSoc receive this publication via email or by post—go to our web site at www.sharesoc.org to register or for more information.

Contact Information: Editorial and General Information Email: [email protected] Membership Information: [email protected] Telephone: 020-8467-2686 (Int: +44-20-8467-2686) Web: www.sharesoc.org Address: PO Box 62 , Chislehurst, Kent, BR7 5YB

Letters to the Editor should be sent via email to the above address. We also welcome contributed articles—please telephone the above number if you wish to discuss that, or send an email.

Terms of Use: No warranty is given by ShareSoc as to the reliability, accuracy or completeness of the information contained within this publication. Any information provided is accurate and up to date so far as ShareSoc is aware, but any errors herein should be referred to ShareSoc for correction. The information contained herein is intended for general information only and should not be construed as advice under the UK’s Financial Services Acts or other applicable laws. ShareSoc is not authorised to give investment advice, and is not regulated by any Regulatory Authority, and nor does it seek to give such advice. Any actions you may take as a result of any information or advice contained within this publication or otherwise supplied to you by ShareSoc should be verified with third parties such as legal or other profes- sional advisors and is used solely at your own risk. You are reminded that investment in the stock market carries substantial risks and share prices can go down as well as up. Past performance is not necessarily an indication of future performance. The Editor of this publication and other contributors may hold one or more stocks mentioned herein. ShareSoc is a registered trade mark of the UK Individual Shareholders Society.