The Advantages of Investment Trusts

The AIC has issued a video which spells out some of the advantages of investment trusts over open-ended funds. They spell out that with most investment products you don’t have a say, but with investment trusts you do because you can vote on important decisions about how your company is run and what it invests in. You can also attend the Annual General Meeting (AGM) to meet, and question, the board directors and the investment manager. Investment companies also have independent boards of directors.

You may think that all of this is theoretical and in practice shareholders have little influence. But that is not the case. When push comes to shove, shareholders can change the fund manager and even the board of directors. I have been involved in several campaigns where this actually happened – not just in smaller companies such as in VCTs but at Alliance Trust. The outcome is usually positive even if a revolution does not actually take place.

But attending AGMs is now only available as an on-line seminar using various technologies. I have attended several in the last few weeks of that nature, and they are less than perfect in some regards. Technology is not always reliable and follow up questions often impossible. But they do save a lot of time in attending a physical meeting and they are certainly better than nothing. I look forward to when AGM events can return in a “hybrid” form where you can attend in person or via a webinar.

The AIC video is available from here: https://www.theaic.co.uk/aic/news/videos/your-investment-company-having-your-say

Brexit

I see my local M.P. Sir Bob Neill, is one of the troublemakers over the Internal Market Bill. He gave a longish speech opposing it as it stands in the Commons. But I was not convinced by his arguments. Lord Lilley gave a good exposition of why the Bill was necessary on BBC Newsnight – albeit despite constant interruptions and opposing arguments being put by the interviewer (Emily Maitlis). A typical example of BBC bias of late. Bob Neill is sound in some ways but he has consistently opposed departure from the EU and Brexit legislation. To my mind it’s not a question of “breaking international law” as the unwise Brandon Lewis said in Parliament but ensuring the principles agreed by both sides in the Withdrawal Agreement are adhered to. Of late the EU seems to be threatening not to do so simply so they can get a trade agreement and fisheries agreement that matches their objectives.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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British Smaller Companies VCT AGM

I “attended” the British Smaller Companies VCT Annual General Meeting today via Zoom. This was yet another variant on the practice of virtual AGMs. But there were apparently about 30 people connected which is more than they normally get of shareholders at their AGMs.

It was well managed with no significant technical problems, unlike others recently I have attended. Shareholders could vote for or against the resolutions on the day by using a Zoom Vote facility to give an instant poll result (rather like a “show of hands” vote which is technically what I assume it was although that was not made totally clear). The poll votes were given after each resolution was voted upon. The proxy counts were also displayed at the end. All proxy counts were in favour with the highest opposition being 11% against share buy-backs (probably by ill-informed investors as these are quite essential in my view in VCTs).

The poll figures showed only one or two people voting against a few of the resolutions. I voted against the remuneration resolutions and against the re-election of Chairperson Helen Sinclair – partly because she was first appointed in 2008, and for historic reasons.

Shareholders could submit questions previously or at the meeting by typing them in (but no follow-up possibilities). Not as good as a verbal question/answer model.

David Hall gave a short presentation on the results before questions. They achieved a total IRR of 5.4% last year, depressed by the Covid epidemic as their year end is March. The epidemic had a varied impact on their portfolio holdings, but there has been a bounce back since the year end.

There was a question on dividend policy and the answer was that the current policy will remain in the short term.

The meeting was relatively short with most of it taken up by the voting procedure. But it was certainly better than not allowing any shareholder attendance as other companies have been doing.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Polar Capital Technology Trust AGM Report

Today I “attended” the Annual General Meeting of Polar Capital Technology Trust (PCT). This was a very good example of how to run a “virtual” AGM, unlike some I have attended recently. It included the ability to vote within the meeting and ask questions. It used the Lumi platform.

The meeting was chaired by Sarah Bates, and all the directors were in attendance and introduced themselves. Sarah “dropped out” at one point but another director immediately took over. Voting was done on a poll and only the two unusual resolutions were described (the continuation vote and remuneration policy).

The main part of the meeting was taken up with a presentation by fund manager Ben Rogoff which appeared to be pre-recorded and hence lacked spontaneity. But he is always worth listening to as he covers the trends in the technology world very well. I won’t cover it in detail as the recording is available on the company’s web site and much of it is in the Annual Report.

The NAV per share value was up 18.6% on the year and has continued to rise since the year end. Large cap stocks have been the drivers. Ben stated that the aim was to beat their benchmark by 2% and he covered some examples of major holdings.

There were only a few questions answered in the meeting. One was about the concentration of the portfolio in large cap stocks. The answer in essence was that reflects the market trend and hence has been a successful strategy. Another question was on portfolio turnover which was 87%. This apparently rose during the recent market turmoil. Only one question was on the formal business which related to whether repurchased shares were ever issued at a discount. The answer was no.

This is one of the few companies I hold where I can vote “for” to all the resolutions.

In all, a very well organised and run meeting that lasted only 50 minutes. I sometimes find at some of these events I can be doing something else such as checking emails at the same time as I have two screens on my desk, but not this one. Ben Rogoff speaks so fast and without any frippery you have to pay attention.

I would just like to highlight a couple of comments by the fund manager in the company’s annual report to give some insight into the world economy. To quote from it:

  1. “Our own outlook is broadly in-line with the current consensus which (we believe) assumes a limited lockdown period (2–3 months) that is followed by a recovery hampered by social distancing restrictions ahead of a vaccine in 2021 beyond which things ‘normalise’. During this time, policymakers are likely to do whatever is required to preserve the financial system. Their efforts thus far have been nothing short of spectacular. Interest rates have been slashed to zero in nearly all developed economies, while central banks have already expanded their collective balance sheet by an estimated $4trn, led by $2.4tr from the Federal Reserve (Fed). By the end of 2021, the G4 plus China are expected to have increased their balance sheets by $13tr with the Fed and the ECB balance sheets exceeding 50% of GDP. Unlimited QE from the Fed, the world’s lender of last resort, has effectively taken on private sector credit risk. Fiscal stimulus has also been ‘eye popping’ with US efforts estimated at $2.6trn, close to double anything seen in over a century with its flagship Coronavirus Aid, Relief and Economic Security (CARES) Act worth c.9% of GDP and double the size of the intervention following the financial crash in 2008. While different countries have adopted varied approaches, total worldwide stimulus has been estimated at $15tr to date, equivalent to c.17% of the global economy last year.

2. COVID-19 represents one of those generational moments when normality is suspended. Usually, these are deeply personal moments when the passage of time is interrupted by news of serious illness or an unexpected development that changes everything. Once life restarts, for some it simply snaps back to its earlier state. But for many, the timeout allows them to recalibrate and focus on what really matters to them. Our sense is that COVID-19 will result in societal recalibration – permanent changes that persist long after the pandemic – many of which will seem obvious in the fullness of time. The success of work from home (WFH) together with challenges to mass transit systems posed by social distancing means that many of us are unlikely to work as we did previously. This may have a profound and lasting impact on demand for commercial property, coffee shops (as a ‘third space’), business travel and even the role of cities. Rather than trying to move people at high speed in and out of business hubs (with HS2 expected to cost more than £106bn) perhaps infrastructure spending should be redirected to providing nationwide high-speed Internet. If we came to dominate the world because sapiens were the only animal able to assemble and cooperate flexibly in large numbers, then in a socially distanced world the case for universal internet access has never looked stronger”.

I totally agree with the last comment. Building railways which are certainly “old technology” at great expense seems somewhat perverse.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Northern 2 VCT AGM – A Totally Undemocratic Affair

I attended the Northern 2 VCT Annual General Meeting yesterday via Zoom. This was a most disappointing event.

There were three directors physically present and Tim Levett gave an overview of the company’s new investments and the top ten holdings. But when it came to the formal business they took a show of hands vote which is totally meaningless when only the directors were permitted to be present.

They did show the proxy counts, so they may have won a poll vote anyway but that is not the point. It should have been a poll vote.

The Chairman did suggest they would answer questions submitted prior to the event, but they did not specifically respond to the comments I submitted in advance. These were:

A – There are too many directors on the board who have served for more for more than 9 years. Too long! [in fact there are three out of five with more than 9 years which is contrary to the UK Corporate Governance Code unless reasons are given.  They did refer to the AIC Code but I do not accept that this should be used and it is simply not good enough for other directors to simply say they consider them independent. Is length of service a problem? I certainly think so. One only has to consider the recent case of Wirecard where the 75-year-old Mr Matthias had been Chairman for more than a decade until recently. Would such a massive fraud have taken place if the board had been regularly revived? In investment trusts it is particularly problematic as the directors can build very close and inappropriate relationships with the fund managers].

B – There is no clear statement of total return for the year in the Annual Report, and percentage change over the prior year). [There was no reference to this at all by the directors, but on my calculation it was -3.9% last year. That’s actually better than some other VCTs. Many VCTs had to mark down the valuations of some of their early stage businesses, but as the results were only to the end of March, there may be worse news to come].

Despite the use of Zoom, there was no interaction with the audience whatsoever with no opportunity to ask supplementary questions. I have no idea even how many shareholders attended.

A quite disappointing event and not how to run an AGM even bearing in mind the current restrictions.  

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Virtual AGMs and How Innovation Works

The Financial Times ran an article today headlined “What’s an AGM without a chat with directors over a prawn sandwich?”. It covered the lack of attractiveness of AGMs now that there are only virtual electronic ones, if any at all, that shareholders can attend. I added this comment to the article on their web site:

“It is most disappointing that many companies are failing to hold virtual AGMs while the epidemic is around. AGMs are a valuable opportunity to ask questions of directors, both formally and informally. But as most have been held in London that means physical attendance for many was not practical. The best solution is a hybrid AGM where people can attend in person or electronically.

The smaller the company, the more valuable the AGM becomes. If they don’t want to hold formal AGMs electronically they could at least provide a seminar for shareholders to attend. But the FCA should draw up some firm rules that stop companies avoiding doing anything.

I am one of those people who regularly attends AGMs and I find them essential to learn more about companies and their management”.

There were a number of other good comments posted, but it is most unfortunate that the FT’s article writer talked about the free lunches and other goodies. Personally I could not care less about the lunches and frequently avoid them. The offered buffets I have found to be a good source of an upset tummy.

Anyway it was good to see today that Polar Capital Technology (PCT) are going to hold a virtual AGM on the 2ndof September. This will not just provide on-line access to the meeting but also support on-line voting using the Lumi Global web site or App (see  https://www.lumiglobal.com/ ). They also support hybrid AGMs which may be useful when the epidemic is over. I am a firm supporter of hybrid AGMs when normality returns as not many people can spare the time to attend meetings in person, particularly if they live remotely from the venue. But physical attendance is still the best if you want to chat informally to the directors, or fellow shareholders, so I would not want to see conventional AGMs abandoned in place of solely virtual meetings.

Polar Capital Technology are of course one of the big investors in innovative technology companies. I am just finishing reading a recently published book by Matt Ridley entitled “How Innovation Works”. I can certainly recommend it for summer holiday reading.

He dispels the myth of the lone inventor or genius creating leap forwards in products by covering many of the histories of past inventions such as the steam engine, the light bulb, the computer, the airplane and the adoption of farming – in other words a very wide period of history. The research that has gone into this book must have been very extensive indeed as so many examples are covered.

What conclusions are drawn? That innovation is typically a collaborative process of many minds and it is frequently difficult to pin down the first inventor. They often all learn from each other. He also looks at what environments encourage innovation and what discourage them. A wealthy and free society helps, while Government direction and monopolies are disadvantages. Few innovations come directly from scientific research financed by Governments or others.

The author emphasizes that innovation is often a gradual process with no great leaps forward in reality – it often just appears so in hindsight. For those investing in technology companies it’s well worth reading to understand why some companies are successful and others not. It certainly matches my experience of working in the software industry.

Now it’s the height of summer, and our windows are open, the flies are swarming into our houses. I recently purchased a great product which I consider a major step forward in fly killing. It’s a typical innovation in other words. It’s like a tennis racket but has wires connected to a battery in the handle that enable you to swat the flies and they instantly get fried when they touch the wires. No more swatting flies with newspapers and leaving squashed flies. Who invented this product? I have not been able to find out. But it is clearly a development of large mains powered fly killers that one saw on the walls of shops in the past. A photograph is below.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Economic Trends, Audit Quality and the Importance of Management

The news on the epidemic and its impact on financial news continues to be consistently bad. GDP rebounded in May to be up 1.8% but that’s a lot less than forecast. It fell 20.3% in April but as many businesses did not reopen until June perhaps the May figures are not that surprising.

Masks now have to be worn in shops. This will be enforced by the police with possible fines of £100. That will surely discourage some people from shopping on the High Streets.

The BBC ran a story today that said that scientists forecast a second wave of the virus in Winter with up to 120,000 deaths. But that is a “worse case” scenario. The claim is that the colder weather enables the virus to survive longer and with more people spending time indoors, it may spread more. I think this is being pessimistic but it’s certainly not having a positive effect on the stock market.

The London Evening Standard ran a lengthy and very negative article yesterday on the impact of the virus on London with a headline describing it as “an economic meltdown”. It suggested 50,000 jobs will go in the West End alone due to a decline in retail, tourism and hospitality sectors. Commuters are still reluctant to get on public transport – trains, underground or buses. In Canary Wharf only 7,000 of the 120,000 people who normally work there are at their desks it is reported. One problem apparently is that with numbers able to enter lifts being restricted it can take a very long time to get all the normal staff at work in high rise buildings. Hotels, clubs and casinos have been particularly hard hit with the extension of the Congestion Charge (a.k.a. tax) discouraging visits. 

Audit Quality

The Financial Reporting Council (FRC) has confirmed what we probably already knew from the number of problems with company accounts – that audit quality has declined in the last year. Following reviews of audits by the major audit firms including PwC, Deloitte, EY, KPMG, BDO and Grant Thornton there were a number of criticisms made by the FRC. The firms PwC, KPMG and Grant Thornton were particularly singled out. The last firm was judged to require improvement in 45% of its audits.

We were promised a tougher stance from the FRC but it is clearly not having the required impact. Published accounts are still clearly not to be relied upon which is a great shame and undermines confidence in public companies.

There were a couple of interesting articles in last week’s Investors Chronicle (IC). One was on the investment approach of Harry Nimmo of Aberdeen Standard. He is quoted as saying: “We do measure prospective and future valuations – it’s not completely ignored. But it doesn’t lead our stock selection, and we don’t have price or valuation targets”. Perhaps he does not trust the accounts either? He does apparently screen for 13 factors though including some related to momentum and growth.

Management Competence

The other good article in IC was by Phil Oakley headlined “How important is management”. If you don’t trust the accounts of a company, it’s all the other factors that help you to judge the quality of a business and the prospects for long-term returns which are important. Phil says that “management does matter” but he thinks some investors overemphasise it’s importance.

How do you judge the quality of the management? One can of course look at the results in the financial numbers over past years but that can suffer from a major time lag. In addition management can change so past results may not be the result of work by the current CEO but their predecessor. This is what I said in one of my books: “Incompetent or inexperienced management can screw up a good business in no time at all, although the bigger the company, the less likely it is that one person will have an immediate impact. But Fred Goodwin allegedly managed to turn the Royal Bank of Scotland (RBS), at one time the largest bank in the world, into a basket case that required a major Government bail-out in just a few years”.

RBS was also a case where the company’s financial results were improved by increasing the risk profile of the business – the return on capital was improved but the capital base was eroded. Management can sometimes improve short term results to the disadvantage of the long-term health of the business.

Is it worth talking to management, say at AGMs or other opportunities? Some people think not because you can easily be misled by glib speakers. But I suggest it is so long as you ask the right questions and don’t let them talk solely about what they want to discuss. Even if you let them ramble, you can sometimes pick up useful tips on their approach to running the business. Are they concerned about their return on capital, or even know what it is, can be a good question for example. I recall one conversation with an AIM company CEO where he bragged about misleading the auditors of a previous company about the level of stock they held, or another case where a CEO disclosed he was suffering from a brain tumour which had not been disclosed to shareholders. Unfortunately in the current epidemic we only get Zoom conversations rather than private, off-the-record chats.

Talking to competitors of a business can tell you a lot, as is talking to former employees who frequently attend AGMs. Everything you learn can help to build up a picture of the personality and competence of the management, and the culture that they are building in the company. The articles being published on Wirecard and Boohoo in the last few days tell us a great deal about the problems in those companies but you could have figured them out earlier by some due diligence activity on the management.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Obituary – Tony Pidgley of Berkeley Group

Last week the sudden death of Tony Pidgley, Chairman of Berkeley Group (BKG), was announced at the age of 72. He founded the company and grew it to be one of the largest housebuilders in the UK.

He had a difficult childhood being adopted by travelers but left school at the age of 15. Only a few years later he founded Berkeley, building just one house initially. The company announced its results on the 17th June which showed revenues of £1,920 million last year and profits of £503 million, albeit they were down by 35%. Altogether a remarkable success story over many years by riding the peaks and troughs of the housing market very successfully. It is undoubtedly the case that Tony Pidgley knew a great deal about the building industry and how to make money in it.

I held shares in the company prior to 2017 and there were reports on the company AGMs written by me and my son in 2016 and 2014. These meetings were not good examples of how public companies should be run with Pidgley clearly dominating the business as Executive Chairman. For example there were complaints about directors’ remuneration, and the AGMs were treated as trivial affairs. ShareSoc members can read those AGM reports on the ShareSoc web site.

Perhaps it’s a typical example of how all very successful people have more than one side to their personality.

Berkeley have traditionally focused on building up-market houses or apartments in London and the South-East. But is this market changing? There was an interesting article in the Financial Times last week about the movement of people out of central London into the suburbs. It was headlined “Dalston is out, Twickenham is in; why Londoners are dreaming of the suburbs”. It explained how the success of home working, but the inconvenience of doing so in small houses or flats, has made people look to move out of central London to the outer London suburbs where I live. That is particularly so as they may not need to go into the office every day.

I can well believe it. Not only did my neighbour manage to sell her house in record time, but we received a personal letter sent to all of our street asking whether we wanted to sell. This was not the normal estate agents letter touting for business which we get occasionally.

I can see the merit in such moves as central London house prices are still astronomic in comparison with the suburbs and the quality of life is substantially better. Less crime and fewer riots for example.

Will Berkeley have to transition to a slightly different model under a new leader I wonder?

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Electronic AGMs and Voting

Several companies in which I hold shares are proposing to adopt new Articles of Association at their Annual General Meetings. These typically are amended to enable the holding of “virtual”, i.e. electronic ones, or “hybrid” meetings where a physical venue (or multiple ones) are also used. They can do that legally at present under the emergency regulations put in place by the Government but they are clearly anticipating a more common use of such capabilities now that everyone is more practised in using video conferencing.

But finding out what the proposed new Articles actually are is often not easy. I simply could not find the one for JPM European Smaller Companies Trust anywhere so I sent them an email. No response to date.

In the case of Telecom Plus, the AGM notice points you to their investor web site for the new articles, but they were difficult to find there and the changes were not clear. This is where they can be found if you scroll down far enough: https://uw.co.uk/investor-relations

You will find the changes very unclear and convoluted. They look like they were written in a hurry. This paragraph is particularly problematic: “59.1 Each Director shall be entitled to attend and speak at any general meeting of the Company. The chairman of the meeting may invite any person to attend and speak at any general meeting of the Company where he considers that this will assist in the deliberations of the meeting.”

This does not give shareholders the absolute right to speak at a General Meeting as is the current position in Company Law so far as I understand it. The Chairman clearly has the right under the proposed new Articles to invite shareholders to speak, or not. That is not the same thing.

So I will be voting against the new Articles.

You might think the wording of a company’s Articles is a very technical matter of little concern. But in reality it can be a quite critical issue when important votes are required or a company is in difficulties.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Learning Technologies and Ten Entertainment AGMs

I “attended” the on-line Annual General Meeting of Learning Technologies Group (LTG) today. This was run using the GoToWebinar software. There did not appear to be many people on the call as only one shareholder asked a question. Perhaps this was because you had to register for the event in advance using your Investor Code – which only those on the register would have, not those in nominee accounts. This is deeply unsatisfactory.

The meeting was initially chaired by Andrew Brode who spoke some platitudes before handing over to the CFO Neil Elton. Brode’s comments were the same as published in an RNS announcement this morning I believe but he did thank shareholders for their support of the recent share placing.

Mr Elton reviewed the financial results from last year and said that the company had achieved compound annual growth of 61% per annum since listing. Net debt at the end of May was £4.5 million, and there was strong operating cash flow. The return on capital employed increased to 16.4% last year. But the final dividend payment had been delayed.

CEO Jonathan Satchell then covered the progress on corporate governance. He mentioned the “measures taken to shore up the balance sheet” which is what I suggested the placing was really for in a previous blog post. He suggested that was because the economic crisis could get much worse later this year.

On governance he said they go further than the AIM regulation requirements. All directors are up for re-election and there is a vote on remuneration. [Comment: these are certainly good points]. He also discussed diversity in the workforce and new initiatives in this area will be announced.

The company has increased the number of products sold per client. They have only 10-11% exposure to Covid affected sectors. They are currently bidding for a “gargantuan” contract for the Royal Navy. They expect a result before the year end.

He then discussed the recent LMS acquisition – they have great hopes for the future of this business which they hope to make a market leader by adding other similar acquisitions.

He discussed the recent share placing. The reason for it was that they did not feel they could use surplus funds for acquisitions as there may be a liquidity crisis later this year.  He expected the core business to return to growth next year.

Questions were then invited but as none had been received at this point, we went to the formal business with votes on a poll. The poll counts were then read out, as all proxy votes has previously been received. All resolutions were passed but I noted that two directors received relatively low votes in favour. That include Andrew Brode with only 90.8% FOR.

Questions were then invited and one shareholder suggested that private shareholders could be included in placings by using such organisations as Primary Bid. Andrew Brode responded that the way it was done was based on advice from their joint brokers. Shareholders could buy shares in the market afterwards at a tiny premium, he suggested.

[Comment: Primary Bid is one solution but it is far from ideal with shareholders being given minimal time to take up any offer and possibly being downsized as well. It is also only fortuitous that the shares could be picked up for near the placing price in the market later. There did not appear to be any real urgency to get the placing done so an open offer alongside should have been done. Regrettably there are too many such placings of late].

This “virtual” AGM worked reasonably well, but you could not see who else was attending and there was no real interaction with shareholders present. Also Andrew Brode’s speech was difficult to hear at times. This was not a good alternative to a physical AGM.

Note: the above report may be inaccurate because it’s even more difficult to make notes of a virtual meeting than it is in a physical one. Sometimes it was not even clear which director was speaking for example.

Another recent AGM of an AIM company was that of bowling alley operator Ten Entertainment (TEG) for which I hold all of 50 shares. I sold almost all my holding before they had to close all their venues. This was another company that did a placing recently but it is hardly surprising in this case that it was required to keep the business afloat until they can get back into operation.

I don’t think this company even offered virtual attendance at their AGM so only the poll results were subsequently announced. They collected over 20% of votes against both the Remuneration Policy and Remuneration Report and two directors including the Chairman also collected substantial votes Against. The company is to review its remuneration policy which I certainly did not like when I looked at it.

Virtual and Hybrid AGMs, and a solution

I have been discussing with other ShareSoc members how virtual and hybrid AGMs should operate – indeed how AGMs should generally function in future as it is quite possible that virtual or hybrid options may become the norm even after the epidemic has passed. For instance companies such as TEG are changing their articles to permit them in the long term even after the temporary authorisation to permit them has lapsed.

But it is clear that there are good and bad practices while attendance at a physical AGM is still clearly advantageous so it would be a shame if that is excluded in future. For example it gives you the opportunity to have informal discussions with directors before and after the meeting as well as with other shareholders which you can never do at virtual AGMs. It also gives some of us the rare opportunity to get out of our home offices – we are all suffering from cabin fever at present!

One somewhat archaic practice that is likely to disappear is the “show of hands” vote. This was always useful and appreciated by shareholders because it firstly allowed AGMs to be concluded rapidly if there was no significant opposition to resolutions, and secondly it allowed you to easily see the overall opinion of shareholders at the meeting. If there was any doubt of shareholders views, a poll can be called by the Chairman, or by shareholders. A poll often means that the vote outcome is not declared until much later – too late to ask about any opposition. If that tactic is used I always ask the question in the meeting of “were there any significant proxy votes against any of the resolutions” as the proxy votes are known well before the meeting.

But with hybrid meetings (those where a physical meeting is combined with a virtual one), I can see a number of practical difficulties with allowing a show of hands vote (and checking who is voting), so I think that will go the way of the dinosaurs.

I suggest also that presentations to shareholders, and discussion thereon, should preferably be separated out into a previous virtual event – sometime after the Annual report is issued and Notice of the AGM has been issued but before the proxy vote deadline. This would enable shareholders (and others as such as non-shareholders and nominee holders) to become informed before they vote. The formal AGM with voting on a poll could then be held later (as a hybrid meeting).

Does this idea make any sense to readers?

But it is clear that it would help to standardise the actual process for virtual meetings and the software that might be used for them – or at least to those that can support the facilities that are needed.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Babcock Dividend, Ocado Placing, AGM Reform and Why Are People So Angry?

To follow up on my previous blog post about Babcock (BAB) and the possibility of it “skipping” its final dividend, the company issued its Final Results this morning and spelled it out. This is what it said about the dividend: “Given the current level of uncertainty over the impact of COVID-19, the Board has decided to defer the decision on our final dividend for the year ended 31 March 2020. We recognise the importance of the dividend to our shareholders and the Board will keep this under review during the financial year as the impact of COVID-19 becomes clearer”. That is not what Shore Capital suggested at all.

Although the company appears to have met forecasts for last year, and says it has a record order book, the share price has fallen 5% at the time of writing. The market in general is down considerably also though.

Ocado (OCDO) announced an institutional placing yesterday together with an offer via Primary Bid to retail investors. Like the one for Segro I commented on yesterday, this is a fund raising for expansion and is at a relatively small discount and dilution. These arrangements are now becoming common but I still don’t like them. They give private investors very little time to decide whether they wish to take up the offer and they do not know what price is being offered. As a holder of Ocado, this is another one I declined to invest in. Ocado share price is down 5.7% this morning at the time of writing which is exactly the same as the discount in the offer to the previous closing price, i.e. you could pick up shares in the market just as cheaply. I suggest companies should do proper rights issues rather than this dubious method and that the FCA should regulate this area more robustly.

There was a good article in the Financial Times today under the headline “Coronavirus casts doubt on the future of AGMs”. It describes the debate over the reform of AGMs and the use of virtual AGMs. It also covered an initiative by organisation ShareAction who are raising money to fund research into the issue. They quote Catherine Howarth as saying “We hope to co-develop a robust framework for AGMs that would still include shareholder votes and which would also help companies interact with a wider range of their important stakeholders including employees, customers, suppliers and communities”. That may be a worthwhile initiative if it makes AGMs more vibrant and useful than they are now but bearing in mind the funding of ShareAction it may not be a totally unbiased proposal.

What we do not want is AGMs dominated by “stakeholders” with political views as happens already at some companies – such as oil and mining company AGMs with endless complaints from environmental activists or defence industry company AGMs dominated by those who believe the company should not be involved in that industry at all. Companies are not in business to right all the social wrongs in the world, but to provide a financial return to their shareholders. They just need to operate within the laws set by national governments. Company law in the UK already requires the company to take the wider interests of stakeholders such as employees or customers into account and they can be represented at AGMs easily enough now by just buying a few shares – you only need one share to attend an AGM.

The FT article does make some good points about virtual AGMs, one of which I commented upon yesterday (EKF Diagnostics). But it suggests that it might cost £10,000 to hold a “hybrid” meeting at a small company. That is surely a grossly excessive estimate if voting is done on a poll. It’s trivial to set up a Zoom meeting for the number of investors likely to attend such a meeting (only a dozen at EKF).

I don’t often comment on general political or economic issues, but I find the current hysteria about the death of George Floyd and the resulting demonstrations over “Black Lives Matter” in the USA and UK totally out of proportion. George Floyd was a very tall and heavy person who it is alleged resisted arrest. He had a past criminal record and was a drug user. The full facts of the case have not yet been revealed and it is way too early to say whether the police used excessive force or not, even if the result was very sad.

As to whether there is wider discrimination against black or coloured people in the USA or the UK is also doubtful. From my experience of working in the USA, there appeared to be very little direct discrimination. Did not Colin Powell become head of the US Army and Secretary of State? Did not Barack Obama become US President? But as in the UK, black people are disadvantaged often by the social and cultural backgrounds of their families. Righting that can only be done by education not by demonstrations or laws. Demonstrations actually make matters worse, and the recent violent ones and attacks on property such as historic statues actually make people less sympathetic to the cause. Meanwhile the failure by the police to stop these events undermines law and order in general, just as happened with the Extinction Rebellion demonstrations.

Why are people so angry that they feel the need to take part in such demonstrations, including many people who are not black and hence could not have personally suffered from any prejudice? You can see the same problem in the divisive politics of Brexit where rational debate soon flew out of the window and it degenerated into personal slanging matches on social media. In fact social media and national media reporting of news has actually coarsened political life. The BBC in particular has often seemed to be more interested in stimulating outrage to improve their readership or programme viewing and web site clicks than in reporting the facts in a neutral and unbiased way. This is not a useful national broadcasting service. It has become a medium for slanted propaganda and for stimulating social unrest. This is a problem that responsible politicians will need to tackle sooner or later. But in the meantime those such as Sadiq Khan in London seem more interested in stimulating political division over trivia with the objective of gaining a few votes.

As investors, my readers will have to face up to these issues sooner or later because when the social fabric of a country crumbles as the result of poor leadership, sooner or later the economy crumbles also.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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