Mello Event, ProVen and ShareSoc Seminars and Lots More News

It’s been a busy last two days for me with several events attended. The first was on Tuesday when I attended the Mello London event in Chiswick. It was clearly a popular event with attendance up on the previous year. I spoke on Business Perspective Investing and my talk was well attended with an interesting discussion on Burford Capital which I used as an example of a company that fails a lot of my check list rules and hence I have never invested in it. But clearly there are still some fans and defenders of its accounting treatment. It’s always good to get some debate at such presentations.

On Wednesday morning I attended a ProVen VCT shareholder event which turned out to be more interesting than I expected. ProVen manages two VCTs (PVN and PGOO), both of which I hold. It was reported that a lot of investment is going into Adtech, Edtech, Fintech, Cybersecurity and Sustainability driven by large private equity funding. Public markets are declining in terms of the number of listed companies. The ProVen VCTs have achieved returns over 5 years similar to other generalist VCTs but returns have been falling of late. This was attributed to the high investment costs (i.e. deal valuations have been rising for early stage companies) in comparison with a few years back. Basically it was suggested that there is too much VC funding available. Some companies seem to be raising funds just to get them to the next funding round rather than to reach profitability. ProVen prefers to invest in companies focused on the latter. Even from my limited experience in looking at some business angel investment propositions recently, the valuations being suggested for very early stage businesses seem way too high.

This does not bode well for future returns in VCTs of course. In addition the problem is compounded by the new VCT rules which are much tougher such as the fact that they need to be 80% invested and only companies that are less than 7 years old qualify – although there are some exceptions for follow-on investment. Asset backed investments and MBOs are no longer permitted. The changes will mean that VCTs are investing in more risky, small and early stage businesses – often technology focused ones. I suspect this will lean to larger portfolios of many smaller holdings, with more follow-on funding of the successful ones. I am getting wary of putting more money into VCTs until we see how all this works out despite the generous tax reliefs but ProVen might be more experienced than others in the new scenario.

There were very interesting presentations from three of their investee companies – Fnatic (esports business), Picasso Labs (video/image campaign analysis) and Festicket (festival ticketing and business support). All very interesting businesses with CEOs who presented well, but as usual rather short of financial information.

There was also a session on the VCT tax rules for investors which are always worth getting a refresher on as they are so complex. One point that was mentioned which may catch some unawares is that normally when you die all capital gains or losses on VCTs are ignored as they are capital gains tax exempt, and any past income tax reliefs are retained (i.e. the five-year rule for retention does not apply). If you pass the VCT holdings onto your spouse they can continue to receive the dividends tax free but only up to £200,000 worth of VCT holdings transferred as they are considered to be new investments in the tax year of receipt. I hope that I have explained that correctly, but VCTs are certainly an area where expert tax advice is quite essential if you have substantial holdings in them.

One of the speakers at this event criticised Woodford for the naming of the Woodford Equity Income Fund in the same way I have done. It was a very unusual profile of holdings for an equity income fund. Stockopedia have recently published a good analysis of the past holdings in the fund. The latest news from the fund liquidator is that investors in the fund are likely to lose 32% of the remaining value, and it could be as high as 42% in the worst scenario. Investors should call for an inquiry into how this debacle was allowed to happen with recommendations to ensure it does not happen again to unsuspecting and unsophisticated investors.

Later on Wednesday I attended a ShareSoc company presentation seminar with four companies presenting which I will cover very briefly:

Caledonia Mining (CMCL) – profitable gold mining operations in Zimbabwe with expansion plans. Gold mining is always a risky business in my experience and political risks particularly re foreign exchange controls in Zimbabwe make an investment only for the brave in my view. Incidentally big mining company BHP (BHP) announced on Tuesday the appointment of a new CEO, Mike Henry. His pay package is disclosed in detail – it’s a base salary of US$1.7 million, a cash and deferred share bonus (CDP) of up to 120% of base and an LTIP of up to 200% of base, i.e. an overall maximum which I calculate to be over $7 million plus pension. It’s this kind of package that horrifies the low paid and causes many to vote for socialist political parties. I find it quite unjustifiable also, but as I now hold shares in BHP I will be able to give the company my views directly on such over-generous bonus schemes.

Ilika (IKA) – a company now focused on developing solid state batteries. Such batteries have better characteristics than the commonly used Lithium-Ion batteries in many products. Ilika are now developing larger capacity batteries but it may be 2025 before they are price competitive. I have seen this company present before. Interesting technology but whether and when they can get to volumes sufficient to generate profits is anybody’s guess.

Fusion Antibodies (FAB) – a developer of antibodies for large pharma companies and diagnostic applications. This is a rapidly growing sector of the biotechnology industry and for medical applications supplying many new diagnostic and treatment options. I already hold Abcam (ABC) and Bioventix (BVXP) and even got treated recently with a monoclonal antibody (Prolia from Amgen) for osteopenia. One injection that lasts for six months which apparently adjusts a critical protein – or in longer terms “an antibody directed against the receptor activator of the nuclear factor–kappa B ligand (RANKL), which is a key mediator of the resorptive phase of bone remodeling. It decreases bone resorption by inhibiting osteoclast activity”. I am sure readers will understand that! Yes a lot of the science in this area does go over my head.

As regards Fusion Antibodies I did not like their historic focus on project related income and I am not clear what their “USP” is.

As I said in my talk on Tuesday, Abcam has been one of my more successful investments returning a compound total return per annum of 31% Per Annum since 2006. It’s those high consistent returns over many years that generates the high total returns and makes them the ten-baggers, and more. But you did not need to understand the science of antibodies to see why it would be a good investment. But I would need a lot longer than the 30 minutes allowed for my presentation on Tuesday to explain the reasons for my original investment in Abcam and other successful companies. I think I could talk for a whole day on Business Perspective Investing.

Abcam actually held their AGM yesterday so I missed it. But an RNS announcement suggests that although all resolutions were passed, there were significant votes against the re-election of Chairman Peter Allen. Exactly how many I have been unable to find out as their investor relations phone number is not being answered so I have sent them an email. The company suggests the vote was because of concerns about Allen’s other board time commitments but they don’t plan to do anything about it. I also voted against him though for not knowing his responsibility to answer questions from shareholders (see previous blog reports).

The last company presenting at the ShareSoc event was Supermarket Income REIT (SUPR). This is a property investment trust that invests in long leases (average 18 years) and generates a dividend yield of 5% with some capital growth. Typically the leases have RPI linked rent reviews which is fine so long as the Government does not redefine what RPI means. They convinced me that the supermarket sector is not quite such bad news as most retail property businesses as there is still some growth in the sector. Although internet ordering and home delivery is becoming more popular, they are mainly being serviced from existing local sites and nobody is making money from such deliveries (£15 cost). The Ocado business model of using a few large automated sites was suggested to be not viable except in big cities. SUPR may merit a bit more research (I don’t currently hold it).

Other news in the last couple of days of interest was:

It was announced that a Chinese firm was buying British Steel which the Government has been propping up since it went into administration. There is a good editorial in the Financial Times today headlined under “the UK needs to decide if British Steel is strategic”. This news may enable the Government to save the embarrassment of killing off the business with the loss of 4,000 direct jobs and many others indirectly. But we have yet to see what “sweeteners” have been offered to the buyer and there may be “state-aid” issues to be faced. This business has been consistently unprofitable and this comment from the BBC was amusing: “Some industry watchers are suggesting that Scunthorpe, and British Steel’s plant in Hayange in France would allow Jingye to import raw steel from China, finish it into higher value products and stick a “Made in UK” or “Made in France” badge on it”. Is this business really strategic? It is suggested that the ability to make railway track for Network Rail is important but is that not a low-tech rather than high-tech product? I am never happy to see strategically challenged business bailed out when other countries are both better placed to provide the products cheaper and are willing to subsidise the companies doing so.

Another example of the too prevalent problem of defective accounts was reported in the FT today – this time in Halfords (HFD) which I will add to an ever longer list of accounts one cannot trust. The FT reported that the company “has adjusted its accounts to remove £11.7 million of inventory costs from its balance sheet” after a review of its half-year figures by new auditor BDO. KPMG were the previous auditor and it is suggested there has been a “misapplication” of accounting rules where operational costs such as warehousing were treated as inventory. In essence another quite basic mistake not picked up by auditors!

That pro-Brexit supporter Tim Martin, CEO of JD Wetherspoon (JDW) has been pontificating on the iniquities of the UK Corporate Governance Code (or “guaranteed eventual destruction” as he renames it) in the company’s latest Trading Statement as the AGM is coming up soon. For example he says “There can be little doubt that the current system has directly led to the failure or chronic underperformance of many businesses, including banks, supermarkets, and pubs” and “It has also led to the creation of long and almost unreadable annual reports, full of jargon, clichés and platitudes – which confuse more than they enlighten”. I agree with him on the latter point but not about the limit on the length of service of non-executive directors which he opposes. I have seen too many non-execs who have “gone native”, fail to challenge the executives and should have been pensioned off earlier (not that non-execs get paid pensions normally of course. But Tim’s diatribe is well worth reading as he does make some good points – see here: https://tinyurl.com/yz3mso9d .

He has also come under attack for allowing pro-Brexit material to be printed on beer mats in his pubs when the shareholders have not authorised political donations. But that seems to me a very minor issue when so many FTSE CEOs were publicly criticising Brexit, i.e. interfering in politics and using groundless scare stories such as supermarkets running out of fresh produce. I do not hold JDW but it should make for an interesting AGM. A report from anyone who attends it would be welcomed.

Another company I mentioned in my talk on Tuesday was Accesso (ACSO). The business was put up for sale, but offers seemed to be insufficient to get board and shareholder support. The latest news issued by the company says there are “refreshed indications of interest” so discussions are continuing. I still hold a few shares but I think I’ll just wait and see what the outcome is. Trading on news is a good idea in general but trading on the vagaries of guesses, rumours or speculative share price movements, and as to what might happen, is not wise in my view.

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

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D4T4 Solutions AGM

This morning I attended the Annual General Meeting of D4T4 Solutions Plc (D4T4) at their offices in Sunbury-on-Thames. This is an AIM-listed niche software solutions business which has been listed since 1997, originally on the main market under the name IS Solutions. I did hold the shares years ago but recently bought back a few as the acquisition of Celebrus gives it some real IP as opposed to it being primarily a service business as it used to be. The two founders are still on the board, one as CEO and one as a non-exec director. Peter Simmonds is the Chairman – he also chairs Cloudcall and used to be CEO at DotDigital.

I was surprised to see about 20 private shareholders present. I would have guessed it would be very few in the August holiday season. They had a lot of questions and comments only a few of which I cover here.

The company issued a statement in the morning. It stated trading was “in line with expectations”. But there was a mention of a second-half bias which seems to have spooked the share price today, even though it is likely to be less than last year.

What does the company do exactly? That is not easy to define but it is primarily a data analytics platform used by companies with large amounts of data such as banks. When I ask Peter after the meeting closed what their key USP was he said it is the real-time data analysis which hardly anyone else can do. This explains why one of their main partners is SAS, a very large US analytics business, who resell the software and is by far the largest customer of D4T4 – £15m out of £25m total revenue. This is clearly a risk which prompted several questions in the meeting. But it was explained that there are many more end-user customers and they have been taking steps to get closer to the end customers.

The CEO did say they wanted to expand from two major sales partners to others and had a third in the pipeline.

Note that according to this morning’s announcement more than 80% of their revenue is in dollars so the falling pound will probably help them. This is a typical software business with a very international spread of business who are unlikely to be harmed by Brexit, whatever the form.

The company had a good year last year – revenue up by 37%, and adjusted profits up by 47%. That’s after revising prior year figures because of the adoption of the IFRS15 accounting standard.

One question raised was why did the wages bill rise by 17% when the number of employees remained unchanged. This was explained by the bonuses paid after a good year financially and the fact they were now recruiting staff in the USA who tend to be a lot more expensive.

There was a long discussion over a proposed new LTIP. Concerns were expressed about the non-explicit holding period. I simply voted against it because I just don’t like LTIPs particularly where the performance targets have not been declared. Shareholders have no idea how much it is going to cost them. The Chair of the Remuneration Committee, Peter Whiting, even said at one point that “LTIPs are not a real cost”. He did seem to back down later when I challenged him on this, but he does not like the current accounting treatment. But all share option schemes are a cost on shareholders because of the dilution and hence should be recognised as such in the accounts. It’s very clear that LTIP schemes have enabled the ramping up of total director and senior management pay in companies.

It seems the performance targets will be disclosed in due course. I suggested that a simple cash bonus combined with conventional share options would be better because staff do not value long-term options. However the Chairman said that if they offered market price options rather than nil-cost ones the dilution might double.

The company has just recruited a new CFO and it was mentioned that a lot of candidates asked whether the company had an LTIP scheme in place. Anyway when it came to a vote, via a poll, 99.9% voted FOR the LTIP. There were only two resolutions that got much less than 99% in favour. These were 95% for the Remuneration Report and 95% for re-election of founder John Lythall as a non-exec – probably because of his length of service.

One interesting question that was asked was about tax rates they would be paying. It was mentioned in response that they are looking to use the “patent box” provision which might reduce their tax rate this year to 10%.

Altogether a useful meeting although I did suggest to the Chairman that it would help to have a presentation on what the company actually did as some investors might not be too clear on that. That could be one reason why the company is only moderately rated on fundamentals.

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

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Pay at HSBC and Santander, Net Worth, Duplicate Dividends and Persimmon

Apparently bankers still live in an unreal world so far as most of us are concerned, even after the financial crisis of ten years ago when their remuneration was attacked. The Financial Times covered two stories on the pay of bankers in today’s edition (16/7/2019). The first was on the opposition to pay at Standard Chartered and comments from the CEO, Bill Winters, on it after a vote of almost 40% against their pay policy in May. The concern is mainly about his pension arrangements which will mean he gets a pension allowance of £474,000 this year which is about 20% of his overall pay. But that includes bonuses when usually pensions are related to base salary only.

Mr Winters comments on his pay were quoted as “I think it’s quite appropriate for the board not to ask me to take a pay cut. And they didn’t – I don’t think it ever occurred to them to ask”. Is that not most amusing. Perhaps the FT coverage might remind them to consider the matter.

The other article was on the pay offered by Santander to Andrea Orcel as an incentive to join the company as CEO. It included a €52 million figure as a “joining bonus” including partly cash and partly in shares to offset the loss of deferred pay from him leaving UBS. In fact the offer was subsequently withdrawn and Mr Orcel is now suing but it just shows how bankers’ pay is still in fantasy land.

As it’s a quiet time of year I thought I would take a look at my and my wife’s “net worth” (we jointly manage our financial affairs). Over 20 years ago one of my US business associates talked to me about his net worth which was something new to me and ever since then I have reviewed it occasionally. It’s something everyone should do to tell whether you are getting richer or poorer, separately from your stock market speculations. How do you work it out? You simply list and add up all your assets and debts – like this:

Assets:

  • Cash in your bank accounts
  • Value of your investment accounts
  • Your cars – market value
  • Market value of your home
  • Value of Business interests
  • Personal property, such as jewelry, art, and furniture
  • Cash value of any insurance policies and pensions

Liabilities (outstanding balances):

  • House Mortgages
  • Car loan and other loans secured against assets (e.g. H/P agreements).
  • Credit card balances
  • Student loans
  • Any other debts

The Net Worth is simply the Assets less liabilities. If it is growing from year to year you must be doing something right. If you are getting poorer every year, then you need to do some hard thinking. It gives you a “reality check” on your overall financial position. However there are clearly periods in your life when you are likely to be building up wealth (such as the CEOs of banks mentioned above) but in later life you might be consuming it or giving it away. At least that’s the conventional assumption.

How did we do in the last year? Net worth was up 7% which rather surprised me as UK stock markets have been down over the last year in capital terms and our house (in London outer suburbs) was not revalued as the market is static. We must donate some more to charity.

Dividends do help of course, particularly when a company pays them out twice! This morning I received duplicate cheques from Pets at Home (PETS). I contacted the company and have spoken to their registrar. They will let me know whether to present the cheques or not. I suspect they may want to cancel all the dividend cheques they have issued. This is the first time this has happened to me, and it simply looks like the same cheques have been printed twice. I suggest other holders of shares in this company await advice, not that many people receive their dividends in cheque form these days.

Persimmon (PSN) shares were down slightly today which is not surprising after the documentary about the defects in their newly built houses on a Channel 4 Despatches programme last night. It highlighted the poor quality of the houses while Persimmon was raking in money from the Government “Help to Buy” scheme which encourages house buying and has probably contributed to rising house prices. Persimmon has been making a profit of £66,000 on each home sold on average, and it was suggested that they paid more attention to the profits of the company than to their customers. Such profits also enabled enormous bonuses to be paid to their management.

I used to hold Persimmon shares but no longer. I have been concerned for some time about the future of the Help-to-Buy scheme and the general unaffordability of houses which may get a lot worse if interest rates rise. House builders are certainly looking cheap on fundamentals at present but can the bonanza continue much longer is the question investors need to ask themselves. A few more programmes like that on Channel 4 and the Government may decide there are better ways to help those without houses.

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

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Worldwide Healthcare Trust and Investor Voting

I recently received the Annual Report of Worldwide Healthcare Trust (WWH). This is one of those companies that has stopped sending out proxy voting forms for their AGM. The Registrar is Link Asset Services who seem to be making it as difficult as possible for shareholders on the register to vote. You either have to contact them to request a proxy voting form, or register for their on-line portal. I don’t want to register (and the last time I tried it was not easy), I just want to vote!

But as I have mentioned before, I have provided a form that anyone can use to submit as a proxy instruction – see here: https://www.roliscon.com/proxy-voting.html. There is an option you can use if you are not on the share register but in a nominee account.

As regards WWH, performance last year was OK with net asset value total return up 13.7% although that’s less than their benchmark which managed 21.1%. Relative underperformance was mainly attributed to being underweight in the global pharmaceutical sector. The fund manager (OrbiMed Capital) believes there are better opportunities elsewhere such as in emerging markets and biotechnology. We will no doubt see in due course whether those bets are right.

But I do have some concerns about corporate governance at this trust. Not only are the directors highly paid, but two of them have been on the board for over 9 years, including the Chairman Sir Martin Smith. He also has a “number of other directorships and business interests” without them being spelled out. The UK Corporate Governance Code spells out quite rightly that directors who have served on the board for more than 9 years cannot be considered “independent”.

In addition Director Sven Borho is a Managing Partner of OrbiMed so he is clearly not independent either. So 3 of the 6 directors cannot be considered independent. I therefore give you my personal recommendations for how to vote on the resolutions at the AGM (or by proxy of course) of the following:

Vote AGAINST resolutions 2, 3, 7, 9, 14 and 15. Vote FOR all the others.

This is not “box ticking”, it’s about ensuring directors of trust companies do not become stale, not too sympathetic to the fund managers and not too geriatric. The excuses given for the directors I am voting against to remain do not hold water.

Nominee Accounts and Voting

As regards the difficulty of voting if you hold your shares in a nominee account (as most do now for ISAs etc), ShareSoc has some positive news after years of campaigning on this issue (including a lot of personal effort from me).

The Government BEIS Department have commissioned a review of “intermediated securities” by the Law Commission. See this ShareSoc blog post for more information: https://tinyurl.com/y4wk4edz . Please do support the ShareSoc campaign on this issue.

It is important that all shareholders can vote, whether you are in a nominee account or on the register, and you need to be able to vote easily. Bearing in mind the furore over the proposed requirement for voters in general elections to at least show some id before voting, which has been criticised, wrongly in my view, for possibly deterring voting, it is odd that this issue of disenfranchising shareholders has not been tackled sooner.

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

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GoGompare AGM and a Generous Remuneration Scheme

Yesterday I attended the Annual General Meeting of GoCompare.com Group (GOCO) which was actually renamed GoCo Group at the meeting. This was held in the City of London at 3.00 pm but even so there were still very few ordinary shareholders present – less than ten I would guess.

The company’s main business is a price comparison web service, particularly focused on car insurance, but also covering utilities and other products. It is of course fronted by Italian opera singer Gio Compario in TV advertisements. They also have a “Rewards” business providing discount vouchers which they recently acquired and a new business called WeFlip that automates utility switching. The company is chaired by Sir Peter Wood, founder of Esure and Directline insurance companies and he recently purchased about 4% of the business.

Sir Peter introduced the board and then invited questions. I was the only shareholder who asked any questions and I focused on the remuneration. For some background it’s worth noting that the CEO, Matthew Crummock, received a total (single figure) remuneration of £1.59 million in 2018. This is for a company that had revenue of £152 million and pre-tax profits of £33.8 million last year. For 2019 his basic pay will be increased by 12.5% to £450,000 and his maximum opportunity on an LTIP from 200% of salary to 230%. He also gets an annual bonus and “PSP” awards. A typically very complex scheme which results in a 19-page Remuneration Report!

I asked why awards under the “Foundation” bonus scheme were made when the performance targets were not met. It was stated that they were only £1 million short on revenue so the remuneration committee decided to award the bonus and the board supported it.

I also asked about the non-specific Bonus and PSP targets for 2019 given on page 57. What were the “Selection of people and cultural measures” and the “Customer centric measures”? At this point the Chairman suggested that these questions be handled after the meeting but I insisted they should be answered then which he conceded. Some reasonable answers were then given. But I advised the Chairman that I would be voting against the Remuneration Report as I considered it too generous.

Voting was then taken on a poll. But the Chairman advised there were substantial votes against the Remuneration Report on the proxy counts. In fact there were 25% of votes against the Remuneration Report and 15% of votes against Angela Seymour-Jackson who chairs the Remuneration Committee. There were also 11% of votes against Non-Exec Zillah Byng-Thorne perhaps because she is also CEO of Future Plc and also a non-exec at Paddy Power Betfair – too many jobs I suggest.

I spoke to Angela Seymour-Jackson after the formal meeting. She said she was disappointed that institutional shareholders voted against the Remuneration Report. She mentioned the payment of a bonus when the performance target was not met was one reason. I said a bonus target is a target that should be met, otherwise the bonus should not be paid. There will likely be more consultation with investors.

I also explained that I dislike LTIPs because they have been one reason why executive pay has ratcheted up in the last few years, and I particularly dislike those that pay out more than 100% of salary. I told her that bonus schemes need to pay out quickly if they are to provide real incentives, i.e. within months not years. She said they were constrained by the guidance in the Corporate Governance Code. Comment: in fact the latest version of the code does not mandate LTIPs and in any case the Code is always a “comply or explain” system. Companies can adopt better systems if they choose to do so and explain why.

This company is a typical example of why executive pay is out of hand and there is no sign that the directors of such companies are likely to change their ways. The widespread public concern over excessive pay and over-complex remuneration schemes that might pay out very large sums has not yet resulted in any change of policy and remuneration committees are still a soft touch. Change is needed.

Otherwise this was a poor quality meeting – no trading statement issued on the day, no presentation, and minimal shareholder attendance. But I did pick up from talking to one of the directors that the WeFlip business, in which the company is investing millions this year, is ahead of internal targets. But the company will win no prizes for its corporate governance.

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

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Trump Tariffs, 4Imprint AGM and Purplebricks Apologies

US President Donald Trump has created some havoc in world stock markets by threatening in a tweet to impose 25% tariffs on a wider range of Chinese goods from Friday. He is apparently getting impatient with the progress on trade talks between the USA and China, but is pursuing international diplomacy via tweets a good idea?

One company that might be affected by higher tariffs on Chinese products is 4Imprint (FOUR) whose AGM I attended this morning. 4Imprint is an AIM-listed retailer of promotional products (sold via catalogues and the internet). Most of its business arises in the USA with only a relatively smaller operation in the UK, and it imports a considerable proportion of the merchandise from China. I asked the Chairman after the AGM whether this was a concern. He said they discussed tariffs at every board meeting but as their competitors would be in the same position the impact might not be high.

There was a trading statement from the company this morning before the AGM. Revenue up 16% in the first four months and the board is confident that the Group will deliver full year results in line with market expectations.

This is the kind of company I like. Revenue growing, no debt, profits turn into cash and return on equity was 82% last year. Like a lot of retailers, they sell the products and collect the cash from customers before they have to pay the suppliers. In essence a simple business and the AGM in the City was a quite brief affair – duration about 15 minutes.

Only I asked any questions in the formal part of the meeting and one was: what is their market share in the USA? About 4% was the answer, and it’s still increasing. The competition is also fragmented so there is room for growth. You can see the kind of products they sell here: https://www.4imprint.co.uk/ . Having used the company in the past I can recommend them.

I also asked whether there were any substantial numbers of proxy votes against any of the resolutions (this is a question to ask when the Chairman says proxy votes will be disclosed at the end of the meeting as happened here!). Yes there was one. Remuneration Committee Chairman Charles Brady only got 93% support. I later asked him why. He said one institutional investor voted against him because the company does not have an LTIP.

I actually voted for the Remuneration Report because they have a simple remuneration scheme and pay of the executive directors is not unreasonable bearing in mind they are based in the USA. This is the kind of pay scheme that should be applauded, not voted against.

Another AIM company of a very different nature that made an announcement this morning is Purplebricks (PURP). A trading statement gave a financial update but included several very negative points. The Australian operation is being closed down, the US operations are now the subject of a “strategic review” with bad news being hinted at, and founder/CEO Michael Bruce is “stepping down with immediate effect”. That usually means the person named has been fired.

The board acknowledges that performance has been disappointing over the last 12 months and “we sincerely apologise to shareholders for that”. The company blames too rapid geographic expansion and poor operational execution.

The company is still losing money and the share price graph is one of those downward facing ski-slopes that investors hate. The share price is down another 7% today at the time of writing. Still an unproven business model in my view. I do not hold shares in the company for that reason.

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

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Safestore and Fundsmith AGMs

Today I attended the Annual General Meeting of Safestore Holdings Plc (SAFE) in Borehamwood. Their head office is next to one of their self-storage units. They now have 146 stores with a concentration in London/South-East England, and in major UK cities, plus some in Paris.

The Chairman, Alan Lewis, commenced the meeting with a very brief statement. He said 2018 was a good year with good strategic progress. He is confident value creation will continue. Note that Mr Lewis is stepping down as Chairman and they are looking for a replacement as he has now served for 9 years.

Safestore is a growing company in a growing sector. As people accumulate more junk, house sizes shrink and more people live in flats, they run out of space for their belongings. The demand is also driven by divorce and death. In addition to personal users, small businesses find such facilities useful to store goods, tools & equipment, or display material.

Revenue was up 11% last year, and earnings up 125% (or as this can be seen as a property company, EPRA earnings were up 15.5%). The dividend was increased by 13.8%. Self-storage companies can be perceived as property companies but they are best viewed as operating businesses in my view (the CEO seemed to agree with that). The market cap is way higher than the book value of the assets unlike in most property companies of late. Self-storage is one of the few growth areas in the property sector at present.

Page 8 of the Annual Report gives some information on the market for such facilities. Compared with say the USA, the UK storage space per head of population is only a small fraction of the USA. In other words, the UK market is relatively immature and to reach the same level as the USA would require another 12,000 stores!

I asked the Chairman why the company did not expand more rapidly if the potential is there? The response from the CEO was that there were problems with finding suitable new sites and with planning restrictions. They are also conservative on finance. A question on potential acquisitions arose as it is a fairly fragmented market in the UK but it seems few such opportunities are reasonably priced and meet the quality criteria they have. They did take over Alligator last year. Competitors don’t seem to be growing any more rapidly, and the CEO suggested they were gaining market share.

The main other question I raised was about their Remuneration scheme. At the 2017 AGM they only just managed to win the Remuneration Policy vote and at the 2018 AGM the Remuneration resolution was again just narrowly voted through. Remuneration Committee Chairperson Claire Balmforth explained that institutional investors were unhappy with the LTIP and the “quantum” of pay – that’s a polite way of saying it was too high. Indeed remuneration at this company is high in relation to the size of the business – the CEO received a total pay of £1.6 million last year (single figure remuneration). Even the Chairman received £135,000.

However it’s apparently all change after extensive conversations with institutional investors. The executive directors have agreed changes to the LTIP and a “more conventional” LTIP will be introduced in 2020. As a result they did better on the remuneration vote, and the votes on the re-election of Balmforth and Lewis, with the Remuneration resolution passing with 70% support.

It was not until later when I chatted to the directors that I discovered where I had come across Claire Balmforth before. She used to be HR Director, then Operations Director, at Carpetright when I held shares in that company.

Anyway I gave them my views on remuneration. Namely I don’t like LTIPs at all, particularly those that pay out more than 100% of base salary. I prefer directors are paid a higher basic salary with an annual bonus paid partly in cash, partly in shares.

Other than the pay issue, I was positively impressed as a result of attending the meeting.

One issue that arose was the poor turnout of shareholders at the meeting. There were more “suits” (i.e. advisors) than the 3 ordinary shareholders (two of those were me and son Alex). Now it happens that earlier in the day I was watching a recording of the annual meeting of Fundsmith Equity Fund which I had not been able to attend in person this year. Terry Smith was in his usual good form, and he said there were 1,300 investors at the meeting. That’s more than any other UK listed company or fund (most funds do not even have such meetings). An amusing and informative presentation helps enormously to attract investors of course. I wish all companies would bear that in mind.

You can watch the Fundsmith meeting recording here: https://www.fundsmith.co.uk/tv .

Anyone who wishes to learn how to make money in stock markets should watch it. Terry Smith has a remarkable record at Fundsmith. He said last year was not a vintage year as the fund was only up 2.2%. But that beat their benchmark and only 7.8% of UK funds generated positive returns last year. In the top 15 largest UK funds over 3 and 5 years, they are the clear winner.

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

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