Two AGMs (Accesso and Foresight VCT) in one day

Yesterday I attended the Annual General Meeting of Accesso (ACSO) in Twyford at the somewhat early time of 10.00 am with the result that I got bogged down in the usual rush hour traffic on the M25. What a horrendous road system we have in London! A symptom of long term under-investment in UK road infrastructure.

Accesso provides “innovative queuing, ticketing and POS solutions” to the entertainment sector (e.g. theme parks) although they have been spreading into other application areas. The business has been growing rapidly under the leadership of Tom Burnet who moved from being CEO to Executive Chairman a while back.

Tom opened the meeting by introducing the board, including new CEO Paul Noland who is based in the USA where they now have 5 offices apparently. He also covered that morning’s trading statement which was positive and mentioned deals with Henry Ford Health System and an extension to an existing agreement with Cedar Fair Entertainment. Expectations for the year remain unchanged. Questions were then invited – I have just covered a few below.

I raised a concern about the low return on capital in the company (now less than 5% irrespective of how one cares to measure it). I suggested the reasons were large increase in administrative expenses (up 43% last year) and the cost of acquisitions. Did the board have any concerns about this? Apparently not. The reason is partly the acquisitions and the costs might come down as they rationalise operations but they are in no rush to do so.

The Ford deal was mentioned and Tom said this is one deal where the acquisition of TE2 has provided the technology to assist closure. This is what the company said about TE2 when they bought it: The Directors of accesso believe that TE2’s cloud-based solution offers market-leading personalisation capabilities and data orchestration technologies which capture, model and anticipate guest behaviour and preferences not only pre- and post-visit online, but in the physical in-venue environment.  Personalisation is achieved via many heuristics, including machine-learning-based recommendations, in order both to enhance guest experiences and to provide actionable analytics and insights to the operations, retail and marketing organisations.”. I am sure all readers understand that. Hospital systems are clearly one target for this technology.

The vote was taken on a show of hands so far as I could tell, although the announcement the next day of the votes suggested it was done on a poll which is surely wrong. But there were significant numbers of votes (over 2 million) against several directors and against share allotment resolutions. I asked why and was told it was because of a proxy advisory service recommending voting against, allegedly because of some misunderstanding. The answer to my question seemed somewhat evasive though.

In summary, shareholders are clearly happy with the progress of the company but with a prospective p/e of 41 (and no dividends), a lot of future growth is clearly in the share price. Corporate governance seems rather hit and miss.

I then drove into London to the offices of Foresight in the Shard, again journey time a lot more than it should have been due to road closures, lane removal for cycle lanes, etc, etc. Interesting to note a large hoarding on the elevated section of the A4 inviting anyone who had a complaint against RBS and the GRG operation to contact them.

Also interesting to note when I stopped for fuel at a service station on the M4 that at the desk they were serving Greggs food and coffee as well as taking payment for fuel. I know that Greggs have kiosks in some motorway service areas but this is perhaps a new initiative to expand their market. It’s rather like the small Costa coffee outlets that are in all kinds of places. I am a shareholder in Greggs but this was news to me. Obviously I need to get out more to see what is happening in the real world.

The visit to Foresight was to attend the AGM of Foresight VCT (FTV) one of my oldest holdings. Effectively I have been locked in after originally claiming capital gains roll-over relief. It’s also one of the worst of my historic Venture Capital Trust holdings in terms of overall performance over the years.

I did not need to tell them again how dire the performance of the company had been over the last 20 years because another shareholder did exactly that. But I did query whether the claimed total return last year of 6.5% given by fund manager Russell Healey in his presentation was accurate. It was claimed to be so. Perhaps performance is improving but I am not sure I want to stick around to see the outcome.

One particularly issue in this company is the performance fee payable to the manager which I wrote about in my AGM report and on the Sharesoc blog last year. You can see why the manager has such plush offices as they have surely done very nicely out of this and their other VCTs over the years while shareholders have not, and will continue to do so.

Several shareholders raised questions about the reappointment of KPMG bearing in mind that in Foresight 4 VCT the accounts were possibly defective and a dividend might have been paid illegally. But the board seemed to know nothing about this matter. KMPG got about 6 hands voting against their reappointment and the board is going to look into the matter.

The above is just a brief report on the meeting as I understand Tim Grattan may produce a longer one for ShareSoc.

To conclude, both AGMs were worth attending as I learned a few things I did not already know. For example it seems my holding in Ixaris, an unlisted fintech company where Foresight have a holding, may be worth more than I thought. But I still think their valuation is a bit optimistic.

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

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Musings on Mortality, and Year-End Tax Planning

The death of Steven Hawking at the age of 76 gives those who are trying to figure out how long we may live some cause for thought. He was given only a few years life expectancy soon after he was diagnosed at the age of 21 as having motor neurone disease. This problem of forecasting how long you may live is a key concern of many elderly people like myself as it has a big impact on investment and tax planning.

I am likewise living much longer than my doctors forecast 20 years ago. Despite one near death experience I have reached the age of 72 in reasonable condition, although I do get offered seats on tube trains of late. Do I really look that knackered?

But can I live another 7 years? That’s how long you need to do so to avoid tax on gifts. It can even be as long as 14 years if you have made gifts in prior periods. Now even allowing for the pessimism of doctors who seem to err on the downside on the principle that at least if their forecasts are wrong the patient may be pleased, I think tax planning will have to take another approach in my position.

Gifts of £3,000 per year are possible regardless, and gifts out of “surplus income” can also be made so now is the time of year to work out what you can do in this regard before the tax year ends. Of course it means that you need to have kept track of all your income and expenditure during the tax year which many people do not. If you have not, perhaps it’s time to start for the new tax year? The wealthiest man in the world at the time, John D. Rockefeller, was reported in his biography as keeping a pocket notebook with him at all times where he recorded the smallest expenditure. Perhaps no need to go to such extremes but the principle is worth following.

As it’s coming up to the end of the tax year, now is the time to review holdings and transactions that are not in ISAs or SIPPs in case you are likely to be paying capital gains tax. I get my accountant to work out my capital gains tax position a few weeks before the year end, then if I have gains exceeding the annual allowance (£11,300 for the current tax year), I sell any losing positions to reduce the liability. If I have gains less than that I might sell profitable holdings to maximise the use of the allowance. One can always buy any holdings back later that you prefer to keep them (more than a month later, or buy them in your spouse’s name).

This year, with the stock market being buoyant and not having made any big investment mistakes, I don’t seem to have much in the way of losses to realise. So I thought I would take a quick look at an EIS fund which was the subject of a mailing I received (EIS funds are also topical because of the Government consultation on future options for them). I previously expressed some doubts about EIS funds, but the one I received information on (Guinness AIM EIS) has been around for some time and AIM listed stocks should be less risky than unlisted investments. But when I look through the information on “historic” investments it lists the following: Chapel Down, Coral Products, Fishing Republic and Yu Energy which I do not view very positively although the last one is growing rapidly. The charges on the fund are high – 5% initial, 1.75% annual and a 20% performance fee.

You don’t get the EIS tax relief certificate until the funds are invested which could be a year or more after the closing date according to the prospectus. You also need to stay invested for at least three years to retain the income tax relief and bear in mind in any case that these are long-term investment vehicles. The immediate tax relief might be substantial but it could be a long time before there is a good return on your investment. If you die holding an EIS investment then the capital gains relief you obtained still applies (i.e. there is no tax due), but the complications of death are mind boggling on EIS investments. Anyone considering EIS investments should certainly consult an accountant who is expert in this area.

EIS funds might be one way of deferring capital gains tax liabilities, but I think I might pay the tax instead. Capital gains tax rates are currently low (10% or 20% on shares depending on your total taxable income), and there is no knowing what future Chancellors might do to change the rates and EIS rules.

There is one change in tax rates to bear in mind for the new tax year. This is that the dividend tax allowance reduces to £2,000 from April. So wealthy investors will be paying a lot more tax as a result of the dividend tax credit system being dismantled. Just to remind you, the companies you have invested in get taxed on their profits, and now you are also being taxed on the profits they distribute as dividends to you. So investors are being taxed twice on the same profits!

The conclusion is that you should avoid receiving dividends if possible. If you wish to hold high dividend paying stocks then put them in your ISAs or SIPPs. For direct holdings, it’s preferable to achieve gains by buying growth stocks rather than low growth mature companies that pay high dividends. You can always sell a few shares to generate cash income if needed. Alternatively buy such holdings indirectly in investment trusts and funds, who do not have to distribute the income, although it’s generally a good idea to avoid “income” funds. Such funds tend to underperform as Terry Smith recently pointed out. That’s probably because they tend to buy low-growth mature businesses which is a sure recipe for pedestrian stock market performance. High dividends do not compensate for lack of growth.

Another way to minimise dividend income taxes is to put money into Venture Capital Trusts. Dividends on those are tax free.

Lastly, don’t forget that giving money to registered charities can minimise your tax bill so that’s another subject to consider before the tax year end.

In conclusion, I would suggest three mottoes to follow: 1) Don’t bet on your life expectancy – it could be much longer, or shorter, than you think; 2) Keep your tax affairs simple; and 3) Encourage the Chancellor to simplify the tax system, and not keep changing the rules.

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

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