Abcam, Voting and Non-Executives

I am a long-standing holder of Abcam (ABC) and have been very happy with my investment – a compound annual return of 33% p.a. since I first purchased the shares in 2006 according to Sharescope. But the notice of this year’s AGM (to be held in Cambridge as normal) has made me unhappy for other reasons.

Firstly, I tried to vote. Rather than use the paper proxy voting form (I am on the register so I get one) I thought it would be easy to do so electronically using the Equiniti ShareVote service. Even though there were no obvious instructions on the paperwork, I found the web site, entered the required three pieces of id information, and pressed submit. But it would not accept it because I have a pop-up blocker turned on. Grrr…..

Why do companies and their registrars make it so difficult to vote? They will be wasting money now because I will use the pre-paid voting card instead.

I then studied the resolutions:

  • Remuneration too high and the usual horribly complex mix of bonuses and LTIPs – but I told them that at the 2015 AGM. The only saving grace is that as an AIM company they don’t need to disclose all the information or have a vote on it, so it was good of them to do so. But I will be voting against the Remuneration Report.
  • What also attracted my attention is the presence of three non-executive directors (other than the former CEO) who are all women. One is the Chair of the Remuneration Committee so she gets a vote against for that reason alone. But all three have numerous other jobs/roles which exceed the ShareSoc guidelines and some seem to have little relevant experience of the markets in which Abcam operates. So I am voting against all three. Now I know that experienced female non-executives to fill public company boards are in short supply now that everyone wants to be “gender” balanced, so such ladies can line up numerous jobs with ease. But this is simply not good enough.

This is of course the result of the “box ticking” syndrome to keep the institutional shareholders and proxy voting advisors happy. But no non-executive director can do a good job if they have more than 4 or 5 positions.

I think I will have to attend the AGM again this year to make some of the above points.

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

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Back to the Jeremy Corbyn Future

With the latest revelations from the Labour Party conference, we now know what their policies are likely to be if elected. These include

  • Nationalisation of the railways and utilities (including National Grid).
  • Scrapping all Private Finance Initiative (PFI) deals by buying out the owners with Government debt.
  • Rent controls in the private housing sector.
  • Reform of leaseholds.
  • Workers in the gig economy will get full employment rights.
  • The NHS will get more money.
  • Student loan debts will be written off (at least it’s an “ambition”).

Now some of these policies are not totally daft (the last four for example), even if the cost is probably unaffordable at tens of billions of pounds. But for those of my readers who do not remember the times when we had rent controls, and nationalised industries back in the 1960s and 70s, let me remind you.

Rent controls meant that rents stayed low, but private rented housing pretty well disappeared as a result over the years from 1950 to 1960. Nobody would invest in rented housing when they could get better returns on other investments. Or it promoted the spread of Rachmanism where landlords would allow properties to run down and then use aggressive tactics to remove sitting tenants. In other words, a great example of the usual “unintended consequences” of economically illiterate policies.

The control of industries by politicians and civil servants created hopelessly inefficient industries like the nationalised railways, the car industry and the coal industry which should have been shrunk in size well before Mrs Thatcher took steps to do so.

There would of course be an enormous flight of capital from the UK if these policies were implemented, and it seems the shadow chancellor is already anticipating a run on the pound. What he could do about it other than get the IMF to bail us out is not clear. To remind my younger readers, this is exactly what happened back in 1976 under Prime Minister James Callaghan when the IMF enforced massive cuts in the UK’s budget deficit as a condition of a large loan (the UK had been living beyond its means for some years, and building up large debts, very much like recent years under another socialist government who invented PFI deals to enable them to borrow money without putting it on the Government balance sheet – but the interest payable has now caught up with us). Would a new socialist Government simply default on the contracts or borrow even more money to get out of the PFI deals? Either way it looks a grim financial future for UK Plc.

The last Labour Government made a big mistake when they nationalised a small UK bank called Northern Rock – we just passed the year anniversary of that event. That proved disastrous when other banks such as Bradford & Bingley, RBS, HBOS, et al, who were dependent on short term money market lending needed liquidity. Nobody was keen to lend to UK institutions so British banks and the UK economy were some of the hardest hit worldwide by the events of 2008/9.

As for renationalising the railways, they may get more subsidies from the Government now than they did when they were last nationalised, but ridership has increased, new tracks are being laid, and services improved. The problem was surely the nature of the privatisation and the fact that all railways are horribly inefficient and an inflexible means of moving goods and people around. Old technology, beloved by users who do not have to face up to paying the real cost of the service.

So the policies of Mr Corbyn and his colleagues may be exhilarating for LabourParty supporters, but no I don’t want to go back to a future set in the 1960s. Been there, done that, and no thanks.

But if the Conservatives wish to win the next election, they certainly need to look at tackling employment law to bring it up to date for the gig economy, to tackle the problem of funding education and relieve students of the enormous debts they are now incurring, to deal with the problem of insufficient housing in the South-East (and associated over-population which is the cause) which is leading to demands for rent controls, and tackle the thorny question of funding the NHS. Yes we need some new ideas, not old policies recycled Mr Corbyn.

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

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Interest Rates and the Gig Economy

You probably don’t need to be told that interest rates are at their lowest for several centuries, if not in recorded history. The fact that the Bank of England is making noises about possibly raising base rate could just be a way to try and rein back inflation (a higher base rate, or prospect of it, causes the pound to rise and that makes imports cheaper – and import costs have been one of the factors in inflation rising). But unemployment is also at its lowest level for 40 years which usually indicates a booming economy and the prospect of higher inflation to come.

Inflation is now at 2.9% measured by the C.P.I., or 3.9% based on R.P.I. which a lot of us like to use instead. Now to me the really astonishing item of news last week was that the large City of London Investment Trust managed to borrow £50 million at a fixed rate of 2.94% for 32 years (I do hold some of their shares). That’s must be one of the best deals ever surely, and shows how investment trusts have the advantage of being able to gear up by borrowing money – and why not when interest rates are so low?

In reality, the lender is not even getting a real positive rate of interest at current inflation rates, and is also betting that it won’t get any worse for the next 32 years. Astonishing, and just shows how the world economy is awash with cash.

Another couple of interesting items of news last week were that Deliveroo lost £129 million in 2016 according to accounts filed at Companies House, on revenue of £129 million. In other words, for every pound paid by customers, they lost a pound. It’s raised $472 million from investors to achieve this wonderful business model (source: FT).

Deliveroo use “self-employed” bike couriers to deliver restaurant meals. Another exponent of this “gig-economy” model is Uber who received the bad news last week that Transport for London were terminating their license to operate in London. More information on that in this blog post I wrote for the ABD: https://abdlondon.wordpress.com/2017/09/23/uber-kicked-out-of-london/ . In there I praised the merits of the service and suggested people sign the petition against it (which is rapidly heading for a million signatures).

But one reason that it is so low cost is because like Deliveroo, Uber loses money in a big way at present. To quote from one report on its financials, “Uber is cheap because the company is heavily subsidising each trip” where it was suggested that Uber’s losses as a percentage of revenue were 129% in the last quarter of 2016. Like Deliveroo, revenue is rising rapidly though.

Do we mind if these companies lose money hand over fist? If they are fool enough to do so in the race to dominate a new market why not let them. But the long term viability of both when there are obviously lots of competitors providing similar services does raise doubts about these businesses, even if London Mayor Sadiq Khan relents over Uber’s license.

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

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Brexit, and Ryanair

The media continue to try and blow up stories out of all proportion. Lately it has been on the likely terms of a Brexit deal with the EU, and Boris Johnson’s claims about the £350 million per week paid to the EU at present.

The reality on the latter is that the Daily Telegraph article by Boris claimed we would “regain control” over £350 million paid to the EU (which was based on a Treasury paper on the full EU membership fee (£19.5 billion per annum, which I think everyone will agree is a lot of money). However, that’s not the net cost to the UK because we get a rebate on membership as negotiated by Mrs Thatcher which reduces it to £14.6 billion, plus we get a lot back in the form of subsidies and grants – for example from the Common Agricultural Policy (CAP). A rough estimate is that we get back between £5 and £6 billion from those. So the net figure is more like £9 billion per annum, but that’s still a lot of money. For example, the NHS budget for this year is £124 billion, so you can see the impact that an extra £9 billion might have.

But Boris was accurate in the sense that we have little control over the £5 to £6 billion of grants and subsidies. The UK has long wanted to reform the CAP which is more designed to subsidise inefficient continental European farmers than keep food prices low in the UK. Subsidies of some kinds to some farmers might continue in the UK post Brexit, but in a different form and possibly lower. But only with Brexit will the UK regain control so we can manage these matters more rationally. What most “remainers” seem to ignore is that a lot of the Brexit voters voted to leave because of wanting to get out of the undemocratic EU where UK voters had no significant influence, we were a small fish in a big pond, and likely to be outvoted on any major issues. Mr Juncker’s recent speech made it clear that the EU was headed for a closer political and economic union which many UK voters have found abhorrent. Historically most UK voters supported joining the “common market”, but they never wanted to join a “United States of Europe” with EU laws and bureaucrats dominant and were misled by UK politicians who did. That certainly applied to the existing EU structure and calls for democratic reform have gone nowhere.

There was a very good article in the FT yesterday by former Chancellor Nigel Lawson (no relation) on Brexit where he points out that the Office of Budget Responsibility forecasts the cost of EU membership to fall from £12.6 billion in 2018/19 to zero in 2019/20. Nigel also said “Those who say that a good trade deal is in the best interests of the EU and the UK alike fail to understand what the EU is about. It is not about economics at all. It is a political enterprise, dedicated to the achievement of full political union”. He discounts the problem of “no trade deal” based on the ability to trade under WTO terms. James Dyson recently indicated he saw little problem with that also.

Should we pay to access the Common Market, in a “transition” phase or permanently? It obviously depends on what deal is put on the table, but the attitude of the EU Commission so far suggests it won’t be a good one. In my view the UK can prosper without close involvement with the EU and without paying anything other than contractually committed minimums as part of the exit process. The UK can prosper based on its own resources and the trade with other international partners than the EU, so if they don’t want tariff free access to the UK, then we can give up tariff free access to theirs. It might just stimulate UK manufacturing so we don’t have to rely on buying German cars, washing machines, refrigerators, et al.

Ryanair

One of the folks complaining about the possible impact of Brexit is Michael O’Leary, CEO of Ryanair. He suggests flights from the UK to Europe may be halted unless a deal is done to cover flight access.

But Ryanair has been hit lately by problems with crew scheduling that have resulted in cancellation of many flights. The service to the affected passengers has also generated numerous complaints. It just looks like an operational cock-up, compounded by abysmal management responses thereafter to mollify customers.

Now I have a motto of never flying Ryanair after an event over 15 years ago. I was booked to fly on Ryanair out of Stansted but a hijacked plane was diverted to land there. The radio news said the airport was closed so I diverted to another airline via City airport to get to Dublin on time for a business meeting. Ryanair claimed Stansted was never closed (not true I believe) and refused to pay compensation.

Anyone who follows the news will know of repeated complaints from passengers about the behaviour of Ryanair. Being low cost surely does not justify the low quality of service. It’s the kind of company I would not just avoid flying with, but also investing in.

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

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A Vision in a Dream, After Coleridge

The following manuscript has recently come to light, perhaps written by an acolyte of poet Samuel Taylor Coleridge.

Roger Lawson

<A Fragment>

In London did Sadiq Khan

A stately Transport Strategy decree:

Where the Thames, the sacred river, ran

Through caverns measureless to man

   Down to a sunless sea.

So twice five miles of fertile ground

With walls and tower blocks girdled round;

And there were gardens bright with sinuous rills,

Where blossomed many a conker tree;

And here were roads ancient as the Romans,

Enfolding sunny spots of greenery.

But oh! that deep romantic chasm which slanted

Down among the City streets!

A savage place! As Mammon rampaged free

As e’er beneath a waning moon was haunted

By women wailing for West End shopping!

And from this chasm, with ceaseless turmoil seething,

As if this earth in fast thick pants were breathing,

A mighty fountain momently was forced:

Amid whose swift half-intermitted burst

Huge fragments vaulted like rebounding hail,

Or chaffy grain beneath the thresher’s flail:

And mid these dancing rocks at once and ever

It flung up momently the sacred river.

Fifty miles meandering with a mazy motion

Through East End industry and London’s suburbs,

Then reached the caverns measureless to man,

And sank in tumult to a polluted North Sea;

And ’mid this tumult Sadiq heard from far

Ancestral voices prophesying air pollution doom!

   The shadow of the dome of the GLA

   Located nigh the sacred river;

   Where was heard the mingled pleas

   From politicians left and right.

It was a miracle of rare device,

An un-costed Transport Strategy at the behest of Sadiq!

    A damsel with a dulcimer

   In a vision once I saw:

   It was an East European maid

   And on her dulcimer she played,

   Singing of Mount Street Mayfair.

   Could I revive within me

   Her symphony and song,

   To such a deep delight ’twould win me,

That with music loud and long,

I would build anew that dome,

Upon a new democratic model!

With freedom to ride the roads at will,

And all should cry, Beware the wrath of Khan!

His flashing eyes, his floating hair!

Weave a circle round him thrice,

And close your eyes with holy dread

For he on honey-dew hath fed,

And drunk the milk of Paradise.

<End>

The Alliance of British Drivers’ comments on Sadiq Khan’s London Transport Strategy are present here: http://www.freedomfordrivers.org/against-mts.htm . Please register your opposition.

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

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Response to Financing Growth Review

The Government is currently consulting on “Financing Growth in Innovative Firms” (otherwise known as the Patient Capital review). It covers the perceived problems in building world-beating companies from a small size in the UK, and the ways the Government provides support to early stage companies. That typically means the VCT, EIS and SEIS schemes with their associated tax reliefs and other possible “support” programmes where the Government funds them directly.

Anyone who invests in this area, directly or indirectly, should respond to the public consultation – the deadline is the 22nd September to do so. That is particularly so because reading between the lines it seems that some folks in the Government feel the tax reliefs are too generous and even suggest that investment would take place even without the tax reliefs. But my view is very different – I certainly would be very unlikely to invest in VCT and EIS funds without generous tax relief. They frequently generate dismal investment returns and have very high management fees plus administration costs. In reality, the historic record has been very patchy and the tax reliefs only help to offset the duds (which were difficult to identify in advance).

As someone who has experience of this sector both as an investor and a director of companies needing to raise capital, I have put in a personal submission on the topic. It is present here: Financing-Growth

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

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Barclays Stockbroking Complaints

Several newspapers and on-line news services have reported this week on the debacle at Barclays. They launched a new “Smart Investor” site to replace their Barclayshare share trading service. The complaints range from failure to advise new account log-in details, support service uncontactable, old features missing (or perhaps simply moved elsewhere and not easily found in some cases), higher charges (fees restructured), to some account types or share holdings being no longer permitted.

Barclays have integrated it with their on-line bank account service which probably makes sense, but they clearly got some basic things wrong with this kind of migration which are:

  1. Beta testing of the new software on real customers must have been limited in scope, if done at all.
  2. All clients were moved at the same time and forcibly. No parallel running, no options for clients to choose when to migrate, etc.
  3. If possible, avoid “big bangs”. Changes to systems should be done gradually and in stages to avoid massive new learning processes by clients.

When will IT teams learn that folks get “habituated” to software and get very unhappy when it’s changed, even when the new system works well and has more features (and in Barclays case, it obviously had some problems). It’s like moving the products on the shelves of supermarkets so the customers can’t find their favourite foods any more. Now Paypal did a similar migration recently, and the new menus were hopeless to begin with, but they allowed you to drop into the old menus for some time. So only some minor cursing was the result. But Barclays may lose some of their 200,000 stockbroking clients from this debacle it seems.

Stockbroking platforms are really important to get right as they involve large value transactions by often sophisticated traders but there have been several examples over the years of new platforms failing to meet the basic needs of clients.

What do you do when this happens? Move your account to someone else? If only it was that simple.

From several experiences of doing this, all I can say is that you won’t have much difficulty finding someone to take it on, but the process often takes months with endless hassles along the way.

Indeed I have complained to the Financial Conduct Authority (FCA) about this in the past – see https://www.sharesoc.org/blog/regulations-and-law/stockbroker-transfers-more-evidence-of-unreasonable-delays/

Anyone who meets this problem should also complain to the FCA and encourage them to tackle it. If you can switch a bank account in 7 days (and that’s mandated), why not a stockbroking account?

The complexity partly arises from the use of nominee accounts and the problems with funds rather than direct shareholdings, but these difficulties are surely fixable if we had a decent share and fund registration system and stockbrokers were motivated to get the issue sorted out. Needless to point out that stockbrokers don’t like to make it easy to switch so won’t do so unless pushed because they like to lock their clients in (hence the use of nominee accounts also of course).

In the meantime, if you do decide to switch you may find it easier to move all your holdings into cash first – but you need to be wary about the tax implications of doing so.

This FCA web page tells you how to complain about Barclays new service, and about delays in transfers, here: https://www.fca.org.uk/consumers/how-complain . But if you wish to complain about the general lack of action on broker transfers, you could write to David Geale, Director of Policy, FCA, 25 The North Colonnade, London, E14 5HS.

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

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