Bellway AGM for Early Risers Only

Should Annual General Meetings of companies be held at reasonably convenient locations and on convenient dates and times so that as many shareholders as possible can attend? Most private shareholders certainly think so. But Bellway (BWY) seem to be taking the opposite approach.

Their 2016 AGM was at the very sensible and easily achievable time of 2pm in the afternoon so all shareholders hoping to attend could actually meet the directors and ask questions. They could travel from all over the country and even have time for lunch!

But this year’s AGM kicks off at 8.30 am on Wednesday 12 December 2018 at Jesmond Dene House Hotel, Jesmond Dene, Newcastle upon Tyne NE2 2EY.

So what changed….Do directors at Bellway not want shareholders any more….maybe the huge remuneration at housebuilders and recent furore at Persimmon has made directors devise cunning plans to avoid awkward questions and attention from the media.

This anti-shareholder mindset seemed to set in last year with an early morning start at 9.30 am in Newcastle but still six shareholders made it through the doors. That must have been too many for the directors because this year they have moved it even earlier. They have moved it closer to breakfast for those who like to vote whilst eating their cornflakes.

Here’s hoping that the 2019 AGM is not held at 7.30am and that at least one shareholder will make it through the early morning fog on the Tyne !!

But it is simply not acceptable for boards to take this approach. There are too few shareholders attend AGMs already without deliberately making it difficult for them. I suggest that perhaps the UK Corporate Governance Code should be modified to include coverage of when and where AGMs should be held and other aspects of how they are run (such as the answering of questions which I covered in a previous article).

Thanks to David Stredder for notes on the above events.

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

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Persimmon Departure, Abcam AGM and Over-boarding

Persimmon (PSN) issued an announcement this morning saying that CEO Jeff Fairburn was stepping down at the request of the company because “the Board believes that the distraction around his remuneration from the 2012 LTIP scheme continues to have a negative impact on the reputation of the business and consequently on Jeff’s ability to continue in his role”. They are undoubtedly right there.

To remind readers, their misconceived and uncapped LTIP potentially would have meant bonus shares being awarded to Mr Fairburn worth well over £100 million, and similar large sums to other managers. Part of the potential award was later given up but even so it was the most disgraceful example of how pay has been ramped up by LTIPs in recent years. Another example at Abcam (ABC) is covered below.

Persimmon also issued a third quarter trading statement today which was generally positive. They clearly have a good forward committed sales pipeline and the extension of the help-to-buy scheme was positive news in the budget. But I am still somewhat nervous that the housebuilding market may suffer as interest rates rise. New houses are becoming unaffordable for many people despite the demand for accommodation and growing population.

Yesterday I attended the Annual General Meeting (AGM) of Abcam. This is a company that sells antibodies and other life science products/services. It is operating in a high growth sector. I first invested in the shares of the company in 2006 and it has delivered a compound total return of over 32% per annum to me since based on Sharescope figures. I am therefore happy with the financial performance of the business as I said to the board at the AGM. That’s even allowing for recent declines in the share price as analyst forecasts were reduced and general market malaise affected high-flying technology stocks. But I am very unhappy about two aspects: 1) failure to answer simple questions at the AGM, which is the second time in a week where this problem has arisen (the previous being Patisserie); and 2) the remuneration scheme and revised LTIP.

What follows is a report on the meeting, summarised and paraphrased for brevity. The meeting was held at the company’s Cambridge offices at 2.00 pm, but not even a cup of tea was offered.

The recently appointed new Chairman, Peter Allen, introduced the board and there was then a very brief presentation from CEO Alan Hirzel. He said there were between £5 billion and £8 billion of opportunities for the company to grow which they were focused on. They had doubled revenue in the last 5 years, at 11.5% CAGR. There were lots of opportunities to continue to grow the business. They are now focused on 4 areas: 1) RUO Antibodies which are still growing; 2) Immunoassays where growth was 25% last year; 3) China for RUO tools (China could be as big a market as the USA in a few years and they now have 300 people there and are putting more investment in); and 4) CP&L (Abcam Inside). He said the company needs to invest in technology and IT to achieve their growth goals.

Questions were then invited. I commented on the absolutely massive expenditure on new IT systems. They have spent at least £33 million on the Oracle implementation with another £16 million to go and the project is clearly way behind schedule. This level of costs has even caused analysts to downgrade future profit forecasts. As the former IT manager of a large public company, this seemed disproportionate to me in relation to the size of the business. However much one recognises that IT is the key to the business, this looks like a typical project that is way out of control. Who is responsible for this, are they still with the company, who are the outside contractors and what is the current state of this project?

The Chairman first responded that any answers to shareholder questions could only relate to information already in the public domain. This is simply legally wrong and I will be writing to him on this subject and the other issues below.

However Alan Hirzel did respond and accepted the IT project was over budget and covered the history of the project. It was essential to replace some of the legacy systems which were unmaintainable. Many had been built in-house (even an email system apparently) and they had multiple different HR systems in different countries. HR was the first project completed (partner Hitachi as systems integrator) followed by a communication system (part CRM perhaps – it was not clear) but finance and supply chain (manufacturing) projects were yet to be done. He said the CIO had been replaced and a new system integration partner appointed. He assured me that the project was under control now.

I asked who the new IT contractor was, at which point the Chairman refused to answer as that was not in the public domain. I complained that this was a breach of company law as questions must be answered unless there are good reasons to do otherwise. For example, answers can be refused if it is confidential information, not in the company’s interests to do so or may affect the good order of the meeting. The relevant Regulation is here: http://www.legislation.gov.uk/uksi/2009/1632/pdfs/uksi_20091632_en.pdf (see Section 12).

I can see no reason why my question could not be answered as I said to the Chairman and to their lawyer, neither of whom seemed to be aware of the Regulations or the common law principle about answering questions at general meetings. The Chairman also suggested that they could not disclose some information because they would have to issue an RNS announcement to cover it. This of course only applies to “price sensitive” information and I don’t see how knowing who their IT contractor is would be price sensitive. Very annoying and feeble excuses were being given in essence from someone who is supposed to be a very experienced company Chairman. This is the second time in a week (the other was at Patisserie) where the law on answering questions was ignored which is exceedingly annoying.

After that debate, which I will be following up including with a complaint to the FCA as it is not acceptable for companies to ignore the law, we moved on to the Remuneration Resolutions.

I said the following: “Remuneration also seems to be out of control. Although the CEO seems to be generally doing a good job, his pay last year was £1.8 million. This is also out of proportion to the revenue and profitability of the business. Not only that but his basic pay has been increased by 22%, and the maximum award under the LTIP increased from 150% to 400% of base salary. This is obscene and totally unnecessary. Such highly geared schemes promote risky behaviour as we saw with bankers in the financial crash of 2008. I always vote against remuneration policies where the maximum award under LTIPs is more than 100% of base salary and I will be doing the same here. I encourage my fellow shareholders to do likewise”.

There was a response from Louise Patten, chair of the Remuneration Committee to the effect that they could be “traduced” for underpaying rather than overpaying (“criticised” I think she meant). A review had shown that the CEO was underpaid in comparison with market rates in the sector. The LTIP was only a temporary measure as a new policy would be adopted in 3 years’ time.

I also asked whether they had received representations on the subject of remuneration from proxy advisory services and fund managers. She indicated there had been but mainly focused on other issues than the LTIP (in fact they got only 67.1% FOR the Remuneration Report, and 86.7% for the Remuneration Policy which are very low numbers). I said I had no objection to an increase in base pay if justified, but the LTIP was an example of how pay is ratcheting up and it sets a very bad precedent that other companies will follow to have a 400% bonus maximum. I have of course argued with Ms Patten before on the remuneration schemes at this company to no effect, so I chose to vote against her and her two colleagues on the Remuneration Committee but she still collected most of the proxy votes. No other shareholders in the meeting, other than my son Alex who holds the shares also, voted against the remuneration resolutions or the directors which rather demonstrates that when shareholders are happy with a company’s financial performance, they will vote for anything.

There were few other questions from shareholders at the meeting, but after the formal part had finished I asked the Chairman why he only managed to achieve 79.6% of votes in support of his appointment. He said this was because of complaints of “over-boarding”, i.e. that he had too many roles. In fact he has 4 other Chairman roles and one other non-executive directorship which I certainly think is too many and is contrary to ShareSoc’s guidelines. He argued that it was no problem and he did not agree with the current attitude of some proxy advisory services. I disagreed. The duties of directors are more onerous than ever, particularly if the job is to be done properly. Even small difficulties at a company can create a lot of extra work. One of course only has to look at Patisserie Holdings and their recent difficulties where Luke Johnson had lots of other commitments and failed to pick up what appears to be a massive fraud executed by the finance director. Peter Allen seems to think that all he has to do is turn up for a few board meetings each year, let the executive directors get on with business and do not much else. But Abcam is becoming a large company where the Chairman’s role is much more significant than that.

I voted against the Chairman anyway because I think Chairman should be familiar with company law and how to handle questions at meetings. Good ones do of course know how to answer questions without giving out sensitive information or avoiding direct answers but it is certainly not good for the Chairmen to start an argument with a shareholder in a meeting on any subject. Some Chairmen need to take a lesson in how to handle awkward folks like me who are not easily ignored.

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

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RedstoneConnect (Smartspace Software) AGM and Branding

Today (30/7/2018) I attended the Annual General Meeting of RedstoneConnect Plc (REDS) which was promptly renamed Smartspace Software Plc at the meeting.

Although there were only a few ordinary shareholders present, this proved to be an informative meeting. It was chaired by new Chairman Guy van Zwanenberg. With former CEO Mark Braund having departed recently after major disposals leaving the company to focus on the remaining software business, the new CEO is Frank Beechinor who was the former Chairman. Frank is also Chairman of DotDigital which I also own shares in (a lot more than in RedstoneConnect which has had a mixed history – the focus on software alone makes it more attractive to me and I fully supported the disposals).

I asked whether Frank’s appointment was a permanent one. The answer was effectively “yes” as he is committed to it for 2 or 3 years. This is despite the fact that he promised his wife that he would not take another full-time job back in 2011 (he is only aged 54 according to Companies House though). He is apparently involved with 5 businesses and is stepping back from 3 of them, but remaining Chairman of DotDigital. He hopes to develop the company into a business with a market cap of £300 to £400 million in a few years.

The disposals meant the company now has substantial cash after paying off some debt but they are clearly not going to use it on share buy-backs in the short term. They are looking for acquisitions and would only return cash to shareholders if they don’t use it within the next couple of years. Acquisition will be focused on three areas: 1) Complementary to existing activities where they may pay 1 to 1.5 times revenue; 2) Analytics and 3) Visitor management solutions where their existing offering is quite weak. At present they have too large a focus on big deals (which can be lumpy) and are keen to move into the low-end, entry-level where sales can be automated web-based ones.

They have reduced staff down from 360 to 67 and now only have three buildings – in Luton, Mildenhall and Bristol with no “head office”. There are no overseas offices and they are likely to use partners to expand there.

It’s difficult to determine likely financial forecasts (Cantor have recently issued a positive note on them) – it rather depends on the success of any acquisitions, how much they pay for them, and controlling the overheads. But there are apparently no tax issues from the disposals.

The New Name

I spoke to Frank Beechinor before the AGM and advised him that I thought the new name was a bad choice. This is because I did a search of the UK/Euro trade mark register and found over 500 possible conflicting registrations – although some may be in different “classes” of goods and can be ignored. If you also use Google to search the internet for “smartspace” there are lots of matches. There is even a company listed at Companies House named “Smartspace Software Ltd”. So I think it is very likely they will get a lawyer’s letter sooner or later asking them to desist from trade mark infringement and even registering the change of name at Companies House might be difficult. Here’s a quick lesson in branding and trade mark law taken from my book “Beware the Zombies” (currently under revision):

Brand names for products or companies should be unique What are the key things to remember when inventing a new name? These are:

  1. It should be memorable.
  2. It should have the right, positive connotations with the product/service.
  3. It should be legally capable of being protected by appropriate trademark registrations.
  4. It should be usable as an Internet domain name in the chosen form(s).
  5. It should be unique, original, and not confusing with any existing trademark or brand name, and particularly not with competing or potentially competitive products.

A product or company name that cannot be registered as a trademark should never be considered. Registration of trademarks is relatively low cost and gives you much stronger legal protection (and easier enforcement of your legal rights) than an unregistered mark. Even more to the point, if you infringe someone else’s mark they can pursue a very simple and low cost legal action to force you to stop using the name – the result being that all your web site, sales literature, etc, will need revising and reissuing.

You should apply to register trademarks in all the main legal jurisdictions in which you are likely to trade. There are some differences between the different jurisdictions as to what is legally possible to register, and also as to what would be seen as a conflict with existing registrations, but the following is a good starting point:

  1. Do not use a purely descriptive or superlative mark.
  2. Make sure it is unique, distinctive and is not similar, even phonetically, with existing registered marks. You can search the main trademark registers on-line to do some basic checking.
  3. Try to think up something new and original, which is more difficult than you may imagine. Anyone new to the game of brand name creation tends to come up with the same old names that have already been thought of and previously used. Like “Smartspace”!
  4. Note that you can sometimes take a name that is already in use on other types of goods (trademark registers are based around “classes” of goods). But you need to take care with names that are in widespread use on more than one type of product.
  5. Do not fall in love with your chosen name before you have had it thoroughly researched by a trademark lawyer.

So often I have seen start-up ventures select a name which they think is original—but often it is some half-remembered echo of an existing product name or has been used before because it is so obviously appropriate. They name the business after it, start using it in sales literature and with prospective customers, and yet it turns out to be legally very questionable. You need to come up with several possible names before you go through the full legal search and registration procedure.

You probably also need to check that the chosen name is not already in use as an unregistered trademark (searching the internet can help here) and is not already in use as a corporate name (you can search company name registers also).

One of the big issues is that you will also want to protect the product name as a domain name on the internet, under the “.com” suffix, under any of the common national suffixes such as “.co.uk”, and also possibly with other newer suffixes as “.biz”. Finding a name that is free in all those domains and the relevant trademark registers and is not already in use as an unregistered trademark or corporate name is exceedingly difficult! Note that www.smart-space.com is already in use by another business so endless confusion will undoubtedly result.

Finally don’t start using a new trademark until you are sure it can be registered and is protectable. Having to change the name after a few months of usage will destroy your investment in marketing, product literature, web site design and other activities.

The resolution to change the name of RedstoneConnect to Smartspace Software was of course voted through. The directors said they had committed to change the name and had consulted legal advisors on it and might consider changing it again if necessary. I had offered some advice on the subject from my past experience in this field of inventing and registering marks but it was too late to reconsider in essence.

When I look at investing in small listed or unlisted companies, this is one area I look at because it tells you whether they have got the basics right. Hence my comments on “GB Group” naming in a previous post, and my dislike of “Tungsten” for the name of another AIM company. Unmemorable and unprotectable in both cases.

Registered trade marks are low cost and important to ensure brand recognition and legal protection but few people realize how important they are. The importance of branding is another very key area on which many books have been written but technology companies are often inept in this area.

So I just hope the directors of Smartspace Software have not fallen in love with the new name, or if they do choose to change it again that they do it properly next time.

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

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Interesting AGMs, or not – Rosslyn and Dunelm

This morning I attended the AGM of Rosslyn Data Technologies (RDT) for the first time. I picked up some shares in a deeply discounted placing that qualified for EIS relief a few months back. One has limited time to research a company on offer when a placing comes up. It looked sound enough at the time although the historic financials did not impress. Prospects looked better after an acquisition although this company has been around a long time without becoming a shooting star. Bearing in mind the software sector it operates in – a somewhat niche area – I doubt it will show rapid growth either although the analyst forecasts I looked at before the meeting (from a single broker I gather) suggests a substantial rise in revenue and breakeven in the current financial year – partly from the merger no doubt.

Incidentally in case anyone from HMRC is reading this bearing in mind the current review of VCT/EIS tax reliefs, I would just like to say that I would certainly not have invested in the placing without the attraction of EIS tax relief. I considered the valuation at the placing price only “fair” and with the risks apparent, it would not have been attractive without the tax relief.

But at AGMs of small companies like this one, it is possible to learn a great deal. I will just mention a few things – there may be a more extensive report on ShareSoc’s web site later.

The Chairman was absent in the USA (not usually a good sign), so another of the directors, Barney Quinn chaired the meeting, and well. He read out a prepared statement (not issued in an RNS oddly), saying there had been good progress and they had been focussed on integration of the businesses since the start of the year. He mentioned the securing of a major partnership with D&B (see Annual Report).

I queried the very high debtors (accounts receiveable) which were about 6 months of revenue. Apparently this is due to work in progress on projects being recognised as revenue but not yet billed to clients (which tends to be on completion). To my mind, it’s still excessive though.

It seems to be taking some time to develop the market for the products/services and it seems their broker is currently reconsidering their forecasts and I suspect the existing ones are optimistic from what was said in the meeting – but we may soon see no doubt.

Anyway I learned quite a bit about the business and the management seemed to be competent on a brief acquaintence but a couple of long-standing shareholders turned up late for the meeting and said some negative things about the progress and valuation of the business. The company could really do with some more media coverage if they were to attract more investors and another shareholder suggested ways they could do so.

So it’s always good to attend AGMs, but one I will not be going to is that of Dunelm. This year it is Stoke at 9.30 am on the 21st November. Last year it was at a similar inconvenient and early time in Leicestershire.

A couple of year’s ago I attended their AGM in London (again at an early time), and complained about the remuneration arrangements. Have the more recent AGMs been deliberately arranged to avoid private shareholders like me from attending? I would not be surprised if that was the case. So I have voted against the Chairman, against the Remuneration resolutions, and against other directors also for that reason. It really is not acceptable for the directors of companies to pick inconvenient dates, times or locations for General Meetings.

I don’t object to going to Stoke but I do object to having to get up at 5 o’clock in the morning to be sure of getting there on time. But if anyone lives closer, and would like a proxy appointment from me to attend the AGM, let me know.

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

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