Tungsten, RedstoneConnect, Proactis, LoopUp, Mello and productivity

ITesterday there was an announcement by Tungsten Corporation (TUNG) that there was press speculation about a possible requisition of a general meeting to remove some of the directors, including the Chairman and CEO, and appoint others. This is likely to come from Odey Asset Management supported by other large investors the company understands. Their combined holdings could give them a good chance of winning any vote, or at least it would be a hard-fought proxy battle.

It would seem that the former CEO Edi Truell is involved in this initiative. It would be most unfortunate in my view if he returns to this business (and I did purchase a very few shares in the company after he departed which I still hold). Richard Hurwitz has done a good job in my view of turning this company from a financial basket case with very substantial annual losses into a sounder one. Revenue has been rising and costs have been cut although profits have been longer to appear than hoped. However the company does report that EBITDA was at breakeven for the first four months of the calendar year. It’s at least heading in the right direction now so I am unlikely to be voting for any such requisition.

I attended the Mello event at Hever yesterday and was hoping to get an update from Mark Braund on RedstoneConnect (REDS) where he was due to present. But his presentation was cancelled. Now we know why because an announcement this morning from the company said he was leaving. Perhaps he wants a new challenge. This was another basket case of a company where Mark turned it around in the two years he has been there. So some investors may not be pleased with his departure and the share price predictably dropped on the news. The new CEO will be Frank Beechinor who is currently the Chairman. He is also Chairman of DotDigital and clearly has experience of running IT companies so it’s probably a good choice. A new non-executive Chairman has been appointed (Guy van Zwanenberg).

The Mello event, organised by David Stredder of course, was held near Hever Castle in deepest Kent. I know some of the roads in the area as I live nearby but even so managed to get lost. Not the ideal location. But it was a useful event otherwise. I did an interview for Peter of Conkers Corner and sat on the panel covering the Beaufort case. Videos of both are likely to be available soon, and I will tweet links to them when they appear.

A company that did present at Mello was Proactis (PHD) with CEO Hamp Wall doing the talking. I was unsure of the potential future growth for the company as I thought the market for procurement software might be quite mature (i.e. most likely users had such a product/service). But not so it seems, particularly in the USA and their target vertical segments. Hamp spoke clearly and answered questions well. He is clearly an experienced IT sales/marketing manager. He said he was surprised though that the share price fell over 40% recently when they announced the loss of two of their largest customers. He thought it might fall 15%. I agreed with him that it seemed excessive. But the market does not like surprises.

Today I attended the AGM of LoopUp Group (LOOP) who sell conferencing software. They recently merged with a competitor named MeetingZone and it looks likely to double revenue and more than double profits if things go according to plan. The joint CEOs made positive noises about progress. The company is chaired by heavyweight Chairperson Lady Barbara Judge CBE which is somewhat unusual for this kind of company – at least heavyweight in terms of past appointments if not lightweight in person.

Tim Grattan was the only other ordinary shareholder present and may do a fuller report for ShareSoc. A disappointing turnout for a very informative meeting as both I and Tim asked lots of questions.

Tim advised me after I mentioned the Foresight 4 VCT fund raising that it was odd that no mention was made in the prospectus of the alleged illegal payment of a dividend. Is this not a “risk factor” that should have been declared he asked? That company and its manager seem to be turning a blind eye to that problem.

There was an interesting letter from Peter Ferguson in the Financial Times today. It covered the issue of a declining productivity growth in the UK and other countries aired in a previous article by Martin Wolf. This is certainly of concern to the Government and should be to all investors because only by increasing productivity can we get richer. Mr Ferguson suggested one cause was the negative impact of increasing regulation. He suggested it has three impacts: 1) more unproductive people appointed to monitor and enforce the regulations, 2) more compliance officers, and 3) less productivity as a result in companies due to sub-optimal practices. Perhaps fortuitously I am invested in a company that sells risk and compliance solutions. It’s certainly a growth area and there may be some truth in this argument. Has MIFID II reduced productivity in the financial sector with few benefits to show for it? I think it has.

But Rolls-Royce are going to improve the productivity in their business at a stroke. They just announced they are going to fire 4,600 staff. But are any of them risk and compliance staff?

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

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A Christmas Parable and Productivity

No this is not an examination of how Santa Claus gets around the whole world in one night. But as my last post before Christmas, let me explain how I have automated the sending of Christmas cards over the last thirty years. I am by nature a lazy person, so handwriting and addressing the family’s Christmas cards was a task I chose to tackle with some automation many years ago. The first step was to put friends, family and business contacts into a contact management software product. This enabled me to reuse the same list every year, maintain it with changes easily, and once per year print self-adhesive mailing labels. More latterly I have used an email delivery service to distribute many of my Xmas “cards” electronically which included short newsletters in some years. Only a few cards now get posted to the favoured few or those not on email, thus saving postage costs.

So productivity before Christmas in terms of use of my time has improved enormously, and I can now send out hundreds of “cards” for less expense than the tens sent previously.

The Government is very concerned about the poor productivity of the economy in the UK. It has not been improving, and hence wages are unlikely to rise. The above parable shows it is necessary to do three key things to improve productivity: 1) Invest in new technology (in the above case, several software products); 2) adopt new ways of doing things (i.e. there needs to be cultural changes) and 3) invest time in learning how to use the new technology (education).

Obviously in business terms, such investment tends not to take place when labour is cheap or free (the equivalent of asking your spouse to hand address the cards). But even then there are still benefits from automation such as reducing postage costs, and reducing the environmentally damaging costs of transporting millions of cards around the country.

There was an interesting letter in the Financial Times recently from Andrew Smithers. He said “In the real world investment decisions are made in the interests of management [not of shareholders as in the classic economic model]. As a result of the change in the way managements are paid (that is the bonus culture) they are encouraged to prefer buy-backs to investment. This is the root cause of poor productivity.”

That is indeed one of the key problems. Typical bonus schemes such as LTIPs pay out based on earnings per share which are enhanced by share buy-backs. Just a few years ago for a company to buy its own shares was illegal. Perhaps we should revert to that situation? Alternatively outlaw such bonus schemes.

Another reason why productivity is not improving is that the incentives for the chief executives of public companies to invest for the long term is minimal. Their length of tenure before they retire or move to another company is so short that they would be mad to take risks in adopting new techniques or changing business processes. Indeed their pay is now so high that they don’t need to stick around for more than a few years before they have made enough money to feel secure in a comfortable retirement.

These are the issues the Government needs to tackle if UK productivity is to improve.

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

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