ShareSoc Chairman's Blog

Sunday, Sep 02 2012 by

ShareSoc, the UK Individual Shareholders Society, publishes a blog on its website, here: 

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No warranty is given by ShareSoc as to the reliability, accuracy or completeness of the information contained within this publication. Any information provided is accurate and up to date so far as ShareSoc is aware, but any errors herein should be referred to ShareSoc for correction. The information contained herein is intended for general information only and should not be construed as advice under the UK’s Financial Services Acts or other applicable laws. ShareSoc is not authorised to give investment advice, and is not regulated by any Regulatory Authority, and nor does it seek to give such advice. Any actions you may take as a result of any
information or advice contained within this publication or otherwise supplied to you by ShareSoc should be verified with third parties such as legal or other professional advisors and is used solely at your own risk. You are reminded that investment in the stock market carries substantial risks and share prices can go down as well as up. Past performance is not necessarily an indication of future performance. The Editor of this publication and other contributors may hold one or more stocks mentioned herein.


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ShareSoc 28th Jan '13 232 of 431

Posted by ShareSoc at 14:59, January 20 2013.

Don’t be a follower of fashion

There was a fascinating article by Chris Dillow in this week’s Investors Chronicle (IC). Now Mr Dillow is an economist and I don’t always find his items to be the most attention worthy. Like many economists and other social scientists, he tends to form no conclusions but gives predictions of the kind that say “if this happens, then based on past correlations, this might happen……but on the other hand this could conspire with other contrary interactions to give a different result”. However, his latest article is much more interesting.

It studies the performance of various “no thought” portfolios run by the IC over the last 5 years. Last year was at first sight peculiar in that the Momentum portfolio did particularly badly with a return of only 0.9%. Indeed the “Negative Momentum” portfolio returned 17.4% so if you had bet on “what comes down must go up” you would have done very well. As reported in a previous ShareSoc article, small caps did well at plus 26.0% as did “Value Stocks (high dividend yielders) at 27.4%.

Without necessarily accepting his analysis (you need to read the whole article to follow that), he says that “The evidence of the last three months points to markets being efficient, but the evidence of the past three years points to them being inefficient”. He explains this by pointing to academic research that explains this with a biological analogy. In effect the successful investment stratagems eventually get diluted because they are taken up by many so many followers, just as populations of animals chasing food sources eventually exhaust them.

So small caps were in favour in the 1980s, but returns subsequently fell, and are only now coming back into favour, or into “fashion” one might say. Likewise “momentum” was a favourite between 2007 and 2011, but has been counter-productive as an investment strategy more recently.

He concludes by saying that although biological and population cycles are predictable, unfortunately investment cycles are not, but you rarely get usable, simple conclusions from Chris Dillow. But my conclusion would be this: make sure you look at the financial fundamentals of a company, and the quality of the business rather than following investment fashion.

What did Warren Buffett have to say on this subject (as an investor he has obviously succeeded through many cycles)? He is reported as saying “The most important quality for an investor is temperament, not intellect… You need a temperament that neither derives great pleasure from being with the crowd or against the crowd”. That sums up the issue for me. So be very wary of “hot” investment sectors and the latest simplistic formulas for investment success, because the psychology of crowds tends to generate self-defeating enthusiasms.


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ShareSoc 28th Jan '13 233 of 431

Posted by ShareSoc at 20:13, January 21 2013.

Roger Lawson meets Tom Winnifrith

Tom Winnifrith, share tipster and active blogger, and Roger Lawson, ShareSoc Chairman, met last week and recorded a video interview. You can see it here: on Tom’s blog or on the ShareSoc Members Network. For two opinionated people, it was a civilised event and well worth watching (apologies for the poor quality sound though).


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ShareSoc 28th Jan '13 234 of 431

Posted by ShareSoc at 10:01, January 22 2013.

False or no qualifications – Bumi et al

This morning NR Investments highlighted the fact that Nick Von Schirnding, the CEO of Bumi (LON:BUMI) , apparently had inaccuracies in his previously reported qualifications. After investigation and subsequent complaints by Nat Rothschild of NRI, the claim that Mr Von Schirnding had an accounting qualification has been removed from the Bumi web site, although it still says he holds a law degree.

This is of course just part of the on-going war between Mr Rothschild and other members of the board of Bumi which I won’t even attempt to explain in a short blog post.

But it reminds me that in practice the directors of public companies need no qualifications whatsoever, although they often like to pretend to have them. Running a public company is one of the few professions where no formal training is required at all. No legal knowledge is required about company law even though the legal obligations of directors are onerous and no training or qualifications in business management are necessary. Finance directors do not even need any accounting qualification. This of course was an issue in the banking crisis where it became apparent that many of the executive directors of banks had no banking qualifications, so the F.S.A. did tighten up on the approval of regulated persons in that sector. But in any other sector, anything goes.

Now I am not saying that the directors of large publicly listed companies are generally incompetent, and I would not want to inhibit anyone from starting a private company, but it would seem to me that this is an area where standards could be raised – particularly in smaller companies such as those on AIM.

Even in larger companies, when it comes to the recruitment of non-executive directors more reliance is placed on informal recruitment processes than actually focussing on the experience and qualifications of possible new directors and what they might bring to the board. This was highlighted in our recently published “Non-Executive Director Guidelines” (see ).


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ShareSoc 28th Jan '13 235 of 431

Posted by ShareSoc at 09:40, January 23 2013.

Appointing a dictator - is Stobart an example?

In the age of the Roman Republic, if Rome faced a crisis, a “Dictator” who had absolute power was appointed. Democracy and the countervailing power of two Consuls was thrown out of the window on the grounds of expediency. Is this effectively what has happened at Stobart (LON:STOB) where Avril Palmer-Baunack has just been appointed Executive Chairman?

The current Chief Executive, Andrew Tinkler, said “To meet the challenges and opportunities within our strategy the board new believes it is appropriate that Stobart is headed by an executive chairman”.

Stobart’s profits have been falling in the last couple of years, and the share price similarly. The FT suggested that major shareholder Invesco had given the new Chairman a brief to break up the business which currently consists of a rag-bag of underperforming units. So perhaps some vigorous action was required with the appointment of a forceful person to carry it out.

An Executive Chairman does not have quite the power of a Roman Dictator, but there is another difference. Dictators were appointed generally for a limited period of time. In addition, they were appointed with the task of dealing with a specific matter (typically a war). Once the crisis was over, they stepped down. But when you have an Executive Chairman in a company, they tend to stick around for some time, as we saw with Stuart Rose at Marks & Spencer.

Although the Combined Code requires such appointments to be explained on the basis they are contrary to the Code provisions, such explanations are usually of a very generalised nature. Would it not be better to introduce a Code rule saying a time limit must be placed on their appointment and the objectives clearly defined?


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ShareSoc 28th Jan '13 236 of 431

Posted by ShareSoc at 10:51, January 25 2013.

Test of Proper Purpose at Red Rock

Yesterday I attended the High Court for an initial hearing in the case concerning Red Rock Resources (LON:RRR) and Gary Carp, one of the company’s shareholders. Mr Carp has requested a copy of the share register of the company, but the company has objected and taken the matter to court using the “proper purpose” provisions of the 2006 Companies Act.

ShareSoc has a great interest in this case as it might set unfortunate precedents. We regularly request copies of share registers so as to write to shareholders on matters of concern and it would be regrettable if this process got bogged down in expensive legal processes.

See for a press release we have issued on this case and we will certainly be reporting on the full hearing in due course.


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ShareSoc 28th Jan '13 237 of 431

Posted by ShareSoc at 10:00, January 27 2013.

Healthcare Locums and Geong International

A big share price faller last week was Healthcare Locums (LON:HLO) – down 73%. This was a company ShareSoc covered extensively in early 2011 when there were allegations of false accounting, the CEO Kate Bleasdale was forced to resign, the shares were suspended and there was subsequently a dilutive share placing. At one time the share price of this company was over 280p but it’s now 0.63p valuing the whole company at less than £1 million.

The latest news is all bad. The company reports “trading has continued to be difficult”, more funding is required and the company “is in constructive discussions with its banking partners regarding resetting the covenants for 2013”. In addition the law suits related to past events are still on-going with Ms Bleasdale pursuing an appeal and US litigation from a former investor.

Another company we reported on in early 2011 (in our April newsletter) was GEONG International (LON:GNG) , a Chinese IT company who presented at a Mello dinner. Our report was not particularly positive and the price of the shares then was 33p – it was mentioned that it looked “very cheap” on fundamentals but there were a lot of questions about cash flows. Sales and profits fell in 2012 and the share price now is 4.9p.

The price fell 30% last week on the latest bad news that the company had defaulted on dividend payments on its CULS (loan stock) due to problems in getting approval from state authorities to make the necessary foreign exchange transfers, although the company suggested this was simply a delay. As a result the holder of the CULS had demanded immediate repayment of the loans. The company said it had the funds to do so, but again authorisation would be delayed.

Comment: sometimes simple financial metrics suggest a company is good value, but if you don’t understand the underlying business, what risks the company is running and the cash flows of the business, it is very easy to be misled. In many such cases, the share price is only one side of the story.


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ShareSoc 28th Jan '13 238 of 431

Posted by ShareSoc at 11:40, January 28 2013.

Brightside Group – Should you vote for the share buy-back authority?

Brightside (LON:BRT) , an insurance broker, was profiled in one of the recent ShareSoc Informer Newsletters. It was noted in that article that former CEO, Aaron Banks, held 12% of the company’s shares at that time and was a likely seller. The company has now called an EGM to obtain authority to buy back up to 10% of its shares. Many companies have such authorities in place as a matter of course, although the author of this piece tends to regularly vote against them at AGMs.

The reason for putting this buy-back authority in place is, according to the circular for the EGM, to avoid small share sales having a “disproportionate” impact on the share price as a result of the general lack of liquidity in the company’s shares. They also say it will allow market makers to “stabilise” the company’s share price and will increase earnings per share. The last point is undoubtedly true but the concern of shareholders is surely that a lot of the company’s cash could be used in taking out Mr Banks (and his wife who is also apparently a current seller).

I spoke to the Finance Director, Paul Chase-Gardner, on this issue and suggested it would be surely better if one or more institution could be identified who were willing to take over Mr Banks stake. He said they were looking at this, but there were other smaller sellers who could affect the market price and having the buy-back authority would enable the company to wrap those up and make them available to institutions.

Of course it may not be obvious who is selling and why, but from the share price performance it does tend to appear that whenever the share price perks up, significant selling takes place. My conclusion is that the proposed buy-back authority is no more in the interest of shareholders in this company than it ever is. Using the company’s cash to buy out one or more shareholders (and we don’t know who they might be) is surely not a good idea when shareholders might prefer the company to use the cash for other purposes – such as developing the business or returning it more widely to shareholders via dividends or tender offers. The market liquidity issue does not appear to be a major problem in this company in comparison with other AIM companies – there are reasonable volumes most days. The issue is surely that there is a persistent, large seller.

But other shareholders may take a different view on the wisdom of granting this authority and should vote accordingly.


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ShareSoc 31st Jan '13 239 of 431

Posted by ShareSoc at 16:42, January 30 2013.

Shareholder voting across Europe – what a mess!

Eurofinuse have recently published a report entitled “Barriers to Shareholders Engagement – Report on Cross Border Voting”. Reading it tells you exactly how dysfunctional the current “system” is which is supposed to ensure shareholder control of companies. Eurofinuse (previously known as EuroInvestors) is a pan-European body representing investor groups – ShareSoc is one of its members.

To claim that shareholder voting systems have been “designed” would be a misnomer. In reality they have grown up out of archaic paper systems with different approaches (sometimes multiple ones) in different countries. These are not “legacy” IT system, but methods from a bygone age that have been “institutionalised” by similarly archaic IT architectures with some paper remaining. They are in essence anachronistic and trying to improve them by more EU legislation, which seems to be the preference of the EU Commission, beggars belief.

Let me give you a few examples from the report:

  • In Germany if you hold your shares in a foreign company via a “custodian” (i.e. in a nominee account), they will reject requests from the beneficial owners to receive “admission tickets” for an AGM. They simply do not have systems to support the process.
  • French companies can ask nominee operators to disclose the underlying shareholders so that they can be invited to vote or attend AGMs, but the requests will be ignored for legal data protection reasons in Germany (and would be in the UK).
  • Share blocking (the practice of stopping shares being traded when they are within a voting process) still exists in Denmark due to defects in custodians and sub-custodians systems.
  • Countries like Sweden and Finland require shares in a nominee account to be re-registered in the name of the beneficial owner prior to a general meeting if they are to be voted. They then have to be transferred back into the nominee name afterwards.
  • In Sweden some companies also require you to advise them in writing if you intend to attend a meeting, and similar obstructive requirements exist in Belgium.
  • Bearer shares are still in use, held by a custodian bank who knows who owns what and has to organise voting and attendance for the beneficial owners.


Not that the UK system is any better of course with the nominee system generally obstructing voting and attendance by most individual shareholders. Even institutional holders often have problems with the complex systems that link their custodians to the issuers.

It’s not just difficulties with attendance and voting that are covered in the report, but difficulties of access (you may be locked out of an AGM after 5 minutes if you don’t arrive on time), language problems, different rights to ask questions or speak at meetings and votes not being reported until later if at all (a UK problem).

If you really want to read all the absurd complexities that have arisen (not that you will probably understand them completely) you can find the report here (from the German shareholders association site):

What is so complex about recording the beneficial ownership of property (which is what shares are)? It should not be in the modern digital era, but as usual in the financial world the intermediaries have historically developed it for their own purposes and have obstructed simplification.

COME ON DISINTERMEDIATION should surely be a rallying cry for all investors.


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ShareSoc 31st Jan '13 240 of 431

Posted by ShareSoc at 09:54, January 31 2013.

Sir Michael Rake steps down from EasyJet

Sir Michael Rake has decided to step down as a director and Chairman of EasyJet this summer according to an announcement by the company. He was widely criticised for the number of other directorships he held including Chairman of BT Group and Deputy Chairman of Barclays. ShareSoc issued a press release in July 2012 suggesting shareholders should vote in favour of his removal at the EGM held in August (requisitioned by company founder Stelios Haji-Ioannou) and he only narrowly survived that vote – see .

Subsequently we have issued guidelines for Non-Executive Directors which recommend no more than 4 to 5 roles which Sir Michael would certainly breach bearing in mind the onerous responsibilities he has in two very large FTSE-100 companies and all his other roles. See (now available in hard copy also).

It’s also worth noting that other countries are introducing limits on the number of public company directorships that can be held – for example Malaysia has just introduced a limit of 5 in their corporate governance guide. Is it not high time the UK introduced a similar limit in the UK code?

But Sir Michael is still standing for re-election at the February AGM and shareholders may no doubt choose to vote the same way as last time on that issue. 


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emptyend 1st Feb '13 241 of 431

In reply to ShareSoc, post #239

Good post! These sort of macro issues may not be particular "crowd-pleasers" for Sharesoc to focus on - but they are important issues in a pan-European world. this seems to be one area in which the EEC could usefully try to get an agreement on acceptable practises, so that we might get some genuine common market in European share trading and shareholder rights.

Of course the legacy issues are enormous - but the EEC should bang heads together and set out a proper blueprint for change (not merely follow the path of least resistance by kow-towing to legacy issues in one country or another). The technology now exists to radically simplify processes - and Governments across Europe should be forcing it to happen.

By the way,.........if it doesn't make some progress on these matters, your Eurofinuse organisation should replace the first three letters of its name with an "N" ;-)

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ShareSoc 2nd Feb '13 242 of 431

Posted by ShareSoc at 10:01, February 1 2013.

Intercede Profit Warning

This morning, Intercede (LON:IGP) issued a profit warning. It said “Intercede’s revenues are likely to remain at a level similar to last year. Given the extent of our planned investment in organic growth, this would result in an operating loss for the year.”

This is an about face from the position suggested in their Interim Report last November but it seems that the “buying behaviour” of US Government departments and their associated defence contractors have been affected by the uncertainties surrounding the US Federal Budget. As a result some expected new orders are likely to be deferred. The share price fell 15p to under 60p in early morning trading as a result.

Comment: This announcement indicates that the year ending March 2013 is likely to be the third year of basically static revenues with profits disappearing over that period. Shareholders are understandably likely to be disappointed with the lack of progress bearing in mind the positive demand for the company’s products often forecast by Executive Chairman Richard Parris. It reinforces the point we have made in the past that this company really does need a Non-Executive Chairman. It does not seem to have the ability to turn great technology into a consistently profitable business and some independent view on what it is doing might not just improve corporate governance at this company but identify where it is going wrong.

More details of our past campaign on this company and the “Shareholder Action Group” we have formed are present here:


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ShareSoc 15th Feb '13 243 of 431

Posted by ShareSoc at 08:43, February 4 2013.

Victoria Contract and EGM

Late on Friday 1st February , Victoria (LON:VCP) announced a General Meeting to consider a contract with Geoff Wilding, the Executive Chairman. He was appointed after a big battle for control of the company and it was made clear to shareholders that if the new board was elected, an aggressive incentive arrangement would be put in place for Mr Wilding where a significant proportion of any uplift in value obtained by shareholders would be paid to him. Indeed the nature, extent and generosity of the incentive scheme was one of the key issues in dispute. But shareholders now have it spelled out and are being given the opportunity to vote on it, as previously promised.

It’s a rather peculiar arrangement in that it’s structured as a “contract for difference” rather than a normal bonus or LTIP arrangement. If Mr Wilding achieves what is hoped for then he will receive very substantial cash sums. If he does not then he might actually have to pay the company some money. The company believes that such an arrangement will be outside the scope of income tax under PAYE and national insurance, although I suspect HMRC may take rather a dim view of this. But Mr Wilding is indemnifying the company for any possible liability as a result.

A Complex Contract

The technical details of the contract are quite complex, but in summary the arrangement is only really valuable to Mr Wilding if the company returns at least £3.00 per share to shareholders within the next two years. Bearing in mind that the share price at the time of writing is only £2.03 per share, and share buy backs are excluded from the calculation, this is obviously quite a tough target that should please shareholders. But that target does include any cash or other considerations from selling parts or all of the company, or winding it up.

If that first hurdle is achieved, then thereafter the incentive arrangements really kick in. The circular gives two examples of what the payments might be. The current market capitalisation of the company is £14.2m but if the total value achieved for shareholders (cash returned plus market cap) reaches £23.1m then Mr Wilding receives £1.03m. In other words, he gets 11% of the uplift.

If the total value achieved is £31.5m then Mr Wilding would receive £5.2m, i.e. he receives 30% of the uplift. This might be perceived as very generous of course (and the actual figure could be even higher if returns are higher), but shareholders would no doubt be enormously pleased to obtain the equivalent of about 450p per share within the next 5 years (which is the maximum duration of the contract although it can be closed out earlier). Note that the really high level of returns to Mr Wilding only occur when the total value achieved for shareholders exceeds £4 per share.

It is mentioned that Alexander Anton, one of the non-executive directors and instigator of the revolution “may benefit under the Contract by a personal arrangement with Mr Wilding” so he may have to pass on some of these returns. Again this is a somewhat unusual arrangement and obviously makes Mr Anton “non independent”. There is only one independent non-executive director now at the company who has recommended these proposals to shareholders and taken advice on them from the company’s advisors.

If Mr Wilding does not achieve an increase in the total shareholder value then he may need to pay up to £100,000 to the company (the contract can be closed out by him if the liability exceeds that). This is obviously a fairly nominal amount in essence, particularly if he is being remunerated as an executive director in other ways during the period concerned – see questions below. In addition Mr Wilding has to pay £20,000 to the company on signing the contract – again a fairly nominal amount.


There are a number of questions shareholders might ask, which include:

1. What other remuneration is Mr Wilding receiving as an Executive Director? This information is necessary (but is not declared in the Circular) to understand whether this is a one-way bet or not. However I understand that Mr Wilding will only receive the same director’s fees as the previous Chairman and no other remuneration. One of the big cost savings from the management changes is the saving in high levels of board remuneration.

2. How is Mr Wilding going to achieve the returns to shareholders? Some shareholders may not worry about this, but others might. The circular suggests the company’s strategy is to pursue growth in both the UK and Australia, improve productivity, dispose of non-core assets and improve working capital management. One might be sceptical that the required cash returns to shareholders necessary within the next 2 years can be achieved without substantial disposals, given the current position of the business and the difficult carpet market in both countries, but Mr Wilding says that it is possible without major divestments.


ShareSoc would normally not be happy with such an aggressive incentive arrangement, particularly as the ultimate return to the beneficiary is in cash rather than shares. But it is in essence a relatively straightforward contact and clearly aligns Mr Wilding’s interests to those of shareholders. In addition, this company is surely in some difficulties, as it has been for many years with poor returns to shareholders of late. If Mr Wilding manages to achieve substantial returns to both himself and shareholders under this contract, then shareholders might be very happy indeed. Achieving such returns is not going to be easy so ample rewards might well be due. Indeed obtaining the very large returns mentioned above (the second example in the circular) seems likely to be both very difficult and unlikely.

But shareholders who opposed the change of control might well oppose this contract, and the peculiar aspects of it so any simple recommendation to vote for or against by ShareSoc would be inappropriate. I can only say that the author of this note will be voting for this proposal in respect of the few shares he holds in this company, simply because having reached this point, and based on past shareholder votes, I think there is little reason to object and there are many positive aspects to this proposal.

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ShareSoc 15th Feb '13 244 of 431

Posted by ShareSoc at 08:06, February 6 2013.

Insolvency Report from Commons Select Committee covering Pre-Packs

This morning a report was published by a Common Select Committee on the Insolvency Service. One of the subjects it covers is that of Pre-Pack Administrations which are of grave concern to many people, and which ShareSoc has severely criticised in the past (our written submission to the Committee is contained in their report if you care to read it). Although many such Administrations are in smaller, unquoted companies (such as the case of “A Suit That Fits” which was covered in the Financial Times yesterday), there have been a number in larger public companies.

As the report indicates, some 25% of the 2,800 companies that went into administration in 2011 did so via a pre-pack, and that nearly 80% of the pre-pack sales were to connected parties. Surely a good indication of the level of abuse that occurs, epitomised by “phoenix” companies?

Reform of Pre-Packs has been considered by the Insolvency Service and the relevant Minister in the past, but effectively little has been done in reality, with only minor changes to the SIP16 rules under which they operate. You can read some of the arguments for and against pre-packs in the Select Committee Report – in essence bankers, accountants and insolvency practitioners like them, but everyone else hates them, particularly the creditors of a company, the minority shareholders and the competitors of the insolvent business. The latter complain that unviable businesses are allowed to resume trading, creating unfair price competition and promoting a false market for their goods. Indeed shareholders in public companies can see some impact of the latter problem - for example Carpetright affected by repeated administrations of Allied Carpets.

Even SIP16 (Statement of Insolvency Practice 16), which is supposed to be followed by insolvency practitioners, is often ignored. The report says 32% of such cases that were reviewed were “not fully compliant”. Abuses not just arise from the basic defects in the system, but are even more widespread due to non-compliance with what rules there are about how they should operate. In addition a number of witnesses to the inquiry by this Committee suggested the penalties for non-compliance were inadequate, as indeed they are. Only 6 insolvency practitioners have been fined since 2010, and the maximum fine was £2,500.

The Committee has suggested that the Insolvency Service needs to impose stronger penalties and use tougher enforcement measures. In addition they recommend changes to its monitoring processes and guidance.

In addition, they suggest measures to reduce the number of Pre-Packs, many of which are caused by threats of suppliers holding a company to ransom when a company is in difficulties. The Committee recommends the Department undertake a consultation as a matter of urgency on the rules relating to continuation of supply.

The Committee also recommends the Department and the Insolvency Service “commission research to renew the evidential basis for pre-pack administrations”.

Comment: A disappointing response to the problem of pre-packs, which repeats the excuses we have seen so often before from the Government and the Insolvency Service. Tightening up compliance will be unlikely to have much impact, particularly as those affected rarely take up complaints against insolvency practitioners. Even if they knew who to complain to, which they often don’t, they have little incentive to spend time on the matter as they will not gain compensation as a result.

Likewise, it seems totally unrealistic to expect that suppliers can somehow be forced to continue supplying goods or services to companies they suspect are about to go bust.

The only good aspect is that further research might be undertaken so that the real impact of Pre-Packs can be understood.

In summary, Pre-Packs will continue as will the abusive practices associated with them so investors and creditors of companies are reminded to take great who they trust when dealing with companies in financial difficulties. 

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ShareSoc 15th Feb '13 245 of 431

Posted by ShareSoc at 09:55, February 7 2013.

Healthcare Locums and Media Corporation – More Bad News

After a disappointing results announcement last week, and large share price fall, Healthcare Locums (LON:HLO) announced yesterday that Toscafund and ACE, who already hold 72% of the company, have offered to acquire the remaining shares at 0.54p. Subject to that being agreed, they would inject further funds into the business to keep it afloat. That surely suggests that this business might soon no longer be a publicly listed company and shareholders might be glad to forget about it and its past problems. At least some may be able to offset their losses on the company against other capital gains, so may welcome the “exit”.

However, there is opposition building to such an offer and a Shareholder Action Group has been formed to oppose it who already claim support from 5% of the shareholders. They are not happy with the lack of detailed information provided on the financial position of the company and question whether the “concert party” should be allowed to vote on any offer. Healthcare Locums shareholders can contact this Group by sending an email to .

Media Corp (LON:MDC) was another “problem” company we first reported upon in June 2011. The share price then was 1.5p and the company was clearly already in some difficulties. It’s now (at the time of writing), 0.034p, i.e. a 98% fall, valuing the whole company at less than £300k. The latest announcement yesterday notes the sales of one of their operations (a publishing company called “Onthebox”), and reports that HMRC are pursuing them for previously unpaid National Insurance. It seems the company paid some of the former directors and other staff as consultants rather than employees when they were in reality the latter - presumably breaching the IR35 regulations. The directors suggest the additional liability is “manageable” and are proceeding with launch of their Intabet platform.

Both of these companies have suffered from the actions of previous directors who have since departed so it reinforces the point that once you have questionable management in place in an AIM company, it can be difficult to rectify the problems they are likely to create. Surely the moral is: don’t invest in AIM companies unless you trust the executive directors and have some knowledge of their past track records.

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ShareSoc 15th Feb '13 246 of 431

Posted by ShareSoc at 09:35, February 8 2013.

Corero Network Security – Placing and Control Issues

Corero Network Security (LON:CNS) has two major divisions – the Network Security division which sells products to thwart Digital Denial of Service (DDOS) attacks, and the Business Systems division which primarily markets finance and management application software to education establishments. The latter is long established, profitable and is growing, but the former has not yet achieved success. Indeed revenues are consistently behind target and it is clearly unprofitable.

This morning, the company announced a placing to raise £4.04 million. As part of the fundraising, some of the directors will be subscribing for shares. In particular Jens Montanana, the Non-Executive Chairman, will be increasing his stake from 15.9m shares to 33.9m shares – giving him 39.6% of the shares in issue after the placing. In total, Mr Montanana, with other members of the “concert party” of which he is a member will potentially have an interest in 41.8% of the share capital taking into account share options and other share purchase entitlements.

Now normally anyone acquiring more than 30% of a company is required under Takeover Panel rules to make an offer for the company. So this will require approval by the Takeover Panel and a waiver resolution to be approved by other shareholders. Should shareholders vote for this fund raising and the waiver are the questions?

I would suggest not. This transaction effectively gives Mr Montanana (who incidentally is the CEO of Datatec), control of the company. Any percentage above 30%, particularly with the dispersed shareholdings in AIM companies like this one, with many shareholder unlikely to vote as they are in nominee accounts, gives such a shareholder a very dominant position. Indeed this is the reason for the “30% rule” of the Takeover Panel.

One only has to look at the events at Healthcare Locums, which was back in the news recently, to see what frequently happens when a dominant “concert party” gains a major interest. It gives them the opportunity to dictate events later, and can enable them to pick up the whole company at a favourable price, de-list the company at their whim and appoint directors as they prefer.

Whether the fund raising is necessary is difficult to judge without further information. The announcement simply indicates they require the funds to continue development of the Network Security Product. The only issue is who the funds are to be raised from. Perhaps other options could have been examined – such as disposing of one or other divisions as an alternative – it’s a rather odd mixture anyway at present.

Incidentally one of the non-executive directors of Corero is Richard Last. He was on the board of Lighthouse Group when it decided to de-list, which shareholders opposed and subsequently defeated. He then became the Chairman of that company.

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ShareSoc 15th Feb '13 247 of 431

Posted by ShareSoc at 13:22, February 11 2013.

High Pay Centre Report demolishes the myths around executive pay

This morning the High Pay Centre published a report on “Global CEO Appointments”. Based on their research they suggest that the justification for high executive pay, namely that there is a limited talent pool worldwide from which they can be recruited, is not borne out by the facts. In reality most chief executives are recruited from inside a company, with very few being poached from other companies overseas (only 4 out of 489 studied). Indeed in interviews, chief executives say that their jobs are about much more than money.

To quote from the report: “High CEO pay relies on the notion that only a tiny few individuals have the necessary ability to run a major global company. Of course, companies also say that they have to motivate any executive to achieve stated targets, and to align his interests with those of shareholders. However, it would be hard to argue that CEOs of major companies in previous eras, or in smaller modern-day companies, have worked any less hard for their much lower salaries. It is the supposed scarcity of talent, and what is often claimed to be the highly competitive market for that talent, which is principally responsible for pushing pay up to the current high levels. But, in reality, companies do not feel they need to search far and wide for their next CEO.”

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ShareSoc 15th Feb '13 248 of 431

Posted by ShareSoc at 15:25, February 12 2013.

Lynn Ruddick steps down from City of London Investment Group

It was good to see the announcement today that Lynn Ruddick is stepping down as a director of City of London Investment (LON:CLIG) “in order that she can devote more time to her other business commitments”.

Indeed the number of her other commitments was a subject I raised at their last AGM after her appointment in January 2012. In response to a question, she conceded that she was a director of 4 other investment trusts and was also a trustee of 3 pension funds. This seemed to me to a contradiction to the guidelines that City of London has for the companies in which it invests (readily available on their web site and well worth reading). It is also contrary to the guidelines ShareSoc set in its own recently published guidelines for non-executive directors which suggests a limit of 4 or 5 roles (available here:

One can only welcome the wisdom of this change therefore.

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ShareSoc 15th Feb '13 249 of 431

Posted by ShareSoc at 09:34, February 15 2013.

PIRC Opposes All LTIPs

PIRC have issued a Press Release saying that they intend to oppose all new Long Term Incentive Plans (LTIPs) this year. PIRC (Pensions and Investment Research Consultants) provide voting recommendations to institutional investors so this is a very significant step.

PIRC is taking a much tougher stance on remuneration issues and they argue that LTIPs neither provide incentives nor are “long term”. They also allege that they are ineffective due to amendment and manipulation by remuneration committees.

In addition they suggest shareholders need to scrutinise the role of remuneration consultants who have a vested interest in “creating complex and accommodating outcomes”. They specifically will oppose cases where a company’s auditors also act as remuneration consultants and will recommend voting against the auditors and the head of the audit and remuneration committees.

ShareSoc has in the past also argued against large LTIP awards. For example we said this in our response to the Kay Review:

“However, one of the reasons why directors and senior managers of companies probably have been influenced more by short-term performance is the increasing use of performance related pay schemes. The use of bonus schemes and LTIPs that focus on short term measures such as total shareholder return or earnings per share, particularly the former which is partly share price based, have tended to motivate executives in the wrong way. So it is widely acknowledged that in banks, where bonus schemes got totally out of hand, this led to the use of more risky business strategies” and “we would like to see a cap on the maximum amount of total remuneration that is made up by bonus or share option schemes, with more reliance on base salary as the primary remuneration element. We don’t think performance related pay actually provides much in the way of incentives and a high performance element certainly encourages short-term thinking”.


In our response to Vince Cable’s consultation on Executive Pay we said this:

“We suggest that bonus schemes, LTIPs, and share options as elements of total pay have become grossly excessive in recent years and the addition of these schemes, and their complexity has concealed the impact of the growth of total pay. Although we support the concept that executives should share in the rewards generated by a company, and agree that they should be able to build a stake in the company so that their interests are aligned with shareholders, we are doubtful that these provide significant incentives to senior management – at least not in the timescale that is likely to be relevant. We therefore strongly support the simplification of remuneration packages and the reduction in the percentage of total pay that is represented by performance related elements”.


Whether all LTIPs are bad may be debatable, but they are certainly generally incapable of being designed in a manner that aligns executives’ interests with those of shareholders and are usually excessively generous with easy to achieve performance targets. Good incentive schemes are both simple and pay out quickly which is of course the exact opposite of most LTIPs. Introducing more complexity (such as “claw-backs”) simply makes them even worse. Opaque and complex LTIPs have been a major contributor to the inexorable rise of total executive pay and ShareSoc agrees that one step forward in dismantling this one-way escalator would be to halt their use.

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ShareSoc 18th Feb '13 250 of 431

Posted by ShareSoc at 09:07, February 18 2013.

Cosalt goes into Administration – shareholders to lose all

On Friday Cosalt (LON:CSLT) announced that it was going into administration. This is the final act in the long-running campaign by minority shareholders to keep the company alive and listed, and out of the hands of majority shareholder David Ross. But the announcement makes it clear that shareholders should not expect any value to remain in their shares, which is not unusual when a company goes into administration.

The Cosalt Offshore division is to be immediately sold (apparently via a Pre-Pack Administration) to a new company backed by NBGI Private Equity who are associated with ATR Group. You can tell it’s a Pre-Pack because the announcement says “the administrators will sell Cosalt Offshore to Dunwilco (1793) Ltd on the basis of the terms negotiated immediately following their appointment” but it also says “an agreement for the sale of the shares in Cosalt Offshore has been negotiated with Dunwilco (1793) Ltd” so it is clear that this is a typical pre-pack where the deal is agreed well before the formal appointment of the administrator and then immediately completed. See our previous blog posts for our negative comments on pre-packs in general. The other major division, Cosalt Workwear, is likely to be sold in due course, effectively winding up the holding company. It will be interesting to see who that is sold to and at what price.

Who are the major beneficiaries of this arrangement? Undoubtedly the lenders to the company who of course include David Ross but also Royal Bank of Scotland (RBS) and HSBC who presumably stand some chance of getting some or all of their money back. RBS frequently feature in pre-packs and have lobbied the Government against any reform of pre-pack arrangements. As the Government has a major stake in RBS, there is some conflict of interest here. It was clear from the announcement by the company on the 7th February that the banks were bringing pressure to bear to ignore the interests of shareholders and expedite the repayment of their loans rather than await an asset sale process so an administration was not unexpected.

One complaint shareholders have had for some time was the lack of provision of up-to-date financial information about the company to shareholders. Failure to publish accounts was one reason for the suspension of the company’s listing back in May 2012, and it has remained suspended since. So although shareholders defeated a delisting in Feb 2012, this made it a fait-accompli in practice.

An allegation from minority shareholders was that the financial position of the company was being concealed from them so that Mr Ross could pick up the company on the cheap. Will shareholders now ever get to see any accounts? Probably not is the answer. Administrators have no obligation to publish past accounts of any kind and will generally ignore requests to see them, although there will be a report on the administration issued in due course – perhaps in some years time.

Altogether a disappointing outcome of a long and complex saga, where communication to minority shareholders certainly seems to have been deficient.

Shareholders might ask the following questions: Have Mr Ross or the other lenders obtained any equity of other interest in Dunwilco (1793) Ltd and exactly who are the other shareholders in that company other than NBGI? Also was the Offshore business sold at a fair valuation via an open and competitive marketing process as required by Insolvency practice rule SIP16?

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ShareSoc 21st Feb '13 251 of 431

Posted by ShareSoc at 12:04, February 21 2013.

RM results and the welcome departure of Martyn Ratcliffe

RM (LON:RM.) announced their preliminary results this morning. The financial results were much as forecast by analysts following the major restructuring undertaken by Martyn Ratcliffe who was appointed as Executive Chairman after the company got into some difficulties.

There is an extensive report on the affairs of this company and the last Annual General Meeting on the ShareSoc Members Network. In conclusion it said “an example of not only poor corporate governance and bad remuneration policies, but also of how not to run a General Meeting”.

Mr Ratcliffe may have brought a breath of fresh air to this company, and undertaken the necessary management restructuring, but his general attitude to smaller shareholders who bothered to attend the AGM left a lot to be desired.

At least the results announcement included a comment that David Brooks is being appointed Chief Executive Officer and that Mr Ratcliffe will be stepping down as a director in the summer. So they are now looking for a new Non-Executive Chairman. For his rather short tenure, Mr Ratcliffe will be handsomely paid assuming that the share price exceeds 100p prior to 30th November 2015 (currently 78p at the time of writing) when he will be able to cash in his share options.

Shareholders might ask what lies in the future for this company. The steps taken to refocus the business and dispose of non-core businesses surely make sense but the company warns that it anticipates difficult market conditions will continue for the foreseeable future. With the focus on the UK education market, which is mainly dependent on Government funding, it’s clearly not going to be easy for some time as the Government looks to reign back public spending. So both the company and analysts’ forecasts predict some continuing decline in revenues. Most of this is from the hardware/infrastructure side which is low margin anyway (actually declined to 3.3% margin last year), which the company should surely have moved away from sooner.

Profits may not be similarly impacted but might also decline slightly in terms of earnings per share. But the interesting aspect of this company is that it is generating substantial cash. At the end of the last financial year it had cash on the balance sheet of £38m when the market cap of the company is only £66m.

It’s worth pointing out that the company does have a substantial pension fund deficit which will cost it about £4m per year in cash over the next few years (they actually paid £5m last year) which might put off any potential buyers of the company. But there may well be room to return cash to shareholders or make some suitable acquisitions as the company has little debt (credit facilities in place were unused at the year end).


In summary, this company is still a work in progress but looks not expensive on the fundamentals, which is probably why the share price rose this morning when most other stocks fell. Let us hope the new Chairman has a more sympathetic approach to smaller shareholders and a better stance on corporate governance matters.

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ShareSoc is dedicated to the support of individual investors. Our aim is to make and keep you better informed so as to improve your investment skills, and protect the value of your investment. We won’t shirk from tackling companies, the Government or other institutions if we think you are not being treated fairly. more »

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