ShareSoc Chairman's Blog

Sunday, Sep 02 2012 by

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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 29th May '12 1 of 431

Posted by ShareSoc at 09:16, May 29 2012.
The Unacceptable Face of Capitalism – Lonrho plus Morson, Greggs, Tesco and Globo.

Even some directors are now beginning to revolt over excessive pay. Consider the case of Lonrho where non-executive director Richard Needham has quit in a huff after being presented with a proposed increase of the pay of the Executive Chairman David Lenigas from £500,000 to £750,000. As Mr Needham said in his resignation letter, Lonrho again risks being dubbed the “unacceptable face of capitalism” (the last time was back in 1973 in a famous comment by Ted Heath). The new pay of Mr Lenigas had been approved by the Remuneration Committee (which Needham was not on), and Needham was requested to consent to it immediately at a board meeting because the accounts were going to print in three hours time. The market cap of Lonrho is now only £156m and it is of course a very different company from when Tiny Rowland was running it in the 1970s. Mr Needham seems to be complaining that the company is run in the same old way though – effectively by a charismatic chairman who behaves as if he owns it. A common problem indeed.

Another example where insiders may have taken advantage of their position is that of Morson, a small AIM company. After cutting the dividend earlier in the year which drove down the share price, they announced a management buy-out on the day of the AGM. The exit p/e appears to be about 3. Is this a fair offer? Well the sole independent non-executive director seems to think so. The information on future trading prospects which is apparently used as the basis for the offer seems to rely mainly on the executive directors’ views of likely contract renewals and margins. This looks to be a similar kind of offer as took place at Lees Foods which ShareSoc campaigned against.

According to press reports, the Chancellor of the Exchequer is going to take a U-turn on the “pasty tax” he announced in the Budget. Only products that are deliberately kept warm for customer consumption will be taxed. This should let Greggs off the hook, with the result that the share price bounced back up after recent falls. The Investors Chronicle rated it a “sell” only last Friday partly on the basis of the impact of the new tax, which just shows the risks of share tipping which ShareSoc studiously avoids doing.

The boss of Tesco is at least turning down his bonus of £372,000 for this year after disappointing trading results which sets a good example (how did he manage to “earn” such a bonus after failing to meet targets? Don’t ask). But Tesco is holding its AGM in Cardiff at 11.00 am on the 29th June. I believe Tesco have moved their AGMs around the country in the past, so one cannot criticise the location perhaps. I have been to Cardiff once before for an AGM, but getting to Cardiff from a lot of the rest of the country by 11.00 am is not at all easy. Why cannot they set the time later, or even better, do an on-line web cast of the event so shareholders do not need to travel? That is one simple way that AGMs could be reformed to make them more meaningful.

I attended the AGM of Globo yesterday, a Greek company so the recent events in Greece have not helped the share price. The FT reported on the day of the AGM that the worldwide olive oil price had collapsed, dealing another blow to the Greek economy. It never rains but it pours is perhaps the appropriate phrase. But it was a fine example of how an AGM can be a useful event in the modern age with lots of intelligent questions from shareholders and informative answers. A full report is on the ShareSoc Members Network.

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ShareSoc 31st May '12 2 of 431

AGMs - a demonstration of why reform is needed.
The Hiscox AGM showed how shareholder democracy is being undermined and AGMs turned into an obsolescent tradition by some companies.
This was interesting in that the company held their AGM in Bermuda where they are now domiciled so there was a video link to a meeting room in London. You might think that would be a useful technique for other companies to adopt (for example those registered in Scotland who hold their AGMs in Edinburgh or Glasgow), but not when it is handled in the quite appalling manner as did Hiscox. Questions from the audience were challenged as to validity, separate resolutions combined into one vote and there was a general rush to complete the meeting in record time. See here for the full report if you are a ShareSoc Member:

It certainly reiterates the case for reform of AGMs to make them more meaningful and useful events for which ShareSoc has long argued.

Another example of an AGM which was a triviality was that of Edinburgh US Tracker Trust in Edinburgh. We issued a press release complaining about a change of investment policy and there was a very good letter in the pages of the FT on the same subject. How many turned up at the AGM to tackle the directors on this issue? None to be exact.

But other Annual General Meetings are very much worth attending. For example at the Royal Bank of Scotland (RBS) AGM, also held yesterday, Chairman Sir Philip Hampton spelled it out for any RBS shareholders who still have hopes for a quick revival of the company’s fortunes. He said, “I don’t think shareholders’ wealth is likely to be restored any time in my lifetime or some lifetimes beyond”. Back in the March 2011 ShareSoc newsletter it was stated that “shareholders should not expect a rapid recovery of the fortunes of RBS”, so this is not news to informed investors. But there are no doubt some loyal shareholders who followed the company all the way down and are still holding because of the syndrome know as “loss aversion”.

If you read other reports we have published, you will find lots of cases where information is given that is not widely available. You can also often get a good impression of the personality and capabilities of the directors. So if you can attend AGMs, please do so. Otherwise join ShareSoc as a member and read reports from others.

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ShareSoc 4th Jun '12 3 of 431

Posted by ShareSoc at 09:35, June 4 2012.

The Board of Tesco – Is it surprising they are in trouble?

With a few days holiday over the Jubilee weekend, it’s possible to catch up on reading the Annual Reports of companies that pile through one’s letter box at this time of year. Tesco’s makes particularly amusing reading and might help to explain why they are in some difficulty.

The new Chairman’s introductory statement (from Sir Richard Broadbent) is a classic of management speak. Consider this sentence for example: “First, Tesco is a business with significant strategic optionality”. I think he means they have lots of strategic options. But does not any major company? More to the point perhaps is which options they intend to pursue which he does not say.

So what is the background of the new Chairman? Does he have a long career in major retail businesses? No experience in retail at all in fact. His main career seems to have been in the Civil Service (at the Treasury and HMRC) with a stint at Schroders. He has also served on the boards of Barclays and Arriva.

The board of Tesco actually comprises 14 directors which is surely an unmanageable size. There are 8 non-executive directors. How many of those have any retailing background? None so far as I can see.

Another oddity is that one of the Executive Directors, Lucy Neville-Rolfe (the only female executive director) has several other jobs which include Deputy Chair of the British Retail Consortium, Non-Executive Directorships at ITV and the Carbon Trust, Member of the London Business School’s Governing Body, of the China Britain Business School, the UK India Business Council and the Corporate Leaders Group on Climate Change. She joined the board from the Cabinet Office.

This board looks like that of many banks before they got into difficulties – where they were full of non-bankers who did not intrinsically understand the business but with high profiles in other respects, i.e. the “great and the good”. Not the kind of board that would have challenged Tesco’s CEO on his decision to venture to compete on the US West Coast which has proved very unwise. Even now the company is running a bank with revenue and profits that are negligible in comparison with its retailing operations but which must divert a significant proportion of management time (yes Tesco now have a few bankers on their board also).

So what is the “Group Strategy” of the company. This is summarised as:

  • To grow the UK core.
  • To be an outstanding international retailer in stores and online.
  • To be as strong in everything we sell as we are in food.
  • To grow retail services in all markets.


So now we know - but it looks more like a PR statement that a strategic plan to me. But as I pointed out in a previous blog entry, Tesco is holding it’s AGM in Cardiff at 11.00 in the morning. So shareholders will need to get up early if they want to question this peculiar board structure and the company’s strategy.

The financial strength of the company remains enormous, but is it possible that the reason the share price is in the doldrums is the shareholders perception of the company’s board?


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emptyend 4th Jun '12 4 of 431

In reply to ShareSoc, post #3

Another oddity is that one of the Executive Directors, Lucy Neville-Rolfe (the only female executive director) has several other jobs which include Deputy Chair of the British Retail Consortium, Non-Executive Directorships at ITV and the Carbon Trust, Member of the London Business School’s Governing Body, of the China Britain Business School, the UK India Business Council and the Corporate Leaders Group on Climate Change. She joined the board from the Cabinet Office.

Does anyone here spot the potential dangers of gender quotas that some seem to recommend?


The financial strength of the company remains enormous, but is it possible that the reason the share price is in the doldrums is the shareholders perception of the company’s board?

Possible - but highly unlikely. Much more likely to be the (not unconnected) point that their strategy is what the Yanks call "motherhood and apple pie"......and that actually the business of running a good retailer has very much more to do with obsessing over the minutiae of day to day details of matters at "the coalface".

Leahy was were Greenbury at M&S and Kalms at Dixons (both in the heyday for those companies). More worryingly for Tesco, Justin King at Saisbury also seems an obsessive - and the Tesco people don't.


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ShareSoc 5th Jun '12 5 of 431

Posted by ShareSoc at 00:00, June 5 2012.

Halfords Buy Backs to Cease

Halfords issued their Preliminary Results for the year ending March 2012 last week. One significant statement in there was the “Board has resolved to bring the current [share] buyback programme to an end and does not intend to undertake any further buyback activity in the new financial year”.

It’s interesting to study the cash flow trends last year. In reality there was free cashflow (after capex, finance costs and taxation) of £70m. Dividends cost £44m, and share buybacks cost £63m. So £37m more was returned to shareholders than was generated. How was the shortfall made up? By increasing debt of course which rose from £103m to £139m.

Although debt is still not particularly high at this company, I have never thought that share buybacks were particularly meritorious and borrowing money to undertake them seems to make even less sense. I did raise the issue of the large buybacks at this company at their AGM last year so it is good that the directors seem to have changed their stance somewhat on this matter.

There is a very good presentation made to analysts by the CEO and Finance Director on the Preliminary Results here:

Let us hope that the Halfords AGM is not held at 9.00 am in Birmingham this year, or I may not be able to congratulate the board on their wisdom regarding buybacks.

The share price did fall after the results announcement, probably because there was another statement in there which said: “Retail sales in FY13 have been very disappointing so far”. Cycling and outdoor leisure product sales have been lower than expected, probably because of the poor spring weather. They may not improve over the Jubilee bank holiday either, but retailers are notorious for blaming the weather for poor sales – Halfords winter sales were blamed on the weather being too good which reduced sales of replacement car parts.

One minor criticism though is that the aforementioned presentation took at long time to be issued and even then was difficult to find, with no live access to the conference by private investors. So such investors were potentially disadvantaged versus institutional analysts. I may raise this at the AGM.


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ShareSoc 6th Jun '12 6 of 431

Posted by ShareSoc at 09:10, June 6 2012.

Plus Markets – Attempt to defeat sale and remove directors

Some shareholders in Plus Markets, the AIM listed company that runs the Plus Stock Exchange (PLUS-SX) and other operations are unhappy with the proposed sale of that exchange to ICAP for £1. They plan to vote down this disposal and remove some of the directors at the forthcoming General Meeting called to approve it by tabling additional resolutions.

The sequence of past events is as follows. On the 14th May, Plus Markets announced the closure of PLUS-SX having failed to find a buyer for the business after looking for some time. PLUS-SX has never gained the number of listings and volume of trading necessary to make it viable with the result that it has consistently lost money. On the 18th May Plus Markets announced the sale of PLUS-SX to ICAP for a nominal £1. The company subsequently rebuffed an approach from Gulf Merchant Bank (GMB) who issued a press release saying they had made a revised offer.

Simon Chapman, a shareholder in Plus Markets, is reported to be leading the opposition and wants to oust the Chairman and Chief Executive of Plus Markets. He claims that the CEO, Cyril Theret, and Finance Director, Nemone Wynn-Evans will collect £423,000 in fees if the sale is completed and that financial advisers to the company will collect about £960,000. Criticism was also aimed at the exclusivity agreed with ICAP, and the fact that ICAP will be able to use the tax losses accrued by PLUS-SX so it might be worth much more than £1 to them.

Comment: This whole process seems to have been somewhat rushed at the end of the day and the license to operate an exchange was surely quite valuable (assuming it could be transferred) as there are in fact very few such licenses in the UK. This certainly looks to be a case where shareholders should study the offer document carefully before deciding whether to support the disposal. Mr Thompson will have to move quickly though if he is to get resolutions on the agenda for that meeting or any other to remove some directors.


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ShareSoc 11th Jun '12 7 of 431

Posted by ShareSoc at 13:40, June 10 2012.

Cable to Back Down on Pay?

More than one newspaper has reported that Vince Cable may water down his commitment to a binding vote on shareholder pay by having the vote every three years rather than annually as originally proposed. This allegedly is on the basis that it would increase bureaucracy and that “institutional investors had argued that an annual vote could have made investors less inclined to protest for fear of destabilising management teams” (Daily Telegraph). The Financial Times reported the BIS as saying that a three year remuneration policy would encourage longer term thinking on pay, but the option of an annual vote would still be open to companies and shareholders if they want it.

It is certainly the case that an annual vote, combined with a longer Remuneration Report required to document pay policy more clearly, might introduce some more bureaucracy. But companies can change a great deal in three years (both positively and negatively). Regrettably it might let companies revise pay upwards (by taking up the option of revising pay annually), but not revising it downwards when profits disappear or a company shrinks on the basis that a “three year policy” had been put in place.

The merit of this proposal may not be a one-sided debate. What do you think?


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ShareSoc 12th Jun '12 8 of 431

Posted by ShareSoc at 14:45, June 12 2012.

Two suitable cases for treatment? Graphite Enterprise and Intercede

I attended the Annual General Meeting of Graphite Enterprise Trust PLC (LON:GPE) yesterday. There were over 30 shareholders present and the meeting was chaired by Mark Fane. Like two of the other directors he has served on the board over 9 years, but I chose not to raise that issue publicly in the meeting, although I did express my concerns to him afterwards.

Mr Fane commenced the meeting by summarising the announcement of the “Interim Management Statement” for the 1st quarter that had been issued in the morning. Net asset value had risen by 2.6% in that period. It would have been higher but for the depreciation of the Euro against sterling as many of their investments are in Europe and hence denominated in Euros.

Tim Spence who is the Investor Relations manager for Graphite Enterprise, the fund manager, then gave a presentation, following by other staff from the manager (Emma Osborne and Rod Richards). You can see their ppt presentations here which are well worthwhile reviewing:

Questions were then taken from the audience.

I raised the issue of the share price discount (although this had been covered in the manager’s presentation). I said that although I accepted that a higher dividend or buy-backs might not have a big impact on the discount, I could not see why a tender offer should not be considered. Shareholders would gain the advantage of being able to sell shares at a premium to the current share price.

The answer given from the Chairman was that it would have only a very short term impact on the discount, but I responded that it would immediately benefit shareholders and gave the example of Dunedin Enterprise who had recently done a tender offer.

I also covered the issue of the dividend and gave these figures: last year the profits were £37m, but they only paid out £1.6m in dividends. The Chairman suggested most of those profits were “capital” profits and hence should be treated differently.

After some banter, I finally argued that I liked to see an active discount control policy in all investment trusts, whereas this company seemed to have simply made a decision to do nothing.

Mr Richards suggested that this was the wrong time to return cash to shareholders. They should be investing cash in new investments now as they were at the bottom of the “cycle” (i.e. private equity deals were now cheap) rather than returning cash to shareholders.

A fuller (4 page) report on this meeting and more in-depth analysis of the discount issue is present on the ShareSoc Members Network (available to ShareSoc members at . In summary I do not agree with the arguments of the board and the fund manager that nothing should be done. The board seems to think that the high discount will rectify itself without any action on their part, but I doubt it will.

Graphite Enterprise may well be the focus of a campaign by ShareSoc. One company that is already so is Intercede (LON:IGP)  due to their past pay policies. The company issued its Preliminary Results for the year ending March yesterday and some comments on them were issued to our supporters in this note: (click on to read).


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ShareSoc 21st Jun '12 9 of 431

Posted by ShareSoc at 00:00, June 19 2012.

PLUS-SX sale assures its survival

Although many shareholders in Plus Markets group were unhappy with the sale of Plus-SX at the price obtained, which was narrowly voted through yesterday, it at least ensures that this market for micro-cap companies will continue to operate. There was a definite threat that the FSA would withdraw its license to operate if a deal did not go through soon.

At least for investors in Plus-SX listed stocks, it should ensure that a publicly quotation will continue to exist even if the liquidity in that market has always been very poor. ICAP, who are the buyer, certainly have the resources to maintain and develop this market. There has been a real gap in the availability of equity finance for such companies, which is why their financing tends to be dominated by private equity. Why Plus-SX never managed to grow the market to a viable size is not clear as there must be thousands of companies who might be suitable for such a market and the listing obligations were not onerous. For example, many of the AIM companies that delist might well be suitable for a listing on a lower cost exchange. Or for those micro-caps needing to raise equity funding, surely better to have a public listing with some ability to raise finance and the ability for some insiders to sell shares than be subject to the onerous obligations imposed by a typical private equity finance deal? Perhaps the big problem is that the latter tends to conflict with the former so some investors might oppose such a listing. ICAP will have to tackle this issue though if they are to make a success of this market. Let us hope that they have plans to do this rather than simply use the exchange license for other activities.


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ShareSoc 23rd Jun '12 10 of 431

Posted by ShareSoc at 07:39, June 23 2012.

The Growth of Execution Only Trading

The AGM of the Share Centre was one of the few in which I hold shares which I did not manage to attend this year (one’s diary gets a bit crowded at this time of year as there are so many AGMs in the spring). But there was an interesting presentation given at the meeting which is now on the company’s web site – see

In it one particularly interesting slide is number 11 which shows (based on a report from Compeer) that there are now 3.5 million execution only nominee accounts in the UK. That’s been growing steadily since 2003 when it was only 1 million. Some investors may have more than one account of course, but it shows the large numbers of people who invest directly in the UK stock market.

In addition it shows how nominee accounts have probably grown in comparison with other ways of holding shares (in certificated form or personal crest accounts). This is unfortunate because most such accounts disenfranchise investors (i.e. do not provide voting provision or information provision). The Share Centre (who have 6.5% of this market according to the presentation) are one of the few brokers who provide a simple system to enable shareholders to record their votes, although even that is not perfect. That may be one reason why their share of this market is growing though.

ShareSoc has of course criticised the nominee system repeatedly for destroying shareholder democracy. We would like to see the whole structure reformed so as to provide simple information and voting arrangements for all shareholders and ways for shareholders to communicate with one another so as to re-establish the positive influence of private shareholders over companies. With modern electronic system capabilities, this should not be difficult. Don’t forget to sign our e-petition on this subject if you have not already done so – see


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ShareSoc 25th Jun '12 11 of 431

Posted by ShareSoc at 09:04, June 25 2012.

Natwest/RBS Banking Debacle – was it avoidable?

A significant number of the readers of this blog might be customers of Royal Bank of Scotland (LON:RBS) who have been affected by the computer failure that has frozen access to accounts and delayed payments in and out. After a number of days, problems still continue and RBS may have a large bill in prospect to compensate customers for the inconvenience, or interest and penalty charges that were unnecessarily incurred. That’s apart from the damage to the reputation of the company that might deter people from banking with them in future. So this is also of concern to RBS shareholders.

The difficulty apparently arose when a new software update was installed. Should this be seen as an “act of God”, or just one of those technical cock-ups that will happen in the modern world? Well the author of this piece just happens to be a former IT manager (I am a Member of the professional body for IT experts, the B.C.S.) and am a director of an E-payment company which runs credit card and other payment platforms (see . I am sure my former bosses would not have found it acceptable to have their systems out of action for several days, and I certainly would not do so in my current role.

New software updates corrupting existing systems are a well known problem, and reflect either a failure to test the new environment properly before installation, or a failure to provide adequate roll-back procedures. This is surely a failure of competent IT management if these problems occur in such a large and experienced company as RBS. It reflects badly on the professionalism of the IT world in general if these kinds of events can still happen. In essence these failures are avoidable and any experienced IT manager knows they may happen so suitable precautions should be taken.

Whether these events occurred because RBS has been cutting back on IT staff of late, and hence may have lost relevant experience and expertise, I do not know. But I do suggest that it is rather symptomatic of past events at RBS where the company under the leadership of Fred Goodwin raised its risk profile by excessive gearing, and ultimately took a fatal bet on the ABN-AMRO acquisition. It might imply that the culture of risk taking at RBS still continues, which is certainly not good news for shareholders.

The sooner the Government (in effect you and me who own more than 80% of RBS) gets shot of responsibility for RBS, surely the better as company culture can be difficult to change. But in the meantime, perhaps the Government should institute an inquiry into what happened at RBS because the failure of such an important banking system is of national significance.


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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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