Please Vote Against Berkeley Remuneration

ShareSoc has advised investors to vote against the Remuneration Report at Berkeley Group. Is a total pay figure of £21 million in 2015/16 for Executive Chairman Tony Pidgley justifiable on any grounds at all? It has surely arisen as the result of an over generous LTIP scheme which shareholders voted for without realising the possible consequences. LTIP schemes have been one source of the ever growing pay of public company directors and if we are to reign in pay levels we need to return to simpler pay schemes with bonuses and LTIPs being a minor element of total remuneration.

In Berkeley we even have the odd situation in that in addition to an Executive Chairman there is also a very highly paid Chief Executive.

These levels of pay cut significantly into the returns of shareholders. So despite the favourable results that Berkeley have been producing in recent years, ShareSoc asks that you vote against the Remuneration Report.

See the press release here for more information:

http://www.sharesoc.org/pr82-berkeley-remuneration.html

Roger Lawson

Companies House Records May Be Lost

The last ShareSoc Informer Newsletter contained an article on the ease with which one can look up the past history of company directors in the new free service provided by Companies House. It focussed on the past appointments of one of the directors of Globo, a company now in administration of course. No sooner had that article been written than Companies House proposed to change their record retention which would make this kind of research impossible.

Presently the Companies House record shows all the appointments in the last 20 years including those in dissolved companies. This is exceedingly useful because knowing the backgrounds of the directors of any company is key to making sound investment decisions. The ability to know who the directors are, and that they are trustworthy, are two of the principles behind much of Company Law.

For example would it have been obvious to the media that Dominic Chappell, the purchaser of BHS for £1, had a history of past business failures – companies dissolved between 1994 and 2005? Without that ability to research the past of directors of limited companies, that information might never have come to light. An article in Private Eye edition 1425 gives many other examples of how information from Companies House was used to reveal the past activities of directors to their disadvantage or embarrassment. Newspaper reporters, indeed this writer, uses the Companies House records as an important research tool.

But Companies House is proposing to change from the current retention period of 20 years for dissolved companies to 6 years which would practically defeat a lot of this kind of research.

It seems that following an EU Court of Justice decision concerning the “right to be forgotten” based on a case against Google, Companies House are receiving regular requests to remove information. But the legal decision was quite limited in scope and it is surely only those who wish to conceal their past activities who might complain. It would be wrong to remove such information when past directorships are a matter of public record and it is important to avoid the loss of key facts.

I am writing to Companies House to express the objections of ShareSoc to the proposed changes, but you may care to do the same.

Roger Lawson

BHP Billiton Meeting and Other ShareSoc Events

ShareSoc has organised a meeting for investors with BHP Billiton Plc on the 29th September at 11.15 am at their London offices. The meeting will consist of a presentation followed by Q&A and then a buffet lunch meeting with BHP Billiton members of staff.

BHP Billiton announced their latest annual results on 16th August and the FT had this to say:

“Writedowns and impairments have dragged BHP Billiton to its biggest annual loss, capping off a troubled year for the Anglo Australian miner that included one of its worst mine accidents. BHP recorded a net loss of $6.4bn after more than $7bn of impairment charges, with the resources group counting the cost of its expansion into US shale oil and gas in 2012. During a torrid 12 months, a BHP joint venture suffered a dam burst in Brazil that killed 19 people. BHP also faced a slide in commodity prices that forced the miner to end its longstanding ambition to maintain or increase its annual dividend.”

But, with commodity prices now more stable is the future looking brighter for the world’s most valuable mining company?

It is ShareSoc’s intention over time to offer our members more meetings with larger companies to complement our regular seminars and suppers for smaller companies. The meeting is free to Full ShareSoc Members and there is a nominal charge for Associate Members and others. Go here for more information and registration: http://www.sharesoc.org/bhp-billiton.html .

Other Events: We also have a full programme of meetings with companies lined up for September in London, Brighton and Altrincham (near Manchester). Go here to see the full list of events: http://www.sharesoc.org/events.html . Companies presenting include Palace Capital, Empresaria, Avation, HarbourVest, Premaitha Health, Frenkel Topping and Plastics Capital. These are great opportunities to meet with fellow investors and learn about smaller companies so please come along if you have not attended one of them before.

Roger Lawson

Book Review – Invest In The Best

The book Invest In the Best, written by Keith Ashworth-Lord, has recently been published. I am familiar with Keith’s work (he currently runs the Sanford DeLand UK Buffettology Fund which has been performing very well), because he presented at a ShareSoc Masterclass event. I also remember reading the Analyst publication many years ago to which he was a major contributor and which very much influenced my own investment style.

The subtitle of this book is “Applying the principles of Warren Buffett for long-term investing success” and Keith is very much a disciple of that master investor – and there is surely not much wrong with that approach. In other words, it’s about some sound financial analysis combined with “business perspective” analysis.

To quote from the introduction: “To be a successful investor requires very few things. Foremost among them are discipline and patience. For me discipline comes from investing only from the perspective of a businessman”. This book attempts to teach you, and does it well, on how to pick quality investments that you can “own forever” (to reiterate Warren Buffett’s views).

So what does the book cover? It explains what business perspective investing is about. Namely identifying companies that meet certain characteristics, and hence will prove to be consistent performers. Some of those characteristics, without listing them all, are “an easily comprehensible business model”, “transparent financial statements”, “an enduring franchise with pricing power”, “high returns on capital employed” and a “high conversion of earnings into cash”.

So he does have certain prejudices (like Buffett) and says “you are unlikely to see me going near oil exploration companies, miners, banks, or blue-sky pharmaceutical and biotechnology companies”. That equates to my own views, learned from experience.

He emphasises that investing in shares is like buying part of a business. To quote: “Ownership confers a part interest in a real business. Shares should not be confused with gaming chips”. I do wish all investors would take that to heart, particularly the inexperienced ones.

The book has chapters on why “Growth is not always what it seems”, on why “Profitability of capital drives shareholder value” (and covers the various ways of looking at that), on “Economic Profit” and on why “Cash Is King”. There is also discussion of uncertainty, financial ratio analysis and on valuation techniques (because the focus is on identifying businesses that are worth intrinsically more than their current stock market price as in the Buffett/Graham approach).

The financial analysis approach may appear somewhat complex and time consuming however to the amateur investor, particularly if you have become reliant on simple rules of thumb such as P/E or PEG ratios. But Keith does highlight all the key factors that investors need to look at.

The chapter on Business Perspective Investing, and the final one on Portfolio Management, are particularly good and also easily digestible.

In summary this book is a worthy contribution to the education of any investor, whether experienced or not. Therefore it has been added to the ShareSoc recommended reading list.

Roger Lawson

Youinvest Revise Charges

AJBell Youinvest, one of the more popular low cost retail brokers, are revising their client charges. These might mean some substantial changes for some clients because of the introduction of a custody charge based on a percentage of investments held. However there is an upper limit of £25 per quarter for a SIPP or £7.50 for an ISA and the previous SIPP custody charge of £25 per quarter is being scrapped. There will also be a “tiered” custody charge for funds which will replace a previous standard percentage charge – the bigger your portfolio, the smaller percentage charge that applies in future.

They have provided a link to enable you calculate the cost impact on your existing holdings and it shows how their costs will compare with other well known platform operators. Certainly for larger holdings they would appear to remain very competitive.

Perhaps any clients of Youinvest who are reading this note might like to comment on the impact (the fact it has been announced in the middle of August when many of their clients may be on holiday suggests that the company may be wishing to avoid publicity on the matter).

From this writer’s experience the Youinvest service is both efficient in administration and low cost. However one gripe is that they do not enfranchise their nominee shareholders, i.e. provide an easy way to vote your shares at General Meetings, or provide information. In that regard therefore I favour other brokers who do.

Roger Lawson

Pay of FTSE-100 CEOs, and Berkeley Group

The High Pay Centre have just published their latest analysis of the pay of FTSE-100 CEOs. Their average pay is now £5.5 million and it grew by over 10% from the previous year.

Stefan Stern of the High Pay Centre said “There is apparently no end yet in sight to the rise and rise of FTSE100 CEO pay packages. In spite of the occasional flurry from more active shareholders, boards continue to award ever larger amounts of pay to their most senior executives”. One cannot but agree with those comments.

Martin Sorrell at WPP was the highest paid CEO based on the “single figure” reported remuneration of £70m. ShareSoc commented on that and the outcome of the vote by shareholders on it here: https://sharesoc.wordpress.com/2016/06/09/wpp-pay-and-agm-report/

The second highest package was for Tony Pidgley of Berkeley Group who have just published their Annual Report (the AGM is on the 6th September). As a shareholder in the company, I appreciate Mr Pidgley’s efforts in this business since he founded the company, but I will be voting against the remuneration package. The bonus/LTIP arrangements in this company were poorly designed and have resulted in this excessive remuneration. They should be revised forthwith. They are also unnecessary bearing in mind Mr Pidgley’s substantial shareholding in the company.

Even Mr Pidgley’s second in command, Rob Perrins (CEO), collected £11 million and from comments at the last AGM, Mr Pidgley and the board seem to see nothing wrong with this largesse. Even some investors support this generosity and will probably continue to do so unless the company trips itself up.

I would certainly encourage our new Prime Minister and Business Secretary to tackle the problem of excessive and rising pay in public companies, where directors vote themselves ever larger remuneration packages. Unfortunately having votes on pay by investors will not solve the problem in isolation.

Roger Lawson

Sports Direct – AGM Resolution on Working Practices

Sports Direct (SPD) have received a requistioned resolution for its Annual General Meeting on the 7th September. The resolution which has been put forward by Unite Union and its supporters says: “That the board commissions an independent review of Sports Directs PLC’s human capital management strategy and report back to shareholders within six months.” with the supporting comment that “As over 100 shareholders in Sports Direct, we believe the company’s current approach to human capital management will compromise its long-term growth and shareholder value in the UK as well as in continental Europe.” 

The Board of the company recommends shareholders vote against the resolution because it has already commissioned its legal advisors (RPC) to compile a Working Practices Report and a review is on-going. In addition they have opened a constructive dialogue with the Unite Union. The Board therefore considers it to be an “unnecessary distraction”.

Comment: Shareholders in companies should rightly be concerned if the activities of a company bring it into public disrepute in any way, and certainly the negative recent publicity about the working practices at Sports Direct are surely that. If the company is already meeting the obligation that would be imposed by the resolution, and intends to publish the results of an independent review, then there is no obvious reason why the company should object to the resolution. The resolution does appear to have some merit. However ShareSoc will not be giving a specific recommendation on this matter because we believe that shareholders should make their own minds up on such issues. But it is important that you vote on that and the other resolutions at the AGM.

Roger Lawson