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The Volkswagen scandal : information from Better Finance

DSW, the German shareholder protection association, gave a TARGET=_blank>detailed account of the current situation and the means by which individual shareholders can seek redress.

There are two potentially viable routes for seeking redress:

  • in German courts by means of a ‘Model Case procedure’ under the newly reformed Capital Markets Model Case Act (KapMuG), there being no class actions in Germany;
  • in the Netherlands under the Act on Collective Settlement of Mass Damages.

Both routes are open to UK investors and can be pursued concurrently. In theory, the deadline for action is 'spring 2016'; in practice summer 2016 is more likely. The facts of the case are still fluid, VW has recently narrowed the scope of affected vehicles and a share price recovery has mitigated some holders’ potential losses.

DSW has helpfully published information in English and will keep interested parties advised of progress in the case and any approaching deadlines. Any UK-based holders of ordinary or preference shares in VW or its listed subsidiaries, as well as any other securities issued by VW, are advised to contact DSW: www.dsw-info.de/Englisch.943.0.html. See also www.betterfinance.eu.

Additional help may be available to VW investors who are UKSA members.

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UK Shareholders’ Association investigates AIM companies’ annual reports

The UK Shareholders’ Association (UKSA) believes that the time has come to expose AIM companies’ reporting practices, good and bad, to public scrutiny. We have begun with ASOS and Ithaca Energy, top and bottom of the AIM 100.

There is increasing interest in small companies, especially among private investors, but obtaining reliable information about them is not always easy. Their reporting often leaves much to be desired; some of it is inaccurate. The Financial Reporting Council recognised this in 2014 by starting an investigation of smaller company reporting quality to which the UK Shareholders’ Association (UKSA) has contributed. The FRC’s initial conclusions can be found here; UKSA’s response is here .

The FRC has not commented publicly upon individual companies’ reports, but UKSA believes improvement will not be fast enough unless there is public recognition of good reports and bad. We will highlight good practice when we find it, but we particularly want to draw attention to companies’ reports which do not measure up, particularly for the needs of private investors, whose interests are our greatest concern. Too many are deficient, confusing, or difficult to read whether on paper or on screen.

We will now be looking at numbers 2 and 99, as listed by the Investors Chronicle at the end of April 2015 – GW Pharmaceuticals and Tissue Regenix.

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Private investors call on the IASB to reconsider its proposed Conceptual Framework

The UK Shareholders’ Association (UKSA) wants ‘prudence’ to be fully restored as an accounting principle. The latest proposals by the International Accounting Standards Board (IASB) do not achieve this, so UKSA is calling upon the IASB to think again.

There are those who hold the opinion that ‘prudence’ has never gone away, but others – including UKSA – strongly disagree and believe that its absence has contributed significantly to investors’ losses in recent years, most notably in the banking crisis of 2008. The IASB is responsible for the International Financial Reporting Standards (IFRS) to which all UK listed companies must adhere. The IASB first published its ‘conceptual framework’ for IFRS in 1989. It has since been amended, but as a result of continuing dissatisfaction a further review began in 2013. UKSA first commented on the IASB’s proposals in January 2014, focusing particularly on fundamental aspects of the framework rather than with detailed aspects of the proposals. In May 2015 the IASB published an ‘exposure draft’ of its further thinking about the proposed framework, which UKSA has welcomed but still finds seriously inadequate.

UKSA has produced a considered response (here) to the IASB’s exposure draft. It calls for further and better thinking by the IASB before investors can have the confidence in IFRS to which they are entitled.

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UKSA South-West Region holds Christmas bash

The traditional feast of ideas and Christmas food maintained the region's reputation for sociability and investment smarts. Next meeting for members March 1st.

It was billed as a feast of investment ideas and Christmas food and it was.

A full house of UKSA members never stopped talking about shares from 10 am to 3 pm and it is questionable if some had time to savour the wonderful food provided by the Kings Arms, but all agreed the sooner the next seminar was organised the better. Peter Wilson led an in depth analysis of what had happened to a typical portfolio from April to November 2015. Members explored why some were losers and others winners and drew out many interesting facts about each company and in particular added to their knowledge of the sources of information.

DO NOT LOOK FOR WINNERS – LOOK FOR LOSERS
The conclusions were various but there was general agreement that the art of successful investing was to avoid losers rather than seek to pick winners so look for some of the following characteristics but few firms will have them all. If they have then be suspicious as to why others have not found them.

Cash in the bank
Positive cash flow
Low borrowings relative to NAV
NAV close to market capitalisation
PE in range 10-15
Profitable with improving margins
Paying a dividend – ideally c 5%
Steady dividend growth
Ideally with a PEG and then a low one
Steady growth in sales
Reliable product/service with limited market volatility

But when the ideal company was found beware . Why have others not invested in it but of course for the major institutions there are many companies with potential below their horizons.

BAD NEWS CAN CREATE WINNERS
Attention was drawn to companies which have recently taken a hard hit in the marketplace and so register as losers . These may offer prospects for recovery and capital gain. They should not be ignored but approached with caution. Equally it was considered that newer companies showing positive growth in sales could have a part in a portfolio looking for substantial capital gains but they also represented a huge level of risk. Maybe 6 in 10 would fail to achieve the results expected but the other four offering spectacular gains could more than compensate for the awful failure rate. The key was to limit the choice of higher risk shares to one’s means to absorb total selection failure. Interestingly some members kept separate Aim and high risk portfolios to help them manage their risk.

SELF MANAGING CUTS COSTS
There was general agreement that to run a Portfolio successfully personal targets needed to be set. Generally it was felt that a to justify the effort and time of self management a well run but cautious Portfolio had to do better than the FTSE 100. Some argued that it ought after costs to achieve an annual growth rate equal to rate of inflation times average market dividend rate times 2.5%, say currently about 7.5% per annum but it should always exceed any change in the FTSE 100, up or down, by the growth expected. Other took a simpler view. They just wished to improve the total value of their portfolio each year. An important point is that by self managing and seeking to reduce the but/sell spread they can also save 2% p.a. tax free. Letting others manage your money can lead to hidden costs equal to the after tax dividends received.

Throughout the discussion, to which all those present contributed, specific companies were considered in some detail.

CATHERINE TAKES THE WINE
At the end of the day Ted Moss organised the annual forecasting of key market indices for December 2016. This done he announced the winner of the annual 2015 forecasting competition. The winner was not present and in accordance with tradition the next best forecaster present won the bottle of wine, which Ted Moss then awarded to Catherine Moss.

Peter T Wilson

The day lived up to its Share Talk name

Date of next Didmarton Share Talk one day seminar is MARCH 1ST 2016

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UKSA at the London Investors Show

UKSA again supports The London Investor Show on 23 October 2015 at London Novotel Hammersmith - Stand D23
Open Q & A session hosted by UKSA at 16.15 in conference room 2

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Shareholders are being misled by faulty remuneration reporting requirements

UK Shareholders’ Association directors are seriously concerned about faults in company reporting regulations concerning information about executive remuneration and apparent failures by the appropriate authorities to monitor actual remuneration reporting practices.

Two major house-builders are the immediate cause.

UKSA’s policy team has discovered some shocking facts.

• The latest Persimmon report does not reveal that, under a 2012 LTIP, whose performance condition is now 99% certain to be achieved, 4 directors will receive £142m.

• Persimmon’s ‘min/average/max’ forecast remuneration charts for 3 top individuals, required by the regulations, have been omitted without comment

• If awards to other senior Persimmon executives are included, the total liability under this LTIP is c£400m, but the amount reserved for all unvested LTIPS is just £19m.

• Taylor Wimpey reports in each of the past three years have substantially under-stated the CEO’s maximum pay possible in the succeeding year (eg by £2.2m on the last occasion)

• Examination of Taylor Wimpey’s remuneration reports suggests that the basis on which maximum bonuses will be paid can be concealed from the members.
UKSA’s policy team believes that current reporting regulations are based on a Financial Reporting Council report which was seriously defective, but has been unable to secure agreement to a rethink.

A meeting is now being sought with the FRC to discuss UKSA’s latest findings.

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Do investment managers have principles?

The UK Shareholders’ Association (UKSA) was recently asked to comment on a report, linked to the Financial Times, that some prominent fund managers were reluctant to declare their support for a newly published ‘Statement of Principles'.

The Investment Association, which claims to represent over 200 UK investment managers who manage more than £5 trillion for clients around the world, wants all investment managers to sign up to its set of principles. It wants them to be applied so that members of pension schemes and other “ultimate beneficiaries” of collective investments are given the same consideration as clients with which they have a direct, legal relationship. It further expects them to set out on their websites how they will be applied and confirm this “on an annual basis”.

Ignites Europe, a Financial Times service, found some fund managers still reluctant to commit to the principles three months after publication, including Fidelity, State Street Global Advisors and Woodford Investment Management. It was completely unable to discover why Aberdeen, M&G, PIMCO, Schroders, BNY Mellon, Jupiter, Investec and Standard Life had not signed up. UKSA’s comment was, “It is imperative that those entrusted with other people’s money behave in accordance with the kind of principles set out by the Investment Association (and) it is astonishing that some are reluctant to say that they do.”

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Prudence should not be left shyly waiting in the wings

A UK Shareholders’ Association (UKSA) paper published today finds serious deficiencies in the International Accounting Standards Board’s (IASB’s) attempt to assure equity investors that company accounts will be more dependable in future than has been the case in recent years.

Roger Collinge FCA, UKSA’s head of corporate governance, analyses in detail faults in the IASB’s thinking revealed by a recent article written on the IASB’s behalf by IASB member Steve Cooper, published in the IASB’s journal, Investor Perspectives. The article, “A tale of ‘prudence’” sets out to explain how the IASB has responded to investors’ concerns that the removal of ‘prudence’ as an accounting principle from International Financial Reporting Standards (IFRS) was a contributing factor in the banking crisis of 2008.

The IASB is responsible for IFRS and has just published what it calls an ‘exposure draft’ of a revised Conceptual Framework for Financial Reporting. This is where the concept of prudence reappears, but as the conceptual framework is not being accorded the status of a standard, neither is prudence. UKSA has long campaigned for the reintroduction of prudence, but as a standard, not as some vague reference point. UKSA questions the logic behind the conceptual framework and is asking the IASB to think again. Any body of work which purports to have underlying concepts must fully embrace those concepts.

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A Capital Markets Union for individual savers and investors

Hot on the heels of the Brussels conference on EU proposals for a capital markets union (see previous news item), the UK Shareholders’ Association (UKSA) has sent the Commission its opinion on two vital matters for private investors.

The EU has issued a ‘Green Paper’ to consult on its Capital Markets Union proposals. As a member of Better Finance, the organisation representing private shareholder associations and the like across Europe, UKSA supports that body’s representations to the Commission, but we also had something special to say. This is because the UK is different from other member states in denying normal shareholder rights to investors using pooled nominee accounts.

UKSA has for many years been in the forefront of efforts to amend the law with regard to nominee accounts. This principally rests with the UK government to do and we are seeking an early resumption of our discussions now that the new government is in place. However, the EU, through various directives and regulations, sets the conditions for member states’ legislation on such matters, so what the EU decides does matter to us. This is why UKSA has substantially raised its financial contribution to Better Finance (which is now 85% of the contributions from the UK).

Join UKSA to help secure the rights and protections that UK savers and investors need.

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A Capital Markets Union for the EU

What part do private investors have in the EU’s plans for a ‘capital markets union’ (CMU)? They may have to fight to be heard, because they are thought to be too risk averse and short-term oriented.

Three representatives of the UK Shareholders’ Association (UKSA) attended a conference in Brussels on 6th May to hear a series of eminent speakers, including the new financial commissioner, Lord Hill, discuss what CMU is likely to involve.

The European Commission has stated that EU households are the main source of long-term financing for the real economy. That is where the money comes from, but what guarantees will they have that their savings are being properly looked after and invested? As things stand individual European citizens run the risk of being sidelined and dismissed by the future architects of the CMU, but this must not happen, says Guillaume Prache, managing director of Better Finance, an organisation representing investor bodies across Europe to which UKSA is the principal UK affiliate.

Guillaume Prache asserts, “For CMU to succeed, European citizens, as individual investors and savers, should be at the heart of the project. With 62% of financial savings invested in long-term investment products and (more) in small and mid-caps than large caps, (they) prove themselves to be less risk-averse and more long-term oriented than institutional investors are”.

Return Capital Markets to Their Natural Participants A Better Finance Press Release May 2015

An EU Capital Market Union for Growth, Jobs and Citizens A Better Finance Briefing Paper May 2015

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