The Scrip - A VOICE FOR RETAIL INVESTORS - NZ Shareholders Association
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The Scrip
MANY INVESTORS, ONE VOICE
ISSN 1179-4275 FEBRUARY 2021
Return of Natural Fibre?
A VOICE FOR RETAIL
page 1
INVESTORS Back to contents page
THIS ISSUE
Contents
Leader THANK YOU TO ALL
Capital Markets 2029: What is Happening? 3 WHO HAVE ASSIGNED
General
THEIR STANDING PROXY
February’s Quotable Character: David Lange 5 TO THE ASSOCIATION.
Introducing Frank Stewart 6
Companies
Cavalier 6
Geo 7
Hallenstein Glasson 8
Sanford 9
Scott Technology 10
Westpac 11
Commentary
The Old Boy’s Network Must Go 12
Beefing About NZX and Market Registry Websites 14
External Management: Friend or Foe? 15
Brickbats & Bouquets 17
Branches
Auckland, Turners 18
Upcoming Events 20
NEW ZEALAND SHAREHOLDERS ASSOCIATION INC.
Cathedral House, Level 5, Office 2, 48-52 Wyndham Street, Auckland.
Phone 0800 6972 7478 Email – admin@nzshareholders.co.nz
Website – www.nzshareholders.co.nz
page 2
LEADER
But progress is less clear-cut on other outcomes, including
growing the number of companies on listed markets and
funding NZ’s infrastructure deficit via capital markets.To be
fair, it is less than two years since the report was adopted.
The outcomes were supported by 18 actions for central
government, FMA, NZX, and other industry participants
to complete. Tellingly, the word “accountability” is only
used twice in the 104-page report, both times within the
same action (‘Implement an online financial capability and
literacy course for young people as part of NCEA including
Oliver Mander, clear accountability for its implementation’).
CEO
Unfortunately, that implies no overall and formal structure
Capital Markets 2029: for implementing or governing the recommendations in
the report. I wish this was different: NZ’s capital markets
What is Happening? are too interconnected between various stakeholders for
Over the past week, we have witnessed the power of a hands-off approach to deliver the report’s outcomes at
Tony
the Mitchell
pace required.
retail investors in global capital markets. Whatever one’s
opinion, there is no denying that traditional institutional NZX has the most to gain, so unsurprisingly has been
shareholders received a bloody nose for short-selling at the forefront of leading a ‘coalition of the willing’ to
Gamestop (NYSE: GME), thanks to the powerful follow through on the report’s recommendations. NZX
combination of an orchestrated social media campaign and has also internalised the key work programmes associated
some angry new-generation investors. with the report. “We’ve baked the recommendations
of the report into our annual business plans, including
The wisdom of purchasing Gamestop shares at inflated
developing alternative pathways for companies to list on
prices is a more vexed question, determined by each
the exchange”, says NZX’s Hamish Macdonald.
investor’s situation. Clearly, financial rationality is not the
only driver. Further Change
The Gamestop experience highlights that investors Whatever the current progress on CM2029, there is new
incorporate a wide range of factors in determining their learning for NZX and its listed issuers from the Gamestop
investment choices. Financial performance, strategy, social experience.
pressure, personal recommendations, environmental Additionally, the recent release of a report by FMA into
factors, ethical considerations, and diversity all feed the technology platform at NZX highlighted a lack of
a collective melting pot; the exact balance of those preparedness on behalf of NZX when it came to anticipating
ingredients remains unique to individuals. cybersecurity threats. Gaps in NZX technology capability
Perhaps in the Gamestop example, ‘social pressure’ has meant that “the performance of NZX’s systems did not
meet regulatory requirements or expectations for fair,
played a unique role. Nonetheless, it highlights that the
orderly and transparent markets”. Damning stuff.
game is changing as investors’ ease of access to equity
markets has improved. There is always opportunity from crisis. At NZSA, we have
been clear in our response to the FMA report. An aligned
Growing NZ Capital Markets 2029: Outcomes plan co-created with NZX financial markets stakeholders
and Recommendations is critical to maintaining and enhancing investor confidence
The Gamestop experience is not the only learning point in NZ’s financial markets. We would like to see quarterly
in the recent evolution of NZ’s capital markets. In early public reporting of progress against that plan.
2019, the industry-led capital markets review (CM2029),
NZX has started well by announcing the formation of a
sponsored by the Financial Markets Authority (FMA) and
cross-industry technology working group late last year.
NZX, promised much.
NZX CEO Mark Peterson explains that “We see the
Interestingly, one of the key outcomes promoted by the working group as helping improve collaboration around
recommendations was to “raise the level of individual technology planning and development, systems integration
participation and engagement in capital markets”.Whether and industry-wide communication and processes, aimed at
driven by CM2029 or not, that particular outcome looks strengthening and supporting the evolution of NZ’s capital
well on the way to being achieved. markets.”
page 3 Back to contents page
LEADER
I’m a ‘glass half full’ kind of person. The opportunity for NZX is likely to report on its actions later in February,
NZX is to combine the learning associated with CM2029, although the timeline for a wider review of CM2029
the disruptive effect of retail trading and the fallout from outcomes and recommendations is uncertain. At NZSA,
we’ll be watching with interest.
the FMA’s report, coupled with transparent and frequent
reporting of progress to stakeholders. We predict that delivery against the recommendations
held within CM2029 is relatively underwhelming. Some of
Progress, Accountability and Transparency the recommendations, particularly related to KiwiSaver, are
Progress on CM2029 is due to be assessed in March likely to be politically unachievable (even though the report
was written to span government ideologies) while many of
2021. It’s unclear exactly what form that review will
the reviews associated with other recommendations have
take. Although NZX can report on the elements that not started.
it can directly control, it cannot be accountable for
The reality is that without accountability and
recommendations such as those focused on KiwiSaver or
transparency, whether provided from the private or
change to regulations. public sector, progress will continue to lag. Furthermore, in
NZX’s Hamish McDonald remains keen to be involved. the constantly changing world of financial markets, events
like the Gamestop experience should result in ongoing
“NZX can’t control delivery of all elements, but we’re keen
reviews, the evolution of actions and recommendations.
to advocate and contribute to the process. We’ve already
seen the recommendations create some alignment across Perhaps the key action that isn’t stated in the report is
around providing leadership for its implementation, a
broader industry stakeholders.”
sorry oversight indeed.
Summary of Recommendations
For completeness, the key actions in the report are shown below.
Topic Recommended Action
Allow members to self-direct and invest with multiple providers.
Mandate employers’ contributions and a stepped contribution rate option for low-income earners.
KiwiSaver
Withdraw KiwiSaver default provider status and replace with default funds.
Reinstate a kickstart payment for members over 18 years old and link with an active choice on fund.
Financial Implement an online financial capability and literacy course for young people as part of NCEA, including clear
Capability accountability for its implementation.
Simplify disclosure requirements for regulated offers.
Remove requirement to provide prospective financial information for first regulated offers (IPOs).
Undertake a review of continuous disclosure liability settings.
Regulation Exclude New Zealand listed bodies corporate from the definition of “overseas person” if no one overseas
person (and any associate) holds more than 25% of the New Zealand listed entity’s shares.
Establish a centralised process for compliance on anti-money laundering which market participants can rely on
across Australasian capital markets.
Review Crown contribution to capital markets which balances Crown control with the opportunity for broader
ownership.
Public sector
Consider local government reform by central government to ensure local councils assess all funding options
assets and
infrastructure for necessary infrastructure.
Encourage the Infrastructure Commission upon its formation to engage in proactive dialogue to accelerate
solutions for funding infrastructure projects in New Zealand.
Market
Increase development of growth capital industry in New Zealand.
Development
Greater promotion and education of the alternative pathways to the listed market supported by a range of
New Listings
secondary recommendations.
Move New Zealand’s KiwiSaver regime from a TTE (taxed when earned) to an EET (taxed when withdrawn)
Tax approach, providing impetus to improve our saving culture.
Apply the PIE taxation regime rates and exemption from tax on trading to all direct listed share investments.
Technology Develop a collaborative capital markets ICT (information and communications technology) plan.
As always, if you ever have a topic or an issue you think NZSA should be looking at, drop me a line at ceo@nzshareholders.
co.nz or give me a ring on 021 190-5343.
Oliver Mander, CEO
Back to contents page page 4
GENERAL
February’s Quotable Character:
David Lange
David Lange (1942-2005) was born in Otahuhu, In 1983, Bill Rowling resigned, and David Lange became
Auckland. His father was a general practitioner and the Labour party leader in opposition. A year later,
a Labour party supporter; his mother, a conservative; prime minister Muldoon called a snap election. The
the family, active Methodists. In 1965, David Lange New Zealand party (Bob Jones) spilt the conservative
graduated LLB and was admitted to the bar two years vote, David Lange ran an excellent campaign and won
later. He travelled the world for two years before a landslide victory. At age 41, he became NZ’s youngest
finishing in London where he met and married Naomi prime minister in the 20th century.
Crampton. Key events in the Lange administration include the
On returning to NZ, David Lange took over a law strong stand NZ took against nuclear weapons and
practice in Kaikohe, then returned to university as subsequent fallout with the US and ANZUS, the French
a tutor and gained an LLM with first-class honours. military’s involvement in sinking Greenpeace’s Rainbow
He took over a law practice in central Auckland and Warrior in NZ waters, and the dramatic deregulation of
became a criminal defence counsel at the court. the NZ economy.Although these were traumatic events
for many New Zealanders, the Lange government won
David Lange was a Labour party member for 11 years
a second term with an increased majority.
before entering politics. At the behest of his cousin,
Michael Bassett, he stood without success as a Labour It all fell apart when prime minister Lange and his senior
candidate for the Auckland city council (1974). The ministers announced further reforms that included a
following year, David Lange contested the Hobson seat, flat income tax of 23%. But David Lange had second
a National party stronghold, in the general election, thoughts on the pace of reforms and unilaterally pulled
and was again unsuccessful.Two years later, he won the the plug on the flat tax proposal. This fallout ignited an
safe Labour Mangere seat in a by-election and held the internecine war between David Lange and his former
seat until retirement from politics in 1996. ‘fish and chips’ brigade colleagues and ended in his
resignation as Prime Minister.
From the outset, David Lange was critical of Bill
Rowling’s leadership of the Labour party in opposition. Labour lost the subsequent election, and David Lange
He became part of the ‘fish and chip’ brigade, a coterie served one last term as MP for Mangere before resigning
of Roger Douglas, Richard Prebble, Michael Bassett from parliament. Subsequently, he divorced and married
and Mike Moore that advocated innovative economic a second time, wrote two memoirs, Nuclear Free:The New
policies. After two years in parliament, David Lange Zealand Way and My Life; had speaking engagements in
became deputy leader of the opposition and fell one NZ and overseas and entertained on stage with comic
vote short in replacing Bill Rowling as the leader. His Gary McCormick. He died at age 63 after many years of
rapid rise to prominence was primarily due to his suffering obesity-related diseases, but fond memories of
debating skills which were more than a match for the his humour and humanity remain with us.
formidable prime minister Muldoon. Editor
page 5 Back to contents page
GENERAL COMPANY MEETINGS
Our members attend company annual shareholder
meetings (ASM) and special shareholder meetings (SSM)
as NZSA proxy holders. They also file detailed reports
on these company meetings that include the tenor of
the meeting, shareholder questions and, where possible,
some after-match chatter. Many of the companies that
we report on are not covered by the mainstream media
and this gives our members a broader view of the
listed companies. Please note that comments in these
reports are those of the writer, who may or may not
be a shareholder in the company, and do not necessarily
reflect NZSA policy.
Cavalier Corporation ASM,
23 December
Introducing Market capitalisation $26m
Frank Stewart NPAT ($21.5m)
Tell Us a Little About Yourself
Substantial shareholders A.C. Timpson 14%,
I am a retired economist. I graduated with a BSc (Hons)
G.C. Biel 12%
in economics in 1973 and subsequently worked for
central and local government and the private sector as Number of shareholders 3068
a transport economist and policy advisor. I am a fellow Chair George Adams opened the meeting, farewelling
of the Chartered Institute of Transport and Logistics, retiring director Alan Clarke and welcoming newly
a board member of the Pacific Leprosy Foundation appointed director, Paul Izzard. Covid-19 materially
and chair of NZSA South Island branch. I am a keen impacted FY20 with almost no sales in NZ during the
freshwater fisherman, a contract bridge player, and a
lockdown and limited sales in Australia. The extended
member of Hornby Rotary.
lockdown in Victoria added to the problems. However,
Why did you join NZSA? pent-up demand post-lockdown increased sales with
I manage a family investment portfolio with NZ and spending on renovations instead of overseas travel. In
international stocks and touched base with NZSA addition, retailers stocked up on synthetic carpets in
while attending company ASMs. The local branch chair advance of the transition to all-wool carpets.
approached me, and as the branch met in the same street
as my home, I decided to join. FY20 revenue was down 13% with EBIT at $2.3m and
a net loss after tax of $21.5m. The operating cash flow
What else should NZSA be doing? of $6.8m benefitted from increased sales of synthetic
As branch chair, I receive numerous enquiries from carpets and a favourable $1.6m IFRS-16 adjustment. The
newbie investors about how to get started in the share retail distribution network was expanded, particularly in
market and choose investments from a bewildering array
Australia, in line with the strategy to move to all-wool
of offerings. I do my best to respond and can point to
products. Cavalier reduced its debt to $14.5m at FY20
information sources. I believe NZSA should prioritise
balance date and repaid all debt by November 2020.
this area.
The new strategy of moving to all-wool products is to
What are your investment goals?
grow the wool flooring market and market share and
As I am almost 70, my investment goal should theoretically
expand its presence with more stores, especially in
be to preserve capital. However, I am still focussed on
increasing wealth and prepared to invest aggressively to Australia. Cavalier will also investigate the China and US
achieve this. markets, and look for opportunities for adjacent interior
products. Sales revenue will reduce in FY21 with the
What is the one thing you cannot live without? exit of synthetic carpets. The company will downsize its
The internet, as it is my principal source of investing Auckland manufacturing facility whilst increasing Napier
information.
and Whanganui’s capacity as part of the transition to all-
Frank Stewart wool products.
Back to contents page page 6
COMPANY MEETINGS
The original sale of the Auckland property approved Geo ASM,
at the special shareholders’ meeting in September did
not proceed as the purchaser could not complete the
16 December
transaction. A new agreement that will yield an additional Market capitalisation $8.9m
$900k was entered into and required shareholder NPAT ($2m)
approval at this meeting. The board delayed the ASM to
Substantial shareholders Roger Sharp 31%,
give shareholders time to consider the new proposal.
Lindsay Trust 8.4%
Cavalier will retain its Napier and Whanganui properties,
but the directors will consider the need for future capital Number of shareholders 733
raising. Chair Roger Sharp opened the meeting outlining the
financial results for FY20. Whilst the company had
experienced a false dawn, he was optimistic for the future.
Covid-19 had presented significant problems, which the
company had overcome.
CEO Tim Molloy, who joined the company in February,
outlined the changes to the business with a smaller
team delivering more. The strategy now focusses on the
important segments, simplifying pricing, and the disposal
of non-core products. Metrics now drive everything the
company does.
The cash burn of $120k to $140k per month is in line
with targets. There are an estimated 250,000 businesses
in Australia with around 800,000 trade professionals
generating $A85b of activity.The core focus is businesses
with three to fifteen employees in trades that are
growing. At present, 65% of these businesses are using
Whilst current all-wool carpet comprises 87% natural pen and paper; thus, are good prospects to move to a
products, the company is looking at scientific solutions digital world. Every 1% of this market will generate annual
to increase this to 100%, fully sustainable. Cavalier’s recurring revenue of $4.9m.
managers believe a natural product supplanting the In FY21 to date (July to November), Geo has improved
plastics contained in synthetic carpets is the future. all business areas. The company reduced the marketing
Guidance for H1 FY21 EBITDA is $4m to $5m compared spend during Covid-19 but, now the capital raise has
to $3m in FY19. This guidance excludes the one-off gain been completed, will increase it 100% to capture
from the sale of the Auckland property. The launch of a new customers and retain existing customers. A new
marketing team is in place. Three years of 30% annual
new marketing campaign and the continued rollout of the
growth will increase revenue by $5.5m and 40% growth
‘Lifestyle’ product range is scheduled for H2 FY21.
will increase it by $8.3m.
There were questions on whether hemp-wool mix carpets
A vote with 99% support approved the four resolutions
had been considered: they had. A request for comment relating to options, two tranches of new shares, and the
on the government’s climate change emergency elicited auditor’s reappointment.
the reply that the transition from synthetic to natural
Grant Diggle
products aligns with current climate change policy. Were
directors sure the Auckland property deal is the best
obtainable? Yes.
“WINSTON PETERS HAS
The four resolutions to re-elect Dianne Williams, elect BEEN DELAYED BY A
Paul Izzard, approve the directors setting the auditor’s
FULL-LENGTH MIRROR.”
remuneration and approve the sale of the Auckland
property were all passed. DAVID LANGE
Grant Diggle
page 7 Back to contents page
COMPANY MEETINGS
Hallenstein Glasson ASM, targets the 18 to 30 age group. Australia has a broader
range of climatic conditions, and this influences what
9 December people wear.
Market capitalisation $393m I questioned the wisdom of HGL’s decision to pay a
NPAT $27.7m dividend after receiving the wage subsidies. The board
were unrepentant. Hallensteins and Glassons gratefully
Substantial shareholders Timothy Glasson 20%
received the wage subsidy. PwC confirmed HLG’s
Number of shareholders 5887 eligibility for the assistance, and this is subject to audit at
Hallenstein Glasson (HLG) retails men’s and women’s any time. HLG’s menswear chain suffered, especially in H2
clothing in NZ and Australia. The company operates 114 FY20.The dividend decision is in the best interests of the
stores, including 43 Hallenstein Brothers’ (Hallensteins) company and its shareholders. Many HLG shareholders
stores in NZ and four in Australia, and 36 Glassons’ are on fixed incomes and have supported the company
stores in NZ and 32 in Australia. It also sells its products for decades. The board delayed payment of the interim
online. dividend as a precautionary measure and when conditions
had stabilised paid the dividend at a lower rate than the
HLG’s ASM held in Christchurch was a physical meeting previous year. The answer closed with a pre-emptive
only. The chair and MD’s presentations for the ASM are rejoinder “if your next question is, are we going to pay it
on the NZX website as are the voting results. back, the answer is no.”
Chair Warren Bell highlighted the impact of Covid-19 My next question asked if the payment of such a high
on the company. He said that the Covid-19 closedowns dividend would constrain future growth. In reply, this
were disruptive and costly for the business, both in NZ brought the retort that I should look at the cash number
and Australia. However, group sales were maintained, on the balance sheet. “There is $49m in the bank.” This
with online sales from April 2020 onwards increasing response elicited support from attending shareholders
markedly in NZ and Australia.While the interim dividend but was qualified with the revelation that HLG’s offshore
was delayed and reduced by 25%, the final dividend of supply base had provided deferred settlement terms,
24cps was maintained. He said that all HLG stores had which HLG is reinstating to normal (the cash had a
reopened and are trading ahead of last year. MD Mary
home).
Devine gave more detail on the challenges faced but was
pleased with the trading year to date. In a related question, Frank Stewart asked if the
Australian government had similar Covid-19 “corporate
While the meeting passed all resolutions with 93% to
welfare schemes.” Yes, Australia had a job seeker scheme
almost 100% support, only 36% of eligible votes were
targeted at the under-30s. But neither NZ’s nor Australia’s
cast. NZSA proxies were equivalent to the third-largest
government assisted during the second lockdowns in
shareholder.
August (Auckland) and September-October (Victoria).
To follow is a record of the questions and answers arising “On balance, we have been pretty fair.”
from the presentations. Like most companies, HLG does
A shareholder asked where online selling is heading
not report on or record the questions and answers at its
relative to physical shop sales. This elicited a don’t know
shareholder meetings.
response with some caveats. One was the need to keep
A shareholder asked if HLG had a long-term, ten years the company’s shop leases “extremely flexible....Bricks
or so, vision and if so, what is it. This drew an ambiguous and mortar [shops] are not necessarily king anymore.”
response: the company has a long-term vision to get The chair reinforced this with the announcement that
bigger and brighter but refused to disclose the details to HLG’s new app has attracted 100,000 customers since
shareholders. its launch in late October.
Another shareholder asked how HLG planned to
differentiate itself from similar entities. The answer was
product, product, product and brand. The company is
already differentiated on product but acknowledged a
need to better understand its customers and present
sustainable products. Hallenstein Brothers has operated
in NZ for 95 years, but Glassons has been in Australia for
only 20 years and doesn’t have the legacy customer base
that Hallensteins enjoys in NZ. In Australia, Glassons
Back to contents page page 8
COMPANY MEETINGS
The next question started with an effusive statement
about HLG’s tremendous offering of good quality and
environmentally sustainable products and asked what
the company had learnt about establishing retail outlets
in Australia. HLG sees the main potential in the eastern
states. Sydney and Melbourne have a population of 6.5
million people.Yet, HLG does not have a store in Sydney’s
CBD, but a promising prospect is nearby with the caveat
that HLG’s offering does not connect with CBD office
workers.There was the usual palaver about well-managed
shops, customer experience, positive relationships
with landlords and sustainable growth. And a positive
statement about how the growing online segment brings
customers into the stores with ‘click and collect’.
An eagle-eyed shareholder gleaned a US bent in the
Glassons’ website and asked if HLG had plans for a US
presence. HLG will sell anywhere, but customers outside
HLG’s distribution outlets in Australasia pay more freight.
Fiona McLeod
Sanford ASM,
16 December
Kuntzsch’s leadership and that there would be no change
Market capitalisation $442m to strategy. Mr Kuntzsch had continued involvement in
NPAT $7.8m an advisory capacity, and there were strong candidates
to replace him. Just three working days later, Sir Rob
Substantial shareholders Amalgamated Dairies 12%, announced the appointment of Peter Reidie as the new
Tasman Equity 9%, CEO.
Masfen Securities 6.3%
Mr Reidie said he was delighted to have secured the role
Number of shareholders 2989
and the responsibility to lead the business into its next
How appropriate, with the Waitemata Harbour in pre– stage. “I have fresh perspectives to bring to Sanford, and
America’s Cup regatta configuration and all shipping I am clear on my mission. I welcome the challenge of
having to give way for race activity, Sanford gave way to navigating the business and its people through the current
spectator activity and moved this meeting from its usual volatile conditions while working towards a long-term
waterfront locality to Eden Park. With more space and vision to grow sustainable shareholder returns.” At least
easy parking, surely a plus for attending shareholders. in the near term, Mr Reidie will have his work cut out.
For those attending online, the venue would have been
Sir Rob noted the effect Covid-19 had on the business.
immaterial.
Net profit was down 41%, and the final dividend cancelled.
Sanford’s annual reports are hefty tomes. Probably few The pandemic emphasised the importance of identifying
shareholders worked their way through the trimmed opportunities for more effective diversification. Sanford
down 160 pages (I heard there would be further sells its products primarily to restaurants, so the closure
trimming in the future). Certainly, the question asked of restaurants and other hospitality venues has squashed
at this meeting would suggest so. Despite the company demand.The challenge is to pivot demand towards home
catchcry of ‘transparency’, and the title and theme of this consumption.
year’s annual report being ‘Navigate’, in my opinion, the
Mr Gargiulo pointed out that salmon and mussels are
inherent company culture is to obfuscate.
exposed to the foodservice market. Although the wild
Neither the report nor the addresses by chair Sir Rob fish catch was down only 3% in sales volume, it was down
McLeod and acting CEO Andre Gargiulo offered useful 45% in profit contribution; a story of lower demand
information on the sudden departure of CEO Volker leading to lower prices. The good news from a miserable
Kuntzsch. There were the usual platitudes about Mr year is that the recorded injury rate was down 41% and
page 9 Back to contents page
COMPANY MEETINGS
there were no recorded Covid-19 cases in any of the Scott Technology ASM,
company’s sites.
3 December
The first question sought an update of the company’s
performance since balance date. The answer, so-so. Market capitalisation $184m
A slow recovery: the toothfish season was starting, NPAT ($17.3m)
and there was less ice in the fishing ground. Increased
Substantial shareholders JBS Australia 52%,
inventory will be released slowly, similarly to Fonterra’s
Oakwood Securities 7%
strategy. Despite efforts to recruit locals for fishing boat
crew, there is a reluctance to take up the occupation so Number of shareholders 2840
reliance on foreign crews will unfortunately continue. Scott Technology (Scott) is a designer and manufacturer
The increase in product complaints came from one of automated production, robotic, and process
incident of ‘yellow belly’ in snapper, not discernible at the machinery for the mining, material handling and logistics,
processing stage and not confined to Sanford product. meat processing, appliances, and industrial automation
The updated plant at Stewart Island now processes industries.
salmon fillets for the NZ retail market.
There were the usual questions/comments from
shareholders offering long-winded product and marketing
suggestions. These shareholders will be encouraged
by Fiona Mackenzie’s appointment to the board. Ms
Mackenzie told me that she had been given board
responsibility for overseeing retail marketing, and was
receiving great buy-in and support from management.
Ms Mackenzie was elected with 99%+ of the votes cast,
as was Peter Goodfellow, who was up for re-election.
Mr Goodfellow announced that once his replacement is
found and the new CEO settled, he would step down.
Shareholders voted just 49% of the shares on issue. Are
shareholders so satisfied? Or were they distracted by the
myriad of other end-of-year activities calling out for our
attention?
Scott derives 32% of its revenues from North and South
Bruce Parkes America, Europe 41%, Australia 18%, China 5%, and NZ
4%. Meat processing accounts for 15% revenue, mining
“GEORGE W. BUSH: A PERSON 18%, appliances 11%, industrial automation 28%, and
materials handling and logistics 28%. JBS, the world’s
WHO IS THE ULTIMATE second-largest food company, acquired a 51% stake in
OUTCOME OF THE AMERICAN Scott in 2016. In October, the company won the contract
CONDITION. SOMEONE to build NZ’s most advanced lamb processing system
PROMOTED ABOVE ABILITY for the Alliance Group’s meat plant at Lorneville near
Invercargill.
BECAUSE OF CIRCUMSTANCE
The company held its annual shareholders’ meeting
AND ORGANISATION AND in Dunedin and online. I attended online as NZSA
EMPATHY. YOU DON’T HAVE proxyholder. Chair Stuart McLauchlan welcomed me by
TO BE INTELLIGENT. A MORON name, as attending online for NZSA.
IN A HURRY COULD KNOW The main presentation at the meeting was from the new
THAT YOU DON’T PREVENT A CEO, John Kippenberger. He said that the Covid-19
WAR BY HAVING A WAR.” pandemic had a significant impact on the business.
Revenue of $186.1m was down 17% on the prior
DAVID LANGE year, and the company reported a net loss after tax of
$17.3m (attributable to shareholders).This included non-
Back to contents page page 10COMPANY MEETINGS
trading adjustments of $15.3m related to restructuring,
project impairments and a positive contribution from
wage subsidies. However, excluding these impairments,
earnings were a positive $3.7m. He said the company
had spent a considerable amount of energy and activity
during the past year on moving several challenging
Australasian projects which involved inherently high
levels of development risk, to either acceptable outcomes
for Scott and its customers, or an exit.
Mr Kippenberger outlined Scott’s new five-year strategy.
He said that the company had moved to more streamlined
regionally-focused platforms with local teams across four
regional business units in Australasia, China, Europe and
North America, providing product expertise, sales and Westpac Banking ASM,
customer support. He said that Scott would continue to 11 December
expand in the US with qualified people on the ground to
support Scott’s US appliance customers and a growing Market capitalisation $78.7b
meat processing business. NPAT $A2.3b
The CEO said that other changes included the relocation Substantial shareholders BlackRock 6.1%,
of appliance manufacturing from Germany to China Vanguard 6%
and NZ; consolidation of seven sites to five in NZ and Number of shareholders 671,057
the planned divestment of its high-temperature super-
The meeting differed from NZX company ASMs.
conductor business in NZ. He said that while R&D
The chair and CEO each spoke for 10 to 15 minutes
remained a part of Scott’s fabric, a higher proportion of
and concentrated on three themes: bushfires, storms,
sales would come from its developed and proven systems,
and Covid-19; the impact of the AUSTRAC and APRA
products, and services over the next five years.
(Australian Prudential Regulation Authority) actions
The meeting passed almost unanimously all resolutions against the bank as a result of the Royal Commission of
to re-elect directors and fix auditor fees. Inquiry into Banking; the reduction in dividend. Unlike
NZX companies, the chair or CEO did not refer to the
A shareholder asked if moving manufacturing to China
financial results for the year. Most of their statements
would compromise the company’s technology, and was
were mea culpas around the commission’s findings
assured it would not. When challenged on the diversity
and the resulting $A1.3b penalty imposed on the bank.
issue, the all-male board stated that the company as a The bank was able to recover $A20 million from the
whole is diverse in terms of age, gender, and ethnicity. A responsible executives. Both speakers referred to
claim that the board of eight was overly large for a small measures taken to prevent a recurrence. APRA has
company was met with the argument that Scott was a since issued an ‘enforceable undertaking’ against the
large company in terms of its geographic spread. Prospects bank, which indicates that APRA is not yet satisfied with
in the US, given a Biden presidency and possible anti-trust Westpac’s remedial actions.
legislation focused on meat processing, were questioned.
By contrast, questions on financial reports (item 1 of the
The reply was that the US is a large market with the
agenda) took over 100 minutes. NZX company boards
prospect of significant growth in meat processing and
would be surprised at the quantity and depth of the
associated automation. questions, some going into the fine detail in the annual
Frank Stewart report. The main themes of the questions were the
AUSTRAC and APRA actions against the company, climate
change and the Paris Climate Agreement, and the dividend
for the year. Shareholders questioned the sanctions taken
against the 38 individuals involved in the AUSTRAC and
APRA actions. Some shareholder comments about prior
culture, governance, and management of the company
were scathing.
page 11 Back to contents pageCOMPANY MEETINGS COMMENTARY
There were questions and comments over Westpac’s The Old Boy’s
lending to fossil fuel energy companies. The bank has
committed to cease lending to this industry by 2030
Network
and supports the Australian government’s policy of Must Go
transitioning to renewable energy resources. There were
Over the years, I have been a
also questions around what the bank is doing to meet its
director and an active investor.
obligations under the Paris Climate Agreement and other
During this period, I have
agreements it has signed. The tenor of the questions and
had many discussions with
comments were that the bank is not doing enough and chairpersons, directors, and
could do better. fund managers. I was involved
The reduced dividend drew the ire of many shareholders. in setting up the Future
Directors Programme with Des Hunt
The chair explained that Australian regulations prohibit
banks from paying more than 50% of statutory profit, and Sir Stephen Tindall and Michael
the bank has complied. Some of the comments referred Stiassny. We saw the need to develop the younger
to the $1.3b penalty and the impact on profits and generation who are experienced and energetic and, in
dividend. The shareholders have also suffered from the many cases, extraordinarily talented and up to date with
board’s and senior management’s lack of oversight and the latest technology.
poor management. We are still seeing the old boy network in place.
Item 2 was the ‘grant of equity’ to the MD/CEO. This Directors are appointed with little regard to experience
resolution referred to the incentive plan and garnered or knowledge of the company, and the industry it
98.5% support. services. An obvious and recent example is Fletcher
Building. Its financial performance has been appalling
Item 3 was the remuneration report which ASX even though its directors and CEOs are amongst the
companies are required to provide to shareholders. highest paid.
A questioner asked if the recent problems would
prompt a change in executive remuneration. The chair We should ask why do we not have more world-leading
declared a preference for long-term incentives and companies like Fisher & Paykel Healthcare? I put this
that the remuneration committee has commenced down to the way companies are managed because our
work on executive compensation and will consult with boards are very conservative and lack the necessary
skills and experience to operate in a competitive
stakeholders. Shareholders voted 97.7% in favour of the
environment. Many of our younger people have worked
report.
and gained experience overseas, so we should be
Item 4 (a) was the re-election of Peter Nash. Like the other exploring this talent and appoint them to our boards.
directors up for election or re-election, he explained why Most company boards are well-populated with lawyers,
shareholders should vote for him.The 87% vote in favour accountants, auditors, and consultants, but few have
reflected shareholders’ concerns over the performance science or engineering graduates with knowledge in
of current directors. the market the company services. This misalignment of
Item 4 (b) was the re-election of the chair John McFarlane. talent is not the case in countries like USA, Germany,
Mr McFarlane received 94.7% support. He is a recently and Sweden. It is why NZ’s productivity growth is so
appointed chair so shareholders will be looking for low and will not improve without significant changes.
improvement. To build a successful company, we need to change the
way we pay all employees and make the system fairer.
Item 4 (c&d) was the election of directors Chris Lynch
The gap between CEOs and the average employee
and Michael Hawker. Each received 99%+ support.
has widened without any relationship to performance.
Whilst the board supported Chris Lynch’s and Michael Unless we make changes, we will see our living standard
Hawker’s nomination, this support did not extend to continue to fall relative to other developed countries.
Noel Davis and Paul Whitehead, both self-nominated.The Two companies that seem to have got it right are
recent problems prompted both to stand because they Mainfreight and Fisher & Paykel Healthcare.
considered the board needed renewal to deal with the
Sky City chair Rob Campbell raised this issue recently
issues and improve Westpac’s governance culture. They
in the NZ Herald. The winner-take-all attitude in
received less than 2% support.
business must change. His greatest frustration with
Grant Diggle business is that influential people refuse to give up
Back to contents page page 12COMMENTARY
passing over home-grown talent is they go and work for
the opposition.
Boards should be looking at what all employees are paid
to ensure fairness. A company succeeds because of its
people, and not just the CEO.
When setting CEO and senior executive salaries,
too much attention is on what others earn in other
companies. That is why I prefer long-term incentives to
encourage the CEO and employees to stay and succeed.
There is plenty of evidence that overpaying a CEO has
no bearing on financial results. In many cases, it has
privilege, even when it is the right thing to do. an adverse effect as overlooked employees become
Let us look at some examples. When a cost-of-living disenchanted and unmotivated.
(COL) adjustment is implemented, it should be the To sum up, it is disappointing and frustrating to see
same dollar amount for everyone. This stops the gap many listed NZX companies appointing directors whose
widening between employees. Why should the average
skill sets do not match the company’s requirements; a
employee who is earning say $50k receive a $1000 or
practice that results in poor profit performance.
2% COL increase while an executive on $300k gets
a $6k increase? A CEO paid $1m would receive a It is time to recognise the old boy’s network failures
$20k increase. It has nothing to do with performance, and implement immediate change to benefit companies
so why the difference? Any increase should be based and stakeholders alike.
on increased responsibility, productivity, or other
measurable goals. Des Hunt
Another area of concern is the way we set bonuses,
options and other incentives. Many are based on what
used to be part of the job; very few have sufficient focus
on the company’s financial performance.
Generally, CEOs and senior managers are the only
“OUR NUCLEAR-FREE
employees to receive incentive payments. Some short- STATUS IS A STATEMENT
term bonuses are far too high relative to the basic pay. I OF OUR BELIEF THAT WE
have seen some set around 100%, which is outrageous. AND OUR FELLOW HUMAN
We should emphasise long-term performance (three
to five years), and include all employees where possible. BEINGS CAN BUILD THE
We should be careful in setting options and incentives INSTITUTIONS THAT WILL
to ensure they reflect financial performance rather than ONE DAY ALLOW US ALL TO
the share price.
RENOUNCE THE WEAPONS
I am opposed to options that are granted far too OF MASS DESTRUCTION. WE
generously with little downside for those receiving
them. Another concern is setting options, bonuses, and
ARE IN A SMALL COUNTRY
other incentives when the share market is suffering a AND WHAT WE DO IS
correction. If the share market recovers, the recipients LIMITED. BUT IN THIS AND
of these incentives gain considerable benefits unrelated IN EVERY OTHER GREAT
to company performance.
ISSUE, WE HAVE TO START
We have seen the dangers of appointing new CEOs
from outside the company. Often, they are overpaid and
SOMEWHERE.”
seldom achieve the results promised. Recent examples DAVID LANGE
include Fletcher Building, The Warehouse and Fonterra.
Companies should develop and promote their home-
grown talent before looking elsewhere. The danger of
page 13 Back to contents pageCOMMENTARY
Announcements for new payments are emailed
to clients and accessed by postcode. I worry. If, by
mischance, the email intended for me gets hacked, can
they enter my postcode and access my financial data?
Highly unlikely, but feasible.
I was unaware of some share consolidations because
Computershare relays this information in the middle
of an email like a letter from aunty. We should receive
notification in the form of a contract note. Transposing
the electronic age on to a paper-based system without
testing how it works for investors appears to be
Computershare’s modus operandi.
Turning to the NZX, I have many questions
• Why is there no portfolio dashboard for
Smartshares?
Beefing About NZX and • When comparing two companies, why is the legend
Market Registry Websites default plastered over the relevant part of the
graph?
I would like to blame the difficulties I have accessing • Why isn’t the relevant registry for a company put
the financial world online on being a relative newcomer. on the front-page info for that company? If I want
However, as I have blundered about for years, that some details of my holdings, I have to search which
would not be true. I will admit to being an average registry they use
boomer who likes websites to be user-friendly and
• Why is the 200-day moving average unable to
straightforward. So, I am ‘beefing’ about the service
display simultaneously to the 50-day moving
offered by our NZ registries and the NZX.
average? Since the relative juxtaposition of these
Having drowned in Link’s number of envelopes, I finally two lines is a crucial quotient, it is frustrating
succumbed to getting payment details electronically. I
• Why don’t column titles lock? When I’m looking
discovered that, although there has been a strong push
down a column, I want to be able to research data
to get clients onto digital comms, Link feels like an
without having to scroll back up to the top to find
analogue business in a digital world.
the column titles
Link asks clients to enter their FIN via an email link
• Given a column of percentages, what is it a
to log into the website to get interest and dividend
percentage of, and over what period?
payments. How dodgy is that? I do not want to enter
my FIN into an email link. One’s FIN is like a banking • Can we have scales on both axes of graphs?
PIN, with possibly more at stake. • Can we have a key to all the TLAs (three-letter
So, rather than follow a hyperlink on an email, I visit acronyms)?
the Link website for the ‘paper’ trail. There is now a Oh well, all first-world problems and worse things
‘recent payments’ page to collate interest and dividend happen at sea.
statements, which is a relief, and by clicking the heading,
one can even arrange by column. Hoorah! However, it is Jean Gorman
still unstable. I have been thrown off the site more times
than a teenager from a bar. While we are on the subject
of ‘difficult’, the text is dark grey on paler grey. Which “ONE MINUTE, I WAS A
young designer with 20/20 vision thought that was a CLAPPED-OUT, TWO-GUINEA,
good idea? LEGAL-AID LAWYER, AND
Turning to Computershare, one has no way of viewing THE NEXT MINUTE I WAS IN
in one place all the portfolios for which one has
PARLIAMENT.”
responsibility. Portfolios for aged parents, trusts and the
cuzzies have to be logged into separately. One also has DAVID LANGE
to avoid being routed to the Aussie site.
Back to contents page page 14COMMENTARY
External Management: The property companies average return (unweighted) is
even lower at 10.3%. The underperforming Asset Plus is
Friend or Foe? the smallest company; thus, it has minimal effect on the
While I don’t hold shares in any property companies, weighted return.
I have noticed the criticism directed at property Falling interest rates have reduced debt servicing
companies/trusts that outsource their management to costs, and inflated property values (residential and
external property management entities. As most of the commercial) as the markets adjust to lower returns on
comment has been negative, I decided to check it out. capital. When coupled with a modest increase in rents,
At first glance, I don’t see anything intrinsically wrong these benign conditions should have caused property
with outsourcing management, especially for the smaller companies to outperform. I’m not sure why they
property companies. But the management fees seem haven’t.
relatively high and termination difficult.
In brief, the externally managed property companies
On the other hand, I also note that the externally have outperformed their internally managed peers by
managed utility investment company Infratil largely 14.9% to 9.7% on a weighted basis and 14.3% to 10.9%
escapes criticism for its management structure, unweighted. This outperformance boosts the case for
despite eye-watering fees. I suspect this is because external management, but there are issues with this
Infratil shareholders have been well rewarded. Given type of analysis.
this, I thought it appropriate to measure externally
The first is the exclusion of the externally managed
managed property companies against their internally
Asset Plus (APL) from the equation. In 2018,
managed peers. I did this by comparing the five-year
institutional shareholders ousted APL’s board and
total shareholder return (TSR) of the nine NZX-listed
management after receiving an external management
property companies. Conveniently, there are four with
proposal from Augusta. Of note, the principal
internal management and four with an external manager
shareholders were dissatisfied with the company’s
and Asset Plus, which changed from internal to external
performance. However, much of the underperformance
management midway through the five-year timeframe.
has occurred since the change to external management.
Market Cap, 5-year TSR, APL underwent a capital raise following the
Company Management
($000s) pa management change, but when Covid-19 struck APL’s
Argosy Internal 1,309,741 12.2% share price fell sharply, as did other property company
Kiwi stocks. Unfortunately, APL’s share price fell below the
Internal 1,883,243 2.8%
Property new equity offer price, terminating the capital raise. Six
Property for months later, APL completed a smaller capital raise at a
Internal 1,448,765 17.3%
Industry much lower price and, unlike other property companies,
Stride Internal 1,125,331 11.4% the APL share price has not recovered. Essentially,
Goodman External 3,144,175 17.6% including APL in the external management data on a
Investore External 809,897 12.1% weighted basis changes very little but on an unweighted
Precinct External 2,187,417 11.6% basis, the average return falls below the internally
Vital managed entities.
External 1,681,015 16.1%
Healthcare Then there is the problem of outliers. In this case,
Asset Plus Mixed 123,324 (8.0%) the internally managed Kiwi Property (KPG) with
an almost invisible TSR of 2.8% pa appears to be an
I sourced the data for the above table from Yahoo
Finance (historical data). These returns account for
dividends paid and share splits/consolidations. The
methodology is the same for each company bar
Investore, which was listed mid-2016 and has a 4.5-year
TSR.
Out of curiosity, I applied the same measure to the S&P/
NZX 50 Gross Index (NZX-50). And to my surprise,
the NZX-50 return of 16.03% pa was considerably
above the 12.27% weighted return of the nine listed
property companies (the NZX-50 is a weighted index).
page 15 Back to contents pageCOMMENTARY
outlier. If removed, the returns from the internally an unhealthy degree of control, this is limited by
managed entities improve markedly, and on a the Financial Markets Conduct Act which precludes
weighted basis, almost equals that of the externally managers or associated persons voting if they have
managed entities. KPG was tracking quite well until an interest in the resolution other than that as a
Covid-19 struck. The share price fell in line with the shareholder. Recently, Northwest could not vote on the
other property companies but has not recovered. proposal to split VHP’s NZ and Australian properties
This static share price may be due to the perception into separate trusts.VHP’s board unanimously
that the company is overweight in retail, which is a supported the resolution, but the unitholders defeated
management decision. The company has always been it. Conversely, these substantial shareholdings give
internally managed; thus, there is no reason to exclude additional incentive for external managers to ensure the
it from this analysis. company they manage outperforms.
The primary problem with this type of analysis is My take on the internal or external management issue is
that only a small number of companies are involved. that it doesn’t matter. As can be seen in the table above,
The law of averages does not apply to small numbers. there are good performers in both camps. My focus
The outperformance by the four externally managed would be on the performance, and if I had to choose
property entities does not prove the superiority of with all other factors being equal, I would toss a coin.
outsourcing management. But it does even less to
Don Kinnell
validate the merits of internally managed property
companies.
From what I can see, there are four bugbears with
external management. The first is the fees. Invariably,
these are high and accompanied by extra payments for
NTA increases but no penalties for decreases. But the
same applies to internally managed companies. CEO
and senior management salaries are similarly generous
and come with bonuses for outperformance and no AT A TELEVISED OXFORD
penalties for underperformance. If external managers UNION DEBATE,
are more expensive, then the externally managed DAVID LANGE AFFIRMED
property entities would underperform their internally
managed peers. The data above suggests otherwise.
THE PROPOSITION,
‘NUCLEAR WEAPONS ARE
The second issue is termination. From what I can
discern, it is difficult and expensive to terminate an MORALLY INDEFENSIBLE’,
external management contract. But it can also be AND ANSWERED AN
difficult and costly to shed underperforming CEOs: INTERJECTION WITH
to wit, Theo Spierings (Fonterra) and Mark Adamson
(Fletcher Building).
“I’M GOING TO GIVE IT TO
YOU IF YOU HOLD YOUR
Another bugbear is that external managers’ interests
do not necessarily align with those of the owners BREATH JUST FOR
(shareholders/unitholders). Generally, external A MOMENT…
managers’ remuneration is related to the net or gross I CAN SMELL THE
assets, which incentivises the managers to grow the
property portfolio even when the returns are doubtful.
URANIUM ON IT
CEOs have that same imperative to grow the company. AS YOU LEAN
Invariably, the bigger the company, the higher the CEO’s TOWARDS ME.”
remuneration package.
DAVID LANGE
Finally, external managers are generally substantial
shareholders of the companies they manage. Of the
companies listed above, a 19.9% holding is the norm
and Vital Healthcare’s (VHP) manager, Northwest, is
the exception with a 25.8% holding. While it appears
that substantial shareholdings give external managers
Back to contents page page 16BRICKBATS & BOUQUETS
to the IRD for making tax it should have been before 1 April 2020 when the new
simpler. On 1 April 2020, IRD system started, not eight months later. And why was
introduced new rules for there no follow-up letter for those that did not respond?
income investment reporting. Bad call Computershare!
This means that if an entity
pays dividends or interest, it
must provide details of the gross payment, tax withheld, to Synlait Milk for its recent
imputation credits and ratio, along with the recipient’s $200m equity raise. This
(taxpayer) name, IRD number etc.The payer must submit comprised a $180m placement
this data and pass all taxes withheld to the IRD on the and a $20m share purchase
20th of the following month. Ultimately, taxpayers with plan (SPP) with a maximum
investment income will only need to review and confirm $50k per applicant and no
the tax information furnished by the investment income provision for oversubscriptions. The relatively small SPP
payers to the IRD. Well done IRD. looked bad for retail shareholders and even worse when
shareholders applied for almost three times the shares
reserved for the SPP. However, the results ticked all the
to Computershare for boxes.
failing to co-operate with All the placement shares went to existing Synlait
the IRD’s new investment shareholders. The SPP was scaled relative to the number
income reporting system. We of shares held by the applicant, and not the number
noticed Computershare had applied for. All SPP applicants received sufficient shares to
not furnished our dividend avoid dilution. In addition, the two principal shareholders
payments and tax data to the IRD, whereas Link Market (Bright Dairy and a2Milk) committed to accepting the
Services had. When asked why, Computershare replied new shares pro-rata to their existing shareholdings,
that it had notified shareholders by letter that for joint which obviated the need to underwrite 57% of the new
holdings of shares (eg trustees of a trust, partnerships), equity; a considerable saving in cost.
no IRD number will be submitted to the IRD unless the
IRD number or numbers are confirmed/updated with
the registry. So, shareholders with joint holdings who
have not done this will find Computershare dividends
have not populated their IRD accounts.
To us, the above-mentioned letter is a mystery. We have
five entities with joint holdings of shares so we should
have received five letters. Was the letter sent by email
or post? By email because Computershare had our email “BASSETT WAS A MEMBER
address. We have searched our emails without result.
OF PARLIAMENT AND A
So, we asked Computershare for a copy of the letter.
COUSIN ON MY FATHER’S
Initially, the reply was there is no copy. Really! We asked
Computershare NZ managing director, and suddenly a SIDE OF THE FAMILY.
copy of the mysterious letter appeared. But the letter
was headed: ‘Mandatory Direct Credit for Dividend and MY FATHER DELIVERED HIM
Interest Payments’. The preamble was about NZ banks
phasing out cheques. Incredibly, Computershare had
AND IT BECAME PLAIN IN
buried the request for joint holders IRD numbers near LATER DAYS THAT HE MUST
the end of the letter, and those who had long departed HAVE DROPPED HIM.”
the world of cheques would be unlikely to read that far.
DAVID LANGE
We suspect that Computershare sent this letter only to
investors who received dividend and interest payments
by cheque. Computershare sent the letters in batches in
November and December, when the banks announced
cheques were on the way out. If Computershare sent
the letter to comply with the new IRD requirements,
page 17 Back to contents pageYou can also read
