Associations July 2015

the trusted voice of shareholders

July 2015 Vol 29 #6

CASE FOR AGRICULTURE INVESTMENT STRONG BUT ROBUST VEHICLES LACKING INVEST OFFSHORE WHILST STAYING AT HOME

CORPORATE BONDS MADE SIMPLE

www.australianshareholders.com.au

MINI AGM SEASON WRAP

JULY VOLUME 29 #6

the trusted voice of shareholders

CONTENTS

FEATURES THIS MONTH

04

CASE FOR AGRICULTURE INVESTMENT STRONG BUT ROBUST VEHICLES LACKING The case for agriculture exposure in investment portfolios remains convincing. However, the real issue for the sector is the implementation - finding appropriate investment vehicles that can take advantage of what appears to be an attractive thematic.

10

08

CORPORATE BONDS MADE SIMPLE

INVEST OFFSHORE WHILST STAYING AT HOME Despite Australian shares representing about 2% of the global equities market, Australian investors retain a strong home bias. With more options becoming available to investors and greater recognition of the need for offshore exposure, this is likely to change over time.

With progressive cuts to the cash rate most deposit rates are under 3%, making it very expensive to hold 30% in cash. Elizabeth Moran of FIIG Securities believes now is a good time to consider corporate bonds.

MORE INSIDE...

06

07

12

14

18

19 MEET OUR

21

MONITOR

WHY BIDDER SHAREHOLDERS SHOULD GET A SAY

27

29

AUSTAL SITE TOUR

ASA MINI

SEASON WRAP

22

BIG REPORT

9 WAYS TO THINK LIKE AN INSTITUTIONAL INVESTOR

&

BRICKBATS BOUQUETS

24

Rommel / Monty RULES

THE

UNRESOLVED CONFLICT IMPACTS ON BUSINESS

13

THE UPS AND DOWNS OF SOUTH32

SOUTH AUSTRALIA REPORT

CHAIR REPORT BOARD OF DIRECTORS Diana D’Ambra BCom MCom FCA MAICD, Chairman Max Bonpain BMan MBA MMktg Geoffrey Bowd BCom MCom Betty Clarke-Wood ACIP Don Hyatt BAppSc DipEd M Ed MACE Clare Mazzetti BEc MBA AFMA AICD SDIA Barry Nunn AO BE NATIONAL OFFICE Silvana Eccles National Operations Manager Samantha Clark Events & Member Services Officer Veronika Ilnycky Communications Officer Anna Lau Head of Research STATE BRANCHES ACT Edward Patching NSW Richard McDonald QLD Alison Harrington SA Kevin Parken VIC Don Hyatt WA Barry Nunn

act@asa.asn.au nsw@asa.asn.au qld@asa.asn.au sa@asa.asn.au vic@asa.asn.au wa@asa.asn.au

EQUITY EDITOR Silvana Eccles

equity@asa.asn.au

CONTACT DETAILS TELEPHONE 1300 368 448

02 9223 8811 FAX 02 9223 3964 ADDRESS Suite 301, Level 3

90 Pitt Street

Sydney NSW 2000

GPO Box 359

Sydney NSW 2001 ABN 40 000 625 669 EMAIL share@asa.asn.au WEBSITE www.asa.asn.au www.australianshareholders.com.au DISCLAIMER This material in EQUITY is provided for information only. No responsibility or any form of contractual, tortious or other liability is accepted for decisions made on the basis of the information contained herein. Nothing in EQUITY is intended or should be interpreted as being investment advice.

Investment advice can only be obtained from persons who are licensed in accordance with the Corporations Act. Views expressed in articles in EQUITY do not necessarily reflect ASA policy.

The ASA does not endorse or favour any specific commercial product or company. The ASA is often able to negotiate discounts or benefits for ASA members however the inclusion of discounts or advertisements in EQUITY, on the ASA website or within other ASA communications does not constitute an endorsement for the products, services or companies mentioned.

COPYRIGHT All material published in Equity is copyright, as are ASA Policy Statements whether published in Equity or not. Reproduction in whole or in part is not permitted without written authority from the Editor.

All graphs for the Company Reports derive from www.netquote.com.au. Any correspondence regarding matters covered in this magazine should be addressed to the Editor.

July 2015 Diana D’Ambra

The Federal Budget handed down in May could be dubbed the “winning back support of small business” budget or the “fair go” budget. It did little to inspire confidence that the government has a long term plan for Australia’s future success.

The tax cut for small business is welcome, but there was almost nothing for SME’s (small to medium sized businesses with turnover between $2m and $250m) or large businesses.

Prior to the budget there was much talk of a “google tax” on multinationals that sell goods and services in Australia but are outside the Australian tax net. It will be interesting to see how effective the proposed anti-avoidance measures will be when they start on 1 Jan 2016 and the reaction of other countries to this approach by Australia.

Perhaps the big ticket reforms will be reserved for the White Paper to be issued in 2016, in time for the next election. The Green Paper due in mid to late 2015 will contain tax reform options for further comment.

For the moment superannuation and dividend imputation have escaped untouched. However there is much talk by the politicians on these topics no doubt “setting the stage” for changes to come. We note both the Prime Minister and the Treasurer stated “There will be no new taxes on superannuation under this Government”.

It is clear the opposition will look for reform in superannuation. The current system (whereby there is tax on contributions, tax on earnings, but pensions are exempt from tax) is viewed by the opposition as a piggy bank with which to plug the budget deficit. They have said they will tax pensions in some form. Should those who have gone without, saved carefully, and complied with regulations to become self-sufficient in their retirement, be penalised?

We await the Green paper on Tax Reform and will make submissions to the Government on behalf of our members.

On dividend imputation Kate Howitt, a fund manager at Fidelity, recently published a well-researched article of the impact on investment returns from higher yielding stocks and the need to retain the current dividend imputation system.

It may surprise some of our members that over the last 25 years since imputation was introduced the total return to shareholders on Australian stocks has generally exceeded those of the rest of the world. Before imputation was introduced Australian companies’ returns were often lower than the rest of the world.

Why is this so?

No doubt Australia’s mining boom contributed to the higher yields. The Fidelity article notes that because Australian companies’ Boards are encouraged by their shareholders to have higher payout ratios they must very carefully manage the reinvestment of funds retained in the business.

When limited funds are available such funds must be carefully used and only for the best projects and investments. Boards then need to ensure these projects are successfully implemented. Does dividend imputation therefore lead to better scrutinised investments and better governance?

The full Fidelity article was published in the June 2015 edition of Equity.

The ASA has, and will, continue to strongly advocate retaining the current dividend imputation system.

Many of you may be aware that Joanne Parker tendered her resignation in early June. The Board is considering a number of options and we will keep you informed as to any changes in the organisation structure.

It is business as usual in the National Office with our capable team - Silvana, Anna, Veronika and Samantha available to serve you.

EQUITY July 2015 Page 3

Case for agriculture investment strong but robust vehicles lacking

By Dominic McCormick, Chief Investment Officer, Select Investment Partners The case for agriculture exposure in investment portfolios remains convincing. The middle class growth in emerging economies and the associated increased protein consumption is one of the major positive factors as is the declining supply of readily available arable land per person.

Locally, the recently announced Free Trade Agreement with China and other Asian countries provides a further boost with tariffs for a range of agricultural commodities reduced over time. Over the very long term agriculture in many countries has offered attractive pre tax returns and strong diversification benefits showing little correlation with equities and bonds.

However, the real issue for the sector is the implementation - finding appropriate investment vehicles that can take advantage of what appears to be an attractive thematic.

The poor performance of numerous high fee, tax driven agricultural and timber schemes has badly tainted the experience of many Australian retail investors. Also, some of ASX listed agricultural vehicles have also not covered themselves in glory. Even some larger unlisted institutional vehicles have struggled in recent years with extended droughts weighing on returns.

Agricultural investment is normally lumped into one of three broad categories.

1. Annual/Row crops such as wheat/corn 2. Permanent crops such as olives/grapes and 3. Livestock such as sheep and cattle.

Each of these categories and even different agricultural commodities within the same category can have quite different economic characteristics. Further, there are a multitude of other factors such as land quality, farmer skills, access to capital, weather, input and commodity price movements that will impact the economic returns achievable from each.

However, the general perception from an investment perspective is that the operating profitability from many agriculture businesses is poor, is quite volatile and is subject to a range of uncontrollable factors such as commodity prices and weather. Hence, significant/consistent land price increases are required (but by no means certain) to make overall acceptable returns.

It is hard not to have some sympathy with this view but perhaps we are painting too negative a picture that is based on history and focused only on near term. It is true that historic operating returns averaging between 2-5% don’t seem that attractive given the risks involved. However this neglects the benefits that come from rising land prices over time. At least over the long term these are more reliable than investors give them credit for.

EQUITY July 2015 Page 4

Land prices vary in importance across the categories and are typically treated as a speculative element in the overall performance. However, well located and managed farm land can become more productive over time as well as benefiting from general inflation. In some cases land closer to urban areas can benefit from redevelopment.

A more objective assessment of the opportunities in agricultural investment suggests the following points are relevant: 1.

Long term historic pre tax returns from agriculture have been attractive in many areas of the world including Australia with returns made up of modest but solid operating returns together with land price increases. We note, however, that Australian land prices have lagged in recent years.

2.

The attractive feature of these investments is their diversification benefits, i.e. little or no correlation to equity and bonds as well as an inflation hedging element that comes from exposure to commodity and land prices.

Hence, these investments are usually lumped in the “real returns” category.

3. T hat recent trend in low operating/income returns reflect a particularly tough environment of adverse weather, high input costs and political factors that should not be projected forward, especially given today’s attractive fundamentals.

4.

Outside pure leasing arrangement most types of agriculture investments should always be viewed as a package of returns reflecting low to modest (but volatile) operating profitability and long term growth in land prices.

This combination has, over the long term, produced pre-tax performance in the high single digit to low teen returns (without gearing) and is quite attractive compared to current cash returns.

5.

Lower risk approaches to invest in agriculture such as leasing land to farmers are available, at least to large/ institutional investors.

So far the evidence seems to be that land prices do best in the more reliable agricultural regions, particularly after a run of good years where local farmers are willing to plough profits into neighbouring land and bankers are also more accommodating. According to TIA CREF this explains the relative boom in agricultural land prices in the US. However, another explanation for the boom in agricultural land returns, particularly in recent years in parts of the US, has been the increased investment by institutional investors. The argument suggests that institutional investors do not need the same returns as owner farmers because of the diversification benefits that agriculture brings to their portfolios. As such they can justify even lower operating returns; this change in valuation has driven up land values.

To the extent this view is true the increased institutional (although mainly overseas) and large ultra-high net worth investor interest in Australian farmland recently suggests a period of higher land prices and higher returns is likely. Of course, there will be plenty of shorter term noise relating to commodity prices, input costs and weather around any path to higher land prices and improved returns. A continued low interest rate environment is also likely to be supportive.

The big limited resource in many areas of Australian agriculture has been water. However geographically diversified exposures that can invest in water infrastructure are well placed to manage the challenges around this issue.

Listed companies and funds have been the most common vehicles for retail investors to gain exposure to agriculture.

Their experience has been very mixed.

Apart from poor returns and share price performance in a number of cases, the perception is that listed exposures don’t provide as much diversification benefits because the broad sharemarket heavily influence their prices. This is true to some extent although eventually the fundamentals do come through (both good and bad).

One view of some large private agricultural investors is that agriculture should never be listed because investors do not have the patience to take the very long term view needed or an understanding of the complex ongoing challenges facing agricultural investment.

A key example was Prime Ag. Listed at $2 to a mainly institutional shareholder base in late 2007 the shares quickly drifted to under $1, a 50% discount to NAV. After a number of years of poor returns the fund faced considerable shareholder pressure and was wound up and sold to unlisted institutional funds and large private investors. Interestingly the fund did provide solid returns for those that bought in at these lower levels when it was most hated even as some asset values were written down.

The perception of all listed agricultural businesses as continually poor investments is perhaps unfairly earned and excessively backward looking. One can point to a number of companies that have performed exceptionally well in recent years even if their long term history is mixed. Select Harvests (SHV),which is focused on a range of permanent crops, is one such strong performer over recent years.

Even historically poorly performing Australian Agricultural Company (AAC) is finally trading around or even above its Net Asset Backing for the first time in many years as investors bet on a robust future for beef prices and volumes and AAC embarks on a more vertically integrated model with its own processing facility. The recent merger of Webster and Tandou has also been positively received by the market.

There are also now some new if somewhat less pure listed vehicles available with some agriculture exposure.

Blue Sky Alternatives Access Fund (BAF) listed within the last year and has some exposure to water rights/trading and agricultural land and cotton farming. The jury remains out whether investors will embrace these types of vehicles.

Australian super funds have been notoriously reluctant to invest in agriculture but foreign investors and wealthy individuals are increasingly active. I recently attended several institutional briefings of one the world’s larger institutional agricultural managers. Only a handful of asset consultants and investors turned up and only a couple have invested in agriculture. This attitude may change but I would expect only very slowly. Meanwhile Andrew Forrest and Gina Rinehart are ploughing some of their wealth into beef properties in Australia’s north and Wesfarmers chief, Richard Goyder recently announced they were interested in getting into the primary production space.

Obviously these days it is relatively easy for retail investors to gain exposure to a range of agricultural commodity prices via vehicles such as ETFs. The problem is that over the very long term spot commodity prices tend to go down, at least in real terms. However, one can still do well in shorter time frames and depending on the forward price structure of the commodities a roll yield can be earned (for commodities in backwardation) that adds to return.

There are a number of ETFs or funds that provide either passive or enhanced passive exposure to agricultural (and broader) commodities. While these provide some exposure to agricultural commodity prices and benefit from supply shocks and growing demand without the operational risk discussed above they also don’t provide exposure to productivity growth or land prices. Nevertheless, they can be a valuable diversifier and partial inflation hedge.

Managed futures is also a strategy that will provide some exposure to both rising and falling commodity prices (including agriculture) depending on how they are trending but agricultural prices tend to be a relatively small part of such programs. There are also a small number of relative value hedge funds that aim to exploit pricing anomalies in the agricultural commodities space. However, all of these strategies are quite different to a core strategy of owning agricultural land and businesses.

Agriculture is an investment theme that does make sense in many portfolios from both a diversification perspective and because the long term fundamentals in a range of areas are attractive. The problem for retail investors is twofold in that local institutions that run their superannuation monies have been very reluctant participants in this area and that they have very limited ways to gain exposure to it directly, particularly in liquid form. Fortunately, there is likely to be gradual improvements in the appetite of investors and the opportunity set that will improve this access and lift exposure over time.

EQUITY July 2015 Page 5

AUSTAL SITE TOUR WA ASA members visited Austal HQ in Henderson, less than 30 minutes from Fremantle. Austal’s CEO, Andrew Bellamy, welcomed members, gave a presentation and answered all queries. This was followed by a tour of the facility.

The company is proud of its efficiency - turnover from contract to handover is on schedule. The uniqueness of their product, reliability and completion time have contributed to the success of the company.

Austal is the largest builder of aluminium commercial and naval large vessels - up to 127metres. It has shipyards in Australia, US and the Philippines, employing 5000 people worldwide including 1000 employees in Australia.

The company plans to maintain cash generation to support programs and dividends, reduce debt, deliver on maturing programs, extend program pipeline, and grow their intellectual base, while supporting engineering services, and develop the home Navy market.

Austal is Australia’s only ASX-listed global defence primal contractor and the world’s leading supplier of high performance aluminium vessels for the defence sector. It has been a global prime contractor, designer, manufacturer of defence and aluminium commercial ships for 25 years, and has built 250 vessels for governments, navies and ferry operators around the world.

Austal is on track to meet revenue increase of $1.2m, EBITDA increase $26m, and NPAT increase $19.4m. An interim f/f dividend of 1.0c ASA Members were impressed with the site tour of Austal and the achievements of the company.

We were provided with details of contracts completed, those in hand and the ten ships awarded and fully funded US$1.6b, which secures work to CY 2017. Austal have a $330m contract for the design and construction of Border Patrol boats for the Australian Customs and Boarder Protection Service. The company order book for 2015 is $3.1b through to 2020. Building has commenced at Henderson for highspeed support vessels for the Royal Navy of Oman.

At present, through their Systems and Support, Austal has established global partnerships to provide, through life, support and defence vessels in Australia.

Macmahon Holdings Limited (MAH) Class Action Did you purchase Macmahon Holdings Limited (MAH) shares between 2 May 2012 and 19 September 2012?

If you did then you may be eligible to participate in a class action to recover losses due to alleged breaches of MAH’s continuous disclosure obligations and misleading and deceptive conduct.

It will be alleged MAH failed to disclose the likely profit impact of delays to the Hope Downs 4 construction project.

When MAH made its profit corrective disclosure on 19 September 2012, MAH’s share price dropped by approximately 40%.

Find out if you are eligible for the Macmahon class action at www.acaclassactions.com.au or by calling us on (02) 9216 9898.

ACA LAWYERS

EQUITY July 2015 Page 6

12345678 9 ways to think like an Institutional Investor

9

By Anna Candler, Managing Director, The Six Hats Investor Relations

What I love most about investor relations is watching a host of institutional investors up close. While they are technically investors just like you and me – ok with a few more noughts in their bank accounts - their approach to the equity markets is very different. So what are the lessons we can learn from them?

decisions are not season ending games. There will always be an investment that doesn’t go to plan no matter how good the research. When an investment goes wrong, does the reason affect your game plan and strategy or is it just one of those things that is part of being in the investment market?

1. Funds Managers start with a strategy in mind. Rarely do they set out to be the premiers. That is a bonus.

Rather they have a game plan and they spend a lot of time aligning their investment decisions to their game plan. Warren Buffett doesn’t play the gold index, is not interested in IT start-ups. Warren was happy to miss out on the whole dot com boom as those companies did not make sense to him.

6.

Funds Managers know that companies have to earn their stripes. They look for the signs that say this company knows what it is doing; that it has its corporate act together. It is not possible to run in the 100 metre final at the Olympics without showing potential in lead up races. So what races has your company been in, what has it won and against whom?

2.

Funds Managers know what sectors they are good at.

They do not try to be all things to all people. No one expects a rugby forward to be a top flight tennis player or vice versa. Sure, there are some all-rounders. They are few and far between. Figuring out the sectors that appeal to you allows you to invest to your strength. So if it is iron ore, forget about media until you have really got the first sector under control.

3.

Funds Managers know they cannot know everything and they don’t try. There are so many potentially great companies and so many factors that make a company a good investment. As an investor you can quite easily do your head in if you do not filter out the noise that surrounds much of the investment market. Learning to trust your sources is essential, knowing what information you need to take in is a core part of being good investor.

4.

Funds Managers are a team. Good investing is about teamwork. They know they need a range of skills to be successful. So understand your investment strengths and then go find the people who can support your game plan. Use the employee rule when building your support network. Whether it is a financial advisor, the financial press or a stock market newsletter, if you wouldn’t hire them, then perhaps they shouldn’t be influencing your decisions.

5.

Funds Managers like sports teams know that they cannot win all the games. It is about winning the ones they should win, and making sure the rest of the investment

7.

Funds managers do the simple things well. They read the past five years annual reports. They read the announcements, they look at its peers, and they rummage around overseas to see the trends. They are looking for the story judging how a company talks about its self and how seriously it takes it position in the market. They are looking for companies that are consistent in what they say and do.

8.

Funds Managers know that even champions have a bad day. While there will be those that cry “the sky is falling in”, the good funds manager looks to more than chicken entrails to make a decision. Nadal can be beaten on clay; it just doesn’t happen very often. There is world of difference between lower earnings that are a reflection of timing and lower earnings that highlight a poor corporate strategy.

9.

Funds Managers take risk management seriously.

They pay attention to how well their investments are playing as a unit and how fit the individual players are.

Acknowledging that the star player has a dodgy shoulder will affect how the rest of the team is expected to play or needs to be managed. Understanding the risks associated with every investment decision is possibly the best key to winning in the long run.

The reality is that investing does take time and effort. None of the great funds managers got to be household names overnight; they have spent many more than 10,000 hours practising their game. Warren Buffett’s success has been 25 years in the making and he will say he is learning still.

EQUITY July 2015 Page 7

Invest offshore while staying at home: Australian companies with offshore earnings

By Peter Rae, ASA Member Despite Australian shares representing about 2% of the global equities market, Australian investors retain a strong home bias. With more options becoming available to investors and greater recognition of the need for offshore exposure, this is likely to change over time.

The current range of options for gaining offshore exposure include unlisted managed funds, exchange trade funds, listed investment companies and direct share investment.

The recent listing of the Magellan Global Fund under the new ASX exchange quoted managed fund structure provides another option. Directly investing in foreign equities can be a frustrating and tedious process and investors need to have access to good research. This, along with the Australian dividend imputation system, helps explain the low holdings of global equities in Australian portfolios.

Investors can also obtain offshore exposure by investing in Australian companies with significant international operations.

This should not be seen as a substitute to international investing as there are a number of global industries where it is not possible to obtain meaningful exposure in Australia. However, a reasonable holding in Australian companies with offshore operations will produce a better balanced portfolio than one simply based on the banks, supermarket retailers and Telstra.

Ownership of these companies also provides a partial hedge against a falling Australian dollar. Depending on the earnings mix, investors may still benefit from dividend franking.

This article focuses on ASX 100 companies with a majority of revenue derived from offshore, but there are many other Australian businesses with significant offshore operations for investors to consider.

Figure 1: ASX companies with majority offshore revenue ASX Code

Company

Offshore Revenue %

CSL*

CSL

90

Healthcare

COH*

Cochlear

85+

Healthcare

Sector

RMD

ResMed

98

Healthcare

SHL

Sonic Healthcare

52

Healthcare

ANN

Ansell

93

Healthcare

MQG*

Macquarie Group

70

Financials

QBE*

QBE Insurance Group

75+

Financials

HGG

Henderson Group

100

Financials

CPU

Computershare

81+

Financials

WFD*

Westfield Corporation

100

Property

GMG*

Goodman Group

57+

Property

^

BHP*

BHP Billiton

94

Mining

RIO

RIO Tinto

98

Mining

FMG*

Fortescue Metals Group

100

Mining

AWC

Alumina

60

Mining

#

EQUITY July 2015 Page 8

ASX Code

Company

ILU*

Iluka Resources

Offshore Revenue %

Sector

96+

Mining

WPL

Woodside Petroleum

92

Energy

STO*

Santos

n.a.

Energy

OSH

Oil Search

100

Energy

WOR

WorleyParsons

88+

Energy Services

FLT

Flight Centre Travel Group

ALL

Aristocrat Leisure

DMP

Domino's Pizza Enterprises

TWE AMC JHX BXB

*

53

Consumer

77+

Consumer

70

Consumer

Treasury Wine Estates

65+

Consumer

Amcor

94+

Industrial

James Hardie Industries

83

Industrial

Brambles

92

Industrial

ORI

Orica

66

Industrial

SGM

Sims Metal Management

ALQ

ALS

84+

Industrial

60

Industrial

# Based on location of assets ^ ResMed is a US company but also has an ASX listing * The author owns shares in these companies Source: Company accounts and releases

AUSTRALIA HAS SEVERAL GLOBAL HEALTHCARE CHAMPIONS While investors need to go offshore to gain exposure to the giant drug companies such as Pfizer and Merck, Australia has a number of healthcare companies with strong international businesses. CSL, for instance, is one of three major global blood products companies. Its advantageous cost structure and strong research and development pipeline, should see it retain its position for many years.

Hearing implant company Cochlear is also a global leader and, despite a voluntary product recall in 2011, has a good track record in innovation and reliability. With relatively low penetration rates for its Cochlear implant amongst those with hearing loss there is a significant market opportunity. Like Cochlear, ResMed is another medical device company with a large untapped market. As a leader in sleep apnea treatment ResMed should benefit from improved diagnosis of this condition.

Medical diagnostics business Sonic Healthcare has been expanding offshore with growing operations in the USA and Europe. With an ageing population and increasing focus on prevention, demand for pathology and radiology services will increase. However, the potential for government funding changes remains a risk. Private hospital operator Ramsay Health Care will also benefit from the ageing population. Its Australian operations still dominate, but with an aggressive international growth strategy this is likely to change.

While not strictly a healthcare stock, Ansell’s protection products play an important role in preventing injury and the

spread of infection. Strong brands and manufacturing scale provide it with competitive advantages. The company has grown strongly through overseas acquisitions over the last few years and this is likely to continue.

LOOK BEYOND THE BIG FOUR BANKS FOR INTERNATIONAL FINANCIAL SERVICES EXPOSURE When it comes to offshore expansion, Australia’s major banks have a mixed track record. Investment bank, Macquarie Group, has been steadily growing offshore, but it has no major competitive advantages relative to the large global investment banks. Earnings are tied to the health of global financial markets, but the proportion of earnings from annuity style businesses such as funds management is increasing.

QBE Insurance has built a large offshore presence following years of acquisitions. Its performance has been poor in recent years but a restructuring promises a strong turnaround in 2015.

Computershare has also built a global business through many acquisitions over a number of years. Its core share registry services business is performing well and it has dominant positions in a number of markets.

UK based Henderson Group has an Australian listing as a legacy of its previous ownership by AMP. It has some competitive advantages as one of the largest European fund managers, but earnings are tied to the health of global investment markets and Henderson’s ability to maintain strong fund performance.

Following the demerger of its Australasian shopping centres into Scentre Group, Westfield Corporation is now an overseas shopping mall owner. Its premium malls in the US and UK provide it with strong competitive advantages and make it a leading international real estate investment trust.

Industrial property owner, developer and manager Goodman Group will benefit from the growth in e-commerce, with an increase in storage and warehousing needs. It has an international presence with expansion in Asia likely to be a key growth opportunity.

PLENTY OF RESOURCE COMPANIES, BUT EARNINGS REMAIN CYCLICAL As a major resources producer and exporter, Australia has a large number of mining and energy companies that derive revenue from overseas customers. The health of this sector is very much dependent on the demand for commodities and energy products. With iron ore, coal and oil prices well down from their highs, share prices of companies exposed to these sectors have fallen. Investors in resources stocks need to understand commodity pricing and sector cyclicality.

With a diversified portfolio of large, long life, low cost assets, BHP is better placed than most to trade through the ups and downs of the resources cycle. This allows it to maintain a progressive dividend policy, with the shares currently offering an attractive, fully franked dividend yield. Amongst the energy producers, Woodside stands out given its long life LNG fields

off the coast of Western Australia. It too offers an attractive, fully franked dividend, although dividends will drop in 2015 given lower oil prices.

Alumina (bauxite/alumina) and Iluka (mineral sands) are in industries where the underlying fundamentals appear to be improving. However, these are single commodity companies and their outlook can rapidly alter with changes in demand and supply dynamics.

A MIXED BAG OF CONSUMER AND INDUSTRIAL BUSINESSES WITH OFFSHORE OPERATIONS Australian consumer companies with an offshore presence are a diverse mix and do not match the large global consumer product names such as Colgate and Nestle. Domino’s Pizza is one business that has been successful in recent years as it expanded into Europe and Japan. Its shareholders have been rewarded with strong returns. Domino’s brand provides some advantages, but ultimately it competes in a large market of fast food operators. Travel agent, Flight Centre, is also a great Australian success story with its overseas expansion delivering strong growth. Its well-known brand and large footprint of stores provide it with competitive advantages.

Aristocrat Leisure is an international gaming machine manufacturer with strong market shares in Australia, a growing presence in the United States and significant operations in Asia. It has a patchy track record over the past decade, but performance is starting to improve. Wine company, Treasury Wine Estates also has a patchy track record despite strong global brands such as Penfolds. It operates in a cyclical industry with high capital intensity.

Logistics firm, Brambles, is the only global company that pools pallets, crates and containers. It has embarked on a successful expansion strategy into new regions and this, along with the expansion of its reusable plastic crate business is likely to drive future earnings growth. Like Brambles, Amcor’s growth is also driven by expansion into emerging economies. Following a period of refocusing and acquisition of the Alcan packaging business in 2010, Amcor is now a leading global packaging company with strong market positions.

Building products company James Hardie has high market shares for its fibre cement products, with the majority of its revenue derived in the USA. Earnings are tied to the health of the US housing market and while the current outlook for this market appears favourable, James Hardie remains a cyclical stock.

Orica is the leading supplier of explosives to the global mining and construction sectors. While demand from the mining sector is driven more by production volumes rather than commodity prices, the current tough price environment for the miners is driving them to place pressure on all suppliers to drop prices.

Peter Rae is a retired equity analyst and ASA member. He owns shares in companies as indicated in figure 1. Companies mentioned in this article are not stock recommendations and readers should undertake their own research before buying shares.

EQUITY July 2015 Page 9

Corporate bonds made simple

By Elizabeth Moran, Head of Investor Education, FIIG Securities The ATO tells us that SMSF investors hold approximately 30% of their portfolio in deposits. In effect, this is their main defensive investment, offsetting higher risk property and shares.

But, with progressive cuts to the cash rate, most deposit rates are under 3%, making it very expensive to hold 30% in cash.

Now is a good time to consider corporate bonds.

The vast majority are rated by credit rating agencies and have investment grade credit ratings, making them low risk, defensive assets. For a slight increase in risk over term deposits, you can earn incrementally more by investing in corporate bonds, which can make a big difference to the defensive, income component of your portfolio.

Bonds are easy once you get the hang of them. Investors lend their funds to a company who agrees to pay them interest on specific dates and return capital at maturity, much like term deposits. Bonds are a legal, contractual obligation and this is important as it means that the companies will do all that they can to make sure those interest and capital payments are made.

In some cases they’ll take actions that shareholders won’t like in order to protect bondholders that have priority in terms of repayment in a wind-up or liquidation scenario. For example, sell prime assets, cut dividends or have a rights issue. In that regard it’s important to read bond or debt specific research as a bond analyst may have a different view of a company compared to an equity analyst.

THREE TYPES OF BONDS Much of the media conversation around bonds is about US Treasuries, which are predominantly fixed rate. These bonds are paying very low returns of about 0.60% for 2 years, not very attractive to SMSFs! The commentators fail to discuss corporate bonds which pay higher returns and come in three varieties: fixed, floating and inflation-linked.

Three different types of bonds that best protect under three economic scenarios. I’d always suggest having an allocation to all three, but typically you’d weight your portfolio depending on your views of interest rates.

Fixed rate bonds are very defensive assets particularly when interest rates are coming down. The only way these bonds can reflect changes in market expectations of interest rates is through a change in the price of the bond in the secondary market. If interest rates fall, fixed rate bond prices will rise. The opposite is also true, if interest rates rise, fixed rate bond prices will fall.

This is why global commentators are concerned about low yielding US Treasuries and the price falling when US interest rates eventually rise.

Fixed rate bonds pay interest semi-annually.

A floating rate note (FRN) is a security that pays interest linked to a variable benchmark. In Australia, most FRNs pay interest at a set margin above the bank bill swap rate (BBSW). Interest is paid quarterly and determined at the start of the period by applying the margin to the benchmark on the first day of the three month period.

BBSW will rise and fall over time based on prevailing interest rates.

EQUITY July 2015 Page 10

The margin over and above the relevant benchmark is usually fixed and will be set at the time of issue.

FRNs, because of the way they are structured, typically protect a portfolio when interest rates are rising. That is, as the Reserve Bank increases the cash rate to try to slow growth in an economy, FRN interest payments will also increase to reflect market expectations of higher interest rates. Typically FRNs outperform fixed rate investments such as term deposits and fixed rate bonds under these economic conditions.

Inflation linked bonds are the only 100% hedge against inflation.

If you are new to bonds, I think inflation linked bonds are a good place to start. They pay a fixed margin over the Consumer Price Index (CPI).

Most older investors will remember when inflation was over 10% per annum in the 1970s and 1980s. While it’s been relatively benign in recent years, massive QE means that inflation could spiral in future.

These bonds are typically long dated and issued by infrastructure companies with monopolistic characteristics.

Both inflation linked bonds and FRNs pay interest quarterly.

COMPARE TWO PORTFOLIOS, ONE WITH TERM DEPOSITS AND SHARES, THE OTHER INCLUDES BONDS To illustrate the difference a corporate bond portfolio can make to your income, I’ll talk you through a simple example.

Assume a client has a $1 million dollar portfolio split evenly between term deposits and shares.

A good one year term deposit rate is 2.8%. So, income on $500,000 at 2.8% is $14,000.

The shares are expected to earn more and for the sake of simplicity let’s assume they earn 7%, including franking. Income on the shares is then $35,000, providing total income on this portfolio of $49,000.

If we change the mix and add bonds, the portfolio allocation becomes term deposits 10%, bonds 40% and shares remain the same at 50%.

The term deposit of $100,000 will earn $2,800.

The 40% allocation to bonds is projected to earn income next year of 4.94% or $19,647. Of course, depending on what happens to the CPI and BBSW benchmarks, the FRNs and ILBs may earn more or less income, although forward projections on BBSW are already included.

The contribution from the shares remains the same at $35,000.

Income on this portfolio next year is projected at $57,447 or $7,447 more than the first portfolio. All up, income is up by 15% over the first portfolio.

Table 1 shows the bond portfolio which consists of eight companies.

Most are investment grade, with a credit rating of BBB- and above, the two exceptions being Qantas and non-rated ASX listed child care provider, G8 Education. Overall returns are boosted by including allocations to these two companies.

Yield to maturity

Income (Running yeild)

Capital price

Face value

Investment

19/11/2019 Fixed

4.09%

5.20%

105.690

$40,000

$42,276

09/06/2021 Floating

4.47%

2.85%

92.129

$50,000

$46,065

Dampier to Bunbury Natural Gas Pipeline

11/10/2019 Fixed

3.87%

5.53%

108.469

$30,000

$32,541

Qantas

27/04/2020 Fixed

4.54%

5.99%

108.469

$50,000

$54,259

Radobank Nederland AU

3.90%

4.91%

108.517

$40,000

$44,766

5.60%

3.12%

111.914

$75,000

$75,260

G8 Education

11/04/2030 Fixed Inflation 20/11/2030 linked 03/03/2018 Floating

5.11%

5.91%

125.434

$50,000

$51,200

Genworth Financial Mortgage

30/06/2016 Floating

4.30%

6.80%

102.400

$50,000

$51,311

$385,198

$397,677

Company

Maturity / call date

Alumina* Dalrymple Bay Coal Terminal

Sydney Airport

Bond type

Table 1 Source: FIIG Securities. Note: Rates are accurate as at 29 May 2015 but subject to change. # Assumes inflation is 2.5%, the RBA target mid-point. *For wholesale investors only

Conversely, the Rabobank bond has the highest credit rating, implying it is the lowest risk, but also note it has the lowest yield to maturity of 3.90%, still relatively high in this environment, which provides compensation for the longer term to maturity of 2024.

If you wanted higher returns, you could reduce or remove the Rabobank bond from the portfolio and invest in other higher risk bonds. The reverse is also true. If clients wanted a lower risk portfolio Qantas and G8 Education could be replaced with lower risk bonds although this would reduce expected returns.

The portfolio has a mix of bonds with a 44% allocation to fixed, 37% to floating and 19% to inflation linked. I have a general view that interest rates will be lower for a long time, so am happy to invest in longer dated fixed rate bonds, but your view you may be different and you may want to adjust the allocations.

The column marked “Yield to maturity” lists the expected return if you hold that bond until it is due to be repaid. If you acquired this portfolio and held it to maturity the total return is expected to be 4.60%. The “Income or running yield” column provides your expected income in the next 12 months from each bond. Income for the portfolio for the next 12 months is forecast at 4.94%.

The cashflows of the portfolio are much more regular than term deposits that typically pay annually as shown in Table 2.

Company Alumina Dalrymple Bay Coal Terminal Dampier to Bunbury Natural Gas Pipeline Qantas

3Q15

4Q15

1Q16

$1,109 $355

Radobank Nederland AU

$355

2Q16 $1,100

$355

$355

$902

$900

$1,629

$1,625

$1,103

$1,100

Sydney Airport

$587

$590

$594

$598

G8 Education Genworth Financial Mortgage Total per quarter

$746

$746

$746

$746

$849

$849

$849

$50,849

$2,537

$7,283

$2,544

$57,273

Table 2

THE BENEFITS OF CORPORATE BONDS 1. Corporate bonds are low risk and provide a defined income stream and capital stability.

2. Bonds are great diversifiers. They give investors other defensive options besides cash. They are also issued by companies not listed on the ASX; including big foreign companies that issue in AUD such as Swiss insurer, Swiss RE and US investment bank, Morgan Stanley. Australian companies also issue bonds

in foreign currencies. These are great for investors that hold funds in overseas bank accounts earning very low returns.

3. Bonds rank higher in the company structure than shares. If a company goes into wind-up, bondholders will usually be repaid before any funds can be returned to shareholders.

4. Inflation linked bonds are the only 100% direct hedge against inflation.

5. Bonds are generally liquid investments and while some have very long terms to maturity, there is an active secondary market.

Investors do not have to hold investments until maturity.

6. There is an opportunity for capital gain or loss if you sell prior to maturity but your return will be positive if the bond is held until maturity.

RISKS Any investment has risks. There are three main risks with bonds: 1. Interest rate risk - the risk associated with an interest bearing asset, such as a loan or a bond, due to variability of interest rates. This predominately affects fixed rate bonds.

2. Credit risk - the risk that the issuer may be unable to meet the interest and/or principal repayments when due, and thus default on the loan. Generally, the higher the credit risk of the issuer, the higher the interest rate that investors expect in return.

3. Liquidity - the risk that a security cannot be easily sold at, or close to, its market value. Generally bonds are fairly liquid, although in stressed markets can become less liquid.

HOW TO BUY BONDS Many investors access bonds through managed funds. While they provide great diversification, few disclose the full range of investments, so in that regard lack transparency. They also sit behind a unit price and the manager decides when to pay income.

So, fail to offer the same benefits of direct investment where income is predictable and you get your funds back at maturity.

Fund managers, like other bond investors, generally source bonds through the over-the-counter market (OTC). The market works much the same as the foreign currency market with a bid/ offer spread, where the brokers make brokerage on the trade. Only a small handful of bonds are available through the ASX. The bonds mentioned in this article are only available in the OTC market where minimum transactions are generally $500,000. Some brokers, such as FIIG make bonds available from $10,000 per bond with a minimum upfront spend of $50,000.

If you’re interested in learning more, you can download a free 40 page guide “Corporates Bonds Made Simple” by going to https://www.fiig. com.au/download-corporate-bonds-made-simple

EQUITY July 2015 Page 11

Unresolved conflict ultimately impacts on the effectiveness of any business

By Catherine Gillespie, Managing Director, Workplace Conflict Resolution

A successful business makes well informed, high-quality decisions via teams that operate from a high-performance culture. The two ‘teams’ making major decisions in a business are the Board of Directors and Senior Management.

To promote quality decision making, many organisations refer to a ‘decision making matrix’. A matrix might guide a team to focus on specific objectives, strategy and the required information. However, the use of a matrix alone will not ensure effective decision making if the team members are in conflict and cannot communicate effectively with one another.

Good Boards and Senior Management teams consistently role model constructive and ethical behaviours that create and enforce the expected culture of the organisation. One of these behaviours is the ability to engage in positive conflict (robust and open conversation) through the use of appropriate communication skills.

Unfortunately, many teams at the senior levels of organisations do not communicate in this manner and decision making meetings either degenerate into argument or become a situation where there is limited input from most parties because their voices are never noted and they have given up trying to be heard. Either way, the effectiveness of the decision reached, the cohesiveness of the team and resulting impacts on the business would have to be questioned. Group decision making has the ability to be superior to decisions made by individuals only when the group has a high level of emotional intelligence.

Daniel Goleman , author of ‘The New Leaders’ notes if a team lacks harmony or the ability to cooperate, decision making quality and speed suffer. He describes group emotional intelligence as a team’s ability to manage its emotions in such a way that an environment is created which values trust and constructive questioning. This environment encourages optimal decision making and contributes to the shaping of the team’s identity and capacity to perform effectively. For a team to have ‘group emotional intelligence’, the individual team members need to be emotionally intelligent.

Being emotionally intelligent includes being able to manage one’s emotions, be cognizant of situations or communications which might create emotional reactions in others and being empathetic towards others. Managing one’s emotions is the cornerstone of being able to participate in rigorous debate without the escalation of conflict. Conflict is fuelled by our emotional reactions to misunderstanding and fear.

Many Directors and Senior Executives would argue they are not fearful, but in this way, they are not being mindful of their unconscious reactions to hidden conflict triggers.

Fear is not a conscious thought – it can be a reaction to something seemingly insignificant (someone raising their voice, rolling their eyes or being dismissive of your opinion) EQUITY July 2015 Page 12

or to something very significant (perhaps the limitation of resources required to keep the business profitable or venturing into new markets). Because emotions are contagious, there must be at least one person present in the meeting who is not swayed by emotion (but can display appropriate emotions) and can remain logical at all times.

Herein lies the importance of the meeting Chair.

In his book ‘Building a Better Board’, Richard LeBlanc says ‘It will come as no surprise to anyone that the leadership skills of the chairman is the single most important factor in determining effective board processes, optimal decision making and overall effectiveness of a board of directors.’

The Chair must create a constructive team meeting culture in which collaboration and open, robust debate is embraced.

The Chair must always provide an opportunity for every team member to contribute to the decision making process and ensure that appropriate and respectful behaviours are consistently displayed.

While facilitating debate, the Chair must also work to minimise conflict by asking questions to reduce opportunities for misunderstanding and by reframing or rephrasing negative or ambiguous statements to foster a positive climate in the meeting. Being a leader is also about fostering leadership skills in others. This can be achieved by role modelling, creating or offering experiences and training. A good Chair works to develop the emotional intelligence of each team member.

Not all senior personnel welcome opportunities to learn about and build their emotional intelligence, but are often very receptive to participating in workshops. Teams usually welcome such training because people sense or know when there are tensions in meetings due to the presence of conflict and are fully aware of the impact this has on their and other’s participation and the overall effectiveness of the decisions being made.

Centro is a classic example of a Board that did not engage in robust debate to ensure optimal decision making. It would seem that to challenge opinion created conflict (as it went against the norms of the expected team culture). In addition, it would seem this conflict was not constructively addressed and fully resolved.

Successful teams engage in positive conflict, promptly resolve negative conflict and foster growth in individual and group emotional intelligence. These traits are the foundations of a high-performing, constructive team which sets the culture for the whole organisation and makes sound decisions that directly impact on the success of the business.

The author draws on her own experiences of working with Boards and Senior Executive Teams and learnings from the AICD, Company Directors Course, Decision Making Module.

The ups and downs of South32

By Gaurav Sodhi, Senior Analyst, Intelligent Investor Share Advisor

BHP Billiton spinoff South32 has had a tumultuous start to life; falling, rising and falling again in just a few weeks as a listed business.

Such volatility is not unexpected from a mining business but, in this case, it appears to have little to do with commodity price movements and more to do with buying and selling as new and old shareholders cross paths.

Such short-term inefficiencies can create opportunity and with South32’s share price now below $2.20, we’re upgrading to Buy. For the reasons why, let’s look at the best assets in the miner’s portfolio.

South32’s returns come largely from just two assets: between them, the Cannington silver mine (also a lead and zinc producer) and the GEMCO manganese business in Northern Australia generated about 80% of operating profit last year. Both are widely recognised as world-class mines.

It’s easy to see why. Cannington, which made a return on assets of almost 200% as silver prices peaked in 2012 (see table), still generates a return on assets of 95% at far lower silver prices. Although reserves are stated at less than 10 years, converting the underground operation to an opencut mine could add another 20 years of mine life at similar rates of return.

A recorded asset value of just $435m grossly undervalues this marvelous mine, where we think true value sits closer to $3bn. As the largest, lowest-cost silver mine in the world it should be a consistent cash generator.

Return on Assets by asset, 2012-14

FY2012

FY2013

FY2014

Worsley Alumina

-3%

-3%

1%

South African aluminium

-5%

0%

8%

Mozal aluminium

2%

0%

2%

Brazil aluminium

-6%

-3%

4%

South African energy coal

8%

-4%

0%

Illawarra met coal

47%

10%

-2%

Aust manganese (GEMCO)

25%

34%

30%

South African manganese

-5%

5%

4%

Cerro Matoso

27%

13%

0%

Cannington

192%

149%

95%

GEMCO, the Australian manganese business, is also outstanding, consistently generating a return on assets of around 30%. As the world’s largest, lowest-cost manganese producer, GEMCO should be able to generate high rates of return at any conceivable price. A recorded asset value of $1.3bn undervalues GEMCO by at least 50%. We aren’t bullish on manganese prices but lower costs should continue to deliver return on assets of close to 30%.

Identifying quality is sometimes as easy as picking high returning assets. More often, however, we need to identify assets that might generate higher profits tomorrow than they do today. Worsley Alumina in Australia and Cerro Matoso nickel in Colombia are two such mines.

With each earning a return on assets of under 1%, neither Worsley nor Cerro Matoso are obvious profit engines. Both assets, however, have potential to spew enormous amounts of cash under better conditions. These are higher quality businesses than generally believed.

As the recipient of over $3bn of capital over recent years, Worsley was one of the few South32 assets to receive lavish attention from BHP. Last year’s operating profit of just $24m follows years of losses but doesn’t reflect recent upgrades or improving conditions in the alumina market.

As one of the largest integrated mines and refineries anywhere, the asset is highly geared to prices and could be a significant profit engine in years ahead. It is also a strategically important mine that feeds alumina into aluminium smelters in Africa.

We aren’t generally keen on laterite nickel but the Cerro Matoso nickel mine in Colombia is truly epic in size, one of the world’s largest single nickel producers and one of the few laterite nickel mines where the tricky art of separating metal from rock has been mastered.

The mine currently generates no profit but has enough resources to last decades. It should, over time, produce far better returns than it does today. On the books at $1bn, Cerro Matoso was generating operating profits of over $300m just two years ago and requires only mildly higher prices or lower costs to restore profitability.

Although the unpredictable swings of commodity prices are tempered by a business that is well diversified, our chief concern is the risk of operating so many South African assets. Specifically, there is a growing risk that the dysfunctional local utility, Eskom, will not be able to supply electricity to the South African mining industry in general and to South32’s aluminium smelters in particular.

Such risks are hard to price or anticipate but they are at least offset by attractive prices. South32 trades at a 10% discount to net asset value, a sum that undercooks some of the best assets in the portfolio. With ample scope to lift returns, little net debt and an attractive price, we’re once again upgrading South32 to BUY. Gaurav Sodhi is a senior analyst at Intelligent Investor Share Advisor. This article contains general investment advice only (under AFSL 282288).

Authorised by Nathan Bell. Unlock all of Share Advisor’s stock research and buy recommendations by taking out a 15-day free membership at shares.intelligentinvestor.com.au.

EQUITY July 2015 Page 13

The AGM mini-season in review

By Anna Lau, Head of Research

The 2015 mini-AGM season, which hosted meetings for listed companies with 31 December balance dates, started off steadily with minimal action, but ended with some sizable remuneration protests and a few “near-misses” on first strikes.

Amongst the “near-misses” were Santos, Spark Infrastructure and Invocare. The ASA saw adequate alignment between executive pay and the company’s (disappointing) financial performance in the case of Santos and supported the remuneration report. However, the proxy advisers disagreed resulting in a 23.5% vote against the report.

Spark Infrastructure and Invocare were also hit by protests nearing the 25% mark (a vote of 25% would have resulted in a strike) – we agreed with the outcome in both cases.

We also saw good reasons for some of the other remuneration protests: Macquarie Atlas (12%) for the substantial fee leakages to Macquarie Group, Westfield Group (8.5%) and its newly listed spin-off Scentre Group (13.75%) for the excessive incentives paid to key executives and APN News & Media (12%) for the high quantum of short term bonuses and weak long term incentive targets. Protests were seen at AMP, QBE, Leighton Holdings (renamed CIMIC Group) and Beadell Resources.

Another notable theme involved long-serving directors staying on for an additional term. The ASA initially intended to oppose the re-election of Chairman-elect Trevor Gerber at Sydney Airport because of his length of tenure and previous involvement with a number of poor performing companies,

but decided to support him after receiving satisfactory assurances at the meeting. We also supported experienced directors Linda Nicholls (Sigma) and Elizabeth Bryan (Caltex) after receiving assurances regarding independence and workload and in both cases, we acknowledged the significant contributions the director brought to the board.

However for Linda Nicholls it seemed proxy advisors did not agree, and she received over one-third of shareholders opposing her re-election.

Perhaps the biggest surprise of the season was the withdrawal of the termination benefits resolution for the outgoing CEO at Invocare. The ASX was advised of the withdrawal on the morning of the AGM and it was not until questions were asked at the AGM that the Chairman revealed the resolution had been defeated by 70% of shareholders.

Several high profile special meetings were also recently held: the demerger of South32 from BHP, the acquisition of Toll Holdings by Japan Post and Federation Centre’s merger with Novion Property Group. These transactions were each passed by overwhelming majorities.

Notably, the ASA expressed our discontent with the way the Federation Centres/Novion transaction was structured to deny bidder shareholders a vote. At the time of writing, the meeting for the Vocus/Amcom merger was yet to be held. Members can read more in the article “Why bidder shareholders should get a say” featured on page 21 of this month’s Equity.

ASIC enhances Financial Advisers Register ASIC has now launched the second stage of the Financial Advisers Register (FAR) which now includes information about advisers’ qualifications, training and memberships of professional bodies.

The register, which has been available to the public since the end of March this year, can be searched on ASIC’s MoneySmart website www.moneysmart.gov.au. To date EQUITY July 2015 Page 14

there have been more than 60,000 visits and more than 100,000 searches undertaken on the register.

There are more than 23,000 financial advisers now on the register. It contains details of persons employed or authorised – directly or indirectly - by Australian Financial Services (AFS) licensees to provide personal financial advice to retail clients on investments, superannuation and life insurance.

AMP AGM 5-Year Chart

MONITORS: MONITORS: RICHARD WILKINS AND IAN GRAVES Date Date 7 May 2015 Venue Venue Sydney Town Hall Attendees Attendees Approx 500 ASA proxies shareholders plus Value of proxies 100 visitors Proxies ASAvoted proxies Market cap Value meeting of proxies Pre-AGM

4.35m shares from 950 holders $28m

Proxies voted

Yes

Market cap

$19bn

Pre-AGM meeting

Yes, with Chairman and Investor Relations Director

ILUKA AGM 1-Year Chart

MONITORS: MONITORS: LEN ROY, PETER Date TALLENTIRE AND GEOFF FIELD Venue Date 20 May 2015 Attendees Venue Perth Convention & ASA proxies Exhibition Centre Value of proxies Attendees

43

Proxies ASAvoted proxies

625,000 shares from 175 holders

Market cap Value meeting of proxies Pre-AGM

$5.28m

Proxies voted

Yes

Market cap

$3.67bn

Pre-AGM meeting

Yes, with Chairman, Rem Committee Chairman & Assistant Company Secretary

NEW CHAIRMAN CONFIRMS STRONG GROWTH PROSPECTS FOR INDUSTRY LEADER New Chairman Simon McKeon and CEO Craig Meller made comprehensive presentations.

All parts of the Group are doing well. The strong recovery in the life insurance division was particularly welcome, with further improvement expected in the next 3 years. The Group’s outlook is for sustained long-term growth - both in AMP’s traditional markets of Australia and New Zealand, and through recent joint ventures in China and Japan.

No changes to strategy or dividend policy were announced. In response to ASA’s question, the Chairman said AMP would not rule out making smaller acquisitions, but they would have to be on very attractive terms and, in any case, there was abundant scope for organic growth.

The AGM was well-attended and the mood was positive. 10 shareholders asked insightful questions on a range of subjects, including competition, financial education, peer positioning, shift away from commission payments to ‘fee for service’, aggressive tax planning for customers or AMP itself (not done), and audit fees. The Chairman said that, fortunately, in the last 12-18 months AMP had not suffered from the major distractions and problems rife in the advice industry, so had been able to focus on positive developments to business and strategy.

Paul Fegan and John Palmer were re-elected as directors by 92.9% and 99.4% respectively. The votes against Mr Fegan’s re-election were surprising, considering his skills and experience. The Chairman asked all directors, not only those standing for re-election, to speak briefly on ‘what AMP means to them’.

ASA and 2 other shareholders spoke on the Remuneration Report. One said that overall remuneration, especially LTI, was too high. Another wanted the Relative TSR hurdle to be replaced by Absolute TSR. ASA voted against that report, despite its many qualities and improvements, as well as the CEO’s LTI. In reply to ASA, the Chairman explained the recent voluntary decision by the senior executive team to forgo the entire vesting of their 2012 LTIs, because of an error in the LTI offer letters to staff, but they ensured that all other eligible staff (about 100) received theirs. This was an impressive and commendable sacrifice. We voted in favour of the increased cap for the NED fee pool.

Poll votes against the Remuneration Report, the CEO’s LTI and the NED fee pool cap were 9%-11%, This was surprising, as the resolutions were very similar to previous years’ which received considerably lower votes against.

Note: This is an extract from a longer report available on the ASA website https://www. australianshareholders.com.au/companies.

PRESERVING FINANCIAL HEALTH DURING LOW CYCLE, INCREASED OUTPUT AHEAD Chairman Greg Martin introduced the Board members and the Company Secretary. He summarised board focus into three areas: main priorities of the board, financial position of the company, and governance and remuneration matters. It was reinforced that Iluka had a highly disciplined approach in shepherding the business through challenging low cycle conditions.

Iluka reported an after tax loss for FY14 of $62.5 million, inclusive of a non-cash impairment of $86.5 million of assets in Virginia and North Carolina, USA. Mr Martin also acknowledged that Iluka recorded a negative share price movement in FY14. It was however pointed out that since the commencement of the 2015 year, the share price had appreciated 44% compared to the ASX Materials Index (7%) and ASX200 Index (3%).

CEO and Managing Director David Robb emphasised the financial health of the company and explained how Iluka operations were tightly tuned to market conditions. He forecast higher combined Zircon, rutile and Synthetic Rutile production in FY15. Negotiations and due diligence surrounding the all share offer for Dublin based Kenmare Resources (owner and operator of the long life Moma MS mine in Mozambique) are continuing.

Mr Robb indicated the 18.3% equity investment in UK based R&D company Metalysis was benefiting both production technology and end product development. Iluka is also working with Vale, Brazil on potential JV commercialisation of a large Titanium mineralisation at Tapira. Mr Robb addressed with circumspection questions on the Kenmare acquisition opportunity and the USA operations which are being put on care and maintenance.

Director Gavin Razos, who was up for re-election, spoke of the benefit of being UK based when global issues were under focus. Chairman of the Remuneration Committee Wayne Osborn addressed the status of the Iluka remuneration review. The ASA monitor acknowledged the freezing of KMP fixed remuneration in FY14 and FY15 and improvement in LTI target from 30% to 60% of fixed remuneration as part of an improved long term focus. We cited many examples where ASX listed companies had increased their LTI performance period to a minimum of 4 years and requested Iluka do likewise.

The 3 resolutions put to the meeting (re-election of Gavin Rezos, adoption of remuneration report and the increase in NED fee cap) all achieved majorities of over 97%. ASA supported all 3 resolutions.

EQUITY July 2015 Page 15

INVOCARE AGM 1-Year Chart

CONTROVERSY OVER REMUNERATION AS 70% OPPOSE CEO PAYOUT This was a meeting in which remuneration proved the contentious issue. In terms of operations, there were some questions from the floor with particular concern around the recently commenced business in California and in relation to prepaid funerals and funeral insurance (the latter is not offered by Invocare).

The meeting was assured that, while the Californian operations were developing a new concept in the US of mobile arrangers and digital support, the investment was exploratory in nature and involved minimal cost. The concept of prepaid funerals was explained and assurance given on the integrity of the scheme and internal funding.

The ASA’s major concern was with the incentive scheme for the CEO and other senior executives. Issues that had been discussed in the pre-AGM meeting included the relative proportion of fixed and “at risk” remuneration, a higher STI than LTI payable solely in cash, a LTI with periodic vesting over its term and an EPS target that was subject to “normalisation”.

MONITORS: ROGER ASHLEY AND JOEL GREEN Date

22 May 2015

Venue

37 shareholders plus 28 visitors

Attendees

741,000 shares from 125 holders

ASA proxies

391,323 shares from 198 holders

Value of proxies

$9.8m

Proxies voted

Yes

Market cap

$1.4bn

Pre-AGM meeting

Yes, with CEO and Company Secretary

RIO TINTO AGM 5-Year Chart

In his comments on the remuneration report, the Chairman acknowledged that the ASA and others had expressed concern over the incentive scheme and said that there would be a full review of the scheme for the coming year that would take into account matters raised by the ASA. While the remaining resolutions for the election of directors and an increase in the directors’ fee pool passed with votes in favour of upwards of 94%, the “for” vote on the remuneration report was 76%.

A further resolution in the Notice of Meeting was to approve termination benefits for the outgoing CEO. This was a statutory necessity as the proposed benefits (specifically the 2015 STI and LTI deemed share vesting) exceeded the specified multiple of the CEO’s base salary and therefore required shareholder approval. The ASA monitor was advised on arrival at the meeting that the ASX had been notified of the withdrawal of this resolution on the morning of the meeting.

Mr Stephen Mayne raised the withdrawal of the resolution early in the course of the meeting from the floor. His point was that the withdrawal was obviously the result of the board becoming aware that the resolution would not be approved and, in the interest of transparency, asked for detail of the proxy votes that had led to the decision to withdraw the resolution. The Chairman reluctantly divulged the proxy votes that indicated an approval of less than 30%.

IRON ORE MARKET SHARE UPHELD BUT OFFSET BY TWO WORKPLACE FATALITIES Chairman Jan du Plessis highlighted the company’s FY14 performance against a backdrop of low cycle commodity prices, currency fluctuations, plus divergent monetary policies in Europe, Asia and Americas. Rio achieved underlying earnings of $9.3bn, net cash from operations of $14.3bn and EBITDA margin 39%. In FY14, Rio paid taxes and royalties of $7.1bn globally plus a further $1.8bn on behalf of employees. It was emphasised that Rio invests in and operates low cost long life expandable businesses in the most attractive sectors.

CEO Sam Walsh highlighted the company’s agreement to hand over to the State Government 175,000 ha of the Mitchell Plateau for a new National Park. Mr Walsh spent some time addressing Rio’s safety performance. Whilst the All Injury Frequency Rate KPI amongst the 60,000 global employees had fallen 9% in FY14, the company acknowledged that the two fatalities at work in FY14 was totally unacceptable. Mr Walsh addressed both tragedies.

MONITORS: DUNCAN SEDDON AND LEN ROY Date

7 May 2015

Venue

Perth Convention Centre

Attendees

Approximately 200

ASA proxies

1.08m shares from 777 holders

Value of proxies

$63m

Proxies voted

Yes

Market cap

$24.8bn

Pre-AGM meeting

Yes, with Chairman

EQUITY July 2015 Page 16

Responding to low cycle market conditions Rio has, since 2012, achieved substantial cost reductions across its major business units, as well as reducing capital expenditure, debt and net gearing in FY14. It was acknowledged that today everybody in Australia has an interest and opinion on the iron ore sector. Rio’s share of the current iron ore market is 20% which is the same level as that a decade ago.

ASA acknowledged the positive turnaround in the Aluminium business unit but questioned the poor performance and losses incurred in the Alumina refining division. The CEO indicated that overall in the Aluminium business unit there were about 500 operational improvement initiatives underway and the bulk of those were within the Alumina refining division.

All but one of the directors attended the AGM, with non-executive directors Michael Fitzpatrick and Lord Kerr retiring at the meeting. Two new non-executive directors, appointed since the last AGM, Megan Clark and Michael L’Estrange, were elected with shareholder support exceeding 99%.

Rio Tinto Ltd and Rio Tinto plc have a joint electoral procedure. All 18 resolutions put to the Perth AGM were strongly supported. Following the close of the meeting, the ASA monitor spoke with the Chairman and Ms Anne Lauvergeon concerning her workload.

We were assured that Ms Lauvergeon’s relatively high number of external commitments do not in any way discount her obligations and responsibilities to the Rio board.

SIGMA AGM 1-Year Chart

MONITOR: GEOFFREY BOWD Date

8 May 2015

Venue

Victorian Arts Centre, Melbourne

Attendees

73 shareholders plus 36 visitors

ASA proxies

2.4m shares from 98 holders

Value of proxies

$2m

Proxies voted

Yes, on remuneration only

Market cap

$908m

Pre-AGM meeting

Yes, with Chairman, Company Secretary and IR Manager

SYDNEY AIRPORT AGM 5-Year Chart

EARNINGS GROWTH, BUT A STRONG PROTEST AGAINST LONG SERVING DIRECTOR Chairman Brian Jamieson and CEO Mark Hooper summarised the commendable financial results achieved in 2015 with an emphasis on the transformation of Sigma from a struggling enterprise five years ago. The focus has been on fixing the business and now that has been done, it will be on continued broadening of the earnings base, implementing further efficiencies, brand promotion and hence shareholder wealth.

Sigma has acquired CHS, Pharmashave, Chemist King and Discount Drug Stores thus obtaining further and new market exposure. It has a debt free, stable balance sheet which enables prudent consideration of further expansion opportunities. ASA questioned the high goodwill figure and the Chairman explained that this was a consequence of purchasing companies with a relatively low tangible asset value but higher brand value.

The present figure is considered valid but will be constantly reviewed.

Dividend was lower due to a lack of franking credits. The share price growth appears to recognise the progress in repositioning Sigma’s business. An on-market buy share buy-back continued and will be reviewed for 2015.

The results for the first three months of FY15 are ahead of expectations and the CEO is confident this performance will extend through the year.

We supported the remuneration resolution as the policy, apart from some aspects of the long term incentive structure, is substantially in alignment with ASA guidelines.

We accept the stringent testing of performance hurdles. Last year ASA criticised the presentation and hence ‘ease of reading’ of the remuneration report. We were subsequently invited to explain our concerns. At this AGM, we complimented Sigma on a much improved layout, narrative and hence overall presentation. The remuneration report received 97% support.

We indicated support for all other resolutions which were passed on a show of hands and each with the exception of the re-election of Linda Nicholls, received about 98% of proxy support. Ms Nicholls received 66% support and this was due to two proxy advisors opposing her re-election as she has had more than 12 years with Sigma. The ASA questioned and received assurance at the AGM from the Chairman about both independence and workload. It is likely Ms Nicholls may not serve beyond this term as succession plans are progressed.

An ASA member and shareholder asked about the resolution to increase the director’s fees pool. The Chairman explained that this was to enable succession issues and a possible increase in the number of directors.

SHAREHOLDERS LOOK TO BRIGHT FUTURE WITH A VERY HIGHLY PAID CEO Both outgoing Chairman Max Moore-Wilton and CEO Kerrie Mather delivered upbeat reports affirming solid passenger and revenue growth along with good freight volumes.

The Chairman confirmed the distribution guidance of 23.5 cents for 2015, up by 6.4% from 2014.

Information was given about the proposed second Sydney airport, with a 9 month consultation period ending on 30 June 2015 and a possible formal proposal from the Commonwealth Government at the end of the year. In response to questions from the floor as to an indicative cost estimate, the Chairman explained he could not give a broad estimate as this depended on a number of factors.

MONITORS: JOYCE YONG AND PHILIP LAIRD Date

14 May 2015

Venue

Four Seasons Hotel, Sydney

Attendees

214, including 113 shareholders

ASA proxies

3.1m shares from 379 holders

Value of proxies

$16.6m

Proxies voted

Yes

Market cap

$11.88bn

Pre-AGM meeting

Yes, with CEO

ASA again highlighted the deficiencies of the remuneration report that were unchanged from last year. These were the lack of long term incentives and cash payments for short term incentives. As a result, we again voted undirected proxies against the report although this resolution was passed with 99.4% support. We acknowledged that Sydney Airport’s proposed introduction of a long term incentive plan with equity payment would be an improvement but pointed out that we would like to see this based on a 4 to 5 year timeframe rather than 3.

In relation to the re-election of Trevor Gerber, ASA questioned his workload (6 directorships, counting his chairmanship as equivalent to 2), his length of time (over 12 years) as a director on the Sydney Airport board and past directorships of companies that failed during the GFC. We were reassured by his straightforward responses especially about lessons he had learnt about managing risks from his directorships in the failed companies. We voted undirected proxies for his election and he received a vote of over 95%.

On the re-election of Russell Balding, following his address to the meeting, we decided to vote undirected proxies for his election. He received 98.7% in favour.

The Board is currently seeking another non-executive director (NED). ASA urged the Board to consider mandating limits to the tenure of NEDs and minimum shareholding requirements for NEDs now that the Board is being renewed with a new Chairman and new NEDs. In post-AGM discussions with incoming Chairman Trevor Gerber, ASA stressed that we expected the Board to take advantage of the opportunity presented by the first right of refusal to build the second airport to deliver a good outcome for security holders.

EQUITY July 2015 Page 17

AGM/EGM REPORTS RECENTLY PUBLISHED ON ASA’S WEBSITE ASX code

Date

Monitor(s)

Report

Paladin

Company name

PDN

30-Mar-15

L Roy and G Sherwin

“Paladin seeks to raise cash from ‘strategic partners’”

Macquarie Atlas

MQA

17-Apr-15

Nick Bury

“Concerns over excessive fees finally taking flight”

Asaleo Care

AHY

22-Apr-15

Peter Rae

“Shareholders to benefit from strong cash flow as capex winds down”

Buru Energy

BRU

29-Apr-15

Alan Dickson

“Spill resolution avoided at a very tame AGM”

Ausenco

AAX

30-Apr-15

K Buchanan, S Mellick and P Driessen

“Subdued atmosphere reflects tough industry times”

APN News and Media

APN

6-May-15

M Keynes, J Worthley and P Laird

“Restructure amidst zero dividends & falling share price”

IRESS

IRE

7-May-15

Eric Pascoe

“International focus with 13% revenue increase”

AWC

8-May-15

Ian Curry

“Strong signals for better results”

Alumina Coca-Cola Amatil

CCL

12-May-15

Roger Ashley

“New strategies but too early to judge”

STW Communications

SGN

13-May-15

David Allen

“Shareholders express disappointment with results”

Toll (EGM)

TOL

13-May-15

Gavin Morton

“Shareholders sell to Japan Post for 58% premium” “Chairman hints at offshore listing”

Westfield Corporation

WFD

14-May-15

J Nesbitt and I Anderson

Beadell Resources

BDR

20-May-15

Stephen Weston

“Confident of meeting improved targets in 2015”

G8 Education

GEM

21-May-15

Kim D'Arcy

“Journey from small company to the top 200”

PanAust

PNA

22-May-15

Peter Moy

“Another Australian miner lost to sovereign wealth fund”

Spark Infrastructure

SKI

22-May-15

Steve Watson

“Lightning alert – almost a first strike!”

M Davey, B Ritchie and T Rado

“Giving board renewal a go”

Boart Longyear

BLY

26-May-15

Novion (EGM)

NVN

27-May-15

John Cowling

“Security holders overwhelmingly support merger”

Adelaide Brighton

ABC

27-May-15

Stefan Landherr

“Steady as a rock”

AusNet (EGM)

AST

29-May-15

Tom Rado

“Corporate transformation as part of a new direction”

Seven West (EGM)

SWM

02-Jun-15

Allan Goldin

“Seven Group picks up 6% in mispriced capital raising”

Full reports are available on our website at www.australianshareholders.com.au/companies.

BRICKBATS To Hansen Technologies for capping its share purchase plan (SPP) at $10 million and offering shareholders a maximum of $5,000 per application, and then only in 5 specified parcel sizes. Most companies allow shareholders to apply for up to the maximum $15,000 allowable under the law, so we do not see why Hansen Technologies is seeking the cap the total amount raised as well as limit specific application size unnecessarily.

To Invocare for withdrawing the resolution to approve former CEO Andrew Smith’s termination benefits package on the morning of the AGM. The ASA monitor was only informed of this at the meeting and it was not until lengthy questioning by shareholders was it revealed that based on the proxy votes, the resolution would have been overwhelmingly defeated with 70% of shareholders voting against the resolution!

BOUQUETS To Cochlear for its board succession planning which has resulted in internal candidate Chris Smith succeeding longserving chief executive Chris Roberts in the role. Dr Roberts is also to be congratulated for turning Cochlear into a good example of a biotech company which has achieved global leadership in both technology and value for its investors.

Pleasingly, Cochlear Chairman Rick Holliday-Smith has also indicated publicly that, consistent with ASA’s views, it is not good governance to have the former CEO back on the board staying as a non-executive director.

To companies such as Estia Health and IMF Bentham for reaching out to the ASA for a meeting to discuss its corporate governance and remuneration practices ahead of finalising internal policies. Whilst the ASA runs on limited volunteer resources on the company monitoring front, we always like to see companies wanting to improve their practices and listen to the concerns of their retail investors.

EQUITY provides a platform for members to comment. Comments included here do not necessarily reflect those of all members.

EQUITY June 2015 Page 18 Please email your contributions to equity@asa.asn.au.

EQUITY May 2015 Page 18

MEET OUR MONITOR

Tony McAuliffe ‘Meet our Monitor’ is a series introducing one of our company monitors and helping us get to know more about the work they do. Our company monitors are volunteers who come from a diverse range of experiences and backgrounds. This month we introduce you to Tony McAuliffe, from Western Australia, who has been a company monitor for over five years and currently monitors Western Areas and Fleetwood, and assists with Woodside Petroleum.

1. Why did you decide to become a company monitor?

Initially I joined ASA as I had a couple of small shareholdings, and it seemed to present the best opportunity for me to become a more efficient investor. After volunteering for some simple tasks to assist other ASA members, I became a bit more involved and joined a beginners’ BIG group led by Tom Herzfeld. Tom’s coaching concentrated on perusing annual reports of listed companies and explaining the reason for each component of the report. At that point, I realised I was starting to learn the nuts and bolts of investing. A few months later, I was invited to attend a monitor training day and have been taking part in monitoring companies for the ASA since then.

2. What do you think makes a good company monitor?

A monitor must familiarise themselves with the ASA voting guidelines and try to develop an understanding of financial reporting and procedure. The ability to listen and ask questions is vital to understanding the financial procedures and practices of the corporate world. This requires dedication and discipline as monitoring is a somewhat demanding task which requires constant research and hard work.

4. What’s been the most interesting conversation you’ve had with a director?

All of my conversations with directors have been interesting and worthwhile. It’s always interesting to hear their side of it. On one occasion, while lamenting the poor disclosure of an Australian company operating “somewhere” overseas. I expressed our dissatisfaction at the posting of “bad news” some months after the event. The director answered that as many of their shareholders were “mums and dads”, they decided that “bad news” should be released in small amounts so as not to suddenly depress the share price.

5. Which aspect of company monitoring do you enjoy the most?

There is a certain camaraderie at the training days and end of year BBQ. A good pre-AGM meeting with a company can be very satisfying. Some companies mention that “at least the ASA come and talk to us and are interested in what we do”. The real cream on the cake is a compliment from a non-member shareholder at the end of an AGM – however, that only seems to happen at the larger meetings!

Good preparation is essential prior to meeting with company directors and executives. The ability to listen to their side of any debate and understand the nature of their business will result in sound relationships and effective outcomes throughout the monitoring period. Monitors should always strive to frame voting intentions and AGM reports in a clear and concise format, especially as much of our written material will likely be scrutinised by non-ASA members and other interested parties.

6. What changes have you seen in the way that companies engage with shareholders?

Companies are more inclined to discuss remuneration reports now than in the past, where they just listened and nodded. The “two strikes” rule has certainly increased awareness and is probably the main driver of improvement in remuneration practices. However, it is disappointing that many companies are reluctant to extend their performance periods for measuring long term incentives.

3. Tell us about some AGM highlights Two years ago, I was the company monitor at an AGM where the company had failed dismally to undertake corrective actions detailed in its annual report. Our preparation for this AGM was extensive and detailed and I was concerned that the Chairman might cut me off prior to me being able to outline the company’s shortcomings during the AGM. Following seeking some strategic guidance from experienced company monitor, Geoff Sherwin, it was rewarding to finally get our message across in a constructive manner.

7. Tell us more about what you do when not monitoring companies or attending AGMs for the ASA My wife and I are keen West Coast Eagles football club supporters and enjoy attending the games. We also attend a few dances with long-time friends. We are passable at some ballroom and latin dances. Our two adult children have families in Geraldton and Sydney, so a bit of travelling is necessary across the coast from time to time to keep up with four grandchildren. Otherwise, I do a lot of travelling, reading and catching up with old friends.

EQUITY July 2015 Page 19

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Why bidder shareholders should get a say

By Anna Lau, ASA Head of Research ASA has called for bidder shareholders to be given a voice in mergers which involve two companies but only shareholders in the target company are given a right to vote despite bidder shareholders being impacted by the transaction. This was seen in the recent Novion/Federation Centres merger, as well as when Roc Oil (unsuccessfully) tried to acquire all of the shares in Horizon Oil in 2014.

In the recent Novion/Federation Centres merger, the Federation Centres board decided not to offer a vote to its security holders, leading to the situation where 64% of the security holders in the merged group were able to vote on the transaction while 36% had their shares diluted. The merger was overwhelmingly approved by shareholders in the target, Novion Property Group.

The issue lies in the ASX Listing Rules. Shareholders are currently protected from dilution caused by companies issuing new shares by Listing Rule 7.1, which prevents a company from issuing more than 15% of its share capital without the approval of shareholders. However, conveniently for some companies, shares issued in connection with a takeover or scheme of arrangement are exempted from the rule.

Under the rules of all other major exchanges including the United States, United Kingdom, Canada, Singapore and Hong Kong, shareholders of both companies would have had to vote on the merger. ASX is clearly out of step with its overseas peers and there is a strong need for the rules to be tightened.

Separately, ASX Listing Rule 10.1 requires companies wishing to make a significant change to the nature or scale of its activities to provide details of the changes to the ASX, who may then “require” the entity to get shareholder approval.

But we have not yet seen ASX exercise its discretion under that rule to prevent the voting inequality between bidder and target shareholders.

The ASA has been in discussions with the ASX and ASIC in relation to our concerns. However until the rules are changed, bidder boards should be cognisant of not disenfranchising their shareholders by taking advantage of a gap in the ASX Listing Rules and simply need to ensure that they do all they can to preserve the property rights of their shareholders.

Unless the rules are changed, we will likely keep seeing more deals structured in this way.

Should dividend imputation be retained?

The introduction of dividend imputation (franking) removed the double taxation of dividends. Prior to 1987 profits from companies were taxed once at the company tax rate (currently 30%) and then again on dividends paid to shareholders at the investor’s marginal rate.

For taxpayers at or over the 30% income tax rate, the effect of franking is to reduce their tax liability. Taxpayers on rates below 30% receive a franking credit refund. This refund has been available to certain taxpayers (superannuation funds, individuals and charities) from July 2000 and has seen a surge in retail investors’ interest in companies paying high dividends with full franking.

Imputation assists Australians in building their retirement benefits and reduces reliance on government pensions.

Dividend imputation has been a significant factor in maximising portfolio earnings in a low interest rate environment. Franking is but one of many inputs to investment decisions but in the eyes of many investors it is the most important consideration.

Prima facie, without imputation, after tax returns from investments would decline and the incentive for retail investors to invest in Australian companies would fall.

In addition the attractiveness of investing in Australian companies versus investing overseas would reduce. A flight of capital from Australia may result with inherent risks both

to the Australian economy and to investees’ savings that are moved overseas. Removing imputation could lead to a share market sell-down as investors seek alternative sources of income and also a fall in share prices to enhance yields.

Payment of dividends leads to capital recycling from mature businesses to new and emerging businesses. If franking is removed there will be an immediate impact on capital formation and capital allocation, the exact nature of which it is difficult to determine. It is hard however to see how such a measure would enhance Australia’s productivity.

The Australian Shareholders’ Association, representing its members and retail investors generally argues that Australian investors and the companies in which they have invested have benefitted from the introduction of dividend imputation.

Companies have pursued profitable activities, paid tax on their profits and distributed cash to shareholders to allow them to fund their retirement.

Any changes to imputation must be considered in the context of other tax reforms to ensure there are no unintended economic consequences.

Co-authored by Diana D’Ambra MAICD, current ASA Chair, and Ian Curry immediate past ASA Chair. This article first appeared in the June 2015 AICD Company Director magazine.

EQUITY July 2015 Page 21

TNE

TECHNOLOGYONE LIMITED

BIG MEMBERS Len Roy Wayne Platt Kerry Cross Peter Denham Rod Stewart Lloyd Phillips Peter Scales

REFERENCES Stan Taylor Peter Tallentire Lorraine Graham Stephen Weston Peter Scales

Annual Report Company website ASX releases

MAY

2015

LEN ROY AND LORRAINE GRAHAM WITH SIGNIFICANT INPUT FROM THE PERTH BIG E GROUP

THE COMPANY AND ITS BUSINESS Company Overview TechnologyOne Limited (TNE) is a software company, founded in 1987 by family companies of current executive chairman, Adrian Di Marco, and non-executive director, John Mactaggart.

Profitable since 1992, TNE listed on the ASX 8 December 1999 at $1.00. TNE has 308m shares on issue with a market capitalization of $1,228m. It is one of Australia’s largest publiclylisted software companies.

With 900+ employees, 300+ of whom are software developers, TNE generates approximately $195m+ revenue from 1000+ corporation and government department customers in six countries.

TNE products and services include: • Enterprise software (designed to suit specific company).

Examples include financials, human resource & payroll, supply chain, property & rating, business intelligence, budgeting and forecasting and many more.

• Preconfigured software (designed for industry and available for immediate use). Examples include: OneCouncil, OneWater, OneEnergy, OneAgedCare, OneEducation and many more.

• Consulting service The 2014 R&D spend was 19% of revenue and focussed on: • Next generation of Ci product: allows organisations to use smartphones and tablets to access enterprise software • TechnologyOne Cloud: allows TNE to provide the processing power, software and services including backup, recovery, upgrade and support services. This should achieve enormous economies of scale, streamline operations, reduce costs, improve customers’ experience, as well as reduce the time to market for new features and functions.

TNE market includes Government, Local Government, Financial services, Education, Health & Community Services, Utilities, Managed Services.

TechnologyOne has 14 offices throughout Australia, New Zealand, Asia, the South Pacific and the United Kingdom.

FINANCIAL PERFORMANCE The market capitalisation for TNE is $1,228m with 309m shares on issue. The current PE ratio is 40.46 and the dividend yield 1.51% fully franked. The shares have traded between $2.33 and $4.31 over the past twelve months. The share price of TNE was $3.90 at the date of this report.

Total shareholder returns 1yr 55.4% 3yr 54.2% 5yr 42.7%

EQUITY July 2015 Page 22

Five Year Summary

2010

2011

2012

2013

2014

Revenue (m)

134.8

155.3

167.6

179.0

192.9

NPAT (m)

17.8

20.3

23.6

27.0

31.0

Operating Cash flow (m)

31.6

21.2

28.0

33.0

35.0

Capex (m)

12.3

4.6

1.8

1.5

1.5

Free Cash flow (m)

18.6

16.1

26.0

31.0

33.0

Dividends paid (m)

17.1

18.5

15.6

17.2

19.1

Long Term Debt (m)

1.7

7.4

5.4

3.6

2.3

Equity (m)

63.4

68.4

74.0

87.7

104.5

Return on Equity (%)

28.1

29.7

31.8

30.8

29.6

Market Cap (m)

294

325

417

630

979

Shares on issue (m)

300

303

305

307

308

Share Price ($)

0.98

1.07

1.37

2.05

3.17

EPS (c)

5.8

6.5

7.6

8.7

9.9

DPS (c)

5.7

6.1

5.1

5.6

6.2

Yield (%)

5.8

5.7

3.7

2.7

2.6

Operating lease commitments Within one year: $6.9M (down from $7.1M 2013) One year and less than five years: $13.8M (down from $20.0M 2013) Total Operating Lease commitments: $20.7M (down from $27.7M 2013) 2015 HY Results Subsequent to the review, TNE released half year accounts on 26 May 15. Key results were • Revenue: Increased by 3% • Interim dividend: Increased 10% to 2.15 cps • Net profit (before tax): Decreased by 10% • Profit growth (FY): TNE predicts 10-15% • Debt / equity: 3% • UK Business: Added 4 new customers to total of 21 (critical mass = 40) • EPS (basic): Decreased by 10% (from previous corresponding period) to 2.87 cps • NTA: Increased 2% (from previous corresponding period) to 23.63 cps • Interest cover: 123 times • Acquisitions: Acquired Icon Software & DMS

INTANGIBLES Intangibles Intangible assets totalled $15.68m with total assets of $151.4m.

Intangible assets were made up of goodwill ($15.49m) and intellectual property/source code ($0.19m).

The last significant item of accumulated goodwill added to the balance sheet was in 2008 ($2.63m) as the result of the acquisition of Avand Pty Ltd. The total intangible assets at year end Sep 2008 was $17.3m. In May 2015, TNE acquired Desktop Mapping Systems Pty Ltd for $12m.

BETTER INVESTING

10 YEAR

5 YEAR

1 YEAR

MAJOR SHAREHOLDERS Shareholdings As at Sep 30 2014, the Top 20 shareholders own 76% of total ordinary listed shares. First four within the Top 20 list are; Jl Mactaggart Holdings Pty Ltd 15.49% Masterbah Pty Ltd (An Adrian Di Marco Family Account) 14.03% Hsbc Custody Nominees (Australia) Limited 10.14% Jp Morgan Nominees Aust Ltd 8.55% As of Feb 2015, Hyperion Asset Management Limited increased holdings to 9.35%

DIRECTORS AND CHIEF EXECUTIVE Board of directors and senior executives Adrian Di Marco, B Sc, FAICD Chairman / CEO Founded TNE in 1987 Ron McLean, NED, Appointed Dec 1999 John Mactaggart, FAICD, Appointed Dec 1999 Kevin Blinco B Bus, FCA, NED, Appointed April 2004 Richard Anstey AICD, FAIM NED, Appointed Dec 2005 Edward Chung BCom, MCom, CA, FTIA, AICD Appointed May 2008 The ASA BIG review committee expressed three concerns on board structure; 1. NED Ron Mclean is stated as Independent. Previously TNE’s General Manager, Chief Operating Officer and Chief Executive Officer and taking into account Mr McLean length of service as a director the review committee felt it was arguable that Mr McLean did not meet ASA or ASX independence criteria.

2. Both ASA & ASX governance guidelines require the positions of Chair and CEO not be held by the one person. Mr Adrian Di Marco is Executive Chairman of TNE. The committee did acknowledge the chairman founded the company with Mr Mactaggert and has been the primary driver for the success of the company.

3. The TNE board does not have any gender balance and the committee felt this should be addressed in accordance with today’s best practice for board structure.

Board Committees Remuneration committee is chaired by independent NED Ron McLean Nomination committee is chaired by independent NED Richard Anstey Audit committee is chaired by independent NED Kevin Bilnco

GROUP

Director shareholdings as at Sep 30 2014 Adrian Di Marco Kevin Blinco Ron McLean Richard Anstey John Mactaggart Edward Chung

43,378,500 201,825 101,000 7,500 54,902,500 400,000

REMUNERATION CULTURE Executive Directors The pay structure is based on a base pay of approx. 40% of target remuneration, short-term incentives of approx. 50% of target remuneration, and long-term incentives of 10% of target remuneration. The philosophy of remuneration structure was designed to motivate achievement of goals, but avoid unnecessary risks.

Non Executive Directors (NEDs) The NEDs remuneration is based on a fixed fee.

The ASA BIG review committee were comfortable with the current remuneration culture.

BUSINESS RISKS Losing key software designers A risk was seen if key senior software developers were to leave the company.

Revenue reduction due to tighter government budgets With tightening of government budgets expected, the committee saw this as both a risk and an opportunity and could not quantify the risk.

Market share loss to competitors Oracle, SAP, and Microsoft are TNE competitors. Will TNE lose market share to smaller or bigger players? The committee believed the risk to smaller players was small. TNE’s R&D investment has helped the company avoid offshore licence fees and tailor software for optimum outcomes.

UK Business a financial drain Established prior to 2008, the loss in 2014 for the UK business was $0.8m. 40 customers are required for breakeven and 5 new customers were added in 2014 to make a total of 17.

Progress in the UK has been very slow and we considered whether it was viable to continue.

This report was compiled by ASA member: Peter Denham with significant input from the Perth BIG E Group.

DISCLAIMER: This report was prepared by a member of the ASA for use by a Better Investing Group. The content included in this Better Investing Group Discussion Report should not be interpreted as investment advice or be taken as representing the ASA’s view of the company. While ASA representatives report on their analysis of company reports, investment advice can only be obtained from persons appropriately licensed to give it.

Neither the Association nor its representatives are licensed to provide financial advice and accept no responsibility for decisions made on the basis of information contained in this report.

EQUITY July 2015 Page 23

The Rommel / Monty Rules

(Tip 2)

By Peter Schiefelbein, ASA Company Monitor

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

Winston Churchill’s famous quote comes from a luncheon speech he gave following the defeat of Irwin Rommel’s Afrika Corp by Montgomery’s 8th Army at El Alamein in 1942. After a string of disastrous losses for the Allies, Monty had finally delivered their first significant win of World War II. Events in the careers of the two main protagonists of El Alamein illustrate an important rule of investing.

ADOPT AN INVESTING STRATEGY THAT BEST SUITS YOUR PERSONALITY Monty famously said: “Strategy is the art of the conduct of war, tactics the art of fighting.” Adapted to the context of investing, strategy means the plans you have for how you conduct your investing to achieve successful outcomes.

Finding and implementing a good investment strategy is the number one stumbling block for many investors.

Military metaphors for investing are popular and none more so than those drawn from Sun Tzu’s “Art of War”. A dozen financial writers have found lessons in this 2000 year old Chinese text. Some of their advice is useful such as having the patience and discipline to wait for only the best opportunities. However, I have always had a problem with another of the assertions they typically make, specifically, that investors should change their investing strategy to suit changing market circumstances e.g. CJ Montgomery’s 2003 “Sun Tzu on Investing”.

Diagnosing market circumstances correctly is very difficult.

Many investors who keep changing strategies find they are always one step behind the market. They don’t stick with a strategy long enough for it to bear fruit, and often end up holding the wrong stocks at each stage of the investment cycle. By contrast, a typical fund manager employs one strategy for most of his or her career and rather than changing strategies will modify their portfolio risk profile by changing sector and stock weightings and capital allocations depending on where they think the market is in the investment cycle. They accept there will be some bad times for their strategy, but believe that sticking with it produces the best results over the full cycle.

“…this is not the end. It is not even the beginning of the end.

But is, perhaps, the end of the beginning.”

EQUITY July 2015 Page 24

Different strategies suit different personality types so switching between strategies can have negative consequences for your state of mind, as well as your bank account. It is helpful to think of the core investing strategies as existing along a scale. At one end you have contrarian investing which involves seeking out deep value and buying shares in the most unloved companies. Contrarian investors typically have a high degree of confidence in their ability to make sound judgements about the long-term prospects of a company and have the patience to wait, sometimes for very long periods, for their decisions to be vindicated.

Stocks that are cheap are always cheap for a reason and many get still cheaper until they disappear completely so contrarian investors also need a personality that has both the strength to swim against the prevailing tide and also the intellectual flexibility to admit when they are wrong and sell a stock when it may mean taking a very large loss.

Investment Strategies Scale Contrarian

Value

Growth

Momentum

At the other end you have momentum investing strategies.

Share prices have a tendency of over-reacting on the downside and the upside. Contrarian investors try to take advantage of downside over-reactions to buy stocks cheap. Momentum investors ride the over-reaction on the upside which often means buying stocks that are already on high valuations and holding them as they become still more expensive. This typically means suspending belief in the value of fundamentals and being responsive to share price movements. Momentum investors, in the purest manifestation, tend to eschew fundamentals for quantitative analysis and often claim that price charts and technical analysis are more useful than financial statements.

Value investing is a soft form of contrarianism, so if you are employing a value investing strategy you need similar traits such as patience, confidence in your opinions, and an ability to recognise when you are wrong and cut your losses.

Growth investing is a soft form of momentum investing and success comes from identifying stocks with good potential to keep growing. It requires a willingness to pay what might seem high relative values for that growth potential and let profits run. Growth strategies require investors to be quick responders when growth falters because share prices can fall far fast.

The above generalisations show how different strategies suit different personalities and it is important to find the strategy that best suits you, and stick with it. I call this the Rommel/Monty Rule.

In 1941/42 Rommel won victories pushing the allied armies across North Africa to Egypt. His forces were outnumbered and he compensated by exploiting the mobility of his troops to push around strong defensive positions to the Allied rear. He frequently placed himself at the head of the most important armoured thrusts and regularly commanded troops at the critical places on the battlefields.

Montgomery was a methodical rather than daring commander. He defeated Rommel at 2nd El Alamein by forcing a battle of attrition that exploited his strength in artillery and denied Rommel mobility. Monty, a master logistician, built his 8th Army into a large, well-disciplined force. He resisted pressure from Churchill to attack Rommel until he was sure his army was ready. Monty’s personality strength was confidence as a disciplined, meticulous planner which worked well against Rommel, and as commander during the invasion of Normandy. However, when Monty tried Rommel’s daring style and launched Operation Market Garden, he suffered the biggest military defeat of his career.

Monty subsequently fell back on his usual strategy of methodical well-planned advances until the final Allied victory over Nazi Germany.

FINDING THE RIGHT STRATEGY When it comes to finding the right strategy there is no real substitute for trial and error. That sounds worse than it is because the cost of errors can be ameliorated by following a few simple tips.

RESEARCH WIDELY Most books and courses on investing articulate a strategy favoured by their author or presenter. Each may cover several strategies in passing but will generally favour one particular approach. So, reading widely is a good starting point. Be sceptical about the claims authors make since they are rarely frank about their failures. Focus on the commitment each strategy asks of you in terms of your time and resources.

FIND FIT DON’T FORCE FIT As most of us come to investing with an already welldeveloped personality it makes sense to find a strategy that fits our personality, rather than try and mould our personality to fit a strategy. Listen to your inner voice - if you feel a strategy will not work for you, keep looking. Investors rarely succeed when they lack confidence at the start.

DON’T RESIST SKILLING UP Don’t be put off by a strategy that requires you to gain more knowledge, such as on financial accounts or charts. With a little effort this can be remedied and the ASA has resources that can help. Your sense of achievement will be much greater when you have made a special effort on education.

PAPER TESTING Before you commit a cent to a strategy first paper test the strategy for a few investments. That means pretending to make investments by recording your actions in your investment diary (see Equity magazine, Volume 29, #4, “The Pepys Rule”). If your strategy is not working on paper you need to rethink it.

PUT A TOE IN THE WATER (THE RULE OF FOUR) Investing theoretically is very different to investing for real.

There are psychological factors that come into play when real money is being risked (see Equity magazine, Volume 29, #3, “The Little Red Riding Hood Rule”). The goal is always to pay cheap tuition by losing the smallest amount of your capital as you climb the learning curve. A good way to start is by splitting your capital into four equal parts.

Invest only one part – a quarter - during the first year. After making an honest assessment at the end of the year if you believe you have achieved your goals or are on track after some setbacks then invest the second quarter. This means in the second year you still have half your capital safely put aside while you continue to learn. At the end of the second year make an honest assessment and if you are convinced you have achieved your goals that year then invest the remaining two quarters. The benefit of this is you will only be making your full commitment after you have the benefit of two years of learning by doing.

What Winston Churchill said about El Alamein is also true about the task of getting your strategy right. It is “the end of the beginning” of being a good investor.

The next issue will feature the final Tip of this series Peter Schiefelbein, is a member of the ASA Education Committee and was former CIO of the Institutional Alpha Fund and Research Manager of Standard Chartered Securities and Daiwa Institute of Research.

EQUITY July 2015 Page 25

Dear Editor The ASA Conference was very worthwhile. Congratulations on the program and the way it was run. It was a real credit to all involved. I think that ASA is a fantastic organisation which is starting to have real impact in the industry. So I am a very happy long term member.

Peter Evans Dear Editor A huge thanks to Silvana, Samantha and everyone else on the organising committee for the Conference. If there was an injection for a liquid called inspiration then I had a big shot of it. What happens now is up to me, but all conferences should do that. The ASA Conference achieved that in very large measure. As usual it left many questions unanswered, but if we got the answers we would all be multi-millionaires which is impossible. However, that would take the fun away.

On the 8am start I wondered whether I would fall asleep by lunch, but I didn’t! The speakers were of such a calibre that they all passed my sleep test (by a huge margin). Obviously some speakers were better than others (for me), but they were all of a high standard. Obviously most are pushing a barrow, but I don’t care about that as long as you are aware of it; you can learn and be inspired by anyone who is well prepared and a good presenter. And I didn’t get close to falling asleep after lunch either!

Phil Ritchie, Victoria Dear Editor Before a new week begins I just wanted to thank you again for a superb few days of learning at the Conference in May. It’s a huge undertaking and the fact that it went off so smoothly belied the amount of work that had gone in to making it all happen. Also the Masterclass Elio conducted was outstanding.

Nicholas Chesla

WorleyParsons Limited (WOR) Class Action Did you purchase WorleyParsons Limited (WOR) shares between 14 August 2013 and 20 November 2013?

If you did then you may be eligible to participate in a class action to recover losses due to alleged breaches of WOR’s continuous disclosure obligations and misleading and deceptive conduct.

We are investigating whether WOR misled shareholders as to forecast earnings for i the FY2014. In August 2013 WOR gave positive forecasts for FY2014 which were repeated in October 2013. However by November 2013 WOR issued a downgrade in net profit after tax projections, which resulted in WOR’s share price dropping by 26%.

Find out if you are eligible for the WorleyParsons class action at www.acaclassactions.com.au or by calling us on (02) 9216 9898.

ACA LAWYERS

EQUITY July 2015 Page 26

STOCK MARKET COURSE

LEARN BUILD EMPOWER CONFERENCE 2015

We are pleased to offer a special online Stock Market Course available on our website as a free resource for members. (https://www.australianshareholders.com.au/stock-marketcourse) This 10 session course introduces the practical aspects of investing in shares. Whether you wish to become a more confident active investor, better understand advice, or learn to communicate more effectively with investment professionals, this course will help you.

Over 275 members enjoyed the recent ASA conference held in Melbourne from 4-6 May 2015. Topics included understanding financials, SMSF, coverage of ASX sectors, behavioural finance as well as an insightful presentation by Wesfarmer’s CEO Richard Goyder.

This course will help you: • Have an overview of investing in the stock markets • Appreciate the risks involved in investing and understand how these risks can be managed • Understand the need for an investment plan

Most of the sessions were recorded, so if you were not able to attend you can purchase one or a number of the sessions. The audio of the sessions are synchronised to the powerpoint presentations. A single session ranges from $13 (MP3) to $25 (for computer); 8 sessions range from $91 to $175 and the complete set ranges from $199 to $359.

To find out more go to www.evertechnology.com, email or phone Ed at ed@evertechnology.com or 07 3893 1500.

• Have an overview of fundamental and technical analysis

MEMBER SURVEY

• Understand several methods for selecting a stock

We would like to advise members that we will shortly be conducting a Member Survey to evaluate your views on the services ASA offers.

• Understand how to use a broker and buy a stock ASA is grateful to Bill Dodd who produced this course and has offered it to all members. Bill is an experienced investor whose aim is to provide education and information to investors to empower them to become confident, independent investors.

The first 4 sessions are complimentary for both members and non-members, so please encourage your friends and family to view this great online resource.

To better serve you in the future we will be asking for your feedback on education, website, Equity and the services we offer our membership.

Your feedback is important to our ongoing success and we would greatly your participation. Help us to create an even better ASA by taking part in the Member Survey when it’s launched. More information will be available very soon.

NEW ZEALAND SHAREHOLDERS ASSOCIATION ASA is pleased to advise that we are forging closer ties with the New Zealand Shareholders’ Association. ASA members will be eligible for complimentary NZSA membership. As a NZSA member you will receive their e-newsletters, have full access to their website and, if travelling in New Zealand, be able to attend their events as a member.

Information will be sent to members in due course.

Reciprocal benefits will be offered to NZSA members.

EQUITY July 2015 Page 27

INVESTORS’ BIG DAY OUT Canberra, Melbourne, Adelaide, Perth, Sydney and Gold Coast This seminar is designed for investors of all ages who are focused on having a ‘hands on’ approach to portfolio diversification. By attending you will gain a comprehensive overview of the current and future economic environment, investing outside of the ASX200, how to invest internationally, strategies to increase cashflow and be introduced to a range of investment products.

BY ATTENDING YOU WILL

DATES

• gain insights into the Australian and international markets

CANBERRA Thursday, 20 August from 9am to 5pm Canberra Southern Cross Club, 92-96 Corinna Street, Woden

• learn different approaches to asset allocation • understand why international equities play an important part in a portfolio • learn how to find value outside of the ASX200 • review potential products to help create a diversified income stream • understand investment characteristics and return drivers for property • learn how to maximise short-term trading strategies

SPEAKERS INCLUDE • John Abernethy, Clime • Gary Burton, FP Markets • Chris Caton, BT Financial • Anthony De Francesco, IPD • Neil Godwin, The Professional Investor • Gavin Hegney, LMW Hegney

MELBOURNE Friday, 21 August from 9am to 5pm Telstra Conference Centre, 1/242 Exhibition Street, Melbourne ADELAIDE Wednesday, 26 August from 9am to 5pm Adelaide University Club, Level 4, Union House, University of Adelaide, Adelaide PERTH Friday, 28 August from 9am to 5pm Central Park Conference Centre, 152-158 Street Georges Terrace, Perth SYDNEY Friday, 4 September from 9am to 5pm ASX Theatrette, 20 Bridge Street, Sydney

• Alan Hull, ActVest

GOLD COAST Saturday, 5 September from 9am to 5pm Watermark Hotel, 3032 Surfers Paradise Boulevard, Surfers Paradise

• Ian Irvine, ASX - all states

EARLY BIRD PRICES

• Warren Hogan, ANZ • Alex Hughes, Clime

• Craig James, CommSec • Michael Kumm, Blackshaw

ASA members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $130pp

• Alan Langford, Bank West

Non-members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150pp first subscribe online for FREE and then register

• Elizabeth Moran, FIIG - all states

Includes lunch, morning and afternoon teas

• Graham O’Brien, ASX - all states

Early bird prices are available up to two weeks prior to the event, at which time registration costs will increase by $20.

• Tony Panetta, Realize Properties • Jane Slack-Smith, Investors Choice • Frank Watkins, ProTrader

To register call 1300 368 448 or register online at www.australianshareholders.com.au

• Zac Zaccharia, Centra Wealth Group

Spaces strictly limited, please book early.

Proudly sponsored by:

EQUITY July 2015 Page 28

South Australia report

By Kevin Parken, SA State Chair

It is with pleasure that I present this account of the State’s activities over the past 12 months.

The Branch is fortunate to enjoy strong contributions from a core group of members.

The main forums for these activities are meetings held on the first 3 Wednesdays of each month.

The State Committee, which includes office holders David Paech (Deputy Chair), John Connell (minute secretary), Brad Martin (State Newsletters and management of audio visual equipment), Genevieve Ward and Ron Andrews, has been of immeasurable support to me as State Chair.

At 10:30am on the first Wednesday Keith Potts facilitates a discussion group focusing on resource companies and their shares.

Also beginning at 10:30am on the second Wednesday Genevieve Ward leads another round table discussion group that looks at shares and companies from the industrial, financial and other sectors. This is also an opportunity to examine wider issues affecting the financial affairs of members, including estate planning, currencies and the wider economy.

The work of Keith and Genevieve in researching and conducting these meetings is recognized and much appreciated by the 30 to 40 members who attend.

We are fortunate to have access to the facilities of the Adelaide University Club as the venue for both these meetings. The venue boasts excellent meeting and dining areas and we have received strong service and support from staff and management.

The Round Table discussion groups finish at 12 noon at which time many members adjourn to the Club for lunch.

On the 3rd Wednesday from 12 noon to 1pm is our everpopular Investor Hour, featuring a guest speaker. A small group comprising David Paech, Don Fairweather and myself convene regularly to plan the speaker program for the year and to liaise with possible contributors. Every effort is made to find high profile executives and board members from companies that are of interest to Branch members.

It should be noted however that we are not as successful in attracting such speakers as perhaps the Eastern State branches might be.

Prior to the Investor Hour David Paech chairs the Branch General Meeting to acquaint members on issues pertaining to the Branch and the wider Association. David’s enthusiasm and energy in this and his other roles is well recognized.

At 1pm many attendees cross North Terrace to gather for lunch at the University Club.

The work of those engaged in company monitoring is intensive and demanding. Special mention must be made of these members and the tireless efforts of the Company Monitoring Committee Chair, Bob Ritchie.

Genevieve Ward chairs the Education Subcommittee with assistance from Brad Martin and Young Yu. Ron Andrews is Membership Officer and outside events organizer. This year members have enjoyed highly successful site visits to the Adelaide Desalination Plant, Australian Portable Camps and Coopers Brewery. Don Fairweather is very active in recruiting and welcoming new members, with the assistance of Rosemary Symons, and chairing meetings when necessary.

The steady helpful hand of John Connell is much appreciated.

Other members outside the Committee have stepped in and assisted in their own ways – Brenton Taylor in organizing passes to a recent mining conference and Wendy Reynolds to name just two.

Members and visitors are welcome to attend all our meetings.

Indeed members from interstate branches often attend when visiting Adelaide.

We do recognize that there are significant numbers of members who do not attend our meetings. Indeed at the recent National Conference, 18 of the 23 delegates from South Australia fell into this category. We are keen to hear ideas on other possible forums that might attract members, including those who are working.

Please feel free to contact me (sa@asa.asn.au) with your ideas.

Finally, I believe our Branch has seen growth in member participation over the last 12 months and I thank all members for their ongoing support and contributions.

Quite a large group of members also join together for an informal lunch at the Club on the 4th (and where relevant the 5th) Wednesday of the month.

EQUITY July 2015 Page 29

ASA Events Location

Date

Time

Venue

Speaker

Topic

AUSTRALIAN CAPITAL TERRITORY Weston

07-Jul-15

12.30pm

Macquarie

09-Jul-15

12.30pm

Weston

04-Aug-15 12.30pm

Canberra

20-Aug-15 9.00am5.00pm

Weston Club, 1 Liardet Street, Weston The Canberra Southern Cross Club Jamison, Cnr Catchpole & Bowman Street, Macquarie Weston Club, 1 Liardet Street, Weston Canberra Southern Cross Club, 92-96 Corinna St, Woden

Southside Discussion Group Northside Discussion Group Southside Discussion Group One Day Seminar

General investment topics General investment topics

General investment topics Investors' Big Day Out

NEW SOUTH WALES Bondi Junction

07-Jul-15

10.30am

Mill Hill Community Centre, 31-33 Spring St, Bondi Junction

Bondi Discussion Group

Investment topics

Port Macquarie

10-Jul-15

10.00am

Senior Citizens Centre, Munster Street, Port Macquarie

Matthew Jones, Capital 9

Investment options

Wollongong

14-Jul-15

6.00pm

The Builders, ‘Sonata Lounge’, Richard McDonald, 61 Church Street Wollongong, NSW NSW State Chair

Update on CSR and Qantas

Sydney Investor Forum

16-Jul-15

12.00 midday

Sydney Mechanics' School of Arts, Mitchell Theatre, 280 Pitt St, Sydney

Judith Fox, Governance Institute of Australia

Should shareholders always come first? A different view on shareholder rights

Sydney North Shore

17-Jul-15

10.00am

Killara Uniting Church Hall, 9 Karranga Avenue, Killara

Sydney North Shore Discussion Group

General investment related topics

Taree

23-Jul-15

10.00am

Greater Taree City Library, 242 Victoria Street, Taree

Taree Discussion Group

General investment topics

Newcastle

27-Jul-15

11.00am

Club Macquarie, 458 Lake Road, Argenton

Peter Nixon, Nixon Drexler Advisory

The five oligopolistic sectors of the ASX; The markets big disagreement with FED Reserve Chair Margaret Yellen

Bondi Junction

04-Aug-15 10.30am

Mill Hill Community Centre, 31-33 Spring St, Bondi Junction

Bondi Discussion Group

Investment topics

Wollongong

11-Aug-15 6.00pm

The Builders, 'Sonata Lounge', Wollongong 61 Church Street Wollongong, NSW Discussion Group

General investment topics

Sydney

04-Sep-15 9.00am5.00pm

ASX Theatrette, 20 Bridge St, Sydney

One Day Seminar

Investors' Big Day Out

Brisbane Investor Forum

08-Jul-15

11.00am

Wesley House, 140 Ann Street, Brisbane

Guest speaker

TBA

Gold Coast

14-Jul-15

9.30am

Robina Community Centre 196 Robina Town Centre Drive, corner San Antonio Court, Robina

Neil Godwin, The Professional Investor

State of the market, sector rotation and stock selection

Toowoomba

20-Jul-15

1.30pm

University Open Learning Centre, 27 Jellico Street Toowoomba Main Conference Room

Justin Carroll, Netwealth

Partnering with Netwealth to meet superannuation needs

Gold Coast

11-Aug-15 9.30am

Robina Community Centre 196 Robina Town Centre Drive, corner San Antonio Court, Robina

Guest speaker

TBA

Gold Coast

05-Sep-15 9.00am5.00pm

Watermark Hotel, 3032 Surfers Paradise Bvd, Surfers Paradise

One Day Seminar

Investors' Big Day Out

Gold Coast

08-Sep-15 9.30am

Albert Waterways Community Centre, cnr Hooker & Sunshine Bvds, Mermaid Waters

Roger Montgomery, Montgomery Fund

Chasing yield and reducing risk

QUEENSLAND

SOUTH AUSTRALIA Adelaide

01-Jul-15

10.30am

University of Adelaide Club, North Terrace, Adelaide

Resources Discussion Resource related topics Group led by Keith Potts, ASA

Adelaide

08-Jul-15

10.30am

University of Adelaide Club, North Terrace, Adelaide

Industrial Shares Current share market Discussion Group led by developments Genevieve Ward, ASA

Adelaide

15-Jul-15

11.30am

Scots Church Hall, Corner Pulteney Street & North Terrace, Adelaide

General meeting

General investment topics

Location

Date

Adelaide Investor Forum

15-Jul-15

Adelaide

Adelaide

Time

12.00 midday

Venue

Speaker

Topic

Scots Church Hall, Corner Pulteney Street & North Terrace, Adelaide

Guest speaker

05-Aug-15 10.30am

University of Adelaide Club, North Terrace, Adelaide

Resources Discussion Resource related topics Group led by Keith Potts, ASA

26-Aug-15 9.00am5.00pm

University of Adelaide Club, Level 4, Union House, Adelaide

One Day Seminar

Investors' Big Day Out

Melbourne Investor Forum

01-Jul-15

12.00 midday

Melbourne City Conference Centre 333 Swanston Street Melbourne

David Ellis, Morningstar

The earnings and dividend outlook for Australia's four major banks

Ballarat

08-Jul-15

7.30pm

McCallum Conference Centre, Leopold Street, Alfredton

Ballarat Discussion Group

Investment related topics

Kingston

09-Jul-15

10.30am

Longbeach Place, 15 Chelsea Road, Chelsea

Kingston Discussion Group

General investment topics

Manningham

14-Jul-15

10.00am

Koonarra Hall, 7 Balwyn Road, Bulleen

Manningham Discussion Group

Budget 2015

Geelong

14-Jul-15

12.00pm

The Elephant & Castle Hotel, 158 McKillop Street, Geelong

Geelong Day Discussion Group

General discussion topics

Mornington

16-Jul-15

9.45am

Mornington Golf Club, Tallis Drive, Mornington 3931

Roundtable discussion led by Ian Thomson, ASA

General investment topics

Melbourne Evening Meeting

16-Jul-15

6.00pm

The Limerick Arms Hotel, 364 Clarendon Street South Melbourne

Andrew Watson, Maurice Blackburn Lawyers

Why shareholder class actions work for shareholders

Monash

21-Jul-15

10.00am

Wheelers Hill Public Library, 860 Ferntree Gully Road Wheelers Hill

Karen Guyer, Computershare

Share registry overview

Albury-Wodonga

28-Jul-15

10.00am

Commercial Club, 618 Dean Street, Albury

Linda Martin, ASA Convenor

Multiple investing techniques

Melbourne Investor Forum

05-Aug-15 12.00 midday

Melbourne City Conference Centre 333 Swanston Street Melbourne

Julian McCormack, Platinum Asset Management

Investing globally

Manningham

11-Aug-15 10.00am

Koonarra Hall, 7 Balwyn Road, Bulleen

Manningham Discussion Group

Estate planning

Melbourne

21-Aug-15 9.00am5.00pm

Telstra Conference Centre, 1/242 Exhibition St, Melbourne

One Day Seminar

Investors' Big Day Out

TBA

VICTORIA

WESTERN AUSTRALIA Perth Members Monthly Meeting

07-Jul-15

10.30am

State Library Building of Western Australia, 25 Francis Street Perth

Tania Smyth, Commonwealth Bank Commonwealth Bank Instalment Warrants

Perth Investor Forum

07-Jul-15

12.00pm noon

State Library Building of Western Australia, 25 Francis Street Perth

Phil Rees, WestOz Funds Management

Perth Investors' Corner

16-Jul-15

10.00am

Citiplace Community Centre, City Station Complex, Wellington St, Perth

Discussion group led Equity investments including

by Lorraine Graham & yield stocks, LICs & selected Peter Scales, ASA shares

Perth South of the River Group

24-Jul-15

10.00am

Canning River Eco Education Centre, 'Melaleuca Room', Lot 8 Queens Park Road , Wilson

David Brooke

What we learn from quarterly reports

Busselton

29-Jul-15

9.30am

Esplanade Hotel, Marine Terrace, Busselton

Discussion group led by members

Investment related topics

Perth Members Monthly Meeting

04-Aug-15 10.30am

State Library Building of Western Australia, 25 Francis Street Perth

Members Meeting

General Investment

Perth Investor Forum

04-Aug-15 12.00 midday

State Library Building of Western Australia, 25 Francis Street Perth

Guest speaker

TBA

Perth

28-Aug-15 9.00am5.00pm

Central Park Conference Centre, 152-158 St Georges Tce, Perth

One Day Seminar

Investors' Big Day Out

Outlook for small to mid cap ASX listed stocks with a WA connection

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