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EQUITY the trusted voice of shareholders

May 2014 Vol 28 #4

Economics update

Estate planning


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EQUITY the trusted voice of shareholders

MAY VOL 28 #4




Economics Update Chris Caton’s end-of-year forecasts remain 5700 for the ASX200 and 82 US cents for the Australian dollar, although Chris would concede that the latter is starting to look heroic.



ESTATE PLANNING Whether you require a complex estate plan or not, your journey always starts with a basic assessment of your financial situation and family circumstances. This process need not be complex, time consuming or costly.

Bookbuilds The ASA policy for raising capital is to use pro-rata renounceable entitlement offers as this method treats all shareholders equally and avoids any dilution for investors who choose to participate.


Role of an 08



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SMSF survival centre review


Years 09 on


BIG Report







Exploring the




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BOARD OF DIRECTORS Ian Curry FCPA, FCIS, Dip Fin Planning, Chairman Max Bonpain BMan, MBA, MMktg Betty Clarke-Wood ACIP Diana D’Ambra BCom, MCom, FCA Clare Mazzetti B Ec, MBA, AFMA, AICD, SDIA Barry Nunn AO, BE Denis O’Sullivan BCom, AAUQ, ANZIIF, SAFin, FCPA Geoff Sherwin FCA, F Fin, FAICD NATIONAL OFFICE Silvana Eccles National Operations Manager Veronika Ilnycky Communications Officer Marisa Hoad Accounts Officer Stephen Mayne Policy & Engagement Coordinator STATE BRANCHES ACT Edward Patching NSW Richard McDonald QLD Alison Harrington SA Kevin Parken VIC Don Hyatt WA Barry Nunn EQUITY EDITORS Silvana Eccles & Stephen Mayne

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 WEBSITE 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 Any correspondence regarding matters covered in this magazine should be addressed to the Editor.

CHAIR REPORT May 2014 Ian Curry

The last month has seen us focused on preparing and lodging our submission to the Financial System Inquiry. The Inquiry has wide-ranging terms of reference and submissions closed on 31 March. It is believed that more than 200 submissions were received and the panel, chaired by David Murray, will produce an interim report in mid-2014 and a final report by November. ASA will have the opportunity to review the interim report and respond with further comments. Our submission set out recommendations that foster an efficient, competitive and flexible financial system, consistent with financial stability, prudence, public confidence and the capacity to meet the needs of retail investors. We make the point that ASA is the only body, representing these investors, which does not have a vested interest in the financial outcomes of any changes. ASA draws attention to the need for greater financial literacy throughout the Australian population: this is the dominant and fundamental problem that needs to be addressed. Investors are faced with a proliferation of financial products and services, many with high costs. The fringe lending sector has grown rapidly and financial advice is often conflicted or inappropriate. ASA is opposed to attempts to weaken the principle that all providers must act in the best interests of the client. It seems that the raft of disclosure requirements in a Prospectus, Product Disclosure Statement, or Financial Services Guide have done little to help understanding of investments. The control of financial planners by the four major banks and AMP makes it difficult to see how independent advice is being given. We are critical of fees based on funds under management as this approach produces costs having little relationship to the work carried out. We comment on the impact an aging population will have on cash flows of superannuation funds. An increasing stream of withdrawals will be made and while inflows will continue to be substantial there will be a reduction in net cash flow. This will mean that superannuation funds will need to have higher and suitable liquidity levels. The submission makes the case for ASIC to have increased funding, or to be allowed to retain more of the revenue it generates. This would enable more extensive and timely surveillance and faster enforcement. The regulatory system should be such that all regulators work together, sharing information. We urge government to strengthen disclosure and depositor protection at non-bank finance companies. There is also a need to encourage investment in infrastructure to match long-term liabilities with long-term assets. Such an approach should lead to the development of a listed corporate bond market for retail investors and the provision of non-bank finance to fund infrastructure. ASA argues for greater disclosure of the performance of trusts and managed funds. Investors do not have access to managers or trustees, meetings are not held and remuneration information is not available. We comment on class actions and their impact on shareholders generally. We see little value in shareholders suing themselves and assert that their interests are better served by taking action against supplier companies, banks, directors and auditors. Capital raisings are seen to be an area where retail shareholders are not treated equally in many instances. ASA policy is for a bookbuild where all shareholders participate on equal terms. We express the view that High Frequency Trading is not properly supervised and participants are given advantages in information flow and trading opportunities. ASA is concerned that Australian direct and indirect taxation is not part of the Inquiry. All that is covered is the taxation of financial arrangements, products or institutions to the extent these impinge on the efficient and effective allocation of capital by the financial system. There is to be a separate Tax White Paper but it appears that the GST, for example, will be excluded from that Paper. Finally, members should know of the significant contribution to the submission from Richard Wilkins, John Campbell and Diana D’Ambra. EQUITY May 2014 Page 3

Economics Report By Chris Caton, Chief Economist

March was a difficult month for share markets. The ASX200 spent most of the month down from its end-February level. It actually got back into positive territory during the day on 31 March but drifted down again, finishing with a fall of 0.2% for the month. This left it with a gain of 0.8% for the first quarter, the worst March quarter since 2010. The US share market, as measured by the S&P500 index, rose by 0.7% for the month, to be up by 1.3% for the first quarter. It’s a stretch to see this as outperformance, however. More than half of this net gain came on the very last day, while the Dow fell by 0.7% in the quarter. Major international concerns in March included slowing growth in China, the state of emerging markets (with a special nod to the unfolding of events in Ukraine) and an update from the Federal Reserve on the likely evolution of US monetary policy. At home, the economic data were generally better-thanexpected, while the RBA signaled some change in thinking on the state of the housing market.

The China syndrome In recent weeks, the international trade, retail and production data in China surprised on the downside. There has been some tendency to blame this on the timing of the Lunar New Year, and there is some truth to this. But there are also fundamental factors at work. First, the Chinese authorities have been trying to slow the rate of growth of credit for several months. The corporate debt to GDP ratio has increased hugely in China, much of this driven by loans from the “shadow banking” system. Shadow banking is not anything illegal or improper; it’s something that develops in response to regulations of the primary banking system. But, by its nature, it is riskier and links with the primary banking system can affect the latter if a problem develops. EQUITY May 2014 Page 4

Second, much of Chinese manufacturing (steel, cement and shipbuilding for example) is suffering from over-capacity, thus needs little or no new investment. Third, household income growth has been slow; not a good sign for an economy in transition to consumer-led growth. Fourth, some of the weakness in exports may reflect a genuine loss of competitiveness. The official forecast for GDP growth for this year remains 7.5% (actual growth was 7.7% in 2013), but some rhetoric suggests this may be lowered. It is not clear what the official tolerance is for lower growth, but one imagines that it would not take much more disappointing news for the authorities to reach for the stimulus lever.

Emerging Markets The MSCI emerging markets index has fallen by about 16% since 22 May last year, which is when Ben Bernanke first mused about the tapering and then ending of quantitative easing. Long rates rose in the developed world and capital that had gone to the developing world in search of yield began to return. But it’s a mistake to blame the Fed alone for the troubles in emerging markets; soft commodity prices and political difficulties have also contributed to market weakness. It’s a long way beyond my expertise to forecast how the Ukrainian situation pans out, although there seems to be a view emerging that further escalation of military action and sanctions is unlikely. The IMF has announced a conditional agreement with Ukraine to provide $14-18 billion in aid.

Fed Up? The FOMC caused a stir in March with its updated forward guidance about monetary policy. In brief, the “median” FOMC member now expects the Federal funds rate (currently

Equity Prices 2 January 2012 = 100 Source: Bloomberg

0 – 0.25%) to be 1% by the end of 2015 and 2.25% by end2016. Relative to the last such projection, made in December last year, this implies one and two more 25-basis-point rate rises respectively. Given how far away these are, and how mild the tightening implied, this doesn’t seem to me to be a major concern for markets. There was a short selloff, however, with a further factor contributing. The FOMC statement had suggested that the first rate rise would not be for a considerable period after the end of the taper of quantitative easing (around October this year). In the ensuing press conference the Fed Chair, Janet Yellen was asked how long a “considerable period” was and replied “about six months, that sort of thing”. Suddenly, market participants were faced with a clear signal that the Fed funds rate, which has been on the floor for almost six years, would begin to rise perhaps a year from now. So what? A lot can happen between now and then. And it’s worth pointing out that in the first year of previous tightening cycles since World War II, the S&P has averaged gains of more than 9%.

The Domestic News Almost everything that we learned about the Australian economy in March was better than expected. Retail trade rose for the ninth successive month in January, a remarkably rare run of positives. Dwelling approvals have soared recently; indeed they have never been higher than in the three months to January. And the GDP data for Q4 2013 suggested that the low point in growth may be behind us, although the path ahead is still likely to be bumpy. Perhaps the best piece of news, at least on the face of it, was a huge gain, of 47,000, in employment in February.

No-one should believe this figure. It is collected by means of a sample, and is thus subject to considerable error. But what it does tell us is that the previous unremitting bad news with respect to employment growth over the 12 months to January was overstated. As I said last month, the labour market is a lagging indicator but it would be nice to see a few months of clear improvement, including a decline in the unemployment rate. Meanwhile, the RBA kept the cash rate steady in early-March and early-April, clearly still believing that it is prudent to maintain the current level. The RBA does, however, appear to be changing its tune on house prices. Late last year, the mantra appeared to be that “any talk of a bubble” was “unduly alarmist”. Since then, of course, prices have continued to rise strongly. My judgment remains that there is still no bubble, but continued price rises at their current pace for the rest of this year would put the sector close to bubble territory. Thus it is not surprising that Governor Glenn Stevens twice in the month made the point that investors should take account of the fact that prices can go down as well as up. He also said that further price rises of 10% or more would be “unwelcome”. The Bank’s semi-annual Financial Stability Review also highlighted risks to the sector, not just of falling prices but also of rising borrowing costs. This is very definitely a shot across the bow. The currency rose for the second month in succession, from 89.2 US cents to 92.7 cents, the highest it has been since late-November last year. My end-of-year forecasts are unchanged: 5700 for the ASX200 and 82 US cents for the Australian dollar, although I would concede that the latter is starting to look heroic. The article was originally written on 1 April 2014. The views expressed in this article are the author’s alone. They should not be otherwise attributed.

EQUITY May 2014 Page 5

The Estate Planning & Wealth Protection Essentials By Rod Cunich, Slater & Gordon senior estate planning and wealth protection lawyer

Complexities associated with estate planning and wealth protection can often lead to a lot of ‘legal and financial mumbo jumbo’, so the layman (including professionals from many disciplines) can be forgiven for thinking their plan is like a road map printed in hieroglyphics.

Far fewer have other basic planning documents such as powers of attorney, enduring guardianship or advanced health care directives. And many of those who do have wills have not kept them up to date to take in to account changes that have occurred since the will was prepared.

Sophisticated planning is necessary for some, but not most. Unfortunately the planning process often stalls at the starting line because clients baulk at the potential complexity and the implications. They don’t start the journey and never get to discover whether their needs can be met by a simple plan or whether they need a lot more. It shouldn’t cost a fortune to at least determine what is appropriate in your circumstances, and why.

The risk of ‘tax’, ‘divorce’ and ‘bankruptcy’ enjoy a high profile in the risk stakes. People often go to great lengths to plan against the worst if a divorce, bankruptcy or the Commissioner come knocking, but unlike those risks, death actually affects every one of us, and loss of capacity, most of us at some point in time.

Whether you require a complex solution or not, your journey always starts with a basic assessment of your financial situation and family circumstances. This process need not be complex, time consuming or costly. It identifies simply what can and should be done, and why. Start by identifying what assets you own and control, and then ask yourself, ‘what are the most common risks to my wealth and my family that I should protect against?’ In answering this question we all too often overlook the fundamentals that are relevant to everyone, regardless of the level of our wealth. We don’t identify the most common risks to our wealth and family and so we don’t turn our mind to the need to address those risks.

What are these risks? The most common risk is losing management and control of our business, financial and personal affairs through the loss of mental capacity or death. This risk is overlooked, or undervalued, because it is such a common event it is not identified as risk for wealth protection purposes. It is treated as an ‘end of life’ issue which can be dealt with sometime down the track. Research commissioned by Slater & Gordon found that almost half (47 per cent) of Australians don’t have a will. The same research found that almost two thirds (63 per cent) of people without a will know they should have one but don’t have the time or the motivation to have one prepared. This includes many people who are concerned about wealth protection. EQUITY May 2014 Page 6

More than thirty Australians of working age die every day and many more have accidents and suffer brain injuries. Death and incapacity are not the exclusive domain of the old.

What is the solution? Much of the basic wealth protection we need and desire can be addressed by preparing relatively simple documents such as a will, a financial power of attorney and medical powers of attorney (their technical names vary in each state) as these afford protection against the most common threat to our wealth. They are the building blocks of personal wealth protection and the pillars of good estate planning. Once they are in place, you can take your time to develop more sophisticated levels of protection to address specific risks that concern you such as paying unnecessary tax, potential law suits or bankruptcy, divorce and other business and family related issues.

Where there is a will there is a way I’m often asked by young people why they need a will – the common perception is that they’re only required in the later stage of one’s life. A will ensures the orderly management of your wealth when you aren’t around to exercise personal control. Protecting your wealth for future generations begins with the preparation of a will. Preparing a will isn’t about dying – it is about planning for the protection and secure management of your wealth, and its distribution as you desire. A will is the only way to ensure that your wealth is managed properly and that loved ones are appropriately provided for when you die.

According to figures from the Australian Bureau of Statistics, our country’s total net household wealth is in the order of $5.1 trillion, leaving more than $2.5 trillion worth of personally owned homes, shares, superannuation and other assets which are not protected by a current will, or any will at all. That is scary.

Why then do so few Australians have wills let alone a broader estate plans? The law in each state provides a formula that sets out who is entitled to share in a deceased estate when no will exists. The formula often doesn’t distribute assets in the way that you would intend they should be distributed or the way that your family anticipates it would be distributed. For example, the formula may result in former life partners, or even people you had a short term relationship with, sharing your wealth in competition with your current family. Why leave it to chance when you can exercise control? Thousands of people die each year in Australia without a will leaving grieving family members with the added emotional and financial burden of having to deal with uncertainty, ‘surprise beneficiaries’, hardship caused by delays in processing estates and additional legal expenses. The resulting uncertainty often results in families being torn apart because of disappointment, or worse still, litigation between family members. When a person dies without a will it is their loved ones who are left to deal with the mess. It is a sad legacy to leave behind and it can be avoided. Having a will is not compulsory, however it offers many benefits and will ensure that your wealth is managed and distributed as you wish. Your chosen executor is appointed to manage and control your wealth, you select the guardian for your minor children and vulnerable beneficiaries are protected and provided for. Having an out of date will can be as devastating. If you don’t have one, it can result in your wealth ending up in the wrong hands. Changed financial circumstances such as the acquisition or sale of an asset, births, deaths, marriages and divorces are just a few of the events that require wills to be reviewed. It is preferable to have your will reviewed every three years, though if that is not possible, at least every five years.

A review commonly results in no change, but on the rare occasion a change will be required and will ensure you avoid potential problems. I recently saw a situation where a will-maker left her home to one daughter and her bank account (of equal value) to her second daughter. Shortly before she died she sold her home and banked the money without altering her will, leaving one child with nothing (as the home no longer existed) and the other receiving everything. This had quite an impact on the relationship between two sisters, particularly as there was a refusal to hand any of the inheritance to the sister who lost out.

Your capacity to manage your financial and legal affairs Planning for financial and legal decisions if you lose your mental capacity through accident or ageing is the second essential planning exercise you should undertake. Do so at the commencement of your estate planning journey, as it will not only ensure protection for your wealth but will provide comfort to you and security for your family. Preparation of a power of attorney in the early stages of your planning process is recommended because the risks of losing mental capacity are high and consequences can be drastic. The solution is simple, easy and inexpensive. A financial power of attorney is a document which authorises another person to act on your behalf whilst you are still alive in relation to your financial and legal affairs. You can appoint a trusted friend, spouse, partner, relative or professional person (or any combination) to take control of your wealth. You can provide instructions and guidance to ensure your wealth is preserved, managed and protected in accordance with your wishes. If you do not prepare such a document no person has the legal right to take control of your wealth without a time consuming application to the courts for the appointment of someone to do the job. You won’t have a say in who it is and you won’t have any input into how the appointed person manages your wealth. A financial power of attorney is an important wealth protection document for everyone. They are relatively inexpensive and accessible.

EQUITY May 2014 Page 7

Restoring trust in business and beyond By Peter van Dongen, National Managing Partner Assurance, PwC Australia

It’s difficult to open the business section of the newspaper these days without feeling a degree of trepidation. Industries in crisis, fallouts between boards and investors, accounting irregularities, accusations of corruption; is it any wonder that confidence in the capital markets is at a low ebb? It would be an understatement to say that the global economy was hit hard by the shocks that followed the collapse of Enron in 2002 and during the 2008 financial crisis. Indeed, many countries and companies are still dealing with the aftermath more than half a decade later. Following the most recent financial crisis the various stakeholders within the capital markets framework attempted to piece together what happened and understand how future crises could be avoided. It was at this point the question was asked: “Where was the auditor?” There’s no doubt that auditors have some important lessons to learn from that period, as do boards, management, regulators, legislators and investors – indeed all participants in the financial reporting eco-system. However, the implication that the audit is somehow less important or valuable because it could not unilaterally prevent the financial crisis is troubling. Auditing is, by its nature, a difficult job. Auditors are required to repeatedly apply sound judgement in environments where tight deadlines, complexity, and volatility are the norm. In my view it takes a special type of person to be an auditor – you’re required to build and sustain professional relationships yet simultaneously maintain the highest levels of independence, objectivity, and professional scepticism. But without a seat at the boardroom table and the insight that goes with it, it’s understandable that the broader community might not appreciate the auditor’s ‘value-add.’ Indeed, the many victories of auditors are invisible to the broader market, and the rare failures painfully obvious. Every audit partner has a vast portfolio of examples where a difficult conversation with a client has resulted in the company changing their approach to an accounting, disclosure, or control issue. These conversations ultimately improve financial reporting and allow those who make capital and other decisions to exercise their judgement based on credible information. So as we approach the end of the financial year, what conversations are auditors having with boards, management and audit committees that ultimately contribute to shareholder value? For a start, auditors could be challenging the accounting treatment of an impaired asset, and questioning whether its underlying value is represented fairly. They might be asking their client to demonstrate the stability of their financing arrangements, the outcome of which can have huge impact on the presentation of the balance sheet. Auditors will also investigate the client’s control framework, IT security and issues like ‘separation of duties’ – for example, making EQUITY May 2014 Page 8

sure the person who raises invoices isn’t the one who is responsible for paying them. So you can see, auditors take their responsibilities seriously, and make an invaluable contribution. But that’s not to say the audit framework itself couldn’t, or shouldn’t, evolve to be even more relevant to investors. The current audit model has remained largely static throughout the past 40 years, a period which has seen immense change in both business and the global economy. A telling statistic is that in 1975 intangible assets accounted for 17 per cent of corporate value – today that figure stands at 81 per cent. Auditors can and should play a central role in inspiring a movement of trust in business and beyond – the framework just needs to evolve to allow them to do it. It’s also clear there is desire from investors for broader assurance. In late 2012 we released the findings of a global survey of investment professionals called ‘Assurance today and tomorrow.’ We interviewed 104 professionals from 11 countries, including Australia. Among the investment professionals we met there was an appetite for more insight into the audit at its most basic level – investors want auditor reporting to be timely, relevant and easier to understand. PwC is supportive of auditors providing more assurance and insight around significant judgments and in clarifying auditor responsibilities. The aim of auditor reporting should be focused on effective and transparent communication without the boilerplate statements. Many of the investment professionals we interviewed also declared an interest in assurance over more and different information, beyond the historical financial statements, to help them decide whether an organisation is worthy of their trust. So how could auditors play a role in giving investors what they’re asking for? Perhaps the scope of the audit could expand to give assurance over a company’s business model, key business risks, interpretation of reporting judgements or even strategy. However to truly achieve the changes that are needed, the evolution of the audit must be considered holistically as part of the wider global financial reporting ecosystem. It’s time for a broad conversation with all market participants – management, boards, analysts, legislators, regulators, auditors, and, most importantly, investors themselves – to identify and clarify our individual and collective responsibilities in supporting a robust and effective global capital markets system. I believe, under the right framework, auditors are uniquely placed to deliver the type of insight that could help restore lasting trust in business, society, and beyond. Let’s start the conversation and make it happen.

Five years on: Lessons from the GFC By By John Addis, Analyst, Intelligent Investor

There is no historical marker locating the genesis of the global financial crisis, no event to which one can point and say ‘it was here that it began’. The GFC started in earnest with the collapse of Lehman Brothers in September 2008 but an ensemble performance laid a quicksand of instability in the preceding years. Legislators, beginning with Bill Clinton, took a wrecking ball to the regulations that had kept financial crises at bay since the Great Depression. Retail banks merged with trading banks, allowing them to punt ever-larger sums with depositor funds. Mortgages were sold, often illegally, to people that had no chance of servicing them. Then they were stacked, bound and sold, the foul smelling detritus sliced and diced and distributed like a virus through the piping of the global financial system. Regulators sat idly by as leverage increased and the unscrupulous took root. Ratings agencies, tasked with turning junk into jewels, were paid to maintain the charade. The sanctified ‘quants’ worked the numbers, constantly reaffirming the safety of the bet, giving not a thought to systemic risk. More than five years have passed since the collapse of Lehman and – deep breath please – record banker bonuses are back. To the recipients, this may mean the GFC is long gone, although the residents of Madrid, Athens and Dublin would surely remonstrate. But in Australia, where the GFC was but a pebble in a sprinter’s shoe, we can now reflect on these events and take lessons from them.

then follows; how should one respond to the threat of another crisis? Famed investor Seth Klarman’s thought-provoking ‘Twenty Investment Lessons of 2008’ is a good place to start. Having steered clear of the 1999 internet stock bubble and the 2008 crisis, Klarman has an excellent track record and much to say on the subject, including these gems: • Nowhere does it say that investors should strive to make every last dollar of potential profit; consideration of risk must never take a backseat to return; • When excesses such as lax lending standards become widespread…[they] will eventually end, triggering a crisis at least in proportion to the degree of the excesses; • Be prepared for the unexpected…whatever adverse scenario you can contemplate, reality can be far worse; • Do not trust financial market risk models. Reality is always too complex to be accurately modelled; • The greedy effort to earn a few extra basis points of yield inevitably leads to the incurrence of greater risk; • A broad and flexible investment approach is essential during a crisis. Opportunities can be vast, ephemeral, and dispersed through various sectors and markets; • You must buy on the way down. It is almost always better to be too early than too late, but you must be prepared for price markdowns on what you buy; • Beware leverage in all its forms;

Ask any share advisor analyst the best way to avoid another GFC and they will speak as one; banks must be allowed to fail without that failure infecting the entire system. Unfortunately, the banks that were ‘too big to fail’ are now even bigger.

• Financial stocks are particularly risky. Banking…is a highly leveraged, extremely competitive, and challenging business;

According to APRA, in March 2008 the four biggest banks controlled 67% of total bank assets. By December 2013 that figure had increased to 78.4%. In the United States in 1990, the five largest banks accounted for less than 10% of total industry assets. Now they control 44%, with JP Morgan Chase accounting for 13.6% alone.

• Almost no one will accept responsibility for his or her role in precipitating a crisis: not leveraged speculators, not willfully blind leaders of financial institutions, and certainly not regulators, government officials, ratings agencies or politicians.

Central problem remains And yet the central problem remains unaddressed. Banking psychology has not been tempered by failure but emboldened by it. Before the crisis bankers hoped governments would rescue them; now they know they will. Having learned also that regulators are weak, politicians can be bought and ratings agencies are happy with their pay-to-rate business model, it would be foolish to believe another crisis is out of the question. An inevitable question

• When a government official says a problem has been ‘contained’, pay no attention;

With this approach – and it must be said one followed by your analytical team – it’s possible to build a portfolio to survive and thrive in a crisis. As Klarman says, ‘Risk is not inherent in an investment; it is always relative to the price paid. Uncertainty is not the same as risk. Indeed, when great uncertainty – such as in the fall of 2008 – drives securities prices to especially low levels, they often become less risky investments.’ The trick is to ensure that should another crisis develop we’re in a position to take advantage of it. And that means managing the risks now, not later when it’s too late. EQUITY May 2014 Page 9

Why ASA wants a single bookbuild in renounceable capital raisings By Stephen Mayne, ASA Policy & Engagement Coordinator

The new ASA policy platform includes the following comment on capital raisings, shown at above right. At right is a table which supports our contention that delayed bookbuilds for the retail shortfall delivers lower compensation payments than for institutions when offered an earlier bookbuild.


ASX Code


Total amount raised

As you can see, fourteen of these capital raising case studies provided less compensation for retail, although institutions finished up worse off in seven raisings.




$2.042 billion

Lihir Gold



$1.19 billion

The two most recent examples saw Mermaid Marine generate a 10c payment for non-participating institutions whilst retail received nothing. Billabong was one of the worst examples we’ve seen with institutions collecting 35c on a 28c offer, but when it came time to sell off the retail shortfall, the compensation slipped to just 19c.




$2.963 billion

Primary Health Care



$1.231 billion




$910 million




$2.57 billion




$324 million




$900 million

Connect East



$424 million

Sigma Pharmaceutical



$297 million

ALE Property Group



$105 million




$430 million




$492 million




$311 million

Origin Energy



$2.3 billion

Energy Resources Australia



$500 million

Evolution Mining



$153 million

Echo Entertainment



$458 million




$246 million




$553 million

Mermaid Marine



$217 million




$50 million

So why does this happen? When an accelerated entitlement offer is launched, institutions will intensely analyse a stock to assess whether to participate. Many of them are then happy to follow straight through into the institutional shortfall bookbuild. As the participation rates in the table demonstrate, the bookbuild is usually quite small for institutions as most will fully take up an in-the-money offer. By the time the larger retail bookbuild comes around, many institutions have well and truly moved onto the next deal because they already have their fill of stock, especially if there was a placement component to the institutional offer as well. The one benefit which participating retail does get with an accelerated offer is the effective free option to buy stock over a longer period of time than institutions who must stump up within 48 hours. If the stock or the broader market goes for a run, retail investors can enjoy bigger profits. However, this assumes all retail investors behave rationally and the sad reality is that participation rates are often very low in retail offers. As an example, Insurance Australia Group recently offered a discounted share purchase plan, but only about 5% of its retail shareholders took it up. It’s for this reason in particular that we always need bookbuilds to compensate non-participants. Unfortunately, the only major company to do a combined bookbuild in recent years was Lend Lease in 2010. ASA policy is for all ASX 200 companies to follow this lead when raising capital. EQUITY May 2014 Page 10

* including applications for additional shares

The ASA policy for raising capital is to use pro-rata renounceable entitlement offers as this method treats all shareholders equally and avoids any dilution for investors who choose to participate. In order to maximise compensation for non-participants, a single bookbuild combining the institutional and retail shortfall should be conducted at the conclusion of the offer. Market practice has shown that earlier institutional bookbuilds where the offer is accelerated tends to deliver higher returns than retail investors receive in any later offer. Therefore, ASA does not support separate bookbuilds.


Participation rate (Insto)

Retail component (inc. bookbuild)

Participation rate (Retail)

Terms of offer

Institutional premium returned

Retail premium returned

$1.586 billion


$456 million


7-for-20 at $17.40



$978 million


$212 million


1-for-3 at $2.30



$2.29 billion


$673 million


2-for-23 at $19.50



$958 million


$287 million


8-for-5 at $5.40



$644 million


$266 million


5-for-19 at $3.00



$970 million


$1.6 billion


1-for-8 at $29.00



$204 million


$120 million


2.3-for-1 at $0.40



$604 million


$296 million


1-for-8 at $22.50



$309 million


$115 million


1-for-2 at $0.365



$134 million


$163 million


1-for-3 at $1.02



$64 million


$41 million


1-for-2 at $1.50



$238 million


$192 million


1-for-9 at $6.25



$280 million


$212 million


1-for-5 $4.10



$267 million


$44 million


9-for-14 at $0.50



$1.13 billion


$1.17 billion


1-for-5 at $13.00



$380 million


$120 million


12-for-7 at $1.53



$108 million


$45 million


3-for-17 at $1.45



$266 milion


$192 million


1-for-5 at $3.30



$112 million


$134 million


1-for-11 at $7.80



$267 million


$286 million


2-for-19 at $30.00



$100 million


$117 million


7-for-18 at $2.40



$19 million


$31 million


3-for-8 at $0.28



EQUITY May 2014 Page 11

Be tax savvy with your investments By Miles Larbey, Senior Executive Leader, ASIC’s MoneySmart team

As the end of the financial year approaches, it’s a good time to think about the tax implications of any investments you have or may be considering. An investment is ‘tax-effective’ if you end up paying less tax than you would have paid on another investment with broadly similar returns and risk. While lower tax can help your savings grow faster, you should never base an investment decision on tax benefits alone. Here’s some guidance about what makes some investments more tax-effective than others.

Know your marginal tax rate The first step is to know what ‘marginal tax bracket’ you are in for your ordinary income. If you’re not sure, ASIC’s MoneySmart income tax calculator will help you work out how much tax you’re paying. Let’s take Josh for example, who earns $50,000 per year. That means he will pay marginal tax of 32.5c (or 32.5%) for every extra dollar he earns over $37,000. If you can invest in a way that means you pay less tax on your investment returns than your marginal tax rate, you are ahead. For example, if Josh puts money in superannuation, he pays at most 15% tax on his investment earnings. This is less than his marginal tax rate (MTR), so for Josh, superannuation is a tax effective investment.


means that a $7 franked dividend is worth the same as a $10 unfranked dividend The franking tax offset will cover, or partly cover, the tax payable on the dividends. If the tax offset (i.e. the 30%) is more than the tax payable on the dividends, the excess can be applied to any tax payable on other taxable income you’ve received. If there is any excess tax offset left over after that, you may receive a refund.

Managing gains and losses When you sell an investment and make a profit from the sale, you are likely to owe capital gains tax. The Australian Taxation Office (ATO) provides useful information to help you work out your capital gains. A capital gain is added to your income in the year that you sell the investment and taxed at your marginal rate. If you hold the investment for over a year, you are only taxed on half the capital gain. So if your marginal tax rate is 37%, your capital gains are effectively only taxed at 18.5%. Keep a record of any losses you make as they can be used to offset any gains. Capital losses can be carried forward for use in later years. All you need to do is record them in your tax return. When you make a capital gain in future years, you can deduct your loss from the gain. Managing capital gains and losses should be part of your overall investment plan.

The government provides various incentives through the tax system to encourage people to save for retirement. For example: • Investment earnings are taxed at a maximum of 15% (10% for capital gains) • Super contributions made by salary sacrifice (up to the contribution caps) reduce your income tax • If you are self-employed, you can claim tax deductions for super contributions (up to certain limits) • Most people over 60 pay no tax on the money they take out of super • When you start a super pension, investment earnings are tax-free.

Watch out for ‘tax driven’ schemes


Remember that any investment you consider must first fit within your investment plan and risk profile. It should be a sound investment first – any potential tax benefit should be secondary.

Income you receive from investing in shares will generally be taxed at your MTR. You will get an ‘imputation credit’ or ‘franking credit’ for the 30% tax that has already been paid by the company. This EQUITY May 2014 Page 12

Tax schemes generally let you postpone your tax, but you’ll still have to pay tax in the end. Typically these schemes offer tax deductions now for investing in assets that may produce an income in the future. Agricultural schemes, for example, can take as long as 5 to 20 years to earn any income. The ATO has made clear rulings on the tax deductions available for individual schemes. For more information, visit the ATO website at If you are being advised to invest in a tax-driven scheme, ask questions of your adviser and make sure you understand the risk profile of the scheme. Many schemes designed to minimise tax are high-risk investments.

For more information about choosing and managing your investments, visit ASIC’s MoneySmart website –

Graincorp AGM

Graincorp gets on with business after shock Hockey intervention The Chairman Don Taylor emphasised the eventful past year for Graincorp, in particular the integration of the canola grain crushing and refining businesses and the rejected takeover offer by Archer Daniels Midland (ADM). After the surprise intervention by Joe Hockey, Mr Taylor advised that “Graincorp is getting on with business”. He highlighted the impact of the drought on grain crop yields with the Storage & Logistics business also facing fierce competition from large multinationals. With its diversification strategy, Graincorp’s newer businesses of Marketing (grain sales), Malt (barley processing), Oils (canola processing) and Allied Mills (wheat processing) now provide almost 60% of the company’s earnings.

MONITORS: Dan Steiner and Elton Ivers Date

25 February 2014


Pullman Hotel, Sydney


approximately 100

ASA proxies

284,392 shares from 58 holders

Value of proxies

$2.22 million

Proxies voted

Yes, poll on all items

Market cap

$1.8 billion

Pre-AGM meeting

Yes, with executive chairman Don Taylor

QBE insurance AGM

The board measures Graincorp’s overall performance against its return on equity, which was 10.1% in FY13 and has averaged 12.5% for the past three years. GNC’s underlying net profit after tax (NPAT) was $175 million (statutory profit $140m), down from the previous year’s $205 million. The profit weakness reflected significant costs from business acquisitions, the Graincorp Oils integration and the cost of ADM’s takeover bid. The total dividend for FY13 was 45c, down from previous year’s 65c. On executive remuneration, ASA noted that the ADM takeover had inflated the share price at the September year end, thereby increasing TSR measured LTI awards. The Board had decided to remove LTI equity awards and provide for reduced cash awards, in the expectation that the ADM offer would succeed. The chairman stated that he intends to revert to the prior scheme of 2012 for STI and LTI. ADM remains a 19.9% shareholder but Graincorp CEO Alison Watkins has decamped to Coca Cola Amatil. ADM voted in favour of the two directors standing for re-election. All resolutions were passed on a poll. There were 560 proxies received for the AGM with ASA receiving 58 of them. ASA voted in favour of all resolutions but noted the 11% vote against the remuneration report. The ASA was impressed with the detail provided in Graincorp’s presentation on its earnings growth initiatives and particularly the basis for its forecasts. It demonstrated they have a well developed plan to achieve the $110 million EBITDA increase by FY16, with all business divisions contributing. Graincorp earnings guidance for FY14 forecasts EBITDA of $275 – $315 million with statutory NPAT of $60 – $80 million. Subsequent to the AGM GNC shares have appreciated in value.

New chair impresses but big 32% protest against overloaded director This AGM was held on the back of another year of disappointing results capped by the December downgrade. Chairman Marty Becker introduced himself having succeeded Belinda Hutchinson the day before the AGM. Mr Becker provided an overview of the strengths of QBE’s business and the focus for 2014, before asking managing director John Neal to provide the review of the 2013 results and guidance for the year ahead. Earnings attributable to equity holders for the year were – $254 million, down from a $761 million profit in 2012. Despite this, there is still cause for optimism. The accuracy of the 2014 forecast, although conservative, was maintained. It showed little or no growth and was in line with existing underlying earnings. There has been no deterioration in the business since the December market up date. The cash profit, although down $500 million on 2012, was still strong. The write-downs included substantial goodwill and an increase in Claims Adequacy to 90.7% probability. These actions have resulted in a stronger balance sheet with greater capital adequacy.

MONITORS: Joyce Yong and Ian Graves Date

2 April 2014


Wesley Centre, Sydney


283, with almost 200 holders/proxies

ASA proxies

1.772m shares from 574 holders

Value of proxies

$22.8 million

Proxies voted

Yes, poll on all items

Market cap

$16 billion

Pre-AGM meeting

Two meetings, first with CFO and company secretary, later with rem committee chair

Shareholders’ questions indicated concerns about QBE’s ability to manage any negative impacts caused by the rate of change and sought assurances on the basic soundness of the North American business, as well as overall business and strategic positioning. The Chairman responded cogently. All resolutions were passed on the basis of a poll although there was a significant vote of over 30% against the election of Ms Margaret Leung. ASA and other shareholders were concerned that she currently holds over six non-executive directorships and was appointed managing director of Chong Hing Bank in February 2014. The Chairman defended her appointment and assured shareholders her performance would be monitored along with other Board members. ASA voted all undirected proxies against the Remuneration Report, the Group CEO’s long-term incentive grant and the election of Ms Leung. Although the Remuneration Policy is now simpler to understand and the at-risk elements better focused on long term performance, we still had a number of concerns as set out in our voting intentions report. For the sake of consistency we also voted against the CEO’s long-term incentive grant. Like a number of other shareholders, we were also concerned that Mr Becker was only recently appointed to the Board before being ‘catapulted’ into the Chair. However, his knowledge of, and, experience in the industry were obvious at the meeting. His unflappability also impressed. We voted all undirected proxies for his election. EQUITY April 2014 Page 13



To former QBE Insurance chairman Belinda Hutchison who should have sniffed the breeze and called time on new director Margaret Leung when she took on a bank CEO position in Hong Kong in addition to her six other board seats. After proxy advisers raised concerns, QBE made a clarifying statement to the ASX which still didn’t disclose the new full-time job taken on by Ms Leung. The QBE AGM didn’t provide any satisfactory answers so ASA ended up voting against along with 32% of all voted shares in the poll. No incoming director of an ASX 50 company has ever received a protest vote like this before. QBE earned an additional brickbat at its recent AGM after proxy providers to the ASA had their proxies automatically revoked by share registry provider Link if they also attended the meeting. Several larger companies are now doing this when shareholders should be given a choice.

To SP Ausnet which has joined the increasingly popular club of moving to an internally managed model. After the Chinese Government bought almost 20% of SP Ausnet through a company called State Grid it was always going to be unusual if a Singapore Government controlled company remained the external manager. The $50 million divorce payment seems reasonable in the circumstances and is nothing like the exorbitant $345 million paid to Macquarie Group when it ceased externally managing the company now trading as Sydney Airport. It is right to align the interests of owners and managers. Macquarie Atlas, take note.

To Rupert Murdoch for his fanatical pursuit of family dynasty at two companies – News Corp and 21st Century Fox – which are each 87% owned by non-Murdoch shareholders. The announcement that Rupert’s eldest son Lachlan was being promoted from ordinary non-executive director to Co-Chairman of both News Corp and 21st Century Fox sparked a frenzy of media coverage. The deal led to Lachlan’s overdue departure as chairman of Network Ten which continues to struggle with record low ratings. Disappointingly, former News Corp executive Hamish McLennan has been promoted to executive chairman of Network Ten when he is also representing the Murdoch interests as chairman of REA Group. Ten should have both an independent chairman and a full-time CEO. To Envestra and APA Group for releasing a 418-page scheme of arrangement booklet at 6.51pm on April 7. Does anyone read all this material on an agreed takeover deal?

To Ben Potter of The Australian Financial Review for researching a very thorough feature story on the ownership history of Medibank Private ahead of the Federal Government’s proposed $3 billion-plus float in 2014 – 15. The report demonstrated all the complexities and uncertainly in the ownership history of Medibank although the members appear to have had their ownership rights legislated away by the Howard Government. Litigation may yet emerge and Medibank’s 3.8 million policyholders will no doubt be looking for some sort of preferential treatment in the forthcoming float. To the Federal Government’s Financial Services Inquiry which has attracted a raft of interesting, stimulating and sometimes controversial submissions for chairman David Murray to ponder. With the Big Four banks now so dominant and the continuing growth of compulsory super, an independent stock-take of the financial services system is warranted. ASA lodged a detailed submission shortly before the March 31 deadline. EQUITY provides a platform for members to comment. Comments included here do not necessarily reflect those of all members. Please email your contributions to

WA Members Corporate Tour – METCASH By Gabrielle Egan, ASA Member & Site Tour Coordinator After checking in at the Metcash 22-hectare property in Canning Vale, Perth, the Group General Manager Corporate Affairs, Stephen Woodhill, introduced General Manager WA, Paul Slaughter. These open and friendly hosts remained with the group throughout the morning. Retail shareholders hold 40% of Metcash shares; Metcash had a favourable view of the ASA contribution recognising the informed questions asked and the proxy votes held. The presentation included topics covered in Metcash’s ASX announcement of March 21, 2014 which included their plans and expectation for 2014 – 15. The company published a detailed Strategy Briefing booklet, released the day prior to the ASA visit. It details, highlights, and itemises through the Transformation Plan the planned company changes: • Fix the Basics; • Invest in Growth; • Sustain Growth. Metcash plans significant capital investment over five years. Initial capital investment, approximately $30 – $40 million over FY 15 and 16, is expected to generate earnings growth within two years. Metcash is confident the Transformation Plan willMay grow thePage company total shareholder return, and EQUITY 2014 14 recognised the disappointment of the need for the dividend

payout being cut to 60% to regrow the company. They will continue to grow the services and adding value to their 265 franchisee stores in WA. They also offer a buyback plan for those wishing to retire. Recent Initiatives included improvements to 75 independent Mitre10 stores in the hardware business and strategic entries into the automotive industry.The company will continue their involvement in the community and are proud of their charity fund raising through the IGA stores, particularly of the $10,000 cheque paid to the unique Fiona Wood Burns Unit in WA. With high-visibility jackets provided, ASA members were given a tour over the 20,000sm warehouse. The impressions of the warehouse were the immenseness of the facility, the complexity, efficiency, and smoothness in moving 1 million containers per week while the seemingly ease of filling individual orders was impressive. The drivers of the pallet trucks receive an order, which is transferred to his earphones telling the precise location, item number, the stack level, all in geographical order. He then seems to speed up and down the avenues, pulling out cartons that have no external labels or markings. It was noted the pallet trucks have built in speed limits so the speed was more of an illusion! The visit ended with a tour of an IGA store in Mt Lawley.

CSL Industry Site Tour By Don Hyatt, Victorian State Chair, ASA On 21st March, 70 ASA members and their partners visited the CSL Behring Plant in Broadmeadows on the northern outskirts of Melbourne for an organised Industry Site Tour. CSL did not disappoint and left no stone unturned in making us feel welcome and ensuring the tour was a great success. The soon to be fully commissioned $500 million state of the art Broadmeadows blood plasma fractionating plant is truly impressive. The equipment is fully installed and final commissioning is expected to be complete in 2016. CSL spends a whopping $427 million pa on research and development, and it shows. The plant is quite staggering in its complexity and cleanliness, with a range of purpose built stainless steel vessels with infrastructure in the form of heated or cooled pipes. This plant takes frozen blood plasma and separates it into a range of valuable, life-saving components. The immunoglobulin component is used in the production of, among other things, Privigen for treatment of immunodeficiency in patients. These are patients who, for a range of reasons, lack the ability to fight diseases. The life saving Privigen is administered intravenously every few weeks and in between time patients can live a normal life. The Broadmeadows plant is designed to produce 15, 000,000 grams annually. Plasma products are also used to treat a range of haemophilia and bleeding conditions. These products are life-saving, or at the very least improve the quality of life of many people world-wide.

ASA members at the end of the tour unanimously had positive feedback, with many eager to tour other ASX-listed companies. It was also interesting to see within our cohort one person who assisted in the design and building of the plant and another who worked in research at the company for a number of years. Particular thanks go to Mark Dehring, CSL Head of Investor Relations, who made the trip possible and all the CSL staff who contributed so enthusiastically, ensuring this was a site tour to remember. CSL is a highly professional company is all aspects of its operation. Not only have CSL shares been a great investment for many ASA members over the years, but the world class products that have been produced as a result of R&D investment, vision, hard work and world class expertise has saved the lives, or has improved the quality of lives, of many people world-wide. It is a company of which Australia should be justly proud.

We were treated to a top line group of presenters including Mary Sontrap, Executive Vice President Global Operations and Simon Green, Senior Vice President and General Manager of the CSL Behring Broadmeadows plant. Mary, an Australian based in the USA, flew back to Australia early to host the ASA tour. We were given a history of the CSL operations through various strategically important acquisitions in Germany and the USA, hence into the current $30 billion plus global company we now see. Some of these companies are considerably older than CSL, which listed in 1994. We learned the purpose of the Broadmeadows plant before we broke into groups and were shown around the plant by senior section heads. It does an old chemist’s heart good to see High Performance Liquid Chromatography, ion exchange, nano-filters, distillation and a range of other processes used in order to produce an extremely valuable and safe product from such a complex starting medium as blood plasma, coming as it does from a human source. Fascinated ASA visitors had many questions, all of which were answered in detail. An excellent morning tea was served. EQUITY May 2014 Page 15


BIG MEMBERS Len Roy Lloyd Phillips Barry Nunn Geoff Sherwin Lorraine Graham Stephen Weston


com Limited

REFERENCES Peter Tallentire Stan Taylor Wayne Platt Peter Scales Derek Miller Kerry Cross

Annual Report, Interim Reports, company website, ASX releases, Commsec.



This report was compiled by Len Roy and Lorraine Graham with significant input from other BIG members in Perth.

The Company & its Business Melbourne-based Limited was listed on the ASX September 2009 at $3.50ps. At the time of the IPO, the market cap of the business was $811 million, and it was stated that the company was the largest online automotive, motorcycle and marine classifieds business in Australia. Today, the business has a market cap of approximately $2.513 billion based on a share price of $10.57 and 237.77 million issued shares. CRZ gained ASX-100 membership in 2013. Business focus is the ownership and operation of online classified, display advertising and provision of data services primarily in the automotive industry. The Data and Research services which include Redbook, Livemarket and DataMotive Business Intelligence, provide software, analysis, research and reporting, valuation services, website development support and photography services. The company has achieved a strong five-year financial growth as demonstrated by the following compound annual growth figures: Operating revenue EBITDA NPAT

22.4% 28.8% 28.4%

YE 30 June 2013 revenue contribution from segments is shown below in percentages: Dealer 45% Display 25% Private 17% Dealer and Data services 13% Automotive enquiry volumes exceeded 2.5 million FY13 of which about 2.25 million involved used vehicles. FY13 Automotive inventory volumes were around 233,000. The number of dealer clients continues to rise and reached 3,300 in February 2014.

South Korea at a cost of $126 million. SK C and C would retain its offline automotive dealership assets but would establish a new entity SK ENCARSALES.COM LTD for the online assets which reportedly hold the number 1 automotive classifieds website position in South Korea. would have 49.9% equity in the SK ENCARSALES.COM LTD entity. With all three acquisitions, the review committee felt it was too early to make constructive judgement on the overseas growth initiatives. Announcements have not been clear on operational involvement, level of goodwill associated with the acquisitions, debt exposure or board appointment(s). It will be interesting to consider the financials relevant to the three acquisitions in the 30 June FY14 annual report.

Financials CRZ has 238 million shares on issue as at YE 31 July 2013. The current market cap is $2513 million based on a share price of $10.57. The share price has ranged between $8.45 and $11.77 over the last 52 weeks. CRZ currently has a PE ratio of 27.3 and a fully-franked dividend yield of 2.9%. Four-Year Financial Performance; YE 30th June 2013 Cardno Limited





Revenue (m)





Net Profit (m)





Earnings (c)





Dividends (c)





NTA ($)













Shareholders Equity (m) ROE (%) Payout ration (%) Share price ($)









Overseas growth initiatives

Major Shareholders

In March 2013, announced it was acquiring 19.9% equity in the Australian based entity iCar Asia (ASX:ICQ) which is a leading online automotive classifieds website business operating in Thailand, Malaysia and Indonesia. On 5 March 2014, announced it was increasing its equity in iCar Asia to 22.9% in accordance with bracket creep regulations.

Substantial Shareholders as at 30 June 2013: 12.% Hyperion Asset Management 6.6% FIL Investment Management Australia 6.2% Wal Pisciotta

In June 2013 announced its intention to acquire 30% equity in Brazil-based the largest online classified business in that country. Cost of the acquisition was stated as $90.5 million. In March 2014 announced a commitment to acquire 49.9% of SK C and C’s online car classifieds website business in

Directors & CFO

EQUITY May 2014 Page 16

The top 20 shareholders hold 194,518,377 ordinary shares representing 82.3% of listed equity.

Mr Walter Pisciotta (Non Ind Non Exec. Chairman) Mr Greg Roebuck (Managing Director, CEO)

appointed 25.06.1996 appointed 25.06.1996


10 Year

5 Year

Ms Kim Anderson (Ind NED) Mr Richard Collins (Ind NED) Mr Patrick O’Sullivan (Ind NED) Mr Steven Kloss (Alternate Director) Mr Cameron McIntyre (CFO)

1 Year

appointed 16.06.2010 appointed 17.07.2000 appointed 29.06.2007 appointed 28.10.2005

The YE 30 June 2013 annual report stated that alternate director Steven Kloss is CEO of Pentana. Solutions Pty Ltd, who provide data and services to Ltd. Wal Pisciotta is a director and shareholder of Pentana. Richard Collins is chairman of the Remuneration and Nomination committees.

Remuneration Culture Ltd had earlier engaged external consultants to advise the remuneration committee on a comprehensive review of its remuneration policy. The committee felt the remuneration report in the FY13 annual report was relatively complex. The remuneration report includes a table showing the relationship between KMP remuneration and financial performance of Ltd over five years. Remuneration structure is made up of: Base salary STI with award hurdles including financial, project delivery and People and Culture. Award payments are in cash. LTI with EPS being the main financial hurdle. Award payments are through the Employee Options Plan involving options and performance rights The total executive director and KMP awards for FY13 amounted to: STI $1,115,381, LTI $1,088,168. During the FY13 NEDs received a 27.2% increase in annual fees effective 1 November 2012. Whilst this was considered a very high increase, the review committee noted it was off a relatively low base level. The NED fee pool remains unchanged at $900,000 and the new total of NED fees amount to $670,519 including superannuation.

Auditor Report PwC is the appointed independent auditor. Their fees for audit and other assurance services amounted to $494,000 for YE 30 June 2013 inclusive of $289,000 for due diligence services. The fees for taxation-related services amounted to $109,000. Non-PwC auditor services fees were made up of audit services $11,685 and tax compliance services $48,444. Aggregate of all auditor fees $663,129.


Business Risks Whilst it is acknowledged that the financial performance of Ltd since the 2009 IPO has been impressive, the review committee noted the following growth risks. • Continued consolidation of dealers in Australia represents a significant risk to Ltd. Some of the dealers have established their own websites. CRZ has proactively anticipated the market dynamics by continuously upgrading its existing websites to ensure they are the most user friendly with widest range of products, regions and pricing. Arguably the Carsales. com Ltd websites are the most powerful and friendly within the sectors in which the company operates. CRZ is also working more closely with dealers with the provision of comprehensive data and software. • Retention of KMP is a significant risk for CRZ. In this regard, the stability of the board and KMP suggests CRZ has this risk under control. • Protection of Intellectual Property and Proprietary Rights would be uppermost in the company’s risk management programs. It is unclear to what extent IP is owned by and or Pentana Solutions. • Given the high volume buying, selling, display advertising and payment transactions online, web security would similarly be uppermost in the CRZ risk management program. • A market downturn particularly affecting the local automotive sector would be of serious concern to CRZ. To some extent, CRZ mitigates this risk by having a leading position throughout Australia and NZ across all brands and models of cars, trucks and recreational vehicles. • With the acquisition of 22.9% of iCar Asia Ltd and 30% of Brazil based in 2013 followed by the announcement on 5 March 2014 of the intention to acquire 49.9% of South Korea’s SK Encar online assets, shareholders will be anxiously watching to see if Ltd can successfully manage the offshore growth in parallel with the domestic business in Australia. CRZ’s 5 March 2014 announcement was short on acquisition details which would be of serious interest to shareholders’ such as level of intangibles, debt, operating cash exposure and management responsibility in the newly formed SK ENCARSALES.COM Ltd. CRZ have stated they expect the South Korean acquisition to be EPS accretive in FY14. 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 May 2014 Page 17

Exploring our new website We are very excited to have launched our new website after more than 18 months in development. The new site is much more user focused – it has been developed to create a higher level of user satisfaction. We think you’ll find the new navigation and structure more engaging and simple to use, and the redeveloped content easy to access.

Introducing your Member Portal Your Member Portal is a centralised hub for all your communications and ASA needs, and the place where you can personalise your ASA interests.

You access your Member Portal by selecting the link at the top right hand corner of the website’s home page. Once inside your portal you will see a range of information.

My Account This is the area that your personal details are recorded and where you can review your account. You can change your password, update your address and personal details, manage your email preferences and review your transaction history. We encourage you to explore this area to become familiar with how it can work to improve your membership. To advise ASA locations you are interested in receiving information about (so that you are informed of events coming up in these areas) you need to select one or more ‘regions’. These are found by selecting the Personal Details tab, and then selecting the small address tab on the left hand side – here you can highlight up to four regions of interest to you. In time, by personalising the regions you will only receive meeting reminders for the areas you have selected. We strongly encourage you to nominate your regions of interest.

My Content Notifications This area shows a quick summary of new information that may be of interest to you. This is the place that once you have indicated your areas of interest (companies you follow, SIGs etc) articles will become available for your viewing. You simply click on the news article, and you will be taken directly to the page to view the article. EQUITY May 2014 Page 18

In this area you will be able to ‘follow’ ASX-listed companies that are of interest to you. Once set up, these can be viewed in ‘My Companies’. You can further personalise your account by selecting which Special Interest Group (SIGs) you would like to subscribe to. Simply click on the ‘Special Interest Groups’ tab on the left hand side.

Website review

SMSF Survival Centre Creator: Max Newnham Reviewer: Jenni Eason The SMSF Survival Centre is the brainchild of Max Newnham who is a partner with Taxbiz Australia and has worked in public accounting for almost 40 years. He is a financial planning specialist with the Institute of Chartered Accountants and a specialist advisor with the Self Managed Superfund Professionals Association of Australia. He has also written six books the most recent being “Funding Your Retirement – a survival guide” and his book “Self Managed Super Fund – a survival guide”, published in 2009 has been updated and is the foundation for this site. The aim of the site is stated as being to help individuals: • decide which type of super fund is best for you; • make an informed decision about setting up a selfmanaged super fund; • set up an SMSF; • decide whether to act as individual trustees or have a company act as trustee; • with details and links of where you can get assistance; and • have access to easy to understand information on super, tax and Centrelink rules. The site is in four main sections: What Super is all about, How to set up and run an SMSF, Making the most of your SMSF and The Survival Kit. Section 1: What Super is all about, contains some basic information about superannuation, a fair bit of detail on the history of superannuation and the different types of funds eg military, government, industrial funds and details of the recent Cooper Review into superannuation. It also has a section on What Super Fund is Best for You. The Really Important Technical Stuff section is a pretty comprehensive guide to superannuation rules regarding contributions, withdrawals (lump sum and pensions), conditions of release, etc. Section 2: How to set up and run a SMSF is divided into four sections: Setting up an SMSF, The Rules of the SMSF Game, Tax on Superannuation and Running an SMSF. The

information in this section is reasonably comprehensive and should be adequate for most trustees although more could be provided on the pros and cons of individual v company trustees and how to manage your fund eg full service v more do-it-yourself options. Section 3: Making the most of your SMSF, is aimed at SMSF Trustees and includes sections on Investing for SMSF Trustees, Superannuation Strategies and Centrelink and SMSFs. The information is pretty comprehensive and includes a significant amount of general superannuation and Centrelink information. Section 4: The Survival Kit includes sections on Questions & Answers, Definition of Terms, Superannuation and Tax Tables, SMSF Documentation and Expert Opinion. The Q&A and Expert opinion sections will no doubt increase in size over time, but at present they are limited. The SMSF Documentation section contains some pro forma documents, which are generally adequate, with the exception of the investment strategy template which I don’t think adequately documents how the trustees have addressed the requirements of risk, diversity, liquidity and liabilities (which conversely, is quite well covered in the Investment Strategy section). The website could be improved by including the advantages and disadvantages of different types of superannuation funds eg retail v industry v wrap accounts v SMSF and perhaps by separating non-SMSF specific information eg information about the taxation of superannuation, binding death benefit nominations, Centrelink etc into a separate section or including it in Section 1. The website does provides some very good and useful information for SMSF trustees/members as it is written in an easy to read style. Much of the information is also relevant to non-SMSF superannuation members as well. ASA members are eligible for a discount on the normal membership fee of $55 per year (refer overleaf). Jenni Eason is a member of the Education Committee.

EQUITY May 2014 Page 19

NEWSDESK WEBFRIENDS A great feature of our new website will be the ability for non-members to join up as a webfriend. Webfriends will be able to access some of the information available, will be able to register for an event, receive emails regarding ASA meetings but will not be sent a member card. Naturally, we trust that in time webfriends will see the great value ASA is offering and join us.


-  day FREE trial to MyClime and a 25% discount off any ongoing subscription.

TUNED IN TO GLOBAL FINANCIAL CRISIS Dr Douglas Turek commissioned young Melbourne composer Gawain Davey to put the Global Financial Crisis (GFC) to music. The Melbourne composer has written a twelve-minute three-movement (the rise, fall and recovery) classical piece that has been recorded by the twenty-piece Orchestra Nouveau. Dr Turek says “Symphony GFC is dedicated to mumand-dad investors around the world and their trustworthy fiduciaries whose resolve was tested during these challenging times. May they enjoy the music and financial security for ever.’’ To see a short music video or to listen to the score please visit

WE SAY GOODBYE This month we say goodbye to Katrina Meggitt, our Membership and Events Coordinator. Katrina has been with the ASA for two years and has worked hard to ensure that our events run smoothly and our members are kept happy. Katrina is leaving us to pursue her career in events management, and we thank her for her diligent service to the ASA and wish her all the very best in her future endeavours.

MEMBER DISCOUNTS The ASA is very pleased to have negotiated special member discounts. These can be viewed on our new website by hovering over the ASA Membership tab where a drop-down box will show you Member Discounts under the Membership heading. They are easy to find on our new site, so please take a look at the current offers.


% DISCOUNT off book orders.


% DISCOUNT off Michael Hefferman’s standard brokerage rates at Lonsec.


% DISCOUNT off the recommended Topshare licence price.



ONE-YEAR SUBSCRIPTION special to the SMSF Survival Centre.

EQUITY May 2014 Page 20

SA report Kevin Parken, half way through his second two-year term as SA branch chair, has asked me to produce this report covering 2013 and this year to date. Kevin’s leadership of our association’s SA volunteers is appreciated by those who work with him. Keith Potts, who worked as a geophysicist and manager in the oil exploration industry internationally for more than twenty years, leads a monthly meeting for members focusing on resources, having taken over leadership of the group from Kevin Parken in 2005. Pat Doyle stepped up to lead a monthly round table for general investment issues when then SA branch chair John Turner stepped down late in 2009. Genevieve Ward recently replaced Pat Doyle as chair of our monthly round table meetings at the University of Adelaide. Genevieve is a company monitor for a couple of biotech companies and our branch education convenor. David Paech chairs a working party to find speakers for our monthly Investor Forum held at Scott Church Hall on North Terrace, opposite the University of Adelaide and completes this work as master of ceremonies for Investor Forum which follows a general meeting at which monitors report on companies and other information is shared.

Bob Ritchie, SA Company Monitor Chair

communicating with ARIA. Ron Andrews moonlights as my deputy at ARPA (Active Over 50s) monthly meetings for trustees of superannuation funds. With about 50% ASA membership, this is an active learning group based on strong participation and contribution by all members. It could be considered as our alternative for Better Investment Groups that have not received support from this branch. I represent ASA at ASIC’s Community Liaison Meetings and will be attending ASIC’s Company Governance meetings, supported by three members of our monitoring committee. Our close cooperation with ASIC is mutually beneficial. Kevin Parken recently introduced membership recognition certificates which have been appreciated by those who received them. A recent widow wrote to Kevin, in appreciation of her husband’s certificate which he received on his death bed. She said she showed him the certificate, read it to him and he smiled. We regret that we have been unable to arrange meetings for members outside the metropolitan area. Analysis of our membership postcodes shows no more than a handful of members in any country area.

Don Fairweather and Rosemary Symons meet and greet visitors to general meetings and Investor Forum. Brad Martin and Yin Young Yu provide technical support for Investor Forum, enhancing visual displays as well as managing electronic equipment. Ron Andrews recently became our membership officer, entailing leadership of visits to company sites. John Connell is our long serving minutes secretary and formerly was a company monitor for three years. Last year, we closed our monthly evening meeting after long-time convenor Laszlo Symogi retired. We appreciated Laszlo’s high–standard leadership and celebrated his departure with a lunch in his honour. Our company monitoring group is strong. Because we have only a handful of ASX 200 companies resident in SA, we have a system that incorporates deputy monitors and we also monitor smaller listed companies of interest. Three of our monitors – Joseph Tan, Yin Young Yu and Adrian Selway – are still working and represent our future, while the other ten of us are retired. However, there is much depth amongst our older monitors including former KPMG partner John Worthley and Michael Davey, a former managing director of Adelaide Brighton, one of the companies we monitor. We collaborate with sister organisations, including SA branches of AIA and ATAA. Kevin Parken is also EQUITY May 2014 Page 21

ASA Events Location






Mantra on Northborne, 84 Northbourne Ave, Canberra The Canberra Southern Cross Club Jamison, Cnr Catchpole and Bowman Street, Macquarie Weston Club, 1 Liardet Street, Weston The Canberra Southern Cross Club Jamison, Cnr Catchpole and Bowman Street, Macquarie

Ian Curry, ASA Chairman Northside Discussion group


Australian Capital Territory ASA AGM


9.00am – 12.00pm









Southside Discussion Group Northside Discussion Group


General investment topics General investment topics

New South Wales Bondi Junction



Port Macquarie






Ardent Leisure Site Tour



Sydney Investor Forum Sydney – North Shore Taree

15/05/14 16/05/14

12.00 midday 10.00am






Bondi Junction






Port Macquarie



Gold Coast



Brisbane Investor Forum






Gold Coast



Brisbane Investor Forum



Mill Hill Community Centre, 31–33 Spring St, Bondi Junction Senior Citizens Centre, Munster Street, Port Macquarie The Builders, 61 Church Street Wollongong Kingpin Bowling Level 3, Harbourside Shopping Centre, Darling Harbour Sydney Sydney Mechanics' School of Arts, Mitchell Theatre, 280 Pitt St, Sydney Killara Uniting Church Hall, 9 Karranga Avenue, Killara Greater Taree City Library, 242 Victoria Street, Taree Club Macquarie, 458 Lake Road, Argenton Mill Hill Community Centre, 31–33 Spring St, Bondi Junction The Builders, 61 Church Street Wollongong Senior Citizens Centre, Munster Street, Port Macquarie

Bondi Discussion Group Led by Convenor Les Smith, ASA Illawarra Discussion Group Richard Johnson, Ardent Leisure Group Colin Nicholson, Investor & Author Sydney North Shore Discussion Group Taree Discussion Group Bob Humphris, Leighton Holdings Ltd Bondi Discussion Group Rudi Filapek-Vandyck, FN Arena Led by Convenor Les Smith, ASA

Investment topics General investment topics General investment topics Ardent Leisure site tour

Investing for the new bull market General Investment-related topics Investment related topics An insider's view of the Chairman's role Investment topics The share market: always different, always the same General investment topics

Queensland Robina Community Centre, 196 Robina Town Centre Drive, corner San Antonio Court, Robina The Melbourne Hotel, The 12 Function Room, 10 Browning Street, West End University Open Learning Centre, 27 Jellico Street Toowoomba – Main Conference Room Robina Community Centre, 196 Robina Town Centre Drive, corner San Antonio Court, Robina The Melbourne Hotel, The 12 Function Room, 10 Browning Street, West End

Gold Coast Discussion Group

Members general discussion

Peter Schiefelbein, ASA

Inside the mangled mind of a modern fund manager

Kelly Buchanan, ASA

The investment club as a learning tool

Gold Coast Discussion Group

Members general discussion


SMSF's post-budget strategies

Discussion Group led by Keith Potts, ASA Discussion Group led by Genevieve Ward, ASA Robert Mencel, Iron Clad Discussion Group led by Keith Potts, ASA Discussion Group led by Genevieve Ward, ASA

Industrial share related issues Resource share related issues

South Australia Discussion 07/05/14 Group Resources 14/05/14 Discussion Group Adelaide 21/05/14 Investor Forum Discussion 04/06/14 Group Resources 11/06/14 Discussion Group

EQUITY May 2014 Page 22

10.30am 10.30am

12.00 midday 10.30am 10.30am

University of Adelaide Club, North Terrace, Adelaide University of Adelaide Club, North Terrace, Adelaide Scots Church Hall, Corner Pulteney Street & North Terrace, Adelaide University of Adelaide Club, North Terrace, Adelaide University of Adelaide Club, North Terrace, Adelaide

Developments at Iron Clad Industrial share related issues Resource share related issues








Melbourne City Conference Centre 333 Swanston Street, Melbourne Longbeach Place, 15 Chelsea Road, Chelsea Koonarra Hall, 7 Balwyn Road, Bulleen The Elephant & Castle Hotel, 158 McKillop Street, Geelong Westpac Bank Building, Corner of Hotham and Franklin Streets, Traralgon Eastwood Leisure Complex, 20 Eastwood Street, Ballarat Mornington Golf Club, Tallis Drive, Mornington

Ross Barker, AFIC

The value of franking

Kingston Discussion Group Manningham Discussion Group Geelong Day Discussion Group David Wells, Baillieu Holst

Benchmarking a portfolio

Victoria Melbourne Investor Forum Kingston


12.00 midday 10.30am
















Melbourne 15/05/14 Evening Meeting Monash 20/05/14





Albury-Wodonga 27/05/14


Commercial Club, 618 Dean Street, Albury

Melbourne Investor Forum Manningham


12.00 midday 10.00am







Melbourne City Conference Centre 333 Swanston Street, Melbourne Koonarra Hall, 7 Balwyn Road, Bulleen Simonds Stadium 370 Moorabool Street, South Geelong Eastwood Leisure Complex, 20 Eastwood Street, Ballarat




Longbeach Place, 15 Chelsea Road, Chelsea





06/05/14 13/05/14

12.00 midday 9.30am

Perth Investors' Corner



Perth South of the River Group Busselton





Canning River Eco Education Centre, Lot 8 Queens Park Road, Wilson State Library Building of Western Australia, 25 Francis Street, Perth State Library Building of Western Australia, 25 Francis Street, Perth Paddington Ale House, 141 Scarborough Beach Road, Mt Hawthorn Citiplace Community Centre, City Station Complex, Wellington St, Perth Canning River Eco Education Centre, Lot 8 Queens Park Road, Wilson The Equinox Cafe, 343 Queen Street, Busselton State Library Building of Western Australia, 25 Francis Street, Perth State Library Building of Western Australia, 25 Francis Street, Perth Paddington Ale House, 141 Scarborough Beach Road, Mt Hawthorn



The Limerick Arms Hotel, 364 Clarendon St, South Melbourne Wheelers Hill Public Library, 860 Ferntree Gully Rd, Wheelers Hill Bendigo Club, 22 Park Street, Bendigo

An overview of the retail sector General investment topics Portfolio construction

Ballarat Discussion Group Roundtable discussion led by Ian Thomson, ASA Remo Greco, Calibre Investments Maurice Freeman, Wilson HTM Stephen Mayne, ASA Engagement & Policy Coordinator Don Hyatt, ASA Victorian Chair & Monitor TBA

Investment related topics


Manningham Discussion Group TBA

Internet related stocks on the ASX TBA

Stephen Mayne, ASA Policy & Engagement Co-ordinator Kingston Discussion Group

Ballarat Lunch

General investment topics

Is the party over for the Blue Chips? Shares for seniors ASA issues and AGMs

An ASA-monitored company


Western Australia Perth South of the River Group Perth Members Monthly Meeting Perth Investor Forum Perth North of the River Group

Perth Members 03/06/14 Monthly Meeting Perth Investor 03/06/14 Forum Perth North of 10/06/14 the River Group

10.30am 12.00 midday 9.30am

Paddy Hodgson, ASA Perth Members' Meeting Phil Rees, Westoz Funds Management Discussion group led by Barrie Baker and Bert Pryor, ASA Discussion group led by Lorraine Graham, ASA Tom Herzfeld, ASA Discussion group led by members Perth Members' Meeting TBA Discussion group led by Barrie Baker and Bert Pryor, ASA

Valuing stocks Benefits of the new userfriendly ASA website Investing strategies for today’s economic climate General investment related topics A focus on companies with strong yield performance The budget and outlook ahead Investment related topics General investment TBA General investment related topics

NB. Dates, speakers and topics are correct at time of printing but are subject to change. Please check the ASA website for the latest details.

EQUITY May 2014 Page 23

Associations March 2014  
Associations March 2014  

Australian Shareholders Association