EQUITY - Australian Shareholders' Association · GOVERNMENT BONDS deFeCtIve ato ... No...

t h e t r u s t e d v o i c e o f s h a r e h o l d e r s May 2013 Vol 27 #04

EQUITY

www.australianshareholders.com.au

AMCOR: RESILIENCE AND CAPITAL DISCIPLINE

STOCK VALUATION PART VI

SMSF: INDIVIDUAL VS CORPORATE TRUSTEES

AUSTRALIA’S ECONOMY - THE NEVER ENDING BOOM ENDS?

10SMSF: IndIvIdual vS Corporate truSteeS

There are nearly 500,000 SMSFs in Australia and about 70% of them have individuals as trustees yet most advisers will recommend a corporate trustee.

08aMCor: reSIlIenCe and CapItal dISCIplIne

The secret, so to speak, was printed prominently in the 2010 Annual Report: Amcor (AMC) is well positioned by having a substantial grown opportunity that is not dependent on economic recovery.

MAY VOL 27 #04

ContentS

FEATURES THIS MONTH

EQUITY

04auStralIa’S eConoMy – the never endIng booM endS? Author Satyajit Das believes that despite Australia’s consistent economic growth we cannot mask the fact that the economic outlook is deteriorating.

t h e t r u s t e d v o i c e o f s h a r e h o l d e r s

12 14 15

16 18 20

22 23 24

MORE INSIDE...

ASA NEWSDESK

BrickBatsBOUQUEts&stOck

VaLUatiONPart Vi

agM Reports

BETTERINVESTING GROUP

Standing proxies

GOVERNMENT BONDS

deFeCtIve ato adMInIStratIon WA Branch

Report

eQuIty May 2013 Page 3

CHAIR REPORT MAY 2013board oF dIreCtorS

Ian Curry FCPA, FCIS, Dip Fin Planning, ChairmanBetty Clarke-Wood ACIPDenis O’Sullivan BCom, AAUQ, ANZIIF, SAFin, FCPABarry Nunn AO, BE Geoff Sherwin FCA, F Fin, FAICD

natIonal oFFICeSilvana EcclesNational Operations Manager

Kate MachattieAccounts Manager

Stephen MaynePolicy & Engagement Coordinator

Katrina MeggittOffice Manager

State branCheSACT Edward Patching [email protected] Michael Perry [email protected] Alison Harrington [email protected] Kevin Parken [email protected] Don Hyatt [email protected] Barry Nunn [email protected]

eQuIty edItorSSilvana Eccles & Stephen Mayne [email protected]

ContaCt detaIlSTELEPHONE 1300 368 448 02 9411 1505FAX 02 9411 6663ADDRESS Level 7, North Tower 1-5 Railway Street Chatswood NSW 2067 PO Box 519 Chatswood NSW 2057ABN 40 000 625 669EMAIL [email protected] www.asa.asn.auwww.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.

CopyrIghtAll 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.

Members will have received their printed copy of our 2012 annual report with their April Equity magazine. Around a quarter of members now receive these documents electronically and it is likely this number will increase in the years ahead. Notice of the Annual General Meeting to be held on 8 May and proxy forms are also included or provided to email addresses. I urge all members to read the annual report and note how your association performed financially during 2012. The directors have been required to make a number of changes in presentation due to amendments to the Corporations Act and have also added to the detail provided in notes to the accounts.

I make a special plea that you complete the proxy form if you are unable to attend the AGM and return it in the reply paid envelope. In particular I ask that you support the re-election of Betty Clarke-Wood who works tirelessly for ASA at three levels – nationally as a director, in Victoria as a committee member and membership convenor and locally as leader of the Ballarat group.

You will note the surplus achieved for the year something not generally achieved in a year without a conference. The board recognises that we need to grow revenue through increased membership both individual and corporate and to provide services which enhance membership benefits.

From 1 July membership subscriptions will increase from $115 to $120 for Green members (Equity via email) and from $125 to $140 for Classic members (Equity by post). Members will recall that the last increase was in 2011. Subscriptions may be tax deductible depending on individual circumstances.

ASIC recently released a report and discussion paper on High Frequency Trading (HFT) and Dark pools. ASA is disappointed with the expressed view that the claimed disadvantages to retail investors of HFT were overstated. In our submission late last year we provided reasons why our members and others could not have confidence that they were on a level playing field. We will meet with ASIC and provide more information and examples of what we see as activities detrimental to investors.

Every year in the lead-up to the Federal budget it is usual for the government of the day to leak a range of proposals and actions to test public opinion. This testing typically is about impacts on voting rather than the intrinsic worth of these proposals. Not even common sense seems to be involved in the discussions which follow.

Superannuation is the hot topic and once again any changes are likely to further complicate administration and make it harder for individuals to plan for their retirement. Given changes have not been retrospective in the past this adds more complexity to an already complex set of arrangements and rules. Ideally contributions (with limits) and investment income in the fund should be tax free with withdrawals, either lump-sum or pension, taxed at marginal rates. It would seem this is all too late now.

Members are aware of our objective to develop closer links to investor oriented organisations. I was pleased to be invited by the Northern Tasmania branch of the Association of Independent Retirees (AIR) to speak at their monthly meeting in March in Launceston. A number of ASA members are members of AIR and it was pleasing that nearly 140 people attended and media interest was strong.

I also attended meetings with ASA members in Hobart and discussed how they could arrange to hold small discussion meetings. In Launceston I met with our members and it was agreed that with the support of AIR, ASA members would participate in their monthly meetings. I was delighted with the response and support of the AIR committee and our members to my visit.

Ian Curry


Australia has enjoyed strong, consistent economic growth (over 20 years of expansion), low unemployment and increasing living standards. Its old economy avoided the implosion of the new economy. Its economic performance was underpinned by strong growth in emerging nations, especially China and India, and demand for commodities. After the Global Financial Crisis (“GFC”), government spending, lower interest rates and a credit fuelled investment boom in China helped Australia avoid the worst of the economic slowdown in developed markets.

But talk about the “best performing economy in the developed world” cannot mask the fact that the economic outlook is deteriorating.

THE FACTS…

Growth has slowed from 4% plus to around 3% with further decreases likely. The labour market has weakened. Consumption growth is modest reflecting high levels of consumer debt. Manufacturing output has contracted.

Weakness is driven by a decline in the performance of the mining sector. Terms of trade (export prices relative to import prices) have fallen from historical highs by 10-15%. Prices for key export commodities, iron ore and coal, are volatile but likely to remain weak. Mining investment, which has underpinned activity, is slowing. Non mining investment has fallen, with the highest declines in more than 20 years.

In December 2012, the government admitted that its budget surplus target is likely to be missed. But the real issue is the factors underlying the deterioration of public finances.

Federal government revenues have deteriorated, with cash receipts running below expectations. State budgets are also under pressure. This reflects a slowing economy, which has translated into lower than expected tax revenues.

The scheduled 2013 federal elections complicate budgetary policy. A 2013 budget deficit, which could be as high as A$15-20 billion, may increase pressure for further spending cuts that will contribute to further weakness, unless global growth rebounds and exports and investment recover. Alternatively, financing of key initiatives, such as increased funding for education and the national disability insurance scheme, may place greater pressure on the budget.

Australia’s weakening current account is also a concern. Despite the mining boom, Australia’s trade account has been negative for much of recent history. Since 2001, the trade account has averaged a deficit of around A$500 million per month fluctuating between a surplus of A$3.4 billion and deficit of A$3.2 billion. In aggregate, the trade account has been in deficit by around A$68 billion or around 6% of Australia’s current Gross Domestic Product (“GDP”). The performance is disappointing given the record terms of trade and strong export volumes despite the need to import capital goods associated with the mining development.

Currently, Australia’s current account deficit is around A$50 billion or 3.7% of GDP. It is likely to increase to around 5-6% based on Australia’s weakening export performance, one of the highest in the developed world. It will increase reliance on international financing.

AUSTRALIA’S ECONOMY - THE NEVER ENDING BOOM ENDS?

Satyajit das


THE END oF THE CoMMoDITY SuPER BooM…

The declaration by Federal Treasurer Wayne Swan that talk of the end of the mining boom was “claptrap” had international investors reaching for their dictionaries. But semantics aside, the commodity boom, prophesised by many pundits to go on forever, is slowing down sharply.

The expansion in mining activity in the 2000s was driven by a confluence of demand (unanticipated rapid increase in demand from emerging countries, especially China and India) and supply factors (under investment in capacity reflecting low commodity prices in the 1990s).

Economic growth in emerging markets is slowing, especially in key markets such as China and India. Even if growth levels remain above that in developed markets, the changing composition of growth (a rebalancing from investment to consumption) means that resource intensity will decrease, reducing demand for commodities. Increased capacity, as a result of aggressive recent investment, will also come on-stream progressively, coinciding with lower demand.

These factors place pressure on commodity prices and also export volumes. It will also drive a slowdown in mining investment. The Reserve Bank of Australia (“RBA”) now thinks that the peak will occur sooner and be lower than previously forecast.

Projected investment estimates also assume that resource companies will be able to obtain financing for projects. Many miners, especially medium and smaller firms, will have difficulty raising the equity and debt needed due to the weaker conditions.

In the medium term, legacy issues, such as over investment and cost overruns which have created over priced projects, will hamper Australian resource competitiveness and financial performance. These problems may flow through into financial institutions which have funded these projects.

Even if the weakness in commodity markets is less than feared, the shift from mining investment (plant construction) to operation (production and export) has significant implications. Construction requires local labour with attendant economic benefits for Australia while operation and maintenance will have less flow through, given high levels of mechanisation and automation.

The resource sector has high levels of foreign ownership with earnings from projects flowing overseas rather than remaining in Australia, limiting the benefits. The high capital cost equates to large tax write offs, depreciation and capital allowances, which means that the tax revenue benefit to Australia may be much less than expected for some time.

Mining also exploits non-renewable resources. Australia has economic demonstrated reserves of iron ore which at the 2009 production rate would last 71 years. The comparable figures for coal and LNG are 98 years and 61 years. However, this overstates the sustainability of Australia’s mineral wealth.

Low cost reserves are exploited first. As low cost reserves, such as the Pilbara iron ore reserves and Bowen Basin coal resources, are depleted, Australia’s resource competiveness will decrease. This will be compounded by the country’s high cost structures and its poor record in terms of cost escalation, which will encourage investors to look elsewhere.

WEAkNESS IN STRENGTH…

The appreciation of the Australian dollar (“A$) has also affected economic performance.

A$ strength reflects higher (until recently) commodity prices. It also reflects the A$ role as an investment proxy for China and safe haven status as one of the few remaining AAA countries. High A$ interest rates relative to other developed countries drive the risk-on or carry trade. Investors borrow in uS$, Yen or Euro to purchase higher yielding currencies leading to strong capital inflows.

Many of these factors are structural and will continue to influence the currency for some time. The RBA have conceded that a return to significantly lower values is unlikely in the short term.

The higher A$ reduces Australia’s competitiveness in manufacturing, retail, tourism, education and health services which are all major employers. It has increased imports driven by the cheaper prices of foreign goods. It has increased outflow of capital as investors and firms invest overseas, taking advantage of the strong currency.

The value of the A$ is only one factor determining export competitiveness. Australian manufacturing has been declining for decades. The lack of a large domestic market which allows required economies of scale and scope, distance from markets and lack of unique competences have all contributed to the hollowing out. The “golden age” of Australian manufacturing may have been the product of tariffs, subsidies and trade barriers.

Focus on the A$ masks Australia’s high cost structures, low productivity, poor innovation and indifferent management.

ECoNoMIC MAkEoVER…

Australian policy makers are now “rebalancing”. Lower interest rates are targeted at boosting domestic housing and consumption activity and reduce the value of the A$. Australia will also rebalance toward Asia.

The RBA has lowered interest rates by 1.75% per annum, with further cuts likely in 2014. But its effectiveness is doubtful. To date, lower rate have had much less effect, relative to previous easing cycles, on consumer and business confidence, labour markets, retail sales, (non-resource) investment or housing.

Given the uncertainty of employment and low income growth, consumers have a preference for saving, reducing


not increasing debt. Savings from rate cuts are being used to pay down debt, limiting the boost to consumption or housing, both of which remain weak. Given low demand growth and over capacity, lower rates may not translate into increased business investment.

Low rates also create distortions. Reduced income from investments decreases consumption by retirees. It paradoxically decreases spending as savers must save more to meet future needs. Lower investment income pushes up insurance premiums and also reduces retirement payouts. Low rates artificially lower costs of capital, favouring capital investment rather than employment. Low rates also drive asset inflation and feed bubbles in financial assets.

Low rates can only provide a temporary boost to economic activity. A sustained period of low rates will also make it difficult to increase the cost of borrowing.

Given that artificially low interest rates were one of causes of the GFC, it is ironic that policy makers have adopted the same policy – credit fuelled consumption and investment - as the solution to the current problems.

Low rates may not reduce the value of the A$. The ability of the RBA to devalue the A$ is limited given the policies of the uS, Japan, Europe and China to weaken their currencies to improve export competitiveness. Given Australia’s reliance on trade and the open nature of its economy, capital controls or other measures to control the A$ are difficult.

WHoSE CENTuRY IS IT…

Australia’s recent white paper – Australia in the Asian Century - has little to do with Asia, being concerned with Australia and its needs. As the commodity and mining boom slows, Australia is desperate to sell other goods and services (food, education, health care and financial services) to Asia as well as attract Asian tourists.

But growth in Asian economies is slowing, reflecting weakness in their major markets (uS and Europe) and increasing domestic pressures from rapid increases in costs and the effects of rapid credit growth. Asia also faces transitional problems into middle income economies, compounded by rapidly aging populations in many countries.

While Asia has achieved significant development milestones, the size and purchasing power of its middle class is overstated. An income level equivalent to uS10,000 per year is used to designate “middle class”, a level around 20-25% of average incomes in Australia.

Australia’s Asian strategy steers clear of difficult issues such as the inherent contradiction between its political and defence partnership with the uS and its economic dependence on China.

It does not acknowledge increased xenophobia about foreign, including Chinese, investment in Australia and Asian immigration. The general population shows lukewarm support for greater engagement with Asia. outside of mining and farming which have significant export markets in Asia, Australian businesses remain domestically focused.

Deep seated cultural barriers are ignored. At the 1919 Paris Peace Conference, Prime Minister William Hughes

voted against an amendment to the League of Nations Covenant that would assert the equality of the world’s races. In the 1950s and 1960s, Prime Minister Sir Robert Menzies resisted the entry of African nations into the Commonwealth, unhappy with a situation in which subject peoples became the equals of the old White self-governing dominions. Australia pursued a Whites only immigration policy, which only ended in the 1960s. But even after the change in policy, Australia has been ambivalent about its geography relative to its history (as another Prime Minister, John Howard chose to express it).

A cartoon in the Sydney Morning Herald cartoon captured the essence of Australia’s most recent Asian strategy. A teacher at a white board explains the strategy to the students: “Children, the Asian century is upon us. We need to ENGAGE with Asia so we can PROFIT from their rising middle class. Here are some phrases you need to learn in their languages. ‘Do you have a lot of money’; ‘Please, bring it to our casino in Barangaroo’; ‘Feel free to smoke’”.

YouSE HAVE NEVER HAD IT So GooD…

In a 29 November 2010 speech entitled The Challenge of Prosperity, RBA Governor sought to illustrate the combined effects of the gains of the appreciating terms of trade position and the A$ strength in the following terms: “In 2005 a shipload of iron ore was worth the same as around 2,200 flat screen televisions. In 2010, the same shipload was worth around 22,000 flat screen TVs”. In a Freudian slip, the RBA Governor identified a fundamental issue with Australia’s economic model.

The mining boom helped maintain income and buying power, as Australia extracted large rewards for its mineral resources. Since 1998, the Commonwealth Bank estimates that the rise in commodity prices delivered $6,300 a person in extra income. But Australia may have substantially wasted the proceeds of its mineral booms, with the proceeds channelled into consumption.

According to one study, the commodity boom increased government revenues between 2002 and 2008 by around A$180 billion of which A$36 billion was used to repay public debt, A$69 billion was placed into the Future Fund (to meet the cost of public sector superannuation liabilities) and $75 billion was transferred to households in the form of tax cuts and payments. In November 2012, Former Treasury Secretary and author of the Government’s Asian Strategy mused about the inter-generational effects of Australian economic strategy: “future generations …. will have reason to examine whether we made the most of the mining boom that we knew would not last forever”.

Policy makers talk about the need for structural changes to overcome Australia’s lack of international competitiveness in many sectors, driven by high costs, poor productivity performance, declining educational achievements and narrow industrial base. But improvements in Australian competiveness without declining living standards present challenges.

Australian minimum wages are around A$16 per hour. In comparison, the minimum wage is around A$8 per hour in the uS and A$1-2 per hour in China. For skilled work, the

Australia’s Economy - The Never Ending Boom Ends? (continued)


All fees charged are solely based on the time taken to process and submit a tax return to the Australian Taxation Office, and clients are advised of arising legislative changes in tax law that may apply to their individual circumstances.

str is a company that provides a competitive tax returns service for self-managed superannuation funds, and offers its clients a free annual asa green membership subscription valued at $115. upon payment of services current asa members will have their membership extended for 12 months. we utilise experienced home based practitioners to offer heavily discounted prices, and large fee savings to facilitate a fund’s

future growth. compare our fees, and levels of skill and service with those of our competitors!

call today on 02 9328 3013Or visit our web site superannuationtaxreturns.com.au

Level 5, Edgecliff Centre, 203-233 New South Head Rd, Edgecliff, NSW 2027.

FREE ASA GREEN MEMBERSHIP VALUED AT $115

cost of Australian labour is around double that in comparable nations like the uS. Given that both political parties are committed to maintaining Australian income, the flexibility to increase competitiveness by adjusting cost structures is limited.

THE NAuRu SoLuTIoN…

The Micronesian island of Nauru is prominent in Australian consciousness. As part of the Pacific Solution, Australia pays Nauru to “process” refugees pending determination of their immigration status.

In the 1960s and 1970s, Nauru boasted the highest per capita income in the world. Its wealth was based on mining phosphate from guano (bird dropping). To secure its future once the phosphate reserves were exhausted, Nauru placed a portion of mining revenues in the Nauru Phosphate Royalties Trust to invest for the long term. Today, Nauru’s phosphate reserves are exhausted and no longer economically viable. The Trust’s assets have been lost through mismanagement and fraud.

Nauru’s GDP per capital has shrunk dramatically. The unemployment rate is estimated to be 90%. Government employs 95% of those with work. The country lacks the money to perform basic functions. Nauru briefly became a tax haven and illegal money laundering centre to generate revenue. It is dependent on aid. Nauru’s physical environment is severely degraded from strip mining. Its population, which is among the most obese in the world, is shrinking.

While Australia is not Nauru, the fate of the island highlights the need for a clear economic strategy to secure the nation’s future.

In an interview on 19 December 2012 with the Australian Financial Review, the RBA Governor addressed the nation’s economic strategy in the following terms: “I think we always get this question: ‘where will the growth come from?’ And most of the time it comes.” Australian policy makers appear to have embraced the Dickensian economics of hopeful expectations where Mr Micawber asserted his faith that “something will turn up”.

Politicians and policy makers have taken credit for Australia’s strong economic performance, reminding citizens, like former British Prime Minister Harold MacMillan, that “they have never had it so good.”

Prime Minister Julia Gillard shared the wisdom of “the Australian way” with leaders from G20 nations. Endorsing the government’s optimistic economic outlook, Shadow Treasurer Mr Joe Hockey told The Economist in June 2012: “I have no doubt that we are on the threshold of our greatest ever era and the challenge will be managing prosperity”.

More recently, both sides have reiterated a commitment to maintaining Australian wage levels and living standards. It will be interesting to see if and how they deliver on their promises of prosperity for all.

© 2013 Satyajit Das. Satyajit Das is a former banker and author of Extreme Money and Traders Guns & Money.

All fees charged are solely based on the time taken to process and submit a tax return to the Australian Taxation Office, and clients are advised of arising legislative changes in tax law that may apply to their individual circumstances.

str is a company that provides a competitive tax returns service for self-managed superannuation funds, and offers its clients a free annual asa green membership subscription valued at $115. upon payment of services current asa members will have their membership extended for 12 months. we utilise experienced home based practitioners to offer heavily discounted prices, and large fee savings to facilitate a fund’s

future growth. compare our fees, and levels of skill and service with those of our competitors!

call today on 02 9328 3013Or visit our web site superannuationtaxreturns.com.au

Level 5, Edgecliff Centre, 203-233 New South Head Rd, Edgecliff, NSW 2027.

FREE ASA GREEN MEMBERSHIP VALUED AT $115


The secret, so to speak, was printed prominently in the 2010 Annual Report: Amcor (AMC) is well positioned by having a substantial growth opportunity that is not dependent on economic recovery (emphasis mine).

At that time, only a few were genuinely paying attention. So painful remains the memory of Amcor’s disaster years among investors and stockbrokers that up to this day many refuse to even reconsider the company as a potential investment option. I know of one stockbroker who persistently shows the palm of his hand while turning away his head whenever someone dares to mention the company’s name in his presence.

Most funds managers and stockbrokers are straightforward and honest about it: they missed the Amcor turnaround story and by doing so their clients have missed out on one of the better investment opportunities the Australian share market has had on offer between 2009-2012. Consider this: while the Australian share market in general wasn’t going anywhere until mid-2012, Amcor shares continued posting double-digit gains, every year, of which a little less than half stemmed from steady dividends. When the big rally announced itself in mid-2012, Amcor shares further extended their market-beating performance.

broker date rating recommendation target price

% to reach target

CIMb Securities

19/02/2013 1 Outperform $9.67 0.2%

Macquarie 19/02/2013 1 Outperform $9.62 - 0.4%

Citi 19/02/2013 3 Downgrade to Neutral from buy

$9.25 - 4.2%

ba-Merrill lynch

19/02/2013 3 Neutral, High Risk $9.20 - 4.7%

Jp Morgan 19/02/2013 5 Downgrade to Underweight from Neutral

$8.75 - 9.4%

ubS 19/02/2013 3 Neutral $9.00 - 6.8%

Credit Suisse

19/02/2013 1 Upgrade to Outperform from Underperform

$10.35 7.2%

deutsche bank

19/02/2013 1 Buy $9.30 - 3.7%

Source: FNArena

Warren Buffett once said the trouble with most turnaround stories is they never actually turn around, so what has made the difference for Amcor? By 2005 new management and the board acknowledged Amcor had lost its way. A restructuring was undertaken with the aim of improving core competencies and shedding underperforming businesses. The program was called “The Way Forward”. In 2009 the program’s principles were embedded within a new operating model; “The Amcor Way”. Then Dame Fortuna smiled upon the company.

Heavily-indebted Rio Tinto was struggling for survival amidst lower commodity prices after having overpaid for the acquisition of Alcan in a bid to fend off suitor BHP Billiton. As Rio Tinto became a forced seller of assets, Amcor snapped up Alcan Packaging for a bottom of the cycle price tag of uS$1.948 billion, representing 5.1 times calendar year 2009’s profit before interest, tax, depreciation and amortisation (PBITDA). Amcor instantaneously became twice as big but also with (at least) twice as many growth opportunities. Management certainly hasn’t disappointed by extracting more synergies than originally suggested, ahead of schedule.

All this allowed the 2010 Annual Report to declare that Amcor had by now become a “substantial growth opportunity”, regardless of what happened in the global economy. There are not many companies in the Australian share market that are ever able to make such a bold statement, let alone in the midst of a raging bear market.

IT’S NoT ALL RELATED To ALCAN PACkAGING

With a geographical reach that is virtually unmatched in Australia (except, maybe, by News Corp) Amcor’s worldwide operations are a reflection of what is going on the world; always a problem somewhere despite upside elsewhere. At the same time, with some 85% of products and customers related to the food, beverage, tobacco and healthcare sectors, Amcor’s operations have a strong built-in resilience. Note that profit growth and dividend increases in recent years have occurred despite a deep and nasty recession in Europe which just happens to be Amcor’s most important market!

amcor: resilience and capital discipline rudi Filapek-vandyck


The conglomerate-like character has been further emphasised by two very tough years for operations in Australia (just like every other local manufacturer) and management has responded with restructuring and cost cutting. The years ahead should see a jump in profitability for these operations as closures of the Petrie recycled cartonboard mill in Queensland and a plant in Thomastown, Victoria should see a material boost in margins and earnings from 2014 onwards.

Don’t also forget Amcor is leveraged to better economic momentum in the uS, the group’s second largest market, while 65 plants and more than 8,000 workers in 24 emerging markets now represent some 19% of total group revenues.

Since 2000, sales into emerging markets have grown at a compound rate of 18% per annum. As the average consumer in emerging countries grows wealthier by the day, this underpins an increasing demand for packaging. Amcor is already, according to its own assessment, in possession of an unrivalled footprint across South and Central America, Eastern Europe, Russia and Asia, including India and China.

An additional luxury is that the businesses generate a lot of cash flow and now that the bulk of restructuring and integration of Alcan Packaging is complete, management will have plenty of shareholder friendly options available, apart from reducing the company’s debt ($3.8bn). The past years have already seen a $150m share buyback plus a new dividend policy that should pull future increases in line with profit growth. There should still be plenty of growth potential inside the existing operations as margins remain below competitor’s levels. Acquisitions, including Alcan Packaging, typically depress margins which offers room for improvement.

IS THERE NoTHING THAT CAN DISRuPT THIS FoRECAST?

oh yes, there is. In fact, there’s plenty! And outside control of Amcor’s management too. With 85% of all profits generated in foreign currencies, predominantly euro and uSD, currency fluctuations can have a significant impact for Australian shareholders. Amcor estimates that every euro 1c move impacts net profit by A$5m and every uS1c move impacts net profit by A$3m. The good news is, of course, that in case of AuD weakness, Amcor will be a major beneficiary.

Market Consensus Forecasts

Forecasts

Fy11 actual

Fy12 actual

Fy13 Forecast

Fy14 Forecast

epS (cps) 45.9 52.3 55.0 63.7

dpS (cps): 35.0 37.0 40.3 44.2

epS growth N/A 13.9% 5.3% 15.7%

dpS growth N/A 5.7% 8.8% 9.8%

pe ratio N/A N/A 17.5 15.2

dividend yield N/A N/A 4.2% 4.6%

div pay ratio(%) 76.3% 70.7% 73.1% 69.4%

dividend yield today if purchased 3 years ago: 5.78% (on the basis of the last actual payout)

Source: FNArena

As a global manufacturer, rising input costs are always a threat as any pass-ons to customers happen with a delay. Raw materials are typically 30% to 60% of the total cost of production. Important thus. The largest categories of raw materials for Amcor are resins, resin-based films, aluminium, cartonboard and inks.

Another negative is that Amcor’s Price-Earnings (PE) ratio has now risen to the upper level of its historical PE range. Investors not yet on board might want to wait for share price weakness or to buy on dips in order to avoid disappointing returns in the short term.

In summary: Amcor’s All-Weather(*) characteristics which include resilient revenues, pricing power and a wide geographical and product diversification are at this point in time complemented with several drivers that should ensure strong growth lies ahead. These profit-drivers include recent acquisitions, growth in emerging markets, cost reductions, and ongoing operational improvement. Virtually every analyst covering the stock acknowledges there’s plenty of room for unaccounted positive surprises, regardless of further acquisitions. Amcor may well be cruising towards an operational sweet spot in the years ahead.

(*) Amcor was nominated an All-Weather Performer in FNArena’s eBooklet “Making Risk Your Friend. Finding All-Weather Performers”. Rudi Filapek-Vandyck is the Editor of FNArena, an online newsletter www.fnarena.com.


INTRoDuCTIoN

of the nearly 500,000 SMSFs about 70% of them have individuals as trustees yet most advisers will recommend a corporate trustee.

This article is an attempt to the facts available to readers so that they can consider the most appropriate structure when they set up a SMSF.

SET-uP CoSTS

A fund with individual trustees is less costly to establish as a separate company to act as trustee is not required. While establishing a company is a substantial expense (around $750-1,000), there is no significant ongoing cost as no accounts are required and the ASIC fee is minimal.

If choosing a corporate trustee a separate company should be established for this purpose so that:

• thereisnodisputeastoownershipofthefund’sassets(which may occur if the company is trustee of an entity which owns assets eg a family trust);

• thereisnolikelihoodofthecompanybecomingentangledin legal proceedings where, for example, the company also runs a business; and

• thecompany’sconstitutioncanbetailoredspecificallyto be that as a trustee of a SMSF.

A single member SMSF has the choice of a single or two director corporate trustee or two individual trustees. A corporate trustee will often be preferred as a second individual trustee must be involved in trustee decisions.

GoVERNING RuLES

Both individual trustees and directors of a corporate trustee are required to follow the rules of the trust deed and the superannuation laws. Directors also need to follow the company’s constitution and the Corporations Act 2001.

CHANGES To MEMBERS AND TRuSTEES

In both cases it is relatively easy to change both members and trustees which must be notified to the ATo within 28 days. Changes to directors of a company must be also notified to ASIC within 28 days.

Where assets are held in the name of individual trustees and there is a change in trustees, these details will need to be changed. This may be relatively straightforward where there are only bank accounts and shares which are CHESS sponsored. However, in other cases this may involve considerable work and take some time to action.

Also where there are more than two individual trustees there may be some issues recording all the names as trustees for the assets and an increased likelihood of changes in trustees/members.

Where assets are held in the name of a company as trustee and there is a change in the members in the fund, there is no need to change the name the assets are held in as the trustee does not change (only the names of the directors do).

ADMINISTRATIoN

There are few differences in the administration of a SMSF as the corporate trustee has a few additional tasks, including the need to lodge an annual return with ASIC and pay the lodgement fee (currently $43) and to notify ASIC of changes in trustees and members. It also has to ensure that it adheres with the constitution of the company and the requirements of the trust deed. Whilst individual trustees also have to adhere to the trust deed they have fewer procedural issues to consider as there are more flexible requirements for holding trustee meetings.

PAYING BENEFITS

A SMSF will only receive its concessional taxation status if it is a regulated fund and s19 of the SIS Regs states that in order for a SMSF to be regulated the “trustee must be a constitutional corporation or (the) fund must be a pension fund”.

However, although a SMSF with individual trustees must be established for the sole or primary purpose of paying a pension, it can pay a lump sum if the trust deed allows for this.

LIABILITY oF THE TRuSTEES

If an individual trustee is subject to litigation, personal assets may be exposed if their right of indemnity against the SMSF is not sufficient to discharge the liability. Therefore, where a fund owns real property it is often advisable for the fund to have a corporate trustee. This is often mandatory if the fund borrows to invest in property.

If a corporate trustee is subject to litigation the assets of directors are protected by the limited liability of the company so liability is limited to assets held in the name of the company. This is why it is desirable to have a special purpose SMSF company as trustee as fund assets may be at risk if the corporate trustee is sued for another reason eg business liability.

Jenni eason

SMSF: the pros and Cons of Individual vs Corporate trustees


Summary of the Costs and benefits of Individual vs Corporate trustees

Issue Individual trustees Corporate trustees

Setting up the Fund No additional costs. Cost of trustee company (about $750).

governing rules Trustees need to follow the rules of the trust deed and the superannuation laws.

Directors also need to follow company’s constitution and the Corporations Act 2001.

Changes to Members and trustees

Notify ATo within 28 days of any change to members or trustees. Change name all assets are held in.

Notify ASIC within 28 days of any change to directors and ATo of change in members. No need to change name assets are held in.

administration The fund has fewer reporting obligations – lodging the annual return and paying the supervisory levy. Fewer procedures for calling trustee meetings.

ongoing costs are higher as you also need to lodge an annual return to ASIC and pay the annual review fee. It can be easier to administer the assets of the fund, keep the assets separate and to change members and/or directors.

Paying Benefits The fund’s sole or primary purpose must be to pay old age pensions. Lump sums may be paid if the trust deed allows it.

The fund can pay benefits in the form of a pension or lump sum.

Liability If a claim for damages is levied against the fund and the fund has insufficient assets it will also include the trustees’ personal assets.

Any claim for damages in excess of the fund assets should remain with the corporate trustee - protects personal trustee assets.

Estate Planning Remaining trustee(s) control fund on death. Fund control depends on share ownership which can be arranged independently to create a change of control on death.

Separation of Assets May not always be clear that personal & fund assets are separate especially where trustee status cannot be recorded eg real property.

Clearer that personal and fund assets are separate, particularly when fund invests in real property. May be some confusion if corporate trustee is also trustee of other trusts or holds assets in their own right.

Penalties SIS Act fines and penalties are higher for companies.

Minor (children under 18) Members

Legal personal representative, parent or guardian can act as trustee on behalf of a child (under 18).

Children under 18 cannot be directors but a legal personal representative can act on behalf of the child. Recent retrospective changes to the law (2012) mean that a parent/guardian can act as director on behalf of the child.

ESTATE PLANNING

Where a fund has individual trustees the remaining trustee(s) control the fund on death. This may cause administrative issues if the fund has only one remaining member (a corporate trustee could always be appointed then). In addition, unless the member plans adequately for the distribution of their estate, undesirable outcomes may be more likely1.

A corporate trustee offers more flexibility as fund control depends on share ownership which can be arranged independently to create a change of control on death. Again, adequate estate planning is important to ensure the desired outcome.

SEPARATIoN oF ASSETS

Where assets are held in individual names it may not be clear that the fund actually owns the asset. This is particularly the case for real property assets as the title deeds often do not state that the asset is held in trust.

The use of a sole purpose corporate trustee makes it clear who owns the assets even if there is no reference to the assets being held in trust. However, where a corporate trustee has other functions, the same issue as for individual trustees may also arise.

MINoRS (CHILDREN uNDER 18)

until recently children under 18 could not legally be members of a SMSF where there was a corporate trustee unless they has a legal personal representative appointed by the courts. However, recent (2012) retrospective changes to the law now allow parent/guardian to act as trustee on behalf of the child.

SMSF with individual trustees have always been able to have children under 18 represented by a parent/guardian as trustee.

CHANGING TRuSTEE

It is possible to change from individual trustees to a company trustee (and vice versa), however, it is highly recommended that the trustees engage a reputable professional to do this to ensure that there are no issues eg resettlement of the fund, asset names are correctly changed, etc.

SuMMARY

The table below provides a summary of the main differences between individual and corporate trustees.

In my opinion, individual trustees are usually adequate where there are only two members, there is no intention to introduce other members and the fund does not invest in real property.

A sole purpose SMSF trustee company is preferable where there are more than two members or for sole member funds where there is no person willing to act as a second trustee or the fund invests in real property.

1 The outcome of the Katz v Grossman case is often cited as a reason for having a corporate trustee. However this case (where the father appointed the daughter as trustee on the death of his wife and the daughter appointed her husband on the father’s death and then paid herself the whole superannuation benefit) was more to do with inadequate estate planning ie a non-binding death benefit nomination, rather than the fact of their being individual rather than a corporate trustee.


This is the sixth and final article in the current series on stock valuation. Stock valuation is a topic that could have run for many more than six articles. But it was never my intention to produce a valuation instruction manual. Rather I wanted the articles to simply provoke thought.

In this article I want to discuss which intrinsic value formula you should use. After all, there are so many. Despite their multitude they pretty much fall into two camps. The first group is the big one - those used in attempts to place present values on potential future income streams. In other words what you pay today for a share is determined by what its likely to return in the form of income and capital gain. Intuitively this makes sense. The second group is asset-based valuations. These are more appropriate when a company is winding up its operations. What price will its hard assets fetch on the open market? This article will only deal with the first group. That is, earnings based valuations which assume the ongoing operation of the company.

THE FoRMuLAE

The most popular earnings based intrinsic value formulae are:

• DiscountedDividendValuation

• TheGordonGrowthModel

• MultistageDividendDiscountModels

• FreeCashFlowtotheFirm

• FreeCashFlowtoEquity

• ResidualIncomeValuation

Have a preference? Don’t hol it too strongly. Whilst they sound different they share a common heritage - Pisano’s eight century-old discounted cash flow formula. The cold hard reality is they are all just algebraic variations of each other, which is kind of funny because I’ve heard analysts condemn one whilst heaping praise on another. The only concession I’ll make is they don’t all ask for exactly the same accounting inputs. However, the formulae themselves are mathematically joined at the hip. Their common heritage, the basic Discounted Cash Flow formula, is as follows:

Present value = Cash Flow1 + Cash Flow2 +…+ Cash Flown

(1+r)1 (1+r)2 (1+r)n

where:r = the discount rate.n = the time (usually years) when the cash flow is received.

This formula converts all anticipated cash flows into today’s dollar values. Add them up and you have a singular price representing the present value of the investment. In other words it’s intrinsic value. But this approach presents two big problems. Firstly you don’t know how many future dollars will be delivered. And secondly you don’t know what a future dollar is worth today. The reality is we have no appropriate solution to either problem, which really isn’t so surprising. After all there is no person, either past or present, who has exhibited a capacity for predicting the future.

But as all analysts do let’s ignore the insurmountable and get back to our list of valuation formulae. Running our eye down from top to bottom:

• DiscountedDividendValuation issimplytheage-oldbasic discounted cash flow formula (shown above). It uses future annual dividends as its cash flow input.

• The Gordon Growth Model is merely a simplifiedDiscounted Dividend Valuation formula. It’s based on one massive assumption - dividends will grow at a constant rate forever. Assume that and hey presto! The cumbersome discounted cash flow formula is suddenly transformed into something simple, neat and clean. But alas – even further divorced from reality.

• MultistageDividendDiscountModelsarejustDividendDiscount Models that allow analysts to play around with earnings projections.

• TheFreeCashFlowtotheFirmandtheFreeCashFlowto Equity models are also discount formulae. They only differ in what they discount.

RESIDuAL INCoME VALuATIoN

The sixth and final formula from our list above is the Edwards-Bell-ohlson model commonly referred to as Residual Income Valuation. Some hailed this as the answer to one of the biggest drawbacks of discounting formulae - their sensitivity to changes in the earnings growth and discount rate inputs. Change either of these, even by a small amount, and the intrinsic value can increase or decrease unacceptably. It’s sometimes proposed that the residual income formula overcomes this by having an anchor – one of its principal inputs – the book value. It asks the analyst to view intrinsic value as the sum of two components:

1. The current book value.2. The present value of future residual income.

stOckVaLUatiON

Part ViMichael KempChief Analyst, Barefoot Blueprint

Which Intrinsic value Formula Should you use?


Residual income can best be thought of as the amount of income above what the analyst considers to be an acceptable minimum. (of course future events could easily deliver less than what is acceptable). This acceptable income level can be expressed in terms of a rate of return. This is called the required rate of return or the discount rate. But as it turns out Residual Income Valuation doesn’t really differ from the others.

The tip-off is, that like all the others, it still requires a discount rate. And when you dissect it mathematically – you guessed it – it’s just a reconstituted discounted cash flow formula. In fact so close is the connection it’s possible to convert the basic discounted cash flow model into the Residual Income Valuation formula with just four lines of relatively simple algebra.

Some claim to have developed their own intrinsic value formula. But in each case I’ve found them to either be mathematically flawed or they’re just variations of the same. Presenting a new valuation formula is a bit like putting Brussels sprouts through a food blender and adding your own variety of food colouring. Superficially it might look different but the inescapable truth is you’re still serving up Brussels sprouts.

IT’S NoT THE MATHS WHICH DELIVERS THE ANSWERS

The other game of smoke and mirrors people play is to dial in unnecessary levels of complexity to their formula. Investment great, Ben Graham, warned us repeatedly against falling for this slight of hand. The following quote is typical of how he felt:

“In 44 years of Wall Street experience and study, I have never seen dependable calculations made about common stock values, or related policies,that went beyond simple arithmetic or the most elementary algebra. Whenever calculus is brought in, or higher algebra, you could take it as a warning signal that the operator was trying to substitute theory for experience, and usually also to give speculation the deceptive guise of investment.”

Graham’s wasn’t a lone voice on this matter. Similar sentiments have been voiced repeatedly through the centuries. A couple of financial luminaries who spring to mind are James Medbury (1870) and John Maynard keynes (1936).

So the question still stands. What is important in deriving an intrinsic value? If it’s not the formula it must be what goes into the formula. That is the assumptions, judgments, insight, experience, skill and knowledge of the analyst. Given this inescapable reality I can only see two approaches to the valuation problem.

The first is to develop a deep understanding of the business you are valuing and the dynamics relevant to its operating environment. This will never give you a perfectly clear crystal ball. But hopefully it will provide you with one less foggy than most others are using.

The second approach is to limit your valuations to companies with relatively stable earnings and growth metrics. That way extrapolation of past events might bear some relevance to the future. I’ll give an example. Like all companies Woolworths

will deliver varying earnings growth and profitability metrics over time. But unless management does something stupid it’s unlikely they’ll change abruptly. It’s harder to say this about a Fortescue or a Rio Tinto. I’ll guarantee I can get closer to pinning a future price on a basket of groceries than on the future price of a ton of iron ore.

A case where plugging historical earnings and earnings growth data into a valuation model has proved to be a waste of time is Billabong. Back in 2007 its return on equity was high at around 22 percent. Earnings growth had averaged an impressive 21 percent for the previous four years. Great figures but analysts knew they were unsustainable (particularly the growth figure). So they dialed the metrics down and awarded Billabong a Price/Book Ratio of five times – which gave it a market price of around $14.00 in 2007. How accurate was this valuation?

At the time of writing this article Billabong’s share price is 75 cents. Yesterday it was 63 cents (which means it jumped 8 percent in just one trading day). It all goes to show few analysts or investors have any idea what this thing is really worth. Billabong is definitely not one for the black box valuation brigade. The only way you’re likely to make money owning Billabong is:

1. you’re just a lucky punter or:

2. you possess an insight into the company’s operations that few others do.

The reality is it’s inappropriate to approach every valuation by plugging numbers into a formula or a computer (effectively the same activity). But promoters of computer systems want us to believe you can. Where this excessive focus on mathematics leads is to a detachment from what is fundamental to the exercise –an appreciation of where the business is heading. It’s future profitability. It’s sustainability. It’s competitive advantage. It’s technology-based threats.

Do WE NEED THE FoRMuLAE?

I want to finish with a quote from a presentation Alice Schroeder delivered at the Darden School of Business in 2008. Schroeder is Warren Buffett’s most recent biographer. She was describing what she had learnt of the steps Buffett took when determining business value. In relation to his use of formulae she said:

“In going through hundreds of his files I’ve never seen anything that resembled a model.”

And in describing the analysis he used to back a decision early in his career to invest in Mid-Continent Tab Card Company she said:

“He relied totally on historical figures with no projections. And I saw him do it over and over again.”

No models, no projections and no discounted cash flow - just a determination of profit margins based on historical data. What Schroeder didn’t spell out, but must be implied in Buffett’s activity, is the following. In order to have faith in the investment merit of any business Buffett must possess a conviction that the profit margins he is looking at are sustainable or likely to improve.

And that sort of conviction isn’t delivered by simply using a black box or a valuation formula.

Which Intrinsic value Formula Should you use?


EQUITY provides a platform for members to contribute their comments for the benefits of other members. Comments included here do not necessarily reflect those of all members. Please email your contributions to [email protected]. Thank you to all of our contributors.

to Qbe Insurance for listening to shareholder concern and toughening the Earnings Per Share hurdle on the long term incentive package for new CEo John Neal in an ASX announcement 6 days before the AGM. Late changes or concessions often yield results and the proposal was eventually approved by more than 90% of voted shares.

to proxy advisory firm CgI glass lewis for inviting ASA to participate in two recent remuneration forums in Perth and Melbourne involving a range of key players such as fund managers, company directors and remuneration consultants.

To the successful South Australian engineering firm Korvest (Kov) for inviting their retail shareholders to a catered inspection of its main factory and galvanising plant. Site visits like this should be offered more regularly by bigger companies.

to arrium for reducing the fixed pay of its new CEo Andrew Roberts to $1.4 million, a 33% cut on the $2.1 million in base pay that outgoing CEo Geoff Plummer collected last year despite the enormous pain suffered by shareholders in recent years.

to aSIC for being overly conservative in tackling concerns about high-frequency trading and the ongoing timing and information disadvantage retail investors face when trading in the same markets as global investment banks with their high-powered programs. If retail investors face limits on marketable parcels then those in the HFT space should also have to invest a minimum of $500 when trading.

to arrium (formerly onesteel) for not advising all of their 100,000-plus shareholders of the pre-Christmas decision to change registry provider from Computershare to Boardroom. Perhaps this drive to save money would have been better focused on the generous departure arrangements for the outgoing managing director.

to billabong founder Gordan Merchant who in the space of one year went from declaring he was opposed to any suitor being granted access to the books for due diligence unless the indicative takeover price exceeded $4 a share, to supporting an insider-led takeover bid at just 60c per share. Mr Merchant has indicated he’d rather retain his shareholding in the new vehicle, something he can afford to do after raising close to $200 million selling shares at almost $15 each a few years earlier.

to bank of Queensland for continuing to accommodate a director who has been criticised in Britain for his leadership of HBoS in Australia from 2004 until 2008 when its loan book grew rapidly, with disastrous consequences for uk taxpayers which was forced to bail out the troubled bank.

BOUQUETSBRICKBATS

Policy summary

The AGM mini-season for companies with December 31 balance dates will be in full swing by the time you read

this and we’ll be publishing AGM reports for the likes of Woodside, AMP, Coca Cola Amatil, Santos, Alumina and Rio Tinto in the June and July editions of Equity.

This will also be the last AGM season before ASA adopts a refined set of voting policies on July 1, 2013.

A draft version of the policies will be available on the ASA website by May 1,

with public submissions open until May 31. Monitors, members and public companies alike will all be encouraged to submit.

The board, staff and key monitoring volunteers will then assess the public submissions and settle on the revised policy platform before the end of the financial year.

After that, there will be a national round of monitor training which incorporates any changes to the policies so that our team of hard working volunteers are fully prepared for the main AGM season which commences in late September.

An updated version of the Monitor Manual (not a public document) will also be issued in time for this pre-season winter training.

It is not easy reaching consensus on ASA policies given the diversity of internal views, but it is clear at this point that our positions on director elections will be less

influenced by workload considerations and more focused on performance going forward.

Appointing the right directors to represent them is the most important task for any owners of a business.

Remuneration will continue to be the most hotly debated issue amongst monitors and at public company AGMs, even though we have seen considerable improvements since the two-strikes regime was introduced in 2011.

Whilst there will be some changes of emphasis in the detail, the key goal of achieving genuine alignment between management and shareholders over a performance period of at least four years will remain at the heart of our advocacy on remuneration.

Stephen Mayne is ASA’s policy and engagement coordinator.

STEPHEN MAYNEASA Policy and Engagement Coordinator


MACQUARIE ATLAS ROADS AGM:

QBE INSURANCE AGM:

RAILING AGAINST MACQUARIE BANK’SExCESSIVE $50M PERfORMANCE fEE

PROTESTS OVER fORMER CEO BENEfITSBUT QBE ON TRACK TO MEET 2013 TARGETS

Chairman David Walsh was asked about expansion opportunities but said tolled prices were expensive and finance difficult to obtain.

In 2011 MQA’s operators, Macquarie Bank, derived both a base fee of 2% of MQA’s market capitalisation, and a performance fee of about $50 million, which hugely diminished the total share return (TSR) to unit holders. No performance fee was payable from 2012 but in any year that MQA’s unit price does appreciate both substantively and in excess of the ASX300 index, TSR to unit holders will be hit hard.

The Chairman and other independent directors did not contest the premise that Macquarie Bank’s performance fees levied against MQA are exorbitant, and undertook to raise the matter with Macquarie again, but candidly explained that their negotiating powers were limited in that regard. The ASA Monitor present asked whether MQA might be better placed to terminate its management agreement with Macquarie, and appoint an alternate manager with whom MQA might negotiate a much lower management fee. The Chairman replied that Macquarie’s cessation fee set in that circumstance was prohibitively high. He was then asked whether Macquarie might consider charging a reduced performance fee to remain MQA’s manager, were it to hypothetically face a future choice of either reducing this fee or losing its MQA management rights, should its Remuneration Report be defeated in successive years, so spilling its selected board. He re-iterated the board’s intention to raise this fee issue with Macquarie.

All motions were easily passed, with only the remuneration report attracting a modest 6% protest vote. The ASA voted against the Remuneration Report, and the re-election of all directors excepting James keyes, who has only recently joined MQA’s board, so has been afforded little opportunity to date to represent unit holders interests as an independent director. The remainder of the re-elected directors were advised that the ASA’s open proxies had been directed against them due to their perceived failure as independent directors to assert unit holders’ interests regarding Macquarie’s fees, as opposed to concerns about competence.

MQA’s tollways have collectively performed satisfactorily during the year under review, the value of its assets continues to increase as debt is paid down, and it has just paid a maiden unfranked dividend of 2.4cps from operating cash flow. Revenue rose from $91.9 million in 2011 to $93.5 million in 2012.

This was a relatively well-attended AGM with some strong debate. Shareholders took the Board to task over the company’s performance, the much publicised retirement benefits to Frank o’Halloran, QBE’s former CEo, and the recent hefty cut to QBE’s dividend.

Belinda Hutchinson, leading a contrite Board, explained that the years 2010-12 were challenging for QBE for a number of reasons, namely natural disasters and the poor performance of the North American operations. Nevertheless, because of its international scale and diversity of operations, QBE may be ‘bloody’ but remains ‘unbowed’.

New CEo John Neal continued with the theme that QBE had faced difficult times but confirmed it is on track to meet 2013 targets. This would be achieved through a more cautious approach to acquisitions and restructuring divisional functions.

ASA questioned the extent of the write down in intangibles and whether this will continue in future. The answer was ‘no’. In relation to the reduction in dividend, the Chair explained that a payout ratio of up to 50% of cash profit still compared favourably with QBE’s peers. She said higher retained earnings will help fund expansion and meet the more stringent capital adequacy requirements being imposed by regulators.

The resolutions relating to the retirement benefits for the former CEo attracted a 39% against vote and 34% opposed the final grant of long term incentive (LTI) shares. This was in spite of QBE’s attempt to make the latter more palatable by toughening the EPS hurdle. ASA voted undirected proxies against the former because we generally oppose such retirement allowances but we voted for the latter because it was part of his previous contractual arrangements. At the same time we spoke against the annual resetting of the EPS hurdle that is permitted under QBE’s remuneration policy and voted against the remuneration report partly because of this. For this reason, we also voted against the proposal to award the present CEo long term incentive shares under the same terms. Resolution 5 was effectively a ‘golden hello’ for the new CEo, so we also opposed this issue of shares.

The Chairman acknowledged our broader concerns and advised her opposition to ASA’s preferred mix of fixed to at-risk remuneration of 50/50. She believed QBE’s mix of 30/70 is just right.

The resolutions relating to Board fees and director elections were passed uneventfully and it was good that all candidates spoke to their nomination.

by nICK bury

date 4 April 2013

venue Sheraton on the Park, Sydney

attendees Less than 100

aSa proxies 142,437 shares

value of proxies $215,000

proxies voted Yes, poll on all items

Market cap. $717m

pre-agM meeting No

by JoyCe yong and phIl hoCKIng

date 27 March 2013

venue Wesley Conference Centre, Sydney

attendees Approximately 300

aSa proxies 1.869m shares from 636 holders

value of proxies $25m

proxies voted Yes, poll on all items

Market cap. $16.15 billion

pre-agM meeting Yes, with Chair and Company Secretary


JBHJB HI fI LIMITED

MAY2013

Len Roy Lloyd Phillips Lorraine Graham Peter Tallentire Stephen Weston

Annual ReportInterim ReportsCompany websiteASX releasesCommsec

bIg MeMberS reFerenCeS

thIS report WaS CoMpIled by: len roy and lorraIne grahaM WIth SIgnIFICant Input FroM the perth bIg e group.

THE CoMPANY AND ITS BuSINESS

The Company is a specialty retailer of home entertainment products, focusing on a wide range of consumer electrical/electronic products, sound systems, music, movies and games. At YE 30 June 2012, JBH had 155 stores in Australia plus 13 in NZ, annual revenue of $3.13bn, NPAT $104.6m and total number of employees across the group of 6,600. The growth plan involves opening 16 new JB HiFi branded stores in FY13 and closing 3 sub-scale stores. Longer term the company is targeting 214 JB HiFi branded stores.

At the time of the IPo in october 2003 JBH had approximately 1,000 employees, 26 stores and annual revenue of $355.8m. Initial ASX listing was based on 102,120,000 ordinary fully paid shares with a retail share price of $1.55 per share and market cap of $158m.

The JBH strategy involves

• aninformalandinformativecustomerserviceatmosphere

• leadingbrandsatlowprices

• highvolumeturnover

• lowcostofoperations

• highsalesvaluepersquaremetreofsellingspace

• standalonestoresitesandshoppingcentrelocations

Gross margins have been under pressure from the challenging trading environment including the closure of several competitors who cleared their inventories at reduced prices. Notwithstanding this tough retail trading environment, JBH managed to achieve a 21.1% gross margin YE 30 June 2012 (compared to YE11 of 22.0%).

JBH acknowledges and is pushing ahead with online and digital revenue opportunities. The JB HiFi web sites averaged 927,000 hits per week in FY 2012 and the company has established the JB HiFi NoW mobile apps.

In April 2012, Morgan Stanley reported that JBH was the lowest of six retailers with ‘cost of doing business’ as a percentage of sale. JBH CoDB YE 30 June 2012 was 15.60%.

FINANCIALS

JB Hi Fi has a market capitalisation of $1476m based on the 18 March 2013 share price of $14.92. The current PE ratio is 13.63 and the dividend yield 4.5% fully franked. over the last 52 weeks the share price has traded between $7.83 and $15.65.

total shareholder returns1yr 3yr 5yr16.8% -8.9% 8.0%

debtJBH has a $250m term debt in place with maturity March 2014. In addition, JBH has o/D facilities of AuD55m and NZD10m renewable annually.

IntangiblesIn the YE 30 June 2011 accounts, a pre-tax charge of $33m was shown for restructuring the Clive Anthony business within JB HiFi Ltd. For the YE 30 June 2012 accounts there were not a material change to the overall level of intangibles in the BS. The summary YE June 30 2012 intangibles shown in the table below;

FY2012 FY2011

Goodwill $29.80m $29.65m

Brand Names $43.09m $43.09m

other $5.90m $5.93m

Total Intangibles $78.80m $78.67m

dividend policyPayout ratio 60% of NPAT fully franked.

Summary of Financials for the last five years

Jun-08 Jun-09 Jun-10 Jun-11 Jun-12

Revenues (m) 1828.6 2327.3 2731.3 2959.3 3127.8

operating margin (%) 6.4 6.9 7.3 7.5 6.2

Net Profit (m) 65.1 94.4 118.7 109.7 104.6

Shareholders Equity (m) 163.9 229.3 293.3 152.3 184.5

Return on capital (%) 25 31 38 36 34

Return on Equity (%) 39.7 41.2 40.4 88.2 56.7

Long term debt (m) 123 89.4 34.6 232.6 149.8

Debt/Equity (%) 76 39 23.7 152.7 81.2

Earnings (cents) 60.7 87.6 108.4 123.9 105.9

Dividends (cents) 26 44 66 77 65

Dividend Yield (%) 2.5 2.9 3.5 4.5 7.3

NTA 0.78 1.38 1.93 0.75 1.07

Market Cap (m) 1,108 1,652 2,066 1,682 876


BETTERINVESTINGGROUP

MAJoR SHAREHoLDERS

JBH had 98.9m issued ordinary shares at 30 June 2012 and approximately 50% of the issued ordinary shares were held by nominee entities. Major shareholders include uBS, Macquarie, Westpac, Vinva Investment, NAB, Leg Mason Management, HSBC, CBA and IooF.

BoARD oF DIRECToRS

Mr greg richards (Ind ned Chairman) Appointed NED Dec 2007 & Chairman June 1 2012

Mr terry Smart (Ceo, exec director) Appointed NED July 2000 & CEo/MD May 2010

Mr richard Murray (exec director, CFo) Appointed Director June 21 2012

Mr James King (Ind ned) Appointed NED october 2003

Ms beth laughton (Ind ned) Appointed NED May 2011

Mr gary levin (Ind ned) Appointed NED Nov 2000

Mr richard uechtritz (ned) MD July 2000 to May 2010. Re-joined board as NED April 2011. Also provides consultancy services.

From a governance perspective, it is encouraging to see the current board is made up of four Independent NEDs plus two executive directors. All directors have professional qualifications and relevant business experience. To its credit, the board appears to manage succession planning and gender balance in an orderly manner.

REMuNERATIoN CuLTuRE

NED fees had not changed since oct 2010 and NEDs are not eligible for any incentivised remuneration.

STI’s are a cash bonus with the hurdle being normalised EBIT.

LTI’s are issued in the form of share options with performance hurdle being compound annual EPS growth 10-15% based on normalised results. It would appear there was no benefit to LTI share options granted in 2008, 2009 and 2010 as the performance hurdle was not satisfied. JBH remuneration

policy allows retesting of EPS hurdle as retesting is done against a cumulative EPS figure. LTI EPS performance hurdles were not achieved in FY 30 June 2012.

The fixed and at risk percentages are summarised in the table below;

Ceo KMp

Fixed remuneration 47% 49%

STI 34% 31%

LTI 19% 20%

The 30 June 2012 annual report page 33 provides a comprehensive 5 year relationship of financial performance and remuneration table.

AuDIToR REPoRT

The independent auditor’s report did not contain any qualifications and it was encouraging to see that auditors Deloitte were only engaged in the provision of audit services for YE 30 June 2013 (thus eliminating any perceived conflict of interest where the auditor also provides non audit services).

BuSINESS RISkS

The relatively high Australian dollar, competitor closures (with consequent special discounting of inventories) and consumer confidence are seen as major business risks for JB HiFi. In mitigating these risks, the company is;

• focusingonlatesttechnology,leadingbrandproducts

• highfoottrafficlocations

• upholdinglowest‘costofdoingbusiness’(as%ofsales)in the retail sector

• negotiatesmostcompetitiveglobalcostswithsignificantturnover rebates

• hasinitiatedtheonline/digitalcustomerservices.

In addition to the above, the committee felt a major strength for JB HiFi is the in-depth practical experience of the Australian retail sector by its senior executives. The HY December 2012 financial results were encouraging with revenue and net profit being respectively 2.34% and 3.04% above pcp.

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.

1 year5 year10 year


Standing Proxy is a new option available to those shareholders who do not wish to lodge a proxy for company meetings every time they receive a notice of meeting. It also works as a default proxy in case they forget to lodge.

It is especially useful and convenient for shareholders whose notices of meeting are sent to their accountant or other intermediaries.

The main features of a Standing Proxy to an ASA member are:

1. It gives the ASA an undirected proxy, if not otherwise revoked for the particular meeting.

2. It’s only a default instruction to a company’s registry. The shareholder can still attend the meeting, nominate an alternative proxy, lodge a directed proxy or vote directly for a particular meeting without abrogating their Standing Proxy for future meetings.

there are several advantages to shareholders. Firstly, it removes the hassle of filling in the proxy form and posting it back in time or to log on to the registry’s web site and go through the time consuming and somewhat complex online proxy nomination.

Secondly, being only a standing default instruction to the company’s registry, it allows shareholders the option of doing what they want for a particular company meeting as explained in 2 above.

So how does a shareholder get this done? For every company and shareholding held, the shareholder needs to complete an “Appointment of a Standing Proxy” form and send it to the appropriate registry service. Both Computershare and Link Market Services have their own form which are available on the ASA website. For other registries contact the ASA for an appropriate form.

Shareholders with a large portfolio could partly fill in the form, photocopy it and then on the photocopied forms just insert the SRN/HIN, the company’s name and sign each of them. They may all be sent together to the relevant registry (perhaps in one of their replied-paid envelopes).

Registries do not issue receipts so after a few weeks it may be worth phoning the registry call-centre to confirm all the Standing Proxies are in place.

Shareholders who have lodged Standing Proxies should note that registries are sending out the same AGM package, complete with a proxy form, to all shareholders, whether they have a Standing Proxy or not. This is to allow shareholders to revoke their Standing Proxies for that meeting. Also, it’s easier for them not to differentiate when posting. If the shareholder does not wish to revoke it then they should ignore the proxy form.

unfortunately, smaller registry services and in-house registries don’t yet have a form of their own. The Securities Registrars’ Association of Australia (www.sraa.asn.au) will shortly have a generic form which could be used. In the meantime contact the ASA office for a copy.

We may be moving to a paperless world, but this process cannot yet be done online as registries say the numbers involved do not yet warrant the setting up of the required online software program. online appointment of Standing Proxies will readily facilitate online or email confirmation.

A proxy, including a Standing Proxy, does not preclude the shareholder from attending the company meeting. Shareholders can still attend and sign in as a “Visitor”, although this does not come with rights to ask questions or vote because the voting right remains assigned to the proxy holder. This option may not be available for all meetings.

You can also attend as a “Non-voting Shareholder”, which allows the shareholder to ask questions or make comments, without voting, applicable only when the company allows this option.

Alternatively, you can always revoke the proxy for that meeting only on the day at the AGM.

The Standing Proxy is a relatively new option and therefore the procedure is evolving. We’ll keep members advised of any significant changes affecting us.

Members are welcome to send in any feedback, observations and queries.

aSa proxies are important to retail shareholders because it gives us strength in numbers.

Rather than give the companies cart-blanche, shareholders should carefully consider and review what they endorse. Each proposal and resolution requires investigation and careful consideration, which many shareholders don’t have the means and/or adequate knowledge to carry out. Nowadays institutional and large corporate shareholders use the services of expensive professional proxy advisers to recommend how to vote their shares. For retail shareholders this function is undertaken by the ASA and we receive about $5 billion worth of undirected proxies each year.

Therefore, ASA members and other individual shareholders should support the work of the ASA and its volunteer teams of company monitors to demonstrate this to the corporate world.

Tom Rado is a 20 year ASA member who assists in liaison with share registry and stockbroker queries.

Copies of the Standing Proxy Appointment forms are available from the ASA by calling 02 9411 1505 or 1300 368 448 or from ASA web site – www.asa.asn.au – on the home page, enter “Standing Proxy” in the search box on the top right side; then select the appropriate form.

tom rado

Standing proxies: A hassle free way to ensure ASA can count on your vote

tradingandinvestingexpo.com.auPlatinum Sponsor Association PartnersGold Sponsor

IEX0

005

Knowledge is power when it comes to protecting and growing your wealth.

So don’t miss the leading investor education event in Australia with over40 high powered seminars each day from some of the most successful investment, trading and property experts in the country.

It’s your ticket to smarter investment decisions.

NAVIGATE YOUR WAY TO SMART INVESTMENT DECISIONS

TICKETS $18 AT DOOR OR $15 ONLINE.Workshops from $20 – advance bookings essential.Includes free entry to Home Buyer &Property Investor Show next door.

BRISBANE EXHIBITION CENTRE 1 – 2 June (10am – 5pm daily)


If you are looking for a low-risk way to diversify within your investment portfolio, consider Australian Government bonds, also known as Commonwealth Government Securities (CGS). They will soon be available on the Australian Securities Exchange (ASX).

WHAT ARE AuSTRALIAN GoVERNMENT BoNDS?

Issued by the Commonwealth of Australia, these bonds are highly secure investment products and will give you a predictable cash flow paid on a periodic basis, with a specified maturity date. The Government guarantees the interest paid and that your loan will be repaid in full at maturity.

The bonds will be listed on the ASX as either ‘Exchange-traded Treasury Bonds’ or ‘Exchange-traded Treasury Indexed Bonds’. The difference is that:

a) Exchange-traded Treasury Bonds have a fixed face value (the amount you will get back at maturity) and carry the same annual rate of interest over the life of the security, payable every 6 months; while

b) Exchange-traded Treasury Indexed Bonds have a face value that is adjusted for movements in the Consumer Price Index. Interest is paid quarterly at a fixed rate, on the adjusted face value - so the amount of interest you receive will vary from one quarter to the next.

BENEFITS

Australian Government bonds have several features that may appeal to you. They are low risk – that is, you will always receive the face value of the bond if you hold it until maturity.

You will also receive a regular income, via quarterly or half-yearly interest payments.

These bonds are also easy to buy and sell. You can trade them on the ASX like shares – either through your financial adviser, stockbroker or via an online trading account.

RISkS

There are some risks to consider, in that Exchange-traded Treasury Bonds are affected by inflation (although Exchange-traded Treasury Indexed Bonds are not).

In addition, if you want to sell the bonds before they reach maturity, they will be subject to market value – that is, the price people are prepared to pay – which will vary over time depending on what’s happening in the economy and with interest rates.

FIND ouT MoRE

Try the online courses on the ASX website to learn more about Australian Government bonds and read the information statement on each product. You should also consider getting financial advice if you are not sure if these products are right for you.

The Australian Securities and Investments Commission has amended existing market integrity rules and related guidance to help with the introduction of retail trading of these bonds on the ASX: see www.asic.gov.au for information about the regulatory framework.

For more information about retail trading of Australian Government bonds, see www.moneysmart.gov.au.

australian government bondsRobert Drake, Senior Executive Leader, ASIC’s MoneySmart team


The Australian Shareholders’ Association recognises the importance of engagement with Australian industry and its support for small shareholders and investors. As always, ASA provide shareholders appropriate representation and knowledge based services, while corporate Australia will benefit from engagement with a united and informed shareholder constituency. We would like to acknowledge a few of our key corporate subscribers below and thank them for their involvement and support of the objectives and critical shareholder voice of the ASA within Australia.

aCKnoWledgeMentS

Business card size

Letterhead & comp slip size

A4 Brochures

Larger ®

Small ®

Larger ®


defective ato administrationApplications are regularly made to the ATo, often at a significant cost to taxpayers. The associated professional fees alone can run into the thousands of dollars. Therefore, even if an application is successful, the associated costs can significantly reduce the net proceeds the taxpayer receives.

What few advisers are aware of, however, is that government approved channels exists whereby taxpayers (including SMSFs) may be able to seek compensation from the ATo. This can provide taxpayers with the ability to recover a proportion, if not all, of the professional fees and other costs associated with a successful application.

avaIlable avenueS

The main avenues for compensation are as follows:

· the Scheme for Compensation for Detriment caused by Defective Administration;

· compensation for legal liability (eg, negligence); and

· act of grace payments (administered by the Department of Finance, not the ATo).

praCtICal IMplICatIonS

Although the above is often worthwhile looking into, it will only be available in limited circumstances.

Further, lodging a claim for compensation will typically give rise to further costs (eg, professional fees, etc).

While this is not a popular process, it is definitely something to keep in mind.

Further information can be found at www.dbalawyers.com.au.

For all links to all the latest stories in the media visit ‘ASA in the Media’ at www.asa.asn.au.

MondaQ neWS alertS2 March 2013Australia: Construction and & Infrastructure - What’s new

abC onlIne18 March 2013AA Co’s Darwin abattoir projected to be ‘strong financial performer’

beeF Central18 March 2013Trebeck hits out at two-strike rule after surviving EGM spill

FInanCIal revIeW27 March 2013Protest vote on o’Halloran retirement payout

the auStralIan28 March 2013QBE shareholders attack payout to former chief

the Sydney MornIng herald6 April 2013Mirvac loses finance director Dyer

buSIneSS day9 April 2013PGC sells Aussie investment firm stake

For all links to all the latest stories in the media visit ‘aSa in the Media’ at www.asa.asn.au.

ASA MEDIAExPOSURE


NEWSDESKbrISbane tradIng & InveStIng eXpo 1-2 June 2013

The ASA is pleased to be participating at the Brisbane Trading & Investing Expo to be held at the Brisbane Exhibition and Convention Centre on Saturday 1 and Sunday 2 June. This is a great opportunity for the ASA to promote the benefits of membership and educate shareholders on the process of appointing proxies, and who better to do this than members! We are therefore calling for volunteers to help man the stand, anywhere from two hours to all day if you wish. To register your interest in helping, please contact katrina Meggitt in the office on 1300 368 448 or email [email protected].

gIppSland lunCh

on the tenth anniversary of the Gippsland Regional Group it moved from its usual meeting format to hold a lunch, with Stephen Mayne as the guest speaker. There were 35 in attendance, mostly from the Latrobe Valley Region, with a number of visitors present, including Director, Betty Clarke-Wood, Traralgon being her old home town.

Stephen informed and entertained his audience covering a range of ASA company monitoring issues, even testing out his theory about gender imbalance on boards with those present. He fielded many questions. WIN News team and the Latrobe Valley Express gave good coverage of the event.

This was new Convenor, oliver Raymond’s first meeting since taking up the role following the death of Michael Hall, who held the position since the inception of the group.

Melbourne InveStor ForuM SponSored by FIIg SeCurItIeS

From June 2013 onwards the monthly ASA Melbourne Investor Forums sponsored by FIIG Securities Ltd will change venue from the Telstra Conference Centre to the Melbourne City Conference Centre, 333 Swanston Street, Melbourne. Located on the corner of Little Lonsdale Street and Swanston Street the venue remains easily accessible. Melbourne Investor Forums will continue to meet on the first Wednesday of each month from 12 midday. Refer to the calendar of events in both Equity and the ASA website www.asa.asn.au for further details.

aSa MeMber FeeS

As noted in the Chair Report on page 3, effective 1 July 2013 ASA membership fees will increase from $115 to $120 for Green members and from $125 to $140 for Classic members. If your renewal is coming up please be sure to renew before 30 June to take advantage of the current fees.

Ian Curry vISItS taSManIa

ASA Chairman Ian Curry travelled to Tasmania in March to present to the Launceston group of the Association of Independent Retirees. This is their largest regional group and approximately 140 attended the meeting. Whilst in Tasmania Ian took the opportunity to meet with ASA members in both Hobart and Launceston.

your eMaIl addreSS

Have you given us your email address? If not then we encourage you to do so as email is the most effective and efficient way for us to communicate with our members. If you have one and you have not received an email from us in a while then please email us your details to [email protected].

Stephen Mayne with Oliver Raymond


barry nunnWA Committee ChairWa branch report

TRADING & INVESTING EXPo MARCH 23TH, 24TH

ASA were represented at this year’s EXPo in Perth with our booth manned by an enthusiastic team of volunteers. We found it beneficial to have both a male female presence to reflect the ASA’s broad membership.

The furniture, brochures, pamphlets and books organised by the National operations and charts by WA arrived in good time, leaving the volunteers to create an impressive and artistic display.

The ASA expo booth

The Expo had competition from the first AFL game in Perth, a derby between the Eagles and Dockers - a major event in Perth. Then the annual bike ride for cancer with 20,000 participants caused the closure of some major city roads on the Sunday morning. A further complication was the Fremantle Blues & Roots Festival which drew a crowd of 35,000 over the week-end.

In spite of this and attendance down a little, the weekend was a great success. Visitors were really interested in the ASA is and the benefits that could be gained through membership. Although we had hoped for a greater take up, we signed up nine new members. The adopted theme of ‘give us your proxy’ stimulated real interest. While reluctant to commit on the day, many may well follow up through our invitation to attend meetings and use the ASA as their proxy. Many were impressed we would represent them even when they were not members.

We came away from the EXPo with ideas for new initiatives to encourage membership and to meet the needs of existing members.

BETTER INVESTMENT GRouPS

Better Investment Groups (BIGs) continued to operate in the greater Perth area. Activities varied from an intensive study of a single company to broader analysis of trends in the market and the performance of a range of enterprises. BIG Reports continue to be published in ‘Equity.’

The Perth Better Investing Group in action

MoNIToR TRAINING

The new monitoring season has kicked off with two locally planned and delivered training sessions arranged for March and April. A further session has been arranged by John Campbell for a senior HR and Compensation executive from Wesfarmers to address our group on some of the theories and practicalities involved in the design of remuneration packages for executives in his company.

The two locally produced sessions cover a mix of financial matters, including impairment of intangibles, together with some procedural issues, such as the calling of a poll where the proxy vote reflects a vote against of close to 25%. We will also look at examples from last year where our vote was a little at odds with other proxy advisers, and seek to learn why this might have happened.

our training group of approximately 25 includes some new attendees who have been invited to come along on a “no obligation” basis so that they can see at first hand what’s involved in the monitoring business as well as extend their knowledge of company performance analysis. We always hope, of course, that they may be sufficiently enthused to join us on a more permanent basis, but, if not, then at least they will be more aware of what we do.

ASA educator Geoff Sherwin presenting the Perth Monitor Training

HIGH FREQuENCY AND ‘DARk PooLS’ TRADING

our ‘South of the River’ group has initiated a study of the impact of High Frequency and Dark Pools Trading (HFT & DPT) in the market. Their paper on the subject has been reviewed by the ASA Board and has been endorsed as a major contribution to the necessary debate on the subject that the ASA has begun with, in particular, ASIC.

Major findings from the work of this group included:• HFTcircumvents tradingcostsapplicable to retail

investors through special arrangements with ASX and brokers. Retail investors are required to limit orders to marketable parcels whereas HFT traders appear to have no such restriction.

• Someofthelargerinvestorscanobtainmarketsensitiveannouncements before ordinary investors who are limited to reading it on the ASX website.

• TheASXChairmanreportedthatrevenuefromtechnicalservices (euphemism for computers belonging to others located next to ASX computers on rented space) now exceeds revenue received from equities trading.

• TheabilityofHFTtraderstoplaceandpulltradeswithinmicroseconds because of the use of trading algorithms giving them the ability to “read” other market placements before these even reach the market and thus providing the opportunity to act before others.

• Retailshareholderscanfacefull tradecommissionstriggered by an HFT trader probing the market with minute parcels.

• Pre-openingandpost-closetradingtakesplaceandisnot accessible to retail shareholders.

INVESToR FoRuM SPoNSoRED BY FIIG SECuRITIES LTD

The Perth Investor Forum is now back in its ‘historical’ home at the WA State Library Theatre and is attracting both members and an increasing number of other attendees. An invitation to Association of Independent Retirees (AIR) members to attend has been taken up with enthusiasm.

NOT ALL INVESTORS ARE CREATED EQUALPresented by Elio D’Amato, Lincoln Indicators

More details can be found on the aSa website www.asa.asn.au in the eventS section or call the office on 1300 368 448

DIARISE THESE DATES!brISbane Monday, 15 July 2013 Melbourne Saturday, 20 July 2013adelaIde Monday, 22 July 2013perth Tuesday, 23 July 2013Sydney Saturday, 27 July 2013Canberra Monday, 29 July 2013

There is often a common misconception that there is only one way to invest in shares. The reality is that to build a successful investment strategy the most important criteria you should be focused on are your personal goals. Elio D’Amato will highlight the various benchmarks you need to apply to your stock selection process no matter what style of investor you are. He will show you where to look when attempting to identify a portfolio that never fails to deliver on your expectations.

elIo d’aMato

Elio D’Amato is Lincoln’s Chief Executive officer responsible for driving the strategic direction and positioning of Lincoln’s business. As Lincoln’s primary educator, Elio regularly presents at investment industry, advocacy and adviser events around Australia, including FINSIA

(Financial Services Institute of Australasia) and a number of dealer groups that are existing clients. He also contributes his insights to the field of academic studies assisting with curriculum development for educational institutions.

INVESTOR EDUCATIONHALf DAY WORKSHOPS


location date time venue Speaker topic

ASA Events

AuSTRALIAN CAPITAL TERRIToRY

Weston 14-May-13 12.30pm Weston Club, 1 Liardet Street, Weston

Southside & Northside Discussion Groups combined

National Conference & Telecommunications stocks

Canberra 22-May-13 9.00 - 5.00pm

Ainslie Football Club, Wakefield Avenue, Ainslie

Colin Nicholson Stock selection masterclass

Weston 04-Jun-13 12.30pm Weston Club, 1 Liardet Street, Weston

Southside Discussion Group

High frequency trading and more

Lyneham 12-Jun-13 12.30pm Ainslie Football Club, Wakefield Avenue, Ainslie

Northside Discussion Group

General investment related topics

NEW SouTH WALES

Bondi Junction 07-May-13 10.30am Meeting Room 1, Mill Hill Centre, 31-33 Spring St, Bondi Junction

Bondi Discussion Group

Investment topics

Sydney 09-May-13 9.00 - 1.30pm

Sheraton on the Park, 161 Elizabeth Street, Sydney

John Abernethy, Clime Masterclass in portfolio construction

Port Macquarie 10-May-13 10.00am Senior Citizens Centre, Munster Street, Port Macquarie

Rob Bradfod, ASA Introduction to technical analysis

Sydney - North Shore

17-May-13 10.00am killara uniting Church Hall, 9 karranga Avenue, killara

Sydney North Shore Discussion Group


Sydney Investor Forum sponsored by FIIG Securities

21-May-13 12.00 midday

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

Elizabeth Moran, FIIG Securities

Diversify your portfolio - include bonds in your asset allocation

Newcastle 27-May-13 10.45am Club Macquarie, 458 Lake Road, Argenton

Robert Snell, ATo SMSFs and tax issues for shareholders

Bondi Junction 04-Jun-13 10.30am Meeting Room 1, Mill Hill Centre, 31-33 Spring St, Bondi Junction

Bondi Discussion Group

Investment topics

QuEENSLAND

Brisbane Investor Forum sponsored by FIIG Securities

08-May-13 11.00am The Melbourne Hotel, The 12 Function Room, 10 Browning Street, West End

Brisbane Investor Forum

Investment related topics

Gold Coast 14-May-13 9.30am Robina Community Centre 196 Robina Town Centre Drive, corner San Antonio Court, Robina

Gold Coast Discussion Group

Tax strategies for investors

Bayside Cleveland

20-May-13 7.00pm Donald Simpson Centre, Cleveland Bayside Discussion Group

Invesment related topics

Brisbane Trading & Investing Expo

1-2 Jun 13 10.00-5.00pm

Brisbane Exhibition & Convention Centre



Gold Coast 11-Jun-13 9.30am Robina Community Centre 196 Robina Town Centre Drive, corner San Antonio Court, Robina

Led by Chris kelly, ASA

ASA theoretical share portfolio

SouTH AuSTRALIA

Adelaide Discussion Group

01-May-13 10.30am university of Adelaide Club, North Terrace, Adelaide

Pat Doyle, ASA member

Current share market developments


08-May-13 10.30am university of Adelaide Club, North Terrace, Adelaide

keith Potts, ASA member

Resource related topics

Adelaide General Meeting

15-May-13 11.30am Scots Church Hall, Corner Pulteney Street & North Terrace, Adelaide

Chaired by kevin Parken, ASA

General Meeting

Adelaide Investor Forum sponsored by FIIG Securities


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

Will Rayner, Bendigo and Adelaide Bank

Banks in SA


05-Jun-13 10.30am university of Adelaide Club, North Terrace, Adelaide

Pat Doyle, ASA member

Current share market developments


12-Jun-13 10.30am university of Adelaide Club, North Terrace, Adelaide

keith Potts, ASA member

Resource related topics


visit www.australianshareholders.com.au for all the latestlocation date time venue Speaker topic

VICToRIA

Melbourne Investor Forum sponsored by FIIG Securities

01-May-13 12.00pm 242 Telstra Conference Centre, 242 Exhibition Street, Melbourne

Dean Paatsch, ownership Matters

ownership matters and Matters of ownership

Gippsland 08-May-13 11.00am Westpac Bank, Corner of Hotham and Franklin Street, Traralgon

Glenn Luckie, ASA Self managed super funds

Ballarat 08-May-13 7.30pm Eastwood Leisure Complex, 20 Eastwood Street, Ballarat

Ballarat Discussion Group

Investment related issues

kingston 09-May-13 10.30am Longbeach Place, 1 5 Chelsea Road, Chelsea

kingston Discussion Group

Listed investment companies and ETFs

Manningham 14-May-13 10.00am koonarra Hall, 7 Balwyn Road, Bulleen

Manningham Discussion Group

The banking system in Australia

Geelong 14-May-13 1.00pm The Elephant & Castle Hotel, 158 Mckillop Street, Geelong

Geelong Day Discussion Group


Bendigo 15-May-13 10.00am Bendigo & Adelaide Bank, Bendigo Bank Centre

Len Holland & Marnie Baker, Bendigo Bank

Bendigo Bank Site Visit

Mornington 16-May-13 10.00am Tanti Hotel, 971 Nepean Hwy, Mornington

Mornington Peninsula Group

General investments topics

Melbourne Evening Meeting

16-May-13 6.00pm Rising Sun Hotel, Cnr Raglan St & Eastern Rd , South Melbourne

Chris Hellman, Australian Crime Commission (ACC).

How to protect yourself against serious and organised investment fraud

Monash 21-May-13 10.00am Monash Public Library, Cnr Jells Rd & Ferntree Gully Rd, Wheelers Hill

Don Hyatt, ASA Victorian Chairman

Company monitoring and the ASA

Albury-Wodonga 28-May-13 10.00am Commercial Club, 618 Dean Street, Albury

Campbell Simpson, RSM Bird Cameron & Don Hyatt, ASA

“Record keeping & the Budget; ASA leading the way”

Melbourne Investor Forum sponsored by FIIG Securities

05-Jun-13 12.00pm Melbourne City Conference Centre, 333 Swanstan Street, Melbourne

Melbourne Investor Forum

General investment topics

WESTERN AuSTRALIA

Perth Members Monthly Meeting

07-May-13 10.30am State Library Building, Francis Street Entrance, Perth

Peter Harold, Panoramic Resources Pty Ltd

An update on what PAN has been doing in a period of low nickel prices

Perth Investor Forum sponsored by FIIG Securities


State Library Building, Francis Street Entrance, Perth

Paul Zwi, Clime Asset Management

A top down overview for value share investors

Perth North of the River Group

14-May-13 9.30am Paddington Ale House, 141 Scarborough Beach Road, Mt Hawthorn

Discussion group led by Barrie Baker, ASA


Perth Investors’ Corner

16-May-13 10.00am 1F, Citiplace Community Centre, City Station Complex, Wellington St, Perth

Discussion group led by Lloyd Phillips and Lorraine Graham, ASA

A different investment related topic each month

Perth South of the River Group

24-May-13 10.00am Canning River Eco Education Centre, Cnr kent & Queens Park Rd, Wilson

Discussion group led by Gerry Pauley, ASA

Company analysis & General discussion

Mandurah 28-May-13 10.00am Lady Brand Meeting Room, Avis Way, Mandurah

Discussion Group led by Clive Newland, ASA


Busselton 29-May-13 9.30am The Goose Restaurant, Geographe Bay Rd, Busselton

Discussion group led by ASA member Bernie Masters


Perth Members Monthly Meeting

04-Jun-13 10.30am State Library Building, Francis Street Entrance, Perth

Peter Nicol & Aveley McCann, Bird Cameron

How the Federal Budget will affect you

Perth Investor Forum sponsored by FIIG Securities

04-Jun-13 12.00 midday

State Library Building, Francis Street Entrance, Perth

Paul Gray, FIIG Securities

Diversify your portfolio – Include bonds in your asset allocation

Perth North of the River Group

11-Jun-13 9.30am Paddington Ale House, 141 Scarborough Beach Road, Mt Hawthorn

Discussion group led by Barrie Baker, ASA


Achieve higher returns than term deposits

Term Deposit returns too low? Share market volatility a concern?There is an alternative. Listed interest rate securities can provide an effective income stream.

Ord Minnett clients benefit from our deep understanding of the market in these securities, our access to new issues and the advantages they can provide to investors. In 2012, we have successfully advised on several new security issues for leading Australian blue-chip companies.

If you’re looking for higher rates, have sold a property or have moved out of shares for the time being, interest rate securities could be the ideal place to invest your funds while you plan your next move.

Discover the opportunities in this market and how you can achieve returns higher than term deposits.

Contact Ord Minnett today for further information.

1800 221 697

[email protected]

ords.com.au

Ord Minnett is the trading brand of Ord Minnett Limited ABN 86 002 733 048, holder of AFS Licence Number 237121, and an ASX Market Participant. This advertisement is intended to provide general securities advice only, and has been prepared without taking account of your objectives, financial situation or needs. An investment in a hybrid or listed interest rate securities is not equivalent to a deposit in a bank, and there is a risk that investors could lose some or all of their investment capital. Past performance is no guarantee of future performance and you should speak to an Ord Minnett adviser before making a decision to invest. A

005_

ASA

mag

azin

e_04

13

Date post:	30-Apr-2018
Category:	Documents
Upload:	nguyenkhue
View:	226 times
Download:	1 times

EQUITY - Australian Shareholders' Association · GOVERNMENT BONDS deFeCtIve ato ... No...

Documents